PWR Holdings Limited Annual Report 2023

Plain-text annual report

PWR Holdings Limited and its controlled entities ACN:105 326 850 RESULTS FOR ANNOUNCEMENT TO THE MARKET APPENDIX 4E For the period ended 30 June 2023 PWR Holdings Limited | Appendix 4E for the period ended 30 June 2023 1 Appendix 4E Preliminary Final Report Name of Entity: ABN: PWR Holdings Limited 85 105 326 850 1. Reporting Period Reporting Period: Previous Reporting Period Year ended 30 June 2023 (“current period”) Year ended 30 June 2022 (“previous corresponding period”) 2. Results for Announcement to the Market Revenues from ordinary activities Profit / (Loss) from ordinary activities after tax attributed to members Net profit / (loss) for the period attributed to members A$’000 Up 17.1% to 118,326 Up Up 4.4% 4.4% to to 21,752 21,752 Dividends (distributions) Amount per security Franked amount per security Current period Interim dividend Final dividend Previous corresponding period Interim dividend Final dividend 3.60 cents 8.90 cents 3.50 cents 8.50 cents 100% 100% 100% 100% Record date for determining entitlements to the final dividend 15 September 2023 Brief explanation of revenue, net profit and dividends (results commentary) Revenue of the Group for the year ended 30 June 2023 was $118.3 million (2022: $101.1 million), an increase of 17.1% which is a positive result with growth across all key markets and geographies. The statutory net profit after tax of the Group for the year ended 30 June 2023 was $21.8 million (2022: $20.8 million). EBITDA(i) for the year ended 30 June 2023 was $39.1 million (2022: $35.7 million) and EBITDA(i) margins were 33.0% (2022: 35.4%). Conversion of EBITDA(i) to cash has increased to 86% (2022: 66%) as inventory holdings of raw materials have commenced returning to historical levels now that the global supply challenges are subsiding. Subsequent to the end of the reporting period, for the year ending 30 June 2023, the directors have declared a fully franked Final 2023 dividend of 8.90 cents per share to be paid on 22 September 2023 resulting in a total distribution of $8.9 million based on the number of ordinary shares currently on issue. (i) 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. 3. Net Tangible assets per security Current period Net tangible assets per security $0.72 Previous corresponding period $0.61 PWR Holdings Limited | Appendix 4E for the period ended 30 June 2023 2 4. Details of entities over which control has been gained or lost during the period Control gained over entities Name of entities Date(s) from which control was gained Contribution to consolidated profit/(loss) from ordinary activities after tax by the controlled entities since the date(s) in the current period on which control was acquired. Profit/(loss) from ordinary activities after tax of the controlled entities for the whole of the previous corresponding period. Loss of control of entities business and assets of Docking Engineering 19 August 2022 $160,000 business and assets of Bespoke Motorsport Radiators 30 January 2023 $15,000 $184,000 $275,000 Name of entities Date(s) from which control was lost Contribution to consolidated profit/(loss) from ordinary activities after tax by the controlled entities to the date(s) in the current period when control was lost. Profit/(loss) from ordinary activities after tax of the controlled entities for the whole of the previous corresponding period. Nil N/A N/A N/A 5. Dividend reinvestment plan Details of any dividend reinvestment plans in operation N/A The last date for the receipt of an election notice for participation in any dividend or distribution reinvestment plan N/A 6. Details of Associates and Joint Ventures: Name of associate or joint venture entity Current period Nil Nil Previous corresponding period Nil Percentage holding 7. For foreign entities, details of origin of accounting standards used in compiling the report (e.g. International Financial Reporting Standards) N/A 8. Description of dispute or qualification if the accounts have been audited or subject to review N/A This report is based on accounts that have been subject to audit by KPMG. Kees Weel Managing Director Dated this 17th day of August 2023 PWR Holdings Limited | Appendix 4E for the period ended 30 June 2023 3 ADVANCED COOLING TECHNOLOGY Contents Year in Review ...................................................................2 2023 Highlights ...................................................................................2 Message from the Chairman ........................................................6 Message from the Managing Director ....................................7 Operating and Financial Review ................................................9 Our Value Creation Framework ................................14 Our Value Creating Strategy .......................................................16 Our Sustainability Framework, Pillars and Material Sustainability Priorities ...................................................................18 Our Relationships and Resources ...........................................29 Our People ...........................................................................................35 Our Emerging Technology and New Industries ............ 46 Intellectual Capital .........................................................................50 Our Corporate Governance and Risk Management ... 54 Leadership ...................................................................... 62 Directors and Executives .............................................................62 Directors’ Report ..........................................................66 Directors’ Report ............................................................................. 66 Lead Auditors Independence Declaration Under Section 307C of the Corporations Act 2001 .................... 70 Remuneration Report .....................................................................71 Financial Statements .................................................. 90 Consolidated Statement of Profit or Loss and Other Comprehensive Income ..............................................................90 Consolidated Statement of Financial Position ..................91 Consolidated Statement of Changes in Equity ...............92 Consolidated Statement of Cash Flows ..............................93 Notes to the Consolidated Financial Statements ...........94 Directors’ Declaration ..................................................................128 Independent Auditor’s Report to the Members of PWR Holdings Limited ..........................................................129 Additional Information.............................................. 133 ASX Additional Information ......................................................133 Corporate Directory .....................................................................135 About this Report PWR’s 2023 Annual Report presents an integrated view of PWR’s social, environmental, operating and financial performance for the year ended 30 June 2023. The report describes how we create value through our business activities, focusing on what matters most to our many stakeholders and our business. It covers our performance and our future plans to address the challenges that come with growth as well as the challenges of a changing climate and the part we play in addressing this challenge. This Annual Report is provided for the benefit of all PWR’s stakeholders. Corporate Governance Statement PWR’s Corporate Governance Statement discloses the extent to which PWR has complied with the ASX Corporate Governance Council’s Corporate Governance Principles & Recommendations (4th edition). This Statement is available at www.pwr.com.au/investors/ corporate-governance About PWR PWR Holdings Limited (ABN 85 105 326 850) (PWR) is a company limited by shares, is incorporated and domiciled in Australia and is listed on the Australian Stock Exchange (ASX:PWH). PWR is the parent company of the PWR consolidated group of companies. Unless otherwise stated in this report, all references to PWR, the Group, the Company, we, us and our, refer to PWR Holdings Limited and its controlled entities as a whole. References to 2023, the financial year or FY are to the year ended 30 June 2023 unless stated otherwise. All dollar figures are expressed in Australian currency unless otherwise stated. An electronic version of this report is available at www.pwr.com.au/investors/reports. In consideration of the environmental footprint associated with the production of the Annual Report, printed copies of the Annual Report will be posted only to shareholders who have requested a printed copy. Annual General Meeting Friday, 27 October 2023 at PWR’s manufacturing facility at Ormeau, Queensland. About us I W E V E R N I R A E Y PWR is a global designer, manufacturer and supplier of technically advanced high performance cooling solutions. We invest 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 great relationships and technical partnerships. Annual Report 2023 1 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Year in Review 2023 Highlights 2 PWR Holdings Limited Revenue $118.3m 17.1% I W E V E R N I R A E Y EBITDA1 $39.1m NPAT $21.8m EPS 21.67c DPS 12.5c 9.2% 4.4% 4.2% 4.2% EBITDA to Operating Cash Conversion Ratio 86% 20% 1 Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) is a non-IFRS term which has not been subject to audit or review but has been determined using information presented in the annual financial report Annual Report 2023 3 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Year in Review Financial Highlights continued Revenue (A$ million) EBITDA (A$ million) 118.3 17.9% CAGR1 101.1 79.2 65.4 65.7 51.9 120 100 80 60 40 20 0 39.1 35.7 19.0% CAGR1 29.0 23.4 21.8 16.3 40 35 30 25 20 15 10 5 0 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 NPAT (A$ million) Dividend per Share (cents) 21.8 20.8 14.6% CAGR1 16.8 14.2 13.0 11.0 25 20 15 10 5 0 11.5 12.5 12.0 7.3 8.8 5.9 11.4% CAGR1 15 12 9 6 3 0 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 1 Compound Annual Growth Rate over 5 years 4 PWR Holdings Limited Value Adding Strategy I W E V E R N I R A E Y GROWTH PROFITABILITY EXCELLENCE Opened our new greenfield manufacturing site in Rugby, UK which is now fully operational and employs over 30 people $15 million Invested in new equipment $2 million Invested in strategic acquisitions 4.4% increase in NPAT 100% Manufacturing done in house 14.6% Compound annual growth rate in NPAT since FY2018 14.5% Compound annual growth rate in earnings per share since FY2018 Installed Automatic Stackers in the Australian and North American manufacturing sites to improve efficiency Undertook a mapping exercise to identify material topics and ESG pillars and developed an ESG roadmap to shape our sustainability reporting Meaningful Relationships CUSTOMERS SHAREHOLDERS OUR PEOPLE 3,782 Customers supplied with products (2022: 3,410) Key supplier to Formula One teams 5,481 Shareholders Total Shareholder Return over the last 3 years of 103% Fully Franked Dividend per Share 12.5c (increased by 4.2%) 511 Passionate people (increased by 13%) Employee Engagement Score 75% 89% of Employees who responded to our Employee Survey feel “Proud to Work at PWR” Added Aerospace and Defence skills to the Board with the appointment of Kym Osley AM, CSC Annual Report 2023 5 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Message from the Chairman Growth | Profitability | Excellence learning and development. We also invested a record amount of $15 million in leading edge technology and equipment to support our business and $2 million to acquire businesses in the United Kingdom to establish a European manufacturing base. One of our greatest achievements since our last AGM is the development of our new greenfield manufacturing site in Rugby, United Kingdom, which commenced operating in February 2023 and now employs over 30 people. The Board recognises that what has been achieved in FY2023 would not have been possible without the extraordinary efforts from the entire PWR team and the Board is deeply grateful to each and every member of the PWR team for the way they have focused on our customers to deliver innovative and high-quality products, using our advanced technology while also looking after their team mates and living and breathing the PWR DNA. As previously announced, I will not seek reelection at the forthcoming Annual General Meeting. It has been both a privilege and a pleasure to serve on the PWR Board for the past 8 years, working with my Board colleagues and the management team to guide this impressive organisation over this pivotal period. It has been an amazing and deeply satisfying journey of which I am very proud to have been a part of. Your new Chairman, Roland Dane, who has unanimous support of the Board, has substantial Board, leadership, operational and financial experience and has been a Board member since March 2017. Roland will take over as Chairman at the conclusion of the 2023 Annual General Meeting. Thank you to all of the people at PWR who have worked with passion and drive to deliver significant and transformative growth since PWR’s listing on the ASX. Thank you to my Board colleagues who have brought their individual experience and expertise that has resulted in strong contributions and collective decision making. Particular thanks to Kees who with the then Chairman, invited me on this journey; Jeff who has been there since listing and Roland who joined soon after. We have worked hard together over a long period, striving to deliver the best results for shareholders; having robust conversations when we needed to but always with a collaborative spirit and with the clear objective of continuously moving this special company towards achieving its potential. I thank Kees and all shareholders for your support and for the opportunity to serve you as a Director since 2015 and as Chairman since 2017. I wish Kees, the Board and PWR the very best for what I believe to be a very bright future. Teresa Handicott, Chairman I am delighted to present to you PWR’s 2023 annual report on what has been another record year for PWR. PWR again delivered a record result in the 2023 financial year, with NPAT of $21.8 million up 4.4% on the prior period (2022: $20.8 million). The Group continued to deliver on its growth objective through implementation of its ongoing capital investment and research and development programs while still producing a strong return on equity at 25% (2022: 27%). Cash flows continued to be impacted by the decision in FY2022 to increase inventories of raw materials in response to global supply chain challenges, including the impact of the war in Ukraine on global aluminium supplies. Now that these global challenges are subsiding, we have commenced reducing raw material inventory holdings to historical levels, increasing the EBTIDA to operating cash conversion ratio to 86% (2022: 66%). The Group retained a strong cash balance at 30 June 2023 of $17.6 million (2022: $21.5 million) and remains debt free, with access to its $10 million multicurrency and $7.5 million equipment finance facilities to support future operational requirements, if required. Considering these results and balance sheet position, the Board has declared a fully franked final dividend of 8.90 cents per share, taking the full year dividend to 12.50 cents per share, an increase of 4.2% on last year’s full year dividend (2022: 12.00 cents per share). During the year, we continued to invest in our people and their development with the establishment of a dedicated production training function which has as its vision to develop a PWR Academy for job related 6 PWR Holdings Limited Teresa Handicott Chairman Message from the Managing Director Strong performance I W E V E R N I R A E Y PWR has performed strongly during the 2023 financial year, delivering solid revenue and profit growth across all major market sectors. PWR North America is well placed to further develop these market sectors, supported by the opening of the PWR North America Aerospace and Defence Machining Centre in October 2022. Additional equipment, including vacuum brazing and heat treatment furnaces is currently being installed at the new machining centre to further expand capacity and capability. “ONE PWR” and Global Capacity Planning PWR has three (3) manufacturing hubs able to service customers globally. We invest in common equipment makes and specifications across all locations enabling global capacity planning to meet customer demand and improve efficiency. Centres of Excellence 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 collectively focus 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. Annual Report 2023 7 Kees Weel, Founder and Managing Director We have maintained a strong balance sheet and are well prepared to deliver on opportunities in the next few years. PWR Europe The PWR team made great progress with its growth strategy with the acquisition of Docking Engineering in August 2022, the acquisition of Bespoke Motorsport Radiators in January 2023 and the development of a state-of-the-art manufacturing facility for PWR Europe located in Rugby in the United Kingdom (UK). This facility has over 3,160 square meters of manufacturing space and we now employ over 30 employees. Over time we plan to increase UK manufacturing to support European motorsports, automotive OEM (Original Equipment Manufacturers) and the automotive aftermarket. PWR Australia PWR Performance Products continues to supply most global motorsport categories with cooling technology. In FY2023 the supply of cooling technology to automotive OEMs and the supply of emerging technologies to existing and new customer markets have been significant growth drivers. PWR Performance Products continues to be PWR’s research and development centre of excellence. PWR North America PWR North America (also known as PWR C&R, and C&R Racing, Incorporated), has successfully delivered automotive OEM products, aerospace and defence programs and solid growth in the automotive aftermarket. YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP During FY2023, the 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, electric and hybrid vehicle and alternative energy sectors. The Future Visibility of our growth potential for the next five to ten years is now better than ever which allows us to invest with confidence. To support growth in FY2023, PWR increased the headcount from 451 to 511. PWR expects continued growth in FY2024 and beyond and expects to further increase 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 FY2024 another record year on all fronts. Kees Weel Founder & Managing Director 8 PWR Holdings Limited CFO Report on FY2023 Performance Operating and Financial Review I W E V E R N I R A E Y PWR continues to invest for the future. FY2023 performance was strong and we have invested in people, research and development, facilities, systems and equipment to support future performance. Martin McIver, Chief Financial Officer Summary of financial results Revenue EBITDA1 EBITDA1 margin Net profit after tax (NPAT) Operating cash flow (excluding interest and tax) Basic and diluted earnings per share 2023 A$’000 2022 A$’000 Change % 118,326 101,072 39,051 33.0% 21,752 33,399 35,747 35.4% 20,843 23,522 21.67 cents 20.79 cents 17.1% 9.2% 4.4% 42.0% 4.2% 1. Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) is a non-IFRS term which has not been subject to audit or review but has been determined using information presented in the annual financial report EBITDA1 Reconciliation A reconciliation of EBITDA1 to the reported profit before tax in the consolidated statement of profit or loss and other comprehensive income is as follows: Profit for the period before tax Add : net finance costs / (income) Add : depreciation & amortisation EBITDA1 2023 A$’000 2022 A$’000 30,243 28,492 333 8,475 39,051 30 7,225 35,747 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 Annual Report 2023 9 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP CFO Report on FY2023 Performance Operating and Financial Review continued Revenue The Group achieved overall revenue growth of 17.1% compared to the prior corresponding period. Sales revenue increased by 16.0% plus favourable exchange rate movements of 1.1%. The above growth was primarily driven by third party sales out of the United Kingdom, Australia, and the United States of America, where sales grew 17.6%, 16.7% and 8.9% respectively. Exchange rates at 30 June 2023 saw the GBP being 7.6% stronger and the US dollar being 3.9% stronger compared to the prior period. Average rates during the financial year saw the GBP 2.5% weaker and the US dollar 7.2% stronger than the prior period. The net impact of exchange rate movements had a favourable impact on revenue for the year of $1.06 million (2022: $1.46 million). Revenue by Customer Market 2023 Ad- vanced Cooling $'000 Emerging Tech- nologies1 $'000 Total $'000 2022 Growth Ad- vanced Cooling $'000 Emerging Tech- nologies1 $'000 % Total $'000 % $'000 % Motorsports 55,026 7,230 62,256 52% 47,476 7,809 55,285 55% 6,971 Automotive OEM 21,935 3,704 25,639 22% 18,007 3,462 21,469 Automotive Aftermarket 17,796 3 17,799 15% 15,485 360 15,845 21% 16% 4,170 1,954 Aerospace & Defence – 10,533 10,533 Other 1,431 668 2,099 9% 2% – 7,130 7,130 7% 3,403 671 672 1,343 1% 756 13% 19% 12% 48% 56% 96,188 22,138 118,326 100% 81,639 19,433 101,072 100% 17,254 17.1% 1. Emerging Technologies includes revenue from Aerospace and Defence across all technologies, and revenue from other market sectors generated by cold plate, micro matrix and additive manufacturing. EBITDA EBITDA in FY2023 compared to the prior corresponding period was stronger mainly due to: – Solid revenue growth across the OEM, aerospace and defence, automotive aftermarket and motorsports sectors; – Production cost control; and – Administration and overhead cost control. EBITDA was impacted by the investment in travel, marketing, new facilities, development of the enterprise resource planning (ERP) system and computer expenses including cyber security. Net profit after tax Net profit after tax of the Group for the year ended 30 June 2023 was $21.75 million (2022: $20.84 million). Operating cash flow The Group cash conversion rate was impacted by the decision to increase inventories of raw materials in response to global supply chain challenges, including the impact of the war in Ukraine on global aluminium supplies. Now that these global challenges are subsiding, we have commenced reducing raw material inventory holdings to historical levels, resulting in an increase in the EBTIDA to operating cash conversion ratio compared with the prior period. FY2023 operating cash flow (excluding interest and tax) was $33.40 million, a conversion of 86% from EBITDA (2022: $23.52 million, a conversion of 66% from EBITDA). 10 PWR Holdings Limited I W E V E R N I R A E Y 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) Euro (EUR) 2023 2022 53.1% 30.8% 11.7% 4.4% 100% 58.0% 28.6% 13.4% – 100% Balance sheet management The balance sheet remains strong with cash of $17.6 million (2022: $21.5 million). Working capital utilisation has increased from 130 days at 30 June 2022 to 236 days at 30 June 2023 due largely to the increase in raw material inventory in response to global supply chain challenges, work in progress and finished goods inventories. Capital expenditure for the year was $15.0 million (2022: $5.0 million). The capital expenditure was higher than the prior corresponding period due to the timing of purchase orders being placed and extended equipment delivery times. 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. The Group completed two business acquisitions during the year for $2.0 million (2022: nil). These acquisitions together with the capital expenditure provide additional capacity and increased quality control as part of the program to manage expected growth. 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 2023 dividend of 8.90 cents per share bringing the total dividend paid to 12.50 cents per share. Review of operating segments The Group has 2 operating segments, PWR Performance Products which comprises its Australian and European operations, and PWR C&R which comprises its USA operations (also referred to as PWR North America). The performance of the operating segments are outlined below: External revenues Inter-segment revenues Segment revenue Segment EBITDA1 PWR Performance Products PWR C&R Total 2023 $’000 85,435 7,896 93,331 33,611 2022 $’000 73,143 3,916 77,059 28,538 2023 $’000 32,891 4,122 37,013 5,350 2022 $’000 2023 $’000 2022 $’000 27,929 118,326 101,072 3,621 12,018 7,537 31,550 130,344 108,609 7,384 38,961 35,922 Depreciation and amortisation (6,604) (5,776) (1,871) (1,449) (8,475) (7,225) Segment profit/(loss) before interest and tax Capital expenditure 27,007 9,420 22,762 3,003 3,479 5,626 5,935 2,020 30,486 15,046 28,697 5,023 1 Segment EBITDA is the segment’s profit from operations before interest, taxation, depreciation and amortisation 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 2023 and using currently available information has resulted in the current values continuing to be recognised. Annual Report 2023 11 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP CFO Report on FY2023 Performance Operating and Financial Review continued Review of principal businesses During the year ended 30 June 2023, in addition to the items outlined above, the Group focussed on diversifying its operations within the targeted segments in a sustainable and profitable manner for the long-term benefit of stakeholders including shareholders, staff, customers, and suppliers. On 19 August 2022, the Group acquired the business and assets of Docking Engineering (Docking) located in the United Kingdom for $0.856 million (£0.496 million). Docking is a leading supplier of racing radiators, oil coolers, charge air coolers and motorsport fabrication services. On 30 January 2023, the Group acquired the business and assets of Bespoke Motorsport Radiators Limited (BMR) located in the United Kingdom for $1.168 million (£0.675 million). BMR is a leading core manufacturer and supplier of high-performance motorsport radiators, intercoolers, and oil coolers in the United Kingdom. These acquisitions provide a platform for the Group to build and grow a manufacturing facility based in the United Kingdom to service European customers and to alleviate demand pressure on Australian based manufacturing. Environmental, Social and Governance (ESG), including the Impacts of Climate Change The Group engaged PricewaterhouseCoopers to assist the senior management team to identify the critical environmental, social and governance issues and opportunities impacting the Group, and to develop mitigation responses and reporting protocols. The outcomes of this engagement have been included in the 2023 Annual Report on pages 18 to 28. Risk Management The Group understands 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. An outline of material risks and management strategies are outlined on pages 56 to 61. 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. 12 PWR Holdings Limited E U L A V R U O K R O W E M A R F N O T A E R C I Annual Report 2023 13 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Value Creation Framework Whether determining our strategy, allocating capital or undertaking business as usual activities, sustainability has always been integrated into our approach. PWR’s approach to sustainability has been developed in tandem with its vision to be the global leader in cooling technology inspired by engineering excellence, and has been designed to contribute to the organisation fulfilling its 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” PWR is committed to creating long term value for all stakeholders through the three strategic pillars of Growth, Profitability and Excellence, and a Sustainability Framework to address the following principles: – PWR’s approach to sustainability is embedded into the corporate strategy – A governance framework to monitor sustainability performance – PWR’s risk management approach would include scenario planning, stress testing and stakeholder feedback within the context of PWR’s risk appetite, and – Realistic and measurable targets will track performance and progress. 14 PWR Holdings Limited E U L A V R U O K R O W E M A R F N O T A E R C I PWR has already championed many sustainability initiatives across the business and this year it developed an integrated framework and roadmap together with material sustainability priorities to be addressed. Relationships and Inputs Value Creating Strategy Customers and Stakeholders GROWTH Our People Emerging Technology and New Industries Intellectual Capital Governance and Risk Management The Global Leader in Cooling Technology Inspired by Engineering Excellence EXCELLENCE PROFITABILITY Sustainability Pillars Material Sustainability Priorities Managing our environmental footprint Creating meaningful Relationships with our Passionate People Customer Centric and Innovative Our approach to Corporate Governance is driven by our Vision, Purpose and DNA Action on Climate Change Circular Economy and Waste Developing Passionate People Health, Safety and Wellbeing Diversity Innovative Customer Solutions Product Design and Quality Process Innovation Ethical Business Practices Cybersecurity Annual Report 2023 15 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Value Creating Strategy GROWTH The Global Leader in Cooling Technology Inspired by Engineering Excellence EXCELLENCE PROFITABILITY 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 DNA RESPECT PASSION TEAMWORK 16 PWR Holdings Limited PWR aspires to create sustainable value through engineering excellence, cutting edge innovation and trusted relationships with our global partners. PWR’s strategy supports our purpose and focuses us on what’s important to deliver Growth, Profitability and Excellence. Summarised below are our key strategic programs and performance indicators for FY2024: Goals Strategic Programs FY2024 Performance Indicators Leverage our reputation and know how into thermal management solutions for the Aerospace and Defence Industry Increase aerospace and defence customer base GROWTH Grow the performance aftermarket business globally Fully stocked online stores and sales increasing globally Achieve profitable growth by growing our global performance aftermarket business and diversifying into new industries and technologies Increase our brand awareness globally to support profitable growth PWR brand is known for its quality and passion worldwide E U L A V R U O K R O W E M A R F N O T A E R C I PROFITABILITY Operating our global business to manage risk and drive efficiency and ensuring sustainability EXCELLENCE Build capability, systems and processes to support profitable growth and efficiency Adopt automation for efficiency Take a global approach to business systems and operations to drive OnePWR Clear roadmap of potential automation opportunities to reduce repetitive activities, improve workflow and improve delivery timeframes and to enable growth in a labour constrained environment Head office led global business systems that are well maintained, on which the workforce is fully trained and that support growth and an efficient business Set measurable goals and track progress using visible management systems All teams in our Group know their goals and how they are tracking against them Streamline our global operating footprint through capacity planning and sustainability and efficiency initiatives Clear understanding of true manufacturing capacity and level of optimisation of the PWR Group Continue to embed PWR Sustainability Framework Drive efficiencies and improvements through our digital data, processes, technology and systems Readily available data to support decision making and capacity planning Develop, attract and retain a diverse workforce to meet current and future business needs Prioritise staff health, safety and wellbeing Maintain and strengthen a workplace culture that values people, invests in leadership development and workplace training and provides rewarding work experiences Increased workforce diversity Improved employee wellbeing and workplace safety and a year on year improvement on our health and safety metrics Increased workforce satisfaction and reduced employee turnover Annual Report 2023 17 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Sustainability Framework, Pillars and Material Sustainability Priorities 4 Sustainability Pillars and 10 Material Sustainability Priorities Sustainability Pillars Material Sustainability Priorities Managing our environmental footprint Creating meaningful Relationships with our Passionate People Customer Centric and Innovative Our approach to Corporate Governance is driven by our Vision, Purpose and DNA Action on Climate Change Circular Economy and Waste Developing Passionate People Health, Safety and Wellbeing Diversity Innovative Customer Solutions Product Design and Quality Process Innovation Ethical Business Practices Cybersecurity Our approach to sustainability is embedded into our strategy and we integrate environmental, social, and governance factors into important business and operational decisions. We are committed to a journey of both understanding our baseline and setting realistic and measurable targets to meet and report against. We know that this is a rapidly changing topic and each year we will review and revise our approach to sustainability and climate change to ensure it keeps pace with the expectations of our stakeholders. We need to ensure we get our data right for our current emissions and will need to invest in information systems to track our emissions and targets. 18 PWR Holdings Limited Achievements In FY2023 we developed our ESG Roadmap which included: – Determining our material sustainability priorities following feedback from internal and external stakeholders – Developing our ESG policy – Establishing our ESG oversight and governance structure – Completing an assessment of our GHG emissions baseline (scope 1 and scope 2) for our Group operations – Commencing the development of metrics against our material sustainability priorities on which to measure our progress in future years. Material Sustainability Priorities To identify the most pertinent Sustainability issues for PWR, we conducted a materiality mapping exercise which incorporated feedback from internal and external stakeholders. This exercise identified a list of ten material issues aligned to four sustainability pillars and importantly aligns to the Task Force on Climate Related Financial Disclosure (TCFD) Framework which PWR will be required to report against. We Manage our Environmental Footprint Action on Climate Change Circular Economy and Waste Action on Climate Change PWR is committed to playing its part in developing lower emissions technology to support customers and help to build a sustainable world for the next generation. What We Currently Do – PWR ensures that exhaust gases generated in the manufacturing process are removed via activated compounds prior to being released into the environment – PWR’s Environmental Management System is accredited to ISO 14001 – We seek to manufacture less carbon-intense thermal cooling solutions for our customers – We work with our customers to aid them in working towards their environmental footprint targets – We invest in research and development for emerging technologies E U L A V R U O K R O W E M A R F N O T A E R C I Aluminium is PWR’s main raw material used in its products. Aluminium is an energy and Green House Gas (GHG) intensive raw material to produce. This priority relates to PWR’s actions to combat climate change through energy consumption and the release of greenhouse gas emissions, both in its own operations and throughout the value chain. It includes PWR’s management of energy in the manufacturing process, measures taken to improve energy efficiency and intensity, energy mix, as well as grid reliance. It also encompasses PWR’s release of greenhouse gases and/or its precursors into the atmosphere over a specified area and period of time. Critically, it seeks to address the emissions intensity of the production process, as well as the upstream and downstream elements of the supply chain. What We Plan To Do FY2024 and FY2025 – Explore opportunities to reduce our scope 1 and scope 2 emissions given, without intervention, our emissions will grow as we do – Review classification of revenue in FY2024 to determine underlying exposure to vehicle power units and in FY2025 – report the outcome – Undertaking an initial upstream scope 3 emissions assessment of raw material inputs is targeted for FY2025 – PWR’s three manufacturing sites facilitate product FY2026 to FY2028 manufacturing closer to our customers reducing the distance products have to travel via air, sea or road to our customers – PWR is not subject to the Federal Government’s National Greenhouse and Energy Reporting (NGER) Scheme. We have however undertaken scope 1 and 2 baseline emissions calculations for our global operations as follows: PWR Location Ormeau, Australia Rugby, United Kingdom2 Indianapolis, USA TOTAL (t CO2-e)1 2,853 43 2,342 5,238 – Implementing processes to capture data for scope 3 emissions (FY2026) – Identify opportunities to reduce carbon intensity for Scope 1 and 2 (FY2026), Scope 3 (FY2028) – We will look at financial impact aligned with the recommendations from the Task Force on Climate Related Financial Disclosures with the overarching objective of understanding our baseline so we have a foundation on which to build realistic targets. We aim to have FY2027 as our comparative year and commence reporting in FY2028 aligned with the IISB disclosure requirements – We will actively explore renewable energy sources for any new factory we identify for our operations in future years 1. References for emissions factors used: AUSTRALIA FACTORS Report per t https://www.cleanenergyregulator.gov.au/NGER/Forms-and-resources/Calculators UK FACTORS Report per kg and converted https://www.gov.uk/government/collections/government-conversion-factors-for-company-reporting USA FACTORS https://ghgprotocol.org/calculation-tools-and-guidance https://www.epa.gov/system/files/documents/2023-03/ghg_emission_factors_hub.pdf 2. Operational from February 2023 Annual Report 2023 19 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Sustainability Framework, Pillars and Material Sustainability Priorities continued We Manage our Environmental Footprint Action on Climate Change Circular Economy and Waste Circular Economy and Waste Integrating and advocating good sustainability practices in PWR’s global operations. We take every opportunity we can to recycle from our raw material to our coffee cups! PWR is conscious of its environmental impact through the waste produced through raw material offcuts, packaging materials, and the end of life of its sold products, as well as the potential exposure to toxic waste management and packaging regulations. Specifically, this topic considers the processes and actions required to manage the impacts of waste from its inception to its final disposal including waste minimisation. It also covers PWR’s operations and the existence and strength of its environmental management systems to manage potential environmental impacts. What We Currently Do What We Plan To Do – Recycling raw materials, cardboard and office – Taking a global and consistent approach to recycling materials – Disposal of wastes and hazardous materials in accordance with government regulations – 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 FY2023 we recycled 336 tonnes of aluminium. our raw material across three sites through the development of a Recycling Policy – Investigating product packaging and other recycling opportunities across our business Tonnes of Aluminium Recycled per Financial Year tonnes 336 161 182 211 2020 2021 2022 2023 20 PWR Holdings Limited We Create Meaningful Relationships with our Passionate People Developing Passionate People Health, Safety and Wellbeing Diversity Developing Passionate People At the heart of PWR is its people. We believe in them and ensure they have access to learning and development opportunities. Passionate People are written into PWR’s corporate purpose and are critical to the success of the business. This topic relates to PWR’s approach to employment or job creation including hiring, recruitment, retention and related practices, and the working conditions we provide. Specifically, this topic considers the establishment and strengthening of employee and employer relationships through measuring employee satisfaction, identifying and resolving workplace issues, and approaching communication of significant operational changes. The topic also relates to PWR’s approach to training and upgrading employee skills including improving performance, capabilities and resources. For example, the use of performance and career development reviews and the management of career endings due to retirement or termination. What We Currently Do What We Plan To Do – Targeted and effective approaches to talent and – Collect and analyse existing data to effectively communicate and report on workplace culture and human capital measures – Offering opportunities for staff to upskill by participating in a pilot delivery of a Certificate II in Engineering program which will be delivered onsite at PWR which upon successful completion will reward the participants with a nationally recognised, formal Australian qualification in Engineering and provide exciting opportunities to further develop a career pathway here at PWR – Build the PWR Academy – Tailored development plans for employees – Work towards reducing our rolling 12 month voluntary turnover to ≤20% recruitment management – Succession planning and growth of key talent through time in critical roles, as well as relevant external training – Report on growth in employee numbers over the last 5 years – Continue to improve long-term workforce planning and talent management across the business – PWR-specific frontline leadership training program, including the use of a DiSC profile – Rewarding high performing staff – Recruiting apprentices, offering work experience to high school students, and investing in them to build a capable and committed workforce – Graduate engineering program provides an opportunity for recent engineering graduates to expand on their university studies. – International Secondment Program to give a small, selected number of employees an opportunity to work at a PWR manufacturing site in another country for 1 to 2 years – Monitor and manage our staff turnover Read more about what we do Our People Section on pages 35 to 45. Annual Report 2023 21 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Sustainability Framework, Pillars and Material Sustainability Priorities continued We Create Meaningful Relationships with our Passionate People Developing Passionate People Health, Safety and Wellbeing Diversity Health, Safety and Wellbeing 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 so that everyone goes home safe every day. A culture of proactive health and safety management is critical to PWR, with critical safety risk management already included within executive short term remuneration. This topic relates to ensuring operations and work practices are designed to be safe, developing and ensuring a robust safety culture, and promoting workforce psychological and physical health through relevant programs and initiatives related to mental health and physical wellbeing. Mental health and wellbeing are also important components of PWR’s ability to have a positive social impact. PWR’s measures for the prevention of physical and mental harm to employees and customers, as well as the promotion of workers’ health, including health & lifestyle benefits and employee wellness, will be addressed through this priority. What We Currently Do What We Plan To Do – Lost Time Injury Frequency Rate (LTIFR) and safety leadership already included in executive short term remuneration. For FY2024, our Corporate Scorecard requires safety leadership and visibility as a key performance indicator to measure safety leadership activity in the business – Review existing safety training practices and induction sessions to identify areas of improvement that support the creation of an inclusive, safe culture that prioritises both physical and mental health and wellbeing – Collect data to effectively communicate and report on health, safety and wellbeing measures – PWR ran campaigns during the year to facilitate – Explore appetite for internationally recognised ISO 45001 and ISO 45003 alignment – Expand charter of Work Health and Safety Committee to explicitly cover wellbeing and mental health – Increase health and safety leadership capabilities within our global business employees’ health and wellbeing by offering access to flu vaccinations and COVID boosters. We continue to also facilitate strong personal hygiene at all sites. Staff continue to have access to free COVID testing – Critical Safety Risks identified – Work Health and Safety Committee in place – Global Work Health and Safety Policy implemented – Wellbeing focus with freshly chef prepared morning tea and cooked lunches every day at Weely’s Diner in Australia – Staff globally have access to an employee assistance program Read more about what we do Our People Section on pages 35 to 45. 22 PWR Holdings Limited E U L A V R U O K R O W E M A R F N O T A E R C I We Create Meaningful Relationships with our Passionate People Developing Passionate People Health, Safety and Wellbeing Diversity Promoting Diversity Diversity and inclusion are considerations that form part of PWR’s long term commercial success and strategy. PWR operates within an industry which has historically demonstrated a lack of diversity, in particular in relation to gender. This topic includes PWR’s actions to improve its performance around diversity and inclusion. Through promoting a corporate culture which embraces and values the unique contributions of its people with diverse backgrounds, experiences and perspectives to provide exceptional customer service and to make the Company a great place to work. It also encompasses the diversity PWR maintains within its Board (e.g. diversity in skills, gender, experience, qualifications, etc). What We Currently Do What We Plan To Do – PWR currently collects data on employee gender – Explore the collection of diversity data including on identity ethnicity – PWR has established targets for the number of – Increase female representation across our workforce women on the Board of Directors, and number of women in Executive Management over the next three years across its global sites – Work has commenced in Australia to establish Women in Engineering Programs and Trade based work experience programs for females – Embedded gender diversity into our Excellence objective and Board – Increase global female workforce representation to ≥20% – Explore flexible working arrangements that meet the needs of both the business and individuals Read more about what we do Our People Section on pages 35 to 45. Annual Report 2023 23 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Sustainability Framework, Pillars and Material Sustainability Priorities continued We Create Trusted Partnerships with our Customers Through Innovation, Quality and Design Product Design and Quality Process Innovation Innovative Customer Solutions Product Design and Quality PWR’s true value is realised through industry leading products and services with highly differentiated features and benefits compared to any potential competitor offer. Our willingness to engage in new developments and push boundaries of current capability is one of the defining characteristics of a relationship with PWR. Excellence is one of PWR’s three corporate goals, and covers every aspect of what we do. This topic encompasses product design, safety, quality, and lifecycle management. This topic relates to PWR’s ability to limit the use of material inputs that could be associated with health concerns while addressing issues such as energy efficiency and end-of-life disposal of our products. In relation to safety and quality, this topic will address PWR’s efforts to mitigate adverse events such as equipment failures, manufacturing defects, design flaws, or inadequate disclosure of product-related risks. What We Currently Do What We Plan To Do – Focus on securing accreditation for the Australian Defence Industry Security Program (DISP) – Identify further opportunities for improvement in product quality and design – Reduce cost of poor quality by expanding and refining internal reporting and development of targets – Assess adequacy of targets in place around production accuracy and product quality to ensure continuous improvement – Continue to enhance the functionality of our ERP System Our Emerging Technology section on pages 46 to 49. Our Intellectual Capital section on pages 50 to 53. – Introduced capability for serialisation of products including full traceability of components and raw materials used in the production process back to raw material source – Track the remakes and reworks as a % of manufactured product, as well as warranty claims and customer returns, which are both a component of executive short term remuneration – PWR is ISO 9001 accredited and has invested in securing AS9100 accreditation (aerospace and defence quality standard) as well as National Aerospace and Defense Contractors Accreditation Program (NADCAP) accreditation (thermal and chemical management) – PWR forges long lasting relationships with integral supply chain partners – PWR has adopted KPIs for the business and its executives which include: – Emerging technologies revenue growth – Warranty claims and customer returns as % of total dispatched items – Cost of Poor Quality as a percentage of total sales Read more about what we do 24 PWR Holdings Limited E U L A V R U O K R O W E M A R F N O T A E R C I We Create Trusted Partnerships with our Customers Through Innovation, Quality and Design Product Design and Quality Process Innovation Innovative Customer Solutions Process Innovation Technology and innovation are advancing at a rapid pace and we pride ourselves by being at the forefront of technological advances in the field of cooling. However it requires continuous investment and focus. Falling behind is not an option. Innovation is critical not just to PWR’s products, but the way it produces them. This topic relates to PWR’s exploration of opportunities to innovate its processes to ensure automation, reduction of waste and offcuts and remake rates. This topic also considers the need to invest in training to encourage innovation. What We Currently Do What We Plan To Do – PWR is continuously investing in research and – Continue to identify and report on opportunities for development. In FY2023 PWR invested $10.1m on R&D activities (2022: $9.8m) – PWR adopts quality control approaches in everything we do and uses advanced technology to problem solve for our customers – Undertook a Lessons Learned Workshop to identify opportunities for process enhancements to gain efficiencies during our busy period innovative production processes – Develop an automation vision and strategy – Assess the current spend on process innovation e.g. 3D printing and internal designs – Assess current training programs and their ability to encourage innovation within the workplace Read more about what we do Our Intellectual Capital section on pages 50 to 53. Annual Report 2023 25 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Sustainability Framework, Pillars and Material Sustainability Priorities continued We Create Trusted Partnerships with our Customers Through Innovation, Quality and Design Product Design and Quality Process Innovation Innovative Customer Solutions Innovative Customer Solutions Leveraging existing technology to new industries and continuous innovation and learning to remain an industry leader… our project engagement is one of true partnership with our customers with a shared goal to succeed in producing the best final product or solution. Innovative solutions are at the core of our purpose. To continue to be the global leader in cooling technology we must continue to innovate and ensure that we are providing the solutions of tomorrow. This topic relates to PWR’s exploration of opportunities in the new less carbon intense related market areas such as the advanced technology industry and clean or low-carbon technology. E.g. hydrogen, end of useful life battery storage, exploration of potential strategic development initiatives in the clean technology space and the possibility of future revenue generation from such technologies. PWR is fortunate to be able to call some of the world’s leading companies and race teams its customers, and this provides our staff a tremendous source of pride in the work they do, and for the applications that their work serves. Our feedback from our key customer base is consistently that of partnership, where PWR is recognised and acknowledged as an integral part of our customer’s own team in the way that we work. What We Currently Do What We Plan To Do – Solutions are developed in partnership with PWR’s – Identify and report on opportunities to explore in the new less carbon intense related market areas – Begin to track key customer satisfaction metrics clients and are bespoke in nature – PWR attends trade shows and keeps up to date with the latest advances in technology – PWR strategically invests in leading edge manufacturing technology and has spent $15.0m on new equipment this year (2022: $5.0m) – PWR has a strong governance process over recording our R&D expenditure – Leveraging motorsports expertise into Aerospace and Defence – Providing services to our customers such as CFD/ Wind tunnel – going beyond just manufacturing their part Read more about what we do Our Intellectual Capital section on pages 50 to 53. 26 PWR Holdings Limited Our approach to Corporate Governance is Driven by our Vision, Purpose and DNA Ethical Business Practices Cybersecurity Ethical Business Practices PWR maintains high standards of ethical conduct and is committed to ensure that high standards of conduct are maintained by all staff. Trust and transparency are critical to the ongoing success of business relationships. We recognise that companies are evaluated on their oversight and management of business ethics issues such as fraud, misconduct, corrupt practices, money laundering and anti-trust violations. This is a key area of focus in the governance pillar and PWR recognises it is absolutely essential to embed good governance in everything it does for the benefit of both PWR and its customers. This priority relates to PWR consistently acting according to its DNA and moral principles when dealing with areas of potential risk to oversight and transparency expectations, including corporate governance, insider trading, bribery, discrimination, environmental compliance, anti- competitive behaviour and corporate social responsibility. This priority also captures ethical or controversial sourcing of materials. Controversial sourcing refers to PWR’s dependence on and purchase of raw materials procured from conflict areas or through modern slavery, and the efforts around the traceability and certification of these materials. E U L A V R U O K R O W E M A R F N O T A E R C I What We Currently Do What We Plan To Do – Collect existing data to effectively communicate and report on business conduct and ethics initiatives, policies and measures – Education and feedback around the global operation of our whistleblower policy – Establish a supply chain (and supplier engagement) strategy and procurement framework to adopt and maintain fair, inclusive and sustainable business practices – Expand our customer feedback mechanism to track performance on business practices – Comprehensive risk assessments on our supply chain – Developed and implemented our Ethical Sourcing and Modern Slavery Policy – Well documented and communicated Code of Ethical Conduct Policy which calls on the PWR DNA as our frame of reference – PWR communicates with its shareholders through our AGM onsite in Australia where it hosts shareholder tours to better understand PWR’s business and encourages questions from shareholders – Regular and ongoing engagement with other key stakeholders including its customers through trade shows and sponsorships – Committees which inform the Board on certain topics – Governance framework to monitor performance – Risk management approach involves scenario planning, stress testing and stakeholder feedback within the context of PWR’s risk appetite – Reporting on Board capability and experience – Whistleblower policy and independent hotline in place Annual Report 2023 27 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Sustainability Framework, Pillars and Material Sustainability Priorities continued Our approach to Corporate Governance is Driven by our Vision, Purpose and DNA Ethical Business Practices Cybersecurity Cybersecurity Protection of PWR’s intellectual property and that of our customers is paramount. There are strict protocols in place to manage intellectual property. Cybersecurity threats and data breaches are regular news stories, and currently at the forefront of customer concerns. Taking into consideration the profile of some of PWR’s customers, it is essential that their sensitive data is handled securely. This topic relates to PWR’s proper handling of sensitive data which includes personal, financial, customer, and intellectual property data. This topic considers the protection of digital data from destructive forces and unwanted actions of unauthorised users, such as cyber-attacks and data breaches. What We Currently Do What We Plan To Do – Regularly undertake independent external reviews of our IT and potential cyber security exposures and have implemented all recommendations arising from these reviews – Maintain strict confidentiality procedures for new technology and manufacturing processes – Operate restricted areas within our manufacturing sites and do not permit phones or cameras on the factory floor – Have a designated Executive member to take ownership of this area – Developed a cybersecurity and privacy policy – Undertook staff cybersecurity awareness training and embedded compulsory security awareness training as on ongoing program – Developed a PWR global cybersecurity requirements checklist – Begin the development of a cybersecurity ‘defence in depth’ strategy to secure PWR’s facilities, including well-timed detection at all layers of their technology stack with timely removal of threats to endpoints and the network to protect their perimeter – The Chief Security Officer and Security Officer will regularly conduct risk assessments and update the PWR Defence Industry Security Program (DISP) developed security register and PWR Security Policies and Plans (SPP) – Work towards CMMC2.0 (Cybersecurity Maturity Model Certification) which will transition from NIST SP 800-171 – Upgrade surveillance systems to monitor sensitive areas – Issue employee name tags and ID cards – Strengthen the current Data Loss Prevention policies – Ongoing security awareness training for PWR employees – Ongoing program of external and internal penetration testing, and Incident Response tabletop exercises 28 PWR Holdings Limited Our Value Creation Framework Our Value Creation Framework Our Relationships and Resources Customers and Stakeholders Our People Emerging Technology and New Industries Intellectual Capital Governance and Risk Management E U L A V R U O K R O W E M A R F N O T A E R C I Customer and Stakeholder Relationships We create value through focusing on what matters most to the many stakeholders of our business. The relationships we develop with our many stakeholders directly impacts the success of PWR. Building Trust and Respect Genuine relationships built on trust and respect underpins the successful achievements of PWR, while providing the foundation for successful growth in the future. At the forefront our success in delivering value are: Customer Service | Responsiveness | Product Range Quality | Knowledge | Capability Our staff are Passionate PWR’s engagement between customer and staff is demonstrated by a can-do attitude and a desire to take on tasks and challenges like they are our own, to provide innovative solutions and solve complex challenges to serve the best interests of our customers. PWR’s true value is realised through industry leading products and services with highly differentiated features and benefits compared to any potential competitor offer. Our willingness to engage in new developments and push boundaries of current capability is one of the defining characteristics of a relationship with PWR. We Provide our Customers with Around-the-Clock Service A global presence through Australia, Europe and the USA, with highly dedicated staff means we provide our customer base with around the clock service, and our project engagement is one of true partnership with a shared goal to succeed in producing the best final product or solution. Our feedback from our key customer base is consistently that of partnership, where PWR is recognised and acknowledged as an integral part of our customers own team in the way that we work. Employee Engagement Employees’ Trip to Melbourne Formula One It has been a long standing tradition within PWR that each year the company takes a select group of high performing staff from the prior year to Albert Park in Melbourne for the Formula One Grand Prix where they have the opportunity to see some of the results of their hard work in the products PWR supplies to Formula 1. It’s a great team building experience and a further point of connection to their daily efforts for customers to have access to see and appreciate the importance of the products and services they are responsible for delivering. This is also an opportunity to hear firsthand from the teams, the positive influence PWR makes to a reliable and efficient race car. PWR was very pleased to be able to take 22 of its employees to the Melbourne Grand Prix in 2023. Annual Report 2023 29 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Customer and Stakeholder Relationships continued Our Prospective Employees - PWR Job Fair With unemployment at an all time low in Australia, it is a tough recruitment market. Thinking of innovative ways to attract talent, PWR’s Australian facility held its very first Jobs Fair. The event was a great success with many staff giving up their Saturday to support the day and future similar events are planned. Our efforts were supported by Toby Price and his undefeated Redbull TSCO Trophy Truck which was displayed alongside a TA2 two-seater race car from the TA2 Muscle Car Series. Both vehicles are a rare sight outside of competition and are often in pieces between races due to undergoing maintenance and repairs. Having these vehicles made available to PWR between racing commitments is a testament to the close relationships we have with our customers and a strong attraction tool for our prospective employees. Some key statistics: 250+ attendees on the day 90 applications and Expressions of Interest received (within 48 hours post event) 70 people taken on site tours on the day 40 job interviews conducted on the day Kees Weel, Managing Director talking to attendees at the PWR Job Fair 30 PWR Holdings Limited Bringing Our Employee and Customers Together PWR is fortunate to be able to call some of the world’s leading companies and race teams our customers, and this provides our staff a tremendous source of pride in the work they do, and for the applications that their work serves. PWR is extremely proud of its company uniform, but it has long been a tradition that PWR staff are encouraged on a Friday to wear shirts that represent our customer base. Fridays will see staff wearing motorsport team shirts from Formula 1, Moto GP, NASCAR, WRC and Supercars to name just a few, as well as representation of other prestige marques from the automotive industry. This tradition serves as a constant reminder of importance in the role PWR plays in supporting this customer base, and that our staff are an extension of our customers own teams with each playing a critical role in the success of delivering a high quality and high performing end product or solution. Our customers are appreciative of this demonstration of our partnership and are supportive with initiatives supplying discounts and access to their branded merchandise to PWR staff, because all parties benefit from the increased engagement this delivers. Shareholder Engagement Our Annual General Meeting is Dedicated to our Shareholders PWR is always keen to show our shareholders what we do. Our 2022 AGM provided a great opportunity for PWR to invite Investors and shareholders to our Australian facility and to be able to share examples of our latest product developments, as well as tour the factory providing valuable insight into the significant investments made by the company to support the adoption of latest advanced technologies and manufacturing capabilities. Events such as these are hugely successful, with very positive feedback received and attendees impressed by the scale and presentation of the facility. This platform provides an ideal opportunity for effective communication to our shareholders engaging with PWR tour hosts and staff to better understand PWR’s business, products and services that support the opportunities ahead. An overwhelming trend of feedback received from our AGM was positive towards our staff regarding their knowledge and passion for PWR, our products and our customers. The open forum created by hosting events such as this delivers positive results for shareholders and staff alike with the ability for all to engage in discussion around common points of interest behind PWR. This is certainly a platform that PWR plans to retain and grow in the future. E U L A V R U O K R O W E M A R F N O T A E R C I Matthew Brsyon, Chief Technical and Commercial Officer hosting an AGM tour Kees Weel, Managing Director presenting to shareholders at the AGM Ben Nielsen, Senior Project Engineer, hosting a tour at the AGM Annual Report 2023 31 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Customer and Stakeholder Relationships continued Community Engagement Australian Defence Force Capability and Technology Management College Visit PWR had the privilege to host 44 Defence personnel from the Australian Defence Force Capability and Technology Management College taking part in their Masters level course. The diverse group of men and women had the chance to tour PWR’s facilities and gain an insight into the cutting edge capabilities housed at our Australian Head Quarters. This visit presented a great opportunity to raise awareness of the PWR brand and our achievements, whilst allowing our engineering team to engage directly with Defence personnel on potential future project needs. Brisbane Supercar Club Visit PWR was pleased to host an open day for the Brisbane Supercar Club at PWR’s Head Quarters in Australia. The event was highly successful with 45 people and 25 supercars in attendance. The team organised to have a coffee van onsite, plenty of high-end products on display and provided an audio system with headsets so that the attendees could hear the tour guides as they conducted the factory tours. The tours walked the club members through each department following the manufacturing process from start to finish. The team also included the Wind Tunnel, Additive Manufacturing department and the Micro Matrix department which proved to be popular with the people in attendance. The response from the attendees was overwhelmingly positive, everyone was extremely impressed with the facility, our capabilities and PWR’s story. Brisbane Supercar Club Visit to PWR Australia 32 PWR Holdings Limited Members of the Australian Defence Force Capability and Technology Management College on a site visit to PWR Australia CASE STUDY PWR enjoys excellent relationships with our customers, where our technical and manufacturing efforts are seen as an extension of our customers own team. As such our customers often make special efforts in recognition of PWR’s commitment. E U L A V R U O K R O W E M A R F N O T A E R C I Sponsorships PWR proudly supports key figures in several of our target markets through product sponsorship. These sponsorships are mutually beneficial for both PWR and our partners and assist in drawing a direct link between our brand and some of the most respected names in the business. These sponsorships range from grass roots motorsport competitors such as Tyler Collins Motorsport in the Australian Excel cup series through to the Repsol Honda Team competing in MotoGP. We also work with social media influencers such as Shaun Whale and Bailey Winen from 4WD 24/7 who actively promote our products to the Australian 4WD industry. These partnerships have proven to be a valuable source of marketing content which is then shared with their extensive network of social media followers, further increasing our brand’s reach. PWR’s list of sponsorships also includes high profile partners such as Mad Mike Motorsport, Patriot Productions, TA2 Muscle Car Series, Queensland Raceway, Willowbank Raceway and KIR Drift. In this last 12 months during our European customer visit schedule, our visiting engineers went to lunch after meeting completion with one of our customer teams based in Italy. The restaurant of choice being a famous location, popular with team members and tourists alike, with its walls adorned with Formula One memorabilia from race and championship winning cars and drivers. The history and significance of some of the items on display in the venue confirming it to be a truly iconic location. A few months after this visit we were reached out to from some of our close customer contacts to share an image of a new addition of memorabilia, a PWR Formula One radiator assembly, that had been mounted to the wall in this historic location, and some of our close customer contacts taking pride in sharing this acknowledgment with PWR staff. Annual Report 2023 33 Customer Engagement PWR is an extension of our customer’s team when it comes to collaborating with them to design and manufacture the very best thermal solution for their application, however the extent of our commitment does not end there, and reciprocal of our efforts to integrate with our customers and go the extra mile, our customers happily recognize our close collaboration. YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP CASE STUDY 2022 SEMA Show PWR North America and PWR Australia representatives attended SEMA 2022 in November 2022. SEMA is the world’s largest automotive trade show and is held annually in Las Vegas, The show attracts more than 161,000 people each year from more than 140 countries outside of the USA. The show covers 2.2 million square feet at the Las Vegas Convention Centre and features over 2,400 exhibiting companies and 1,500 feature vehicles. Our Value Creation Framework Customer and Stakeholder Relationships continued Shows PWR is committed to maintaining a high level of community and customer engagement which is largely achieved by getting out and talking directly to people in the community at shows. Globally PWR invested in attending 30 shows in FY2023 which was a substantial increase on previous years. These shows include Performance Automotive events, 4X4 shows, Aerospace and Defence shows, Motorsport events, industry trade shows, local community events and facility open days. These events are a great way to network and hold meetings with both current and potential new trade customers and gain valuable insights into market trends and changes in market conditions. The teams are also able to speak directly to end users of our products and get valuable feedback about our product range and what new products PWR should look to develop next. Shows are also a great way to increase brand awareness and share PWR’s incredible story with the world. PWR’s passionate team of representatives are always eager to talk about the company’s heritage, new products and our affiliation with elite motorsport teams and OEMs. Many of PWR’s employees are also passionate automotive enthusiasts which is reflected in their interactions with customers and the community. Supplier Engagement PWR is proud to be an extremely vertically integrated business taking control of most processes to deliver our products and services; however, we still have a very important supply chain with integral partners we forge long lasting relationships with to deliver to the high quality and service expectations of PWR and our customers. Just as PWR is considered a critical link in our customers supply chain, PWR relies on exceptional partners in our own supply chain to deliver world class service. PWR Stand at the 2022 SEMA Show in Las Vegas 34 PWR Holdings Limited Our Value Creation Framework 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 workplace that is diverse, empowered and demonstrates good decision making and one which fosters innovation and high productivity. PWR DNA and Code of Conduct The PWR DNA defines us and is a key consideration in all decisions we make and interactions we have with our people. It is embedded in our Employee Handbook, new employee induction program and employee reward and recognition programs. It is also at the core of our annual Performance and Development Review process. E U L A V R U O K R O W E M A R F N O T A E R C I PWR Australia staff enjoying the annual Christmas lunch RESPECT PASSION TEAMWORK We are polite and courteous We respect the PWR uniform and take pride in our personal appearance We look out for our team-mates We turn up to work on time We are solutions focused – we take customers problems and make them our own We work together We talk to each other We have a positive ‘can do’ attitude We chip in when one of the team is under pressure We take pride in what we do We solve problems together Our Code of Conduct ensures that PWR consistently strives for the highest standards of business conduct possible, including: – the creation of sustainable value for shareholders and other stakeholders – compliance with the law – respect for local cultures – a healthy and safe workplace – responsible environmental management – integrity, fairness and respect in its interaction with others. Annual Report 2023 35 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP 36 PWR Holdings Limited Employee Recognition At PWR we recognise those employees who live the PWR DNA and go above and beyond their role, assist and support others and show initiative. – PWR Employee of the Month – 2 employees are chosen from a pool nominated by supervisors. – PWR Employee of the Year – the employee of the year is chosen from a pool nominated by supervisors and management. – PWR Apprentice of the Quarter. – PWR Apprentice of the Year. – Annual Christmas Lunch – just before Christmas on site. – Employee Referral Program – receive cash incentives for referring someone to come and work at PWR. – Trip to Melbourne Grand Prix – highly coveted, a small number of outstanding employees get the opportunity to attend the Melbourne Grand Prix as part of the PWR Team. – Discounts and Freebies – discounts for PWR staff at several local suppliers. – Recognition of service anniversaries. Employee Numbers 600 500 400 300 200 100 0 June 2019 June 2020 June 2021 June 2022 June 2023 Australia North America Europe 60 Expanded our team to employ an additional 60 people globally E U L A V R U O K R O W E M A R F N O T A E R C I Nathan Pierson, Kelcy McNee and Jake Nicholson Growth in a challenging employment market The Labour market continued to present challenges over the year globally, with low candidate availability and high recruitment demand and unemployment remaining low in Australia, USA and UK. Despite these challenges, globally, PWR grew employee numbers by 13% over the year, continuing our progressive growth over the last five years. Annual Report 2023 37 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our People continued Welcoming the PWR Europe Team The growth of the PWR Europe operation including the acquisition and integration of two external businesses culminated in a move to larger premises in Rugby UK. By the end of June 2023, the team had grown from 6 to 30, with production and distribution now operational. We have been delighted to offer exciting career paths for the team in our state-of-the-art facility as it continues to grow from strength to strength. PWR Europe Team outside the new PWR Factory in Rugby, UK Welcome to Wayne Rodgers, Executive General Manager, PWR Europe Wayne started with PWR in January 2023 and has overseen the integration of Dockings Engineering and Bespoke Motorsport Radiators into the new PWR Europe facility at Rugby, UK. Wayne brings over 22 years of experience within the Motorsport and Performance aftermarket sector, along with 10 years of race experience as a co-driver. With a proven track record of enhancing business growth, operational efficiency and profitability, Wayne has enjoyed international success in both Europe and the US motorsport and performance markets. Wayne was previously Head of Performance and Motorsport UK – Business Development at Goodridge, Managing Director of Marchesini Wheels (a subsidiary of the Brembo group), director of Brembo USA Performance aftermarket, Technical Sales Manager of Federal Mogul’s Ferodo brand and Motorsport Sales Manager for Silkolene. 38 PWR Holdings Limited CASE STUDY Wayne Osgood PWR Europe has a young welder on a traineeship with college day release commencing in late 2023. Wayne Osgood commenced employment with Docking Engineering in 2011 as a Workshop Assistant. With the acquisition of Docking in August 2022, Wayne transferred to PWR as a Manufacturing Production Assistant (a directly equivalent role to the one he held previously). Wayne has a long-held desire to train as a welder, and since the move to PWR he has demonstrated genuine interest in the fabrication side of the business. This has led to him being promoted to the Centre Bench Lead position. At the same time, he enrolled himself on evening classes to learn welding, and in support of his personal commitment PWR are now funding the cost of these classes. “ PWR Europe has made good progress improving conditions and responding to the needs of staff and it made me happy that the team from Dockings transitioned to PWR. On a personal note, I am very pleased that PWR is supporting me on my journey to become a qualified welder.” Wayne Osgood We support Schools and Apprentices with Development Opportunities Our Apprenticeship and School Work Experience Programs are well established as key components in our strategy of building future talent for PWR. 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. Work Experience Program During the year we had 35 Work Experience students spend time on a placement at PWR Australia, where they were exposed to several of our production areas in a structured and supervised program. At PWR Europe we hosted an engineering student on a work placement from Silverstone University Technical College on a 45-day placement spread over the year. PWR North America hosted a successful internship program with 18 placements over the year, 4 of those have since been hired into PWR as full time employees. E U L A V R U O K R O W E M A R F N O T A E R C I Achievements 7 New apprentices signed up in PWR Australia 4 Apprentices completed and transitioned to fully qualified tradespeople 35 Work Experience Students spent time at PWR Australia 18 Internships hosted at PWR North America 1 Technical student work placement hosted at PWR Europe PWR Europe commenced a welding traineeship Lani Morris – From Work Experience to Apprentice to Trade Qualified CNC Machinist Lani first approached PWR Australia in 2018 to enquire about a possible work experience placement. At that stage she was in Year 12 at High School and had already decided that she wanted to undertake a career as a fitter and turner. She secured a place on the PWR Work Experience Program and after successfully completing the placement she applied for and gained full time employment with us as a Manufacturing Production Assistant in the Machine Shop. In 2020 she secured herself a place on an Apprenticeship with PWR which she completed in 2023; she is now a trade qualified CNC Machinist working in our Machine Shop. “I am enjoying my time at PWR, it’s a great environment here with lots of opportunities to develop your career. Longer term I want to progress into a leadership role and continue my career growth.” Lani Morris Annual Report 2023 39 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our People continued Apprenticeship Program At PWR Australia we signed up 7 new Apprentices during the year, resulting in a total of 37 Apprenticeships underway by the end of June 2023 and during the year we were pleased to see 4 Apprentices complete their training and transition to fully qualified Tradespeople. Joe Van Galen 2022 Apprentice of the Year Leadership Development Programs The PWR specific Frontline Leadership Training Program continued at PWR Australia, with a series of short, targeted sessions covering key topics, followed by a session on applying each of the learnings. Subject areas delivered included PWR’s Expectations of a Leader, Workplace Health & Safety, Managing Performance, the Accentis Program and Strategic Direction. PWR North America also delivered a Leadership Program during the year, with topics including Effective Communications, Becoming a Leader, Managing Stress, Project Management Problem-Solving and Team Building. PWR Leaders working together on a leadership challenge Graduate Engineer Program PWR’s graduate engineering program provides an opportunity for recent Engineering Graduates to expand on their university studies. Offered as a 2-year program, they will benefit from the insight and support of experienced engineers and production team members who have worked on innovative and leading-edge product development in the motorsport, automotive, aerospace and defence industries. Their guidance will help the journey to transition from an Engineering Graduate into an experienced Professional. Our Apprentice of the Year 2022 was Joe Van Galen. Prior to joining PWR, Joe was studying at university and working in the hospitality industry. However, his true calling was in welding and fabrication led him to leave university and pursue an apprenticeship. This decision marked a turning point in his career, and his dedication eventually led him to PWR. One aspect that surprised Joe about working at PWR is how apprentices have the opportunity to progress as if they were tradesmen. This inclusive and supportive environment has further fueled his passion for his craft. One of Joe’s proudest work-related accomplishments is learning to weld a Red Bull F1 CAC (Charge Air Cooler) system. This complex project showcased his technical proficiency and marked a significant milestone in his career. When asked about what led him to pursue a career at PWR, Joe emphasized his desire to find an apprenticeship in welding and fabrication; “the opportunity to work with experts in the field and learn from their wealth of knowledge”. Joe Van Galen 40 PWR Holdings Limited Chris Hopgood – From Graduate Engineer to Special Project Engineer in Aerospace and Defence International Secondment Opportunities During the year we continued our International Secondment Program by giving two employees an opportunity to work at a PWR manufacturing site in another country for 1 to 2 years, with PWR supporting the visa application and contributing to relocation, accommodation and motor vehicle costs. Ben Jackson Contributing to the growth of PWR Europe and some sightseeing on the side E U L A V R U O K R O W E M A R F N O T A E R C I Chris joined PWR in May 2021 as he was approaching the end of a dual Bachelor of Mechanical and Aerospace Engineering/ Bachelor of Science degree at the University of Queensland. He has a keen interest in aerospace engineering as well as a passion for automotive engineering, having worked on the two-year restoration of a 1969 Ford Mustang Mach 1 with his Father. PWR is the perfect place to develop his career with exposure to his engineering fields of interest. In January 2022 Chris took up a place on the PWR Graduate Engineer Program, which saw him gain experience in our Vacuum Braze Department. He has now been appointed to a position as a Special Projects Engineer in PWR Aerospace & Defence. “ The PWR Graduate Engineer Program provided me the opportunity to gain a hands- on understanding of the fundamentals behind a range of PWR products. The transferring of technical and manufacturing skills between departments has further strengthened my problem-solving ability, making it easier to tackle each new challenge. The extended placement in vacuum brazing allowed me to really investigate and dive into projects and put some serious time into development. Understanding the processes involved and the interactions with other people and departments has helped me in my career journey. My new role as Special Projects Engineer is the culmination of my university studies and diverse PWR experience, which I am excited to bring together.” In early 2017, Ben joined PWR after graduating from Griffith University with a Bachelor of Engineering with Advanced Studies. He commenced in the Specialty Build Department as a Junior Engineer and over the following years developed his career within PWR into a role as Project Engineer and then Senior Project Engineer. With the move to the new Rugby UK site for PWR Europe and the establishment of manufacturing capability, a need was identified for an injection of skills and experience from PWR Australia. In January 2023, Ben took up a 2-year secondment opportunity to PWR Europe as Engineering Manager. “ It is an exciting time to be here at PWR Europe, as we grow at a rapid rate. It has been great to get the opportunity to assist with setting up the new factory, starting to build a strong engineering team here in the UK while also being able visit in person our European customers to continue to build our strong relationships. On a personal note the move has allowed me as well to experience the cultural difference of living in the UK and the ability to be able to travel easily to Europe.” Chris Hopgood Ben Jackson Annual Report 2023 41 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Wellbeing Weely’s Diner at PWR Australia continues to be a real point of difference, providing breakfast, morning tea and a cooked lunch for every employee, every day, free of charge. A well fed and hydrated workforce is happier and more productive. Furthermore, taking a planned and proper break from the work area helps our staff to refresh and interact with others – especially those from other teams or departments, where they exchange ideas and return to work rejuvenated. This year we welcomed back Grant Cook as Head Chef at Weely’s Diner. Grant was the original Chef at PWR in Australia and worked with the business for 14 years. He recently returned from overseas where he was working with a friend at his bakery/café; he is happy to be back and is delighted to be a part of a strong team. Along with Grant’s return to PWR, we also welcomed a new Chef, Damien Boodhun. Damien has over 25 years of chef experience and has proven to be a fantastic addition to the Weely’s Diner team, working alongside our kitchen hand, Kopu Neale. Weely’s Diner: Kopu Neale, Grant Cook and Damian Boodhun Our Value Creation Framework Our People continued Employee Health, Safety and Wellbeing At PWR, our employees are at the heart of the business and their safety and wellbeing remain the highest priority. PWR’s key focus is on preventing work-related injuries, illnesses and incidents as well as protecting and promoting the wellbeing of our team members. Key Focus Areas in FY2023 During the year, the business focused on building a global approach to safety management through increasing safety leadership capability and visibility and further understanding critical safety risks as the business grows and evolves. Although our Lost Time Injury Frequency Rate (LTIFR) for the year was 61% lower than the industry standard1, our global LTIFR of 9.64 across the PWR Group was disappointing and indicates we have more work to do on embedding our safety expectations and behaviour across our sites We invested in our people leaders to equip them with the knowledge and skills to strengthen their leadership and effective communication capability We launched our random drug and alcohol testing for our Australian workforce this year. Since the launch of this program in February 2023, we have conducted a total of 161 tests on 129 employees We focused on proactive injury management and early intervention for injured employees We facilitated free flu vaccinations and COVID boosters at our Australian operations 1 https://data.safeworkaustralia.gov.au/interactive- data/lost-time-injury-frequency-rates 42 PWR Holdings Limited 220,000 Served over 220,000 free meals to our 351 employees at our Ormeau facility The feedback from staff has been fantastic, with responses to surveys including the following comments: “ Amazing food!! we are so lucky to have 2 fantastic chefs back, Thank you!!! Soup is beautiful in winter, the scone was fluffy and light, both with incredible flavours” “ Grant has really brought the joy back to meals at PWR. Has everyone looking forward to it again. The consistency of high level/restaurant quality meals is amazing.” “ Grant has really added life back into the kitchen. We are so happy to have him back.” E U L A V R U O K R O W E M A R F N O T A E R C I Supporting Community Wellbeing Initiatives Hearts of Purple In August 2022, PWR Australia commenced support of Hearts of Purple – a Not-for-Profit Charity based in QLD assisting high risk Domestic Violence victims, and those in crisis situations. The organisation is run by volunteers from the community, raising funds through the 10 cent bottles and cans recycling program. Purple wheelie bins are located on site and the funds raised are used for a number of initiatives including providing at risk victims of abuse with a special security device that can sound alerts and contact emergency numbers. Versiti’s Lifesaving Mission In December 2022, PWR North America team members took the opportunity to give back to the community by supporting Versiti’s lifesaving mission. Versiti’s mission is rooted in saving lives through blood donation, blood research, organ and tissue donation, diagnostic testing, and more. In addition, giving back to the community has become essential in our journey at PWR. The team also came together to help provide a delicious Thanksgiving meal for four needy families. We are extremely proud of our team’s efforts. Kopu Neale serving up morning tea in Weely’s Diner Annual Report 2023 43 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our People continued Diversity At PWR Gender Diversity is a key strategic focus for us. We believe in the benefits of having a diverse workforce. We believe there are many benefits in what has been a traditionally male dominated environment to increase the number of women and are working on programs to attract and retain talented women in our workforce. Celebrating International Women’s Day at PWR PWR celebrated INTERNATIONAL WOMEN’S DAY; an annual celebration of the social, economic, cultural and political accomplishments of women and has been observed since the early 1900’s. PWR is extremely proud of the women who are a part of our company and the achievements they have accomplished. PWR North America Women celebrating International Women’s Day CASE STUDY Women in Leadership Roles – Kirra-Lee Goldfinch Kirra-Lee joined PWR in 2018 after working at a local 7/11 since completing school in 2016. Starting as a production hand, she has progressed to Quality Supervisor, marking a significant milestone in her journey. Reflecting on her time at PWR, Kirra-Lee’s greatest achievement is her personal progress. With support from her supervisor and colleagues, she quickly learned and advanced from a junior quality inspector to a quality coordinator and now holds the position of Quality Supervisor. As a Quality Supervisor,, Kirra oversees part inspection and ensures smooth processes in the Q.C. department. Her attention to detail and high standards contribute to the department’s success. Working at PWR, Kirra-Lee finds joy in the collaborative atmosphere, learning from peers and experiencing a supportive and motivating environment that fosters growth. We were delighted to award Kirra-Lee Employee of the Year 2022. PWR Australia Women celebrating International Women’s Day “ Looking back and seeing how far I have come has got to be the best achievement. When I first started, I knew absolutely nothing but with the support of my then supervisor Jason and a wide range of people around me I was able to learn more than I could imagine.” Kirra-Lee Goldfinch 44 PWR Holdings Limited PWR Australia ran a Female Work Experience Program in September 2022, one of the participants returned for further periods of Work Experience with us and has now secured an Apprenticeship with PWR. E U L A V R U O K R O W E M A R F N O T A E R C I PWR Work Experience Students: Zoe Coplick, Alyssa Watson, Ana Tsompanellis (PWR Leader) and Jordyn Davis-Hurrell Gender Diversity Targets for the 3 years FY2023 to FY2025 and achievement to date are as follows: Number of women on Board of Directors Number of women in Executive Management PWR Group Female representation: PWR Australia PWR North America PWR Europe 2022 Actual 2023 Target 2023 Actual 2024 Target 2025 Target 1 1 16% 17% 17% 1 2 21% 21% 10% 1 2 16% 20% 8% 2 2 22% 22% 12% 2 3 23% 23% 15% Annual Report 2023 45 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Emerging Technology and New Industries At PWR, we provide leading edge cooling solutions to our customers in many industries and we leverage our knowledge, skills and capabilities to provide products to new industries for our cooling solutions, such as the aerospace and defence industry. Our unique point of difference however is the way we stay ahead of the curve in the emerging technology space. Emerging technologies create real opportunity for PWR and its customers and are used by PWR and its customers to tackle climate change by working with customers to develop lower emission cooling solutions. Thermally efficient heat exchangers are a key driving force in many processes requiring a chemical reaction. The use case can be for carbon capture from the atmosphere, where CO2 is entrapped within special coatings on a heat exchanger surface, where it is later stored underground or used for product use. Additional use cases require heat exchangers to be used in conjunction with a catalyst to aid in the production of green fuels, as an alternative to fossil fuels. Other opportunities for PWR exist across the sustainable mobility platforms, with the race to less carbon intense modes of transport heating up. CASE STUDY Working with Universal Hydrogen – Making Carbon-Free Flight A Reality Today Universal Hydrogen is a Los Angeles-based company that has gathered the world’s leading aviation and hydrogen experts to build a hydrogen operating network to make clean aviation a reality in this decade. Hydrogen is, in many ways, the ideal aviation fuel. It is light, clean, safe, and will reach cost-parity with jet fuel by the middle of this decade. It is the only fuel that can decarbonize aviation in the near term. The company takes a flexible, scalable, and capital-light approach to hydrogen logistics by transporting it in modular capsules over the existing freight network from green production sites to airports worldwide. Universal Hydrogen’s innovation is to treat hydrogen as if it were cargo, making it easy to support zero-emission flight at airports anywhere without relying on new infrastructure. Universal Hydrogen is also developing a conversion kit to retrofit existing regional airplanes with a hydrogen-electric powertrain compatible with its modular capsule technology to accelerate market adoption. Universal Hydrogen has commitments for over 200 regional aircraft conversions and has attracted investors such as Airbus Ventures, Toyota Ventures, GE Aviation, JetBlue and Fortescue Future Industries. Universal Hydrogen worked with PWR to investigate high-performance charge air cooling and hydrogen-to-liquid heat exchange solutions for a 1-megawatt powertrain fuelled by hydrogen cells. Universal Hydrogen needed lightweight systems with high thermal efficiency to ensure successful heat management for the prototype powertrain ahead of flight testing. 46 PWR Holdings Limited This case study is printed with the permission of Universal Hydrogen E U L A V R U O K R O W E M A R F N O T A E R C I Converted aircraft being refuelled with hydrogen storage capsules. Image courtesy of Universal Hydrogen (2022). The collaboration on the charge air cooler used a range of PWR’s in-house development tools and capabilities, including: – ● Design support for concept phase – ● Thermal predictions – ● Computational Fluid Dynamics (CFD) – ● Finite Element Analysis (FEA) – ● Manufacturing – ● Thermal calorimeter wind tunnel testing The following images show the development of the Universal Hydrogen charge air cooler at each phase mentioned. In the CAD design phase, the teams achieve packaging, performance, and durability requirements. Complete and sectioned CAD of the charge air cooler assembly. Image courtesy of PWR internal studies (2022). Annual Report 2023 47 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Emerging Technology and New Industries continued The image below shows the fluid flow inside the charge air cooler assembly, as created by PWR’s CFD software. The computer-generated internal streamlines show the magnitude of the charge air velocity and the distribution within the assembly as it flows from inlet to outlet. Both aspects are critical features to ensure correct performance and pressure drop of the unit. Performing this task pre-production allows PWR’s customers to assess performance metrics and avoid lost time or investment in trial-and-error development. Post CFD analysis, while still in virtual form, the unit progresses to FEA, otherwise known as stress analysis. The model image below shows the impact of high temperatures and pressure on the surface and features of the complete assembly, together with extreme axial loading for various flight scenarios. The colour gradient across the surface shows the different stress levels and allows PWR to confirm a pass/fail criterion to the customer. CFD analysis of charge air cooler assembly. Image courtesy of PWR internal studies (2022). FEA analysis of charge air cooler assembly. Image courtesy of PWR internal studies (2022). 48 PWR Holdings Limited Once the model has gone through the above sign-off criteria, PWR’s team progresses to manufacturing the physical assembly, in this case, using a high-efficiency PWR Micro Matrix Heat Exchanger (MMX), whose core is surrounded by a high-strength composite duct and connected to supporting billet-machined fluid tanks. E U L A V R U O K R O W E M A R F N O T A E R C I With the assembly complete, the unit progresses to PWR’s thermal wind tunnel calorimeter for performance sign-off. This process allows PWR to provide Universal Hydrogen with a matrix of real-world performance information to plug into their aircraft propulsion models to verify the complete system. In addition, the wind tunnel testing step allows PWR to close the loop between our pre-production CFD simulation predictions and the real-world test. Through continuous improvement and tight correlations between CFD and testing, PWR can better deliver on our objective to provide the world’s best cooling solutions. Following early flight testing, PWR will continue to work with Universal Hydrogen to support the project as it moves through the validation, certification, and production phases. Annual Report 2023 49 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Intellectual Capital To be an industry leader in the field of Thermal Management systems across multiple high value market sectors requires substantial investment in people, advanced manufacturing technology, capability, quality control and testing systems to deliver customized solutions to exacting standards. To stay ahead we must always innovate and never be satisfied to be standing still even when business is strong. Our operational management aims to attract and retain talented staff, minimize waste and improve efficiencies, while our strategic management anticipates customer needs and industry trends to ensure PWR is well positioned to deliver on customer expectations and market opportunities in advance of their materialization. PWR is committed to investing in its own success to build capability and capacity to support all of our market sectors to deliver solutions exceeding our customer’s expectations. PWR Europe Greenfield Manufacturing Site We expanded our capacity and capability in FY2023 by establishing a new manufacturing facility in Rugby, United Kingdom and moving our PWR Europe operations from Silverstone. PWR Europe also acquired Docking Engineering and Bespoke Motorsport Radiators during the year who also relocated to Rugby, expanding the Group’s manufacturing capabilities and capacity to service our current European customers. This paves the way for PWR Europe to manufacture its products in the UK which has been a long-term objective of PWR. Our facility at Rugby will provide capacity for future growth opportunities in the Motorsport, Automotive, Industrial, Marine and Aerospace and Defence sectors. PWR Europe’s new manufacturing facility located in Rugby, United Kingdom 50 PWR Holdings Limited Moving Towards Automation for Efficiency Automation is a key part of our value adding strategy and we are always looking at automating manufacturing processes particularly in a labour constrained market. This year we purchased an automatic stacking machine and installed it at PWR Australia. It has been extremely beneficial to stack and plate large numbers of intercoolers. It can produce cores from a component level to a ‘ready to braze state’ in around 5 minutes compared to approximately 35 – 40 minutes when done the traditional way. This efficiency gain not only increases our output but reduces the need for a full time equivalent, as the operator is completing both the plating and stacking processes in one. This introduction into automation has shown huge potential in a short amount of time and we will continue to explore further automation opportunities in the years ahead. E U L A V R U O K R O W E M A R F N O T A E R C I CASE STUDY PWR Technology and depth of capability Custom Tube and Fin Heat Exchangers PWR has developed an extensive range of tube and fin geometries allowing us to optimize core constructions to achieve lightweight and high performing coolers. Whether the heat exchanger be a water radiator, oil cooler, charge air cooler or refrigerant application we have dedicated core specifications that can be tailored to maximize cooling performance. PWR has also developed specific tube and fin combinations to optimize thermal management for coolers in applications like battery cooling, motor cooling and electronics cooling. With tube and fin heat exchangers PWR can also completely customize not only the size of the cooler but the shape as well. With the ability to produce 3D profiled coolers and free-form coolers PWR can design a tube fin cooler to maximize heat exchanger face area and minimize packaging space. Annual Report 2023 51 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Intellectual Capital continued Bar and Plate Assemblies Known for their increased robustness and durability, PWR has a wide range of bar and plate construction options that can be tailored to meet a project’s requirements and optimize performance. From robust and heavy-duty bar and plate solutions designed to succeed in the most demanding conditions in Mining and Defence applications to lightweight coolers for Aerospace and Motorsport, PWR can meet the needs of a broad range of markets. Like all of our products PWR can deliver bar and plate coolers as part of a turn-key solution ready to install as a complete module. Ruggedized Liquid Cold Plates and Bipolar HFC Plates PWR manufacture liquid cooling plates and brazed chassis for Aerospace, Defence, Automotive and Motorsport markets. These components are used in a variety of end applications such as radar systems, electric vehicles, autonomous vehicles, energy storage systems and power electronics cooling applications. PWR can customise a range of pressed cold plates and wave MPE (multiport extrusion) tube options for cylindrical and pouch cell battery cooling. Micro Matrix Heat Exchangers MMX heat exchangers are extremely efficient, compact and light weight solutions, constructed from an array of hollow micro tubes, similar to hypodermic needles and ranging in sizes from 0.3mm diameter to 1mm diameter. These thin wall tubes provide exceptional surface area in a compact package to maximize heat transfer in liquid/liquid, liquid/air or liquid/phase change material applications. This technology has many advantages for Aerospace and Defence due to the ability to reduce thermal signature, increase payload, flight time and reduce space claim. Complete Cooling Modules In addition to the production of high-performance cooling systems, PWR has a proven track record in assisting our customers in platform integration. As a vertically integrated company with vast capabilities, PWR can manufacture complete sub-assemblies on behalf of the customer as a value-added process to streamline production at the final assembly plant. PWR can manufacture and source a vast array of machined, fabricated, carbon composite and common off the shelf parts, to allow assembly of complete cooling system modules to our customers’ specifications. 52 PWR Holdings Limited CT Scanning/Computed Tomography Industrial computed tomography (CT) is a highly precise, non-destructive X-Ray imaging technology. The CT scanner reconstruction produces a complete 3D representation of a component, based on a large number of 2D X-ray images. Computed Tomography allows PWR to thoroughly inspect external and internal structures without the need to physically dissect and analyze the entire component which would otherwise render it unsuitable for future use. This is a process and capability that has significant benefits to weld and braze joint analysis and process developments, as well as providing critical inspection capability for Additive Manufactured parts. This highly specialized measurement equipment has become an important inclusion in our final inspection processes supporting our high-end Motorsport and Aerospace/Defence customer base. E U L A V R U O K R O W E M A R F N O T A E R C I Additive Manufacturing PWR has developed both resin and metal 3D printing while working with specific partners to adapt the technology to thermal management applications. PWR focuses on plastic and metal additive processes and materials that support our business model of engineering the unfair advantage and supplying customers with the highest quality and shortest lead time. PWR is leading the thermal management industry with specific technology developments to apply metal additive manufacturing to improve the performance and manufacturing of our products. The laser powder bed fusion process of aluminium forms the basis of the metal additive manufacturing process at PWR. The results of several years partnering with a leading materials development company has resulted in the exciting recent introduction of an Aluminium Powder known as CP1. This new CP1 powder that PWR is introducing to its production offers higher strength and thermal properties than other additive Aluminium powders and can be printed faster, but the most exciting characterisitc of CP1 is its ability to be brazed which enables PWR’s evolution of additive thermal management components to combine all the very best attributes of our capabilities to maximise design and thermal efficiency. Simulation PWR has continued to invest in hardware, software and talented engineers to strengthen our simulation capabilities to deliver world class service to our customers requiring support and as a powerful design tool for PWR product development. To complement our in-house 1D predictive tools that are supported through real world data collection in our wind tunnel, our Simulation team use 3D Computational Fluid Dynamics (CFD) software to analyze heat exchanger flow distributions and heat rejections to maximize the efficiency of PWR manufactured designs. CFD is an invaluable engineering tool for the design and analysis of cold plates in addition to more conventional heat exchangers. The implementation of the flow and heat- transfer analysis in the design process allows PWR to evaluate and compare performance of different designs and different manufacturing methods allowing optimization of heat-transfer, reducing pressure-drop or mass. Annual Report 2023 53 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Corporate Governance and Risk Management The Board of PWR is committed to providing a return to its shareholders and meeting the expectations of shareholders by leading a company culture that embodies ethical business practice. Our approach is driven by our Purpose and our DNA of Respect, Teamwork and Passion. PWR’s 2023 Corporate Governance statement 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 and details the key aspects of the governance framework and practices of PWR. Highlights of the Board’s activities during the year and our approach to managing our enterprise risks is outlined here. Key Focus Areas of the Board during the year: – Following an assessment of Board skills and the Company’s strategy, the appointment of Mr Kym Osley, AM, CSC as a Non-Executive Director – Participating in the review of the Group’s Strategy and overseeing the implementation of strategy through quarterly strategy implementation reports – Reviewing the Group’s risk management framework and the Enterprise Risk Register and monitoring key mitigation actions – Monitoring the Group’s operating and cashflow performance, financial position and key metrics – Approving the acquisitions of Dockings and Bespoke Motorsport Radiators in the UK together with the sourcing and establishing of a greenfield manufacturing site at Rugby – Reviewing and updating the Group’s Executive Remuneration Policy with advice from independent remuneration consultants and overseeing remuneration outcomes for Executives – Participating in the development PWR’s Sustainability Pillars, Material Sustainability Priorities, ESG Policy, ESG Governance Responsibilities and ESG Roadmap – Monitoring and reviewing the Group’s safety performance and overseeing implementation of strategies to improve safety performance and build safety leadership capabilities including the adoption of a refreshed Group wide Health, Safety and Wellbeing Policy – Reviewing outcomes and implementation plans arising from the Group’s Employee Engagement Survey – Developing a comprehensive succession plan for members of the Board 54 PWR Holdings Limited E U L A V R U O K R O W E M A R F N O T A E R C I Board Skills and Experience The Board Skills Matrix sets out the skills and experience considered essential to the effectiveness of the Board and its Committees. The Matrix is reviewed by the Nomination and Remuneration Committee to ensure the prescribed skills and experience address PWRs strategy and operating environment. Board Skills and Experience (Does not include Chairman who is retiring) Strategy Risk Management Leadership Accounting/ Financial Statements Corporate Governance/Legal /Listed Entity Manufacturing Global Business Motorsports Aerospace/Defence 75% 25% Experience in leading, developing or executing strategic business objectives 50% 50% 25% 25% 25% 75% 75% 50% 50% 75% 75% 75% 25% 25% 50% 50% Experience in identifying, assessing and monitoring existing and emerging financial and non-financial risks Held senior leadership/ executive role in an organisation of significant size or complexity Proficient in financial accounting and reporting Experience as a Non-Executive Director of a listed entity and/ or understanding of legal and regulatory frameworks underpinning corporate governance principles Experience at a senior level working in and/or leading a manufacturing business Experience in global business operations Experience in the motorsports industry Experience in the Aerospace and Defence industry Expert Competent Aware Board Succession and Renewal During the year, the Board focused on Board succession and developed comprehensive succession plans for directors driven by its assessment of skills and capabilities aligned to PWR’s Strategy. The outcome of the succession planning and Board Skills Matrix and the decision by Teresa Handicott, current Chairman, not to stand for re-election at the 2023 Annual General Meeting has resulted in: 1. The Board determining that Roland Dane will be appointed as its Chairman following the end of the 2023 Annual General Meeting, and 2. The Board commencing a Non-Executive Director recruitment exercise focusing on the following attributes and skills: – Gender diversity – Experience in financial statements and reporting – Experience in corporate governance/ legal and listed entity operating environment. Annual Report 2023 55 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Corporate Governance and Risk Management continued Managing Risk Risk management is fundamental to maximising the value of our business and informing PWR’s strategic direction. 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. Below is an outline of our material risks and how we manage them. This outline is not exhaustive, and risks are not presented in order of materiality: People and Culture Risks 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 so that 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 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 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 – Weely’s diner provides quality food, free of charge to our employees for breakfast, morning tea, lunch and dinner with healthy selections available – We facilitate and encourage onsite vaccinations for the flu and COVID-19 – Safety leadership and visibility key performance indicators have been included in the FY2023 corporate scorecard and the FY2024 personal scorecards for leaders Talent identification, recruitment, upskilling and retention Our ability to identify, attract, upskill and retain key talent and develop capabilities is fundamental to delivering our strategic objectives – 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 internal and external training for their skills development and career progression – We continue to improve our long-term workforce planning and talent management program across PWR – We continue to improve our career planning and training programs across PWR – We invest in our leaders to support their skills in leading and managing their teams and have developed a tailored front line leadership program to develop our supervisors and managers and equip them with the skills to lead their teams effectively 56 PWR Holdings Limited Reliance on key personnel risk – We identify key functions across the PWR operations, establishing succession plans to manage key personnel risk and increase capacity – We have an active Executive Leadership Team that meets regularly to set priorities, monitor performance, and manage issues – We continue to expand our technical sales teams to broaden our customers relationships – We monitor market labour rates, adjusting salary and wage rates where appropriate to remain competitive – We manage productivity to minimise the use of overtime – We identify and implement production improvements, including investigating opportunities for automated and semi-automated production activities where applicable – We review our customer pricing and pass through cost increases where appropriate and justified E U L A V R U O K R O W E M A R F N O T A E R C I PWR’s growth is supported by a highly capable team. Ongoing development of the team and effective succession planning is required for delivering our strategic objectives Labour rate increases Labour and on costs are PWR’s largest expense. Managing labour rate increase is important to ensure we can attract and retain quality employees, while protecting the profit margin and shareholder return Operational Risks 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, wider-spread workforce, more workload, the need for more factory space, better and more streamlined systems and processes, more customers and new advances in technology, to name a few – 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 – We have focused on developing high performing leaders, targeting managers and supervisors for our in-house front line leadership program where a self-assessment of one’s own behavioural preferences is the first step in the journey – Recruiting for growth has no doubt been a challenge during the reporting period with the availability of workers the lowest it has been in a long time – 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 have made progress this year to extract value from our current Enterprise Resource Planning (ERP) system and have selected and commenced implementation of a Human Resource Management System that will support the business for many years to come – We review and plan for the factory footprint and machinery required to support the business – We understand the importance of effective production planning and capacity planning between our locations, and will continue to invest in the planning function Protecting our intellectual property and managing cyber security risks Second only to our people is PWR’s intellectual property and that of our customers – We regularly undertake internal and independent external reviews of our IT and potential cyber security exposures and update our systems and approach as required – We have strict confidentiality procedures in place when developing new technology and manufacturing processes – We operate restricted areas within our manufacturing sites and do not permit phones or cameras on the factory floor Annual Report 2023 57 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Corporate Governance and Risk Management continued Sustainability Risk PWR is committed to playing its part in building a more sustainable world for the future generations. How we go about this requires focus and investment and close contact with our many stakeholders We believe that PWR can play its part in the transition towards a sustainable society through the use of emerging technology and innovative product development to support our customer’s climate change targets 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 invest in new technologies and projects to support low emissions programs – In FY2023 we assessed our baseline using our sustainability framework described on page 18 and established our environment, sustainability and governance roadmap – We have quantified our scope 1 and scope 2 baseline emissions outlined on page 19 – We will set realistic and measurable targets to meet and report against – We will continuously review and revise our approach to sustainability and climate change to ensure it keeps pace with the expectations of our stakeholders – We will incorporate the recommendations from the Task Force on Climate Related Financial Disclosures – We determine where to manufacture product considering source location of raw materials, capacity and capability of the PWR factory, and destination of the final product – 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 hold AS9100 accreditation (aerospace and defence quality standard) and National Aerospace and Defense Contractors Accreditation Program (NADCAP) accreditation (thermal and chemical management) This year we will focus on securing accreditation for the Defence Industry Security Programs for Australia and North America – 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. This year we invested $10.1 million on R&D activities – We adopt quality control approaches in everything we do and use advanced technology to problem solve for our customers – We have 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 – We are investing in understanding automation and artificial intelligence and how these technologies can be applied to PWR to increase efficiency Customer and market concentration risk – We regularly evaluate our strategic objectives with the Board – We invest in our technical sales teams to provide capacity to broaden our customer base and market focus – We invest in trade shows and marketing to increase the PWR brand awareness, with a particular focus on aerospace and defence – We invest in flexible equipment that services a broad range of customer programs and markets, allowing us to redeploy resources as required PWR has been successful in expanding across the motorsports market. We are well placed to expand our customer base and exposure to customer markets to limit the impact of commercial and market variability 58 PWR Holdings Limited Contract risk PWR has historically been engaged on lower volume, flexible orders. Increasingly, PWR is engaging on longer term, higher volume programs with set pricing and contractual terms. The importance of disciplined contract governance is increasing – We review all contract pricing, terms and conditions closely, and engage advisors where appropriate – We are enhancing our contract governance, with particular focus on understanding contract exposures, risks and opportunities, with approval escalations – We are investing in our ERP to provide improved data to support contract pricing and analysis of contract performance E U L A V R U O K R O W E M A R F N O T A E R C I Raw material supply and pricing Raw materials, consisting mainly of aluminium products including extruded tube, billet, coil and sheet metal, are used in the manufacture of PWR products. Movement in the aluminium commodity markets, production costs of aluminium products and global logistics impact the price paid by PWR Major equipment risk PWR continues to invest in equipment to provide capacity and capability. There are major items of equipment that are important to production continuity, including: furnaces, wind tunnel and CT machine – We maintain stocks of raw materials to ensure continuity of PWR production and to provide time to manage changes in global pricing and supply – We maintain diverse sourcing options globally to reduce exposure on a single company, country or region – We forecast demand and target stock holding of between 12 and 24 months for critical raw material lines – We hold raw material that can be further cut to size to provide flexibility in our stock holding – We continue to review and update our risk register and business continuity plans – We have invested in new furnaces that will provide some redundancy across PWR locations – We employ an experienced maintenance team that have detailed knowledge of the installation and operation of the equipment – We undertake regular services and inspections – We engage local suppliers to support servicing and repairs – We hold critical spares Accreditation and Certification Risk – We continue to update our systems and training programs to incorporate and improve the requirements of these accreditations – We have a dedicated team to carry out surveillance audits and manage third party certification – We continue to assess other accreditations to determine if they are appropriate for PWR PWR holds accreditations that are important to support current and future customer programs. These accreditations also enhance the PWR systems to improve efficiency and consistency. Specific accreditations include AS9100 (aerospace and defence quality standard), NADCAP (National Aerospace and Defense Contractors Accreditation Program), and ISO 14001 (Environmental Management System) Annual Report 2023 59 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Our Value Creation Framework Our Corporate Governance and Risk Management continued Business interruption risk from external factors There are potential events that, if they occur, could have a significant impact on the operations of one or more PWR locations, including but not limited to interruptions from natural disasters, fire, flood, loss of critical services or pandemic – We continue to review and update our risk register and business continuity plans – We maintain our facilities and conduct regular inspections – We engage local suppliers to support servicing and repairs – We review local health advice and have demonstrated an ability to respond swiftly to protect the health and wellbeing of our staff and their families – We facilitate and encourage onsite health information sessions (as required) and vaccinations for the flu and COVID-19 – We are aligning manufacturing capabilities, where possible, across all PWR locations to provide flexibility for delivering on customer programs Financial, Legal and Regulatory Risks Liquidity and funding risk PWR operations required working capital and investment in equipment. Operating cash flows and access to funding will be required to support future growth – We generate ongoing cash from the sale of products and services – We manage customer credit limits and outstanding debtor closely – We maintain access to debt facilities and currently have $17.5 million in undrawn debt facilities – We are listed on the Australian Stock Exchange, so have the ability to raise equity capital if required Currency and foreign exchange risk – We operate a hedging strategy for the GBP, protecting a portion of future sales in GBP out to between 6 to 12 months – We operate production facilities in the United States of America and the United Kingdom. Local production costs reduce PWR’s exposure to exchange rate movement in the local currencies – We are increasing sales in Euro to further diversify the impact of currency fluctuations PWR operates facilities in Australia, the United States of America and the United Kingdom, reporting consolidated financial results in Australian Dollars (AUD). Most of the Australian production is sold to European customers, with the production costs in AUD and sales in Great British Pounds (GBP) or Euro Macro-economic conditions risk Global and regional economic conditions impact PWR, impacting customer demand, labour rates, commodity prices, energy prices, freight and logistics – We continue to review and update our risk register and business continuity plans – We regularly evaluate our strategic objectives with the Board – We communicate closely with our customers and suppliers to monitor impacts from changing economic conditions – We invest in flexible equipment that services a broad range of customer programs and markets, allowing us to redeploy resources as required in response to changes in customer markets – We hold raw material that can be further cut to size to provide flexibility in our stock holding – We maintain access to funding sources to support short term impacts on operating cash flow 60 PWR Holdings Limited Debtor risk PWR recognises the importance of collecting cash from sales. Cash receipts are the measure of effective sales Fraud risk PWR is aware of the potential for fraud across its operations. While maintaining clear expectations for behaviour, it is important to understand and protect against fraud risk Insurance risk PWR understand the importance of holding comprehensive insurance policies to protect the interests of shareholders, customers, officers and employees Regulatory risk PWR recognises the importance of understanding and complying with the regulations in the countries where we operate, purchase supplies and sell our products. Changes to the regulations in these countries may impact how PWR operates – We operate a strict debtor policy to determine credit terms ranging from cash up front to trading with an appropriate credit limit – We monitor the credit performance of customers, changing credit terms where appropriate – We report to senior leaders the cash balances daily and outstanding credit balances weekly – We hold debtor insurance for most debtors and hold a doubtful debt provision where required – We train all staff in the PWR Code of Conduct and Business Ethics, including what we expect from all PWR staff as part of the PWR DNA of Respect, Passion and Teamwork – We maintain an anti corruption and bribery policy – We maintain segregation of duties for critical functions and IT permissions based on role – We promote the whistleblower policy E U L A V R U O K R O W E M A R F N O T A E R C I – In FY2023 we engaged Arthur J. Gallagher as our global insurance broker, to undertake a review of our insurance program and to provide broking services for future insurance renewals. They identified several improvements to our insurance program that we have adopted – We maintain a comprehensive insurance program that is adjusted to align with our changing requirements – Our facilities are located in Australia, the United States of America and the United Kingdom – We continue to monitor changes in regulations impacting PWR, updating our operating processes as required – We engage advisors globally to highlight regulation changes, assisting us to understand the impact on PWR and advising on how to comply – We engage directly with government departments and are members of relevant industry bodies Annual Report 2023 61 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Leadership Directors and Executives Teresa Handicott Independent Chairman, Non-Executive Director A N Kees Weel Managing Director and Chief Executive Officer Jeffrey Forbes Independent, Non-Executive Director A N Jeff has over 30 years’ experience in senior finance and management roles with extensive mergers and acquisitions, equity and capital markets and project development experience. As an executive Jeff worked at Cardno Limited, an engineering and environment consultancy company as CFO, Executive Director and Company Secretary before leaving in 2013 to commence Non-Executive Director roles. Prior to joining Cardno, Jeff was Chief Financial Officer and Executive Director at Highlands Pacific Limited, a PNG-based mining and exploration company. He has significant experience in capital raisings and debt financing. During his career has worked for numerous major companies including Rio Tinto, BHP and CSR and has previously held senior finance roles in the resources sector. Jeff is a Non-Executive Director of Cardno Limited and Ventia Services Group Limited. Jeff is also Chairman of Herron Todd White Australia and Herron Todd White Consolidated. Jeff holds a Bachelor of commerce from the University of Newcastle and is a Graduate of the Australian Institute of Company Directors. 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. Teresa is State President of the Queensland Council 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 Chairman of Peak Services Holdings Pty Ltd, a subsidiary of The Local Government Association of Queensland (LGAQ), 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? Key A N Audit, Risk and Sustainability Committee Nomination and Remuneration Committee Committee Chair 62 PWR Holdings Limited Roland Dane Independent, Non-Executive Director A N Kym Osley AM, CSC Independent, Non-Executive Director A N Martin McIver Chief Financial Officer (CFO) 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 the former Managing Director of the successful Triple Eight Race Engineering team, winning 9 out of the last 15 V8 Supercar championships. Roland is a director of Racing Together Limited, a charitable organisation promoting opportunities in motor sports for young indigenous Australians. He is a member of the FIA Touring Car Commission and a member of the Safety and Risk Committee of Motorsports Australia. Kym joined the Board on 1 February 2023. Kym brings to the Board over 45 years’ experience in the Defence Force and Defence industry. He has undertaken Defence strategic procurement and capability planning for the Defence Force as well as personally leading major Defence capability programs, including the $17B F-35 Joint Strike Program for Australia. Kym was Australia’s senior Air Force representative to the UK, and later was the senior Defence representative in the US engaging with the US military as well as with international major Defence companies. Kym flew operationally as a fast jet aviator in aircraft including the F-111, Phantom and F-18 and commanded at all levels through to two-star rank. He was deployed to the Middle East where he directed air operations for the Coalition with responsibility for over 400 aircraft and 25,000 staff. In his Reserve military capacity he has also led many overseas industry delegations to engage with overseas primes and military organisations to generate export contracts. In 2019, Kym was awarded a Defence Industry Service Commendation by the Minister for Defence for his contributions to Defence and Defence Industry over many years. Mr Osley was the most recent NSW Defence Advocate (Investment NSW) and is a non-executive director of Quickstep Holdings Limited (ASX:QHL), a member of LEOLabs Strategic Advisory Board, and is the Chair of the Australian Air Force Cadet Foundation. He also is an Air Vice-Marshal in the Air Force Active Reserves, and acts in a pro-bono capacity as Executive Secretary of the Australian Institute of Navigation, Patron of the Australian Federation Guard, and Patron of various Air Force veteran organisations. 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). I P H S R E D A E L Annual Report 2023 63 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Financial Report FY2023 For the year ended 30 June 2023 64 PWR Holdings Limited Contents Directors’ Report ....................................................................................................................................................................... 66 Directors’ Report ..........................................................................................................................................................................................................................66 Lead Auditors Independence Declaration Under Section 307C of the Corporations Act 2001 .....................................................70 Remuneration Report .................................................................................................................................................................................................................71 Financial Statements ................................................................................................................................................................ 90 Consolidated Statement of Profit or Loss and Other Comprehensive Income ........................................................................................ 90 Consolidated Statement of Financial Position ..............................................................................................................................................................91 Consolidated Statement of Changes in Equity ...........................................................................................................................................................92 Consolidated Statement of Cash Flows ..........................................................................................................................................................................93 Notes to the Consolidated Financial Statements .......................................................................................................................................................94 Section A About this Report ...........................................................................................................................................................................................94 Section B Business Performance ..................................................................................................................................................................................95 Section C Operating Assets and Liabilities ...........................................................................................................................................................100 Section D Employee Benefits ....................................................................................................................................................................................... 106 Section E Taxation .............................................................................................................................................................................................................. 108 Section F Capital Structure and Borrowings ........................................................................................................................................................ 110 Section G Group Structure ..............................................................................................................................................................................................113 Section H Other Information ...........................................................................................................................................................................................116 Section I Significant Accounting Policies .............................................................................................................................................................122 Directors’ Declaration ..............................................................................................................................................................................................................128 Independent Auditor’s Report to the Members of PWR Holdings Limited ..............................................................................................129 Additional Information............................................................................................................................................................133 ASX Additional Information ..................................................................................................................................................................................................133 Corporate Directory .................................................................................................................................................................................................................135 65 YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Annual Report 2023Directors’ Report Directors’ Report For the year ended 30 June 2023 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 2023 (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 pages 9 to 12 – Director biographical information on pages 62 and 63 and Company Secretary biographical information on page 66 – Auditors Independence Declaration on page 70 – Remuneration report on pages 71 to 89 – Note H1 Financial risk management objectives and policies on page 116 – Note I10 Share capital on page 125 – Note H3 Auditor’s remuneration on page 121 – Note D3 Employee share based payments on page 107 – Directors’ declaration on page 128 – – Corporate directory (inside back cover). Shareholder information on pages 133 and 134 1. DIRECTORS As at the date of this report, the Directors in office were: Teresa Handicott Kees Weel Jeffrey Forbes Roland Dane Kym Osley Appointed 1 October 2015 Appointed 30 June 2003 Appointed 7 August 2015 Appointed 1 March 2017 Appointed 1 February 2023 You can find information about our Directors’ qualifications, experience, special responsibilities and other directorships on pages 62 and 63. 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 Regional Development, Manufacturing and Water and Deputy Chair of the Advisory Board for Marist College Ashgrove. 66 PWR Holdings Limited Directors’ Report For the year ended 30 June 2023 3. DIRECTORS’ MEETINGS Our Chairman sets the agenda for Board meetings, with the Managing Director and the Company Secretary. The meetings typically include: Strategy discussion – Minutes of the previous meeting – Matters arising – – MD’s report – Chief Financial Officer report – Production report – Operational excellence 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 Attended Held Attended Held Attended Held Board Meetings Audit and Risk Sustainability Committee Nomination and Remuneration Committee Meetings Teresa Handicott Jeffrey Forbes Roland Dane Kym Osley1,2 Kees Weel2 11 11 11 5 11 11 11 11 5 11 6 6 6 33 63 6 6 6 33 63 4 4 4 23 43 4 4 4 23 43 1. Appointed as Non-executive Director, 1 February 2023. 2. Not members of the Audit, Risk and Sustainability Committee or the Nomination and Remuneration Committee during the Reporting Period. 3. Attended by invitation 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), aerospace and defence, and automotive aftermarket sectors for domestic and international markets. The Group has manufacturing and distribution facilities in Australia, the United Kingdom (UK) and the United States of America (USA). 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. 67 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORTDirectors’ Report For the year ended 30 June 2023 5. 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 2022 ordinary Interim 2023 ordinary Total amount Cents per share Total amount $’000 Date of payment 8.50 3.60 8,525 23 September 2022 3,614 12,139 24 March 2023 Declared after end of year The following dividend was declared by the Directors since the end of the financial year: Final 2023 ordinary dividend Total amount Cents per share Total amount $’000 Date of payment 8.90 8,934 22 September 2023 8,934 The financial effect of the dividends declared after the end of the year have not been brought to account in the consolidated financial statements for the year end 30 June 2023 and will be recognised in subsequent financial reports. There is no dividend re-investment plan in operation. 6. 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. 7. EVENTS SUBSEQUENT TO REPORTING DATE The Board declared a fully franked final 2023 ordinary dividend of 8.90 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 2023. 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. 8. 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. 9. ENVIRONMENTAL REGULATIONS The Group is not subject to any significant environmental regulations. 10. 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. 68 Directors’ ReportPWR Holdings Limited Directors’ Report For the year ended 30 June 2023 11. 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. 12. NON-AUDIT SERVICES During the year KPMG, the Group’s auditor, has not performed any services other than the audit and review of the financial statements. 13. LEAD AUDITOR’S INDEPENDENCE DECLARATION The lead auditor’s independence declaration is set out on page 70 and forms part of the Directors’ Report for the financial year ended 30 June 2023. 14. DIRECTORS’ INTERESTS Details of the Directors’ interests in the securities of the Company are disclosed in the remuneration report. This report is made with a resolution of the directors: _________________________________ __________________________________ Teresa Handicott Chairman Brisbane 17 August 2023 Kees Weel Managing Director Brisbane 17 August 2023 69 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORT Lead Auditors Independence Declaration Under Section 307C of the Corporations Act 2001 for the year ending 30 June 2023 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 financial year ended 30 June 2023 there have been: i. ii. KPM_INI_01 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. PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Erin Neville-Stanley Partner Brisbane 17 August 2023 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. 70 70 Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 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 2023. 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. Strong results while investing in capability and capacity In FY2023, PWR Holdings Limited (the “Company”) and its controlled entities (the “Group”) have grown revenue year on year by 17.1%. We have been able to deliver a record profit of $21.8 million, a tremendous effort by each and every one of our employees who worked with us and supported the business in taking this step. To allow the Group to deliver on future opportunities, in FY2023 we have invested in expanding capability and capacity. This included investing in employee development, ongoing research and development of new technologies, expanding our manufacturing footprint, including commencing manufacturing in the United Kingdom, and ongoing investment in additional critical equipment. Total Fixed Remuneration Reviews for Remuneration in FY2024 Annual salary reviews were conducted at the end of FY2023 for salaries moving into FY2024. The Board appointed an independent remuneration consultant to provide advice on remuneration benchmarking for the Executive KMP. The outcome of that exercise was: – Managing Director - In recognition of Mr Weel’s established tenure in the role of MD, performing at a high level and leading the company through significant growth (in revenue, profit and share price), and in consideration of his remuneration relative to market peers, his Total Fixed Remuneration (TFR) was increased effective 1 July 2023 to $752,200 per annum, representing a 15% increase on the prior year. His Short Term Incentive Program (STIP) opportunity has increased to 60% of TFR, with up to half payable in cash and the remaining half deferred over a two year period under the terms of the STIP. His Long Term Incentive Program (LTIP) opportunity has increased to 90% of TFR, subject to performance over a 3-year period and is payable in shares, cash or a combination of shares and cash. – Chief Financial Officer – Based on a review of market peers, Mr McIver’s TFR has been set at $405,500 per annum from 1 July 2023, a 6% increase on the prior year. His STIP opportunity has increased to 50% of TFR, with up to half payable in cash and the remaining half deferred over a two year period under the terms of the short term incentive plan. His LTIP opportunity has increased to 50% of TFR, subject to performance over a 3-year period and is payable in shares, cash or a combination of shares and cash. The deferred portion of the STIP will have a service condition where the Executive KMP must remain continually employed by the Company or another Group entity until the date of vesting. 50% of the deferred portion of the STI will vest on 1 September, 14 months after the end of the STI financial year, and the remaining 50% of the deferred STI will vest on 1 September, 26 months after the end of the STI financial year. The deferred portion of the STI can be paid in shares, cash or a combination of shares and cash. Short Term Incentive Program (STIP) Outcomes for FY2023 The intent of the FY2023 STIP was to focus our Executive KMP and leaders on what they can influence in the performance year. For the STIP to be activated for Executive KMP, it must have met a profitability Gate established by the Board at the beginning of FY2023. If the STIP Gate is met, this unlocks a greater STIP amount for participants and forms the basis of a stretch target. This is a key feature of the STIP Plan that assists the Board in aligning the creation of shareholder value with actual company performance. The STIP Gate is a financial measure linked to budgeted NPAT for the Group. Provided the STIP gate is met or exceeded, the Corporate Scorecard is assessed against NPAT growth, safety, staff retention, staff engagement, product quality and manufacturing efficiency. The more the STIP Gate is exceeded, the more of the Corporate Scorecard is unlocked. As outlined in more detail on page 77, the Company exceeded the gate for the STIP and accordingly Executives did earn cash bonuses for FY2023 under the STIP. The quantum of their bonuses was based on assessment of the Corporate Scorecard as well as personal KPIs which are further explained on page 78. The Board believes this was appropriate given the significant effort and contribution they made during the reporting period for which I and my fellow directors sincerely thank them. 71 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORTRemuneration Report For the year ended 30 June 2023 Long Term Incentive Program (LTIP) Outcomes Performance of long-term incentive rights granted in the FY2020 year were assessed for the end of FY2022 being the relevant performance period. Both the TSR and EPS performance hurdles for the 3-year performance period were exceeded, resulting in 100% vesting of long-term incentives in September 2022. At the end of June 2022, following a 3-year performance period: – – the Company ranked at the 86th percentile for Total Shareholder Return (TSR) for the performance period for the FY2020 performance rights (1 July 2019 to 30 June 2022) when compared to the benchmark group of ASX 300, excluding the Energy sector (oil, gas and coal) the Group’s EPS hurdle for the FY2020 performance rights was measured by the growth in EPS from FY2020 (base year) to the end of the third year of the Performance Period (FY2022). The EPS growth rate was 46.3%, a compound growth rate of 13.5% over that period As a result, 100% of the FY2020 performance rights vested on 1 September 2022 and provided the Executive KMP and other participants an equivalent number of the Company shares to the rights granted as remuneration. Board Membership Following an assessment of Board skills and experience and its alignment to PWR’s long term growth strategy, the Board undertook a recruitment process for an additional Non-Executive Director during the year, with strong experience in the Aerospace and Defence Sector. With the assistance of independent, external recruitment consultants, the Board appointed Mr Kym Osley, AM, CSC to the Board from 1 February 2023. The Board extends a warm welcome to Kym and looks forward to his contribution. Directors’ fees remain unchanged The fees for the Chairman and Non-Executive Directors will remain unchanged for FY2024. Further details can be found on page 84. 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 Executives for performance and recognising the interests of shareholders. Our Corporate Scorecard for FY2024 will continue to focus our Executive KMP, leaders and people they lead on our business priorities including implementing controls to keep our people safe and well, growing our aerospace and defence business, maintaining exceptional product quality and improving productivity. In what continues to be an exciting time for the Group, I wish to thank our shareholders for their continued support. Sincerely, _________________________________ Teresa Handicott Chairman, NRC 72 Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 2. INTRODUCTION AND SCOPE OF REPORT This report details the remuneration framework and outcomes for Key Management Personnel (KMP) of PWR Holdings Limited (the “Company”) and its controlled entities (the “Group”) for FY2023. This report forms part of the Directors’ Report for this period. The information provided in the Remuneration Report has been audited as required by section 308(3C) of the Corporations Act 2001. The following personnel were classified as KMP during FY2023: Executive KMP4 Kees Weel, Managing Director Martin McIver, Chief Financial Officer Non-Executive Directors Teresa Handicott (Independent Chairman and Non-Executive Director), appointed Non-Executive Director on 1 October 2015 and Chairman on 19 October 2017 Jeffrey Forbes (Independent, Non-Executive Director), appointed 7 August 2015 Roland Dane (Independent, Non-Executive Director), appointed 1 March 2017 Kym Osley (Independent, Non-Executive Director), appointed 1 February 2023 4 On 1 July 2021, Matthew Bryson changed role to Chief Commercial and Technical Officer and due to his change in responsibilities is no longer classified as a Key Management Personnel from 1 July 2022 for the purpose of the Remuneration Report and associated disclosures. 3. REMUNERATION GOVERNANCE The Board is accountable for establishing the remuneration policies and framework for the Group and ensuring remuneration of the Executive KMP is fair and reasonable and aligned with the interests of shareholders. Outlined below is the Board’s framework for remuneration governance: Board The Board is responsible for setting remuneration policy and determining Executive KMP 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 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. The Board has regular contact with each of the Executive KMP during the year. Nomination and Remuneration Committee (NRC) 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 financial and other 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. Remuneration Consultants were appointed to provide advice on remuneration for the Executive KMP for FY2023 and FY2024. The NRC Charter sets out further information regarding the Committee’s objectives and role. Managing Director Our Managing Director makes remuneration recommendations to the NRC regarding remuneration for direct reports including those who are Executive KMP and how the Pay for Performance Policy and framework applies to all our employees. Responsibility for determining NED remuneration The Board is responsible for assessing Non-Executive Director fees, assisted by the NRC. Shareholders approve the Main Board Package (MBP) for Non-Executive Director remuneration. The MBP approved by shareholders is currently $1,000,000 per annum. Reviews of Non-Executive Director and Committee Member fees are carried out periodically with assistance of independent benchmarking reports and/or consultants. Remuneration Consultants Godfrey Remuneration Group Pty Limited (GRG) provided advice during FY2023 on remuneration of Executives and the structure of the performance rights plan. GRG was paid $28,000 plus GST for this advice. 73 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORTRemuneration Report For the year ended 30 June 2023 4. REMUNERATION PRINCIPLES The guiding principles governing the Group’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 remuneration consultants to maintain market competitiveness and ensure our reward supports the Group 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 a stretch target component, 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 “at risk” remuneration on 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 the Group being a safe place to work, ensuring our reputation for quality products is maintained, achieving key strategic priorities, and achieving leading Total Shareholder Returns. The Group’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 the Group’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 the Group’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 5. REMUNERATION STRUCTURE The Total Remuneration for Executive KMP is made up of the following 3 components: Component What it is How does it link to strategy and performance? Total Fixed Remuneration (TFR) TFR consists of base salary and statutory superannuation contributions. Provides competitive ongoing remuneration in recognition of accountabilities for their role. Short Term Incentive (STI) The STI Plan (STIP) is an annual cash bonus that involves linking specific financial and non-financial targets with the opportunity to earn incentives based on a percentage of TFR. From 1 July 2024, half of the STIP earned will be subject to deferral into equity over a 2-year period. Ensures TFR is competitive. Rewards delivery of strategic KPIs through the Corporate Scorecard Enables individual performance to be rewarded based on personal KPIs specific to the role. 74 Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 5. REMUNERATION STRUCTURE (continued) Component What it is How does it link to strategy and performance? Long Term Incentive (LTI) The LTI Plan (LTIP) is designed to link long-term executive performance with ongoing creation of shareholder value, through performance rights which convert to shares, subject to the satisfaction of long term performance conditions. Rewards delivery of strategic objectives and longer term growth and sustained shareholder value. Provides greater alignment between shareholder and participant outcomes. 6. REMUNERATION MIX Remuneration mix for the Executive KMP refers to the proportion of Total Remuneration that is made up of each component of remuneration as outlined in contracts of employment and not actual remuneration received during the year. Figure 1 Targeted and Maximum Remuneration Mix 21% 22% MD Targeted Remuneration 57% 25% 25% MD Maximum Remuneration 50% TFR STI LTI TFR STI LTI 16% 19% 15% CFO Targeted Remuneration 69% CFO Maximum Remuneration 19% 62% TFR STI LTI TFR STI LTI 75 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORTRemuneration Report For the year ended 30 June 2023 7. LINK BETWEEN THE GROUP PERFORMANCE, REMUNERATION OUTCOMES AND SHAREHOLDER VALUE The Board’s objective when determining remuneration for the Executive KMP is that remuneration outcomes should be linked to the performance of the Group. Given the longer term component of remuneration, reporting on performance for FY2023 together with performance over prior years provides shareholders with important context. Table 1 The Group’s Historical Performance below summarises and compares the Group’s performance in recent financial years ending FY2023. Table 1 The Group’s Historical Performance Key indicators Units Note 2023 2022 2021 2020 2019 2018 EBITDA Net profit after tax Ordinary dividend per share Special dividend per share Change in share price year-on-year Earnings per share Total Shareholder Return Ranking5 $’000 $’000 cents cents $ cents $39,051 $35,747 $28,963 $23,430 $21,763 $16,336 $21,752 $20,843 $16,797 $13,049 $14,206 $11,001 12.50 12.00 8.80 5.90 8.50 7.30 - - - - 3.00 - $2.35 21.67 ($0.77) 20.79 $2.60 16.77 $0.37 13.04 $1.41 14.21 B5 percentile 88th percentile 86th percentile 98th percentile 90th percentile 70th percentile $0.36 11.00 n/a 5 Compares the Company’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 over a 3 year performance period ending on 30 June for the relevant financial year The Company’s Total Shareholder Return (3 years to 30 June 2023) shown in Figure 2, compares PWR to the ASX 300, excluding Energy sector (oil, gas and coal) over the 3 year performance period, ranking PWR at the 88th percentile. Figure 2 The Company’s Total Shareholder Return (3 years to 30 June 2023) 76 Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 7. LINK BETWEEN THE GROUP PERFORMANCE, REMUNERATION OUTCOMES AND SHAREHOLDER VALUE (continued) Figure 3 The Group’s EPS growth to 30 June 2023, shows a year on year increase in the Group’s Earnings per Share which equates to a 3 year growth rate of 66.2% and a 3 year compound annual growth rate of 18.4%. Figure 3 The Group’s 3-year growth in EPS to 30 Jun 2023 Earnings per Share 25.00 20.00 15.00 10.00 5.00 0.00 16.77 20.79 21.67 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2021 2022 2023 Earnings per Share (cents) - LHS 3 Yr Compound Annual Growth Rate (%) - RHS 8. EXECUTIVE KMP SHORT TERM INCENTIVE REMUNERATION OUTCOMES 8.1. STIP Gate The STIP operates with a NPAT gate to activate the plan. The gate was exceeded for FY2023, opening the STIP up to 100% of maximum scores. An increasing amount of STIP is available depending on the amount by which the STIP gate is exceeded. 8.2. Corporate Scorecard At the beginning of the reporting period, the Board established Company KPIs which together formed the Company Scorecard and which are largely non-financial KPIs. 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 the 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. 77 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORTRemuneration Report For the year ended 30 June 2023 8. EXECUTIVE KMP SHORT TERM INCENTIVE REMUNERATION OUTCOMES (continued) Outcomes of the FY2023 Corporate Scorecard are outlined below: Figure 4 Company Scorecard Outcomes FY2023 KPI Profitable Growth Increased Profitability Weighting 10% 11% target 15% stretch Efficiency 22.5% target 25% stretch Attract and Retain Employee Engagement Safe Workforce 15% target 20% stretch 7.5% target 10% stretch 15% target 20% stretch Description Net Profit After Tax Reduction in 12-month average cost of re-makes and re-work Delivery in Full and On Time (DIFOT) and ERP job costing Voluntary Employee Turnover Measure >5% above budget 50% target 80% stretch 80% target 90% stretch Full job costing operational Australia ≤30% target ≤20% stretch North America ≤25% target ≤20% stretch Employee Engagement Survey participation rate 65% target 70% stretch Lost Time Injury Frequency Rate (LTIFR) and Executive Safety Walk Arounds LTIFR ≤2.5 6 safety walk arounds per person Result <5% above budget Australia not achieved Australia DIFOT target not achieved North America stretch achieved North America DIFOT stretch target achieved ERP job costing in development Australia 28% 77% LTIFR >2.5 North America >25% Safety walks taking place but 100% target not met Status Not achieved Partially achieved Partially achieved Partially achieved Stretch achieved Partially achieved 8.3. Personal Scorecards Up to 40% of the STI for the Executive KMP is payable on meeting personal KPIs aligned to achieving key business outcomes identified in the Group’s strategic plan. Outcomes for personal KPIs for the Executive KMP are set out below: Table 2 Executive Personal KPI Outcomes Executive KMP Personal KPI Targets related to succession planning, capacity expansion and demonstration of the Group DNA Targets related to establishment of sustainability reporting, financial reporting, ERP development and demonstration of the Group DNA 40% 60.0% Percent- age of KPI outcomes achieved Weighting 40% 75.0% Kees Weel (Managing Director) Martin McIver (Chief Financial Officer) – – 78 Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 8. EXECUTIVE SHORT TERM INCENTIVE REMUNERATION OUTCOMES (continued) 8.4. FY2023 STIP Awards Table 3 Executive FY2023 STIP Awards Executive KMP Kees Weel (Managing Director) Martin McIver (Chief Financial Officer) 1. Cash bonuses earned in FY2023 are paid in September 2023 2. KPIs that were not achieved attract no cash payment Maximum Potential STIP (% TFR) Actual Bonus included in FY2023 remuneration ($)1 Actual Bonus Earned in FY2023 (as % TFR)2 50% 30% $142,541 $42,929 21.9% 11.3% 9. LTIP PERFORMANCE OUTCOMES AND FY2023 AWARDS The following table sets out LTIP performance outcomes for the 3 year period ended 30 June 2022. Performance Rights vested in September 2022, were exercised in October 2022 and Company shares issued to participants. Table 4 LITIP Performance Outcomes for the 3 year period ended 30 June 2022 Performance measure EPS growth From 1 July 2019 to 30 June 2022 Relative Total Shareholder Return Outcome % of LTI attaching to performance measure payable 46.3% 100% Relative to S&P/ASX 300 excluding companies operating in the Energy sector (oil, gas and coal) and those that have de-listed since 1 July 2019 over a 3 year performance period ending on 30 June 2022 86th percentile 100% The following table sets out LTIP performance outcomes for the 3 year period ended 30 June 2023. Performance Rights vest in September 2023 and following exercise, Company shares will be issued to participants, subject to participants remaining employed at the date of vesting. Table 5 LITIP Performance Outcomes for the 3 year period ended 30 June 2023 Performance measure EPS growth From 1 July 2020 to 30 June 2023 Relative Total Shareholder Return Outcome % of LTI payable 66.2% 100% Relative to S&P/ASX 300 excluding companies operating in the Energy sector (oil, gas and coal) and those that have de-listed since 1 July 2020 over a 3 year performance period ending on 30 June 2023 88th percentile 100% 79 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORTRemuneration Report For the year ended 30 June 2023 9. LTIP PERFORMANCE OUTCOMES AND FY2023 AWARDS (continued) The following table sets out details of performance rights held by and granted to Executive KMP. Table 6 Performance Rights held by and granted to Executive KMP for the period ended 30 June 2023 Name Kees Weel Martin McIver Balance at 1 July 2022 Granted during the year Vested during the year Forfeited during the year Balance 30 June 2023 $ value of rights at grant date - 15,690 50,077 17,485 - - - - 50,077 33,175 489,252 307,802 The table below sets out the percentage performance achieved and percentage vested against the LTIP for performance rights currently on issue to Executive KMP. Table 7 Performance and vesting of Performance Rights held by and granted to Executive KMP per year Plan Year FY2021 LTIP FY2022 LTIP FY2023 LTIP Grant date Vesting date1 Value of rights at grant date2 EPS target achieved TSR target achieved 07/06/21 01/09/23 $142,549 100% 100% 01/10/21 01/09/24 $287,025 08/11/22 01/09/25 $660,081 To be determined To be determined % vested Vest on 01/09/23 1. Subject to Board approval of performance hurdles and service conditions being met 2. Matthew Bryson was included as an Executive KMP for the FY2021 and FY2022 Plan Years 10. SUMMARY OF REMUNERATION COMPONENTS AND HOW THEY OPERATE 10.1. Total Fixed Remuneration Total Fixed Remuneration is set with reference to the median of the Group’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 considers the Executive KMP’s role and accountabilities, relevant market benchmarks and attraction, retention and motivation of Executive KMP in the context of the overall market. With respect to the annual salary reviews conducted at the end of FY2023 for salaries moving into FY2024, the Board referred to the July 2022 Godfrey Remuneration Group benchmark report on the Executive KMP Total Variable Remuneration and took on board GRG’s advice when determining remuneration for the Executive KMP for FY2024. The outcome of that exercise was: – Managing Director - In recognition of Mr Weel’s established tenure in the role of MD, performing at a high level and leading the company through significant growth (in revenue, profit and share price), and in consideration of his remuneration relative to market peers, his Total Fixed Remuneration (TFR) was increased effective 1 July 2023 to $752,200 per annum, representing a 15% increase on the prior year. His Short Term Incentive Program (STIP) opportunity has increased to 60% of TFR, with up to half payable in cash and the remaining half deferred over a two year period under the terms of the STIP. His Long Term Incentive Program (LTIP) opportunity has increased to 90% of TFR, subject to performance over a 3-year period and is payable in shares, cash or a combination of shares and cash. – Chief Financial Officer – Based on a review of market peers, Mr McIver’s TFR has been set at $405,500 per annum from 1 July 2023, a 6% increase on the prior year. His STIP opportunity has increased to 50% of TFR, with up to half payable in cash and the remaining half deferred over a two year period under the terms of the short term incentive plan. His LTIP opportunity has increased to 50% of TFR, subject to performance over a 3-year period and is payable in shares, cash or a combination of shares and cash. 80 Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 10. SUMMARY OF REMUNERATION COMPONENTS AND HOW THEY OPERATE (continued) The deferred portion of the STIP will have a service condition where the Executive KMP must remain continually employed by the Company or another Group entity until the date of vesting. 50% of the deferred portion of the STI will vest on 1 September, 14 months after the end of the STI financial year, and the remaining 50% deferred of the STI will vest on 1 September, 26 months after the end of the STI financial year. The deferred portion of the STI can be paid in shares, cash or a combination of shares and cash. 10.2. FY2023 Short Term Incentives The Executive KMP are eligible to participate in the Group’s short-term incentive plan. Executive KMP Participants Managing Director and Chief Financial Officer How is it paid Annual cash bonus subject to achievement of corporate and personal KPIs STIP Gate The STIP gate is a minimum profit gateway based on the Group’s budgeted profit target which must 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. Corporate Scorecard (60% weighting) The Board establishes company KPIs that form the Corporate 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. Personal KPIs (40% weighting) 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 CFO 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 STIP 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. Target Managing Director – 37.5% TFR CFO – 22.5% TFR Maximum Managing Director – 50% TFR CFO – 30% TFR Potential Outcome of STIP Not met STIP not activated for Executive KMP No STI Award Company Scorecard Weighting Maximum 45% Personal KPIs and PWR DNA - Weighting Maximum 40% STIP Gate Met Company Scorecard Weighting between 45% and 60% Personal KPIs and PWR DNA - Weighting Maximum 40% Exceeded STI Award Corporate up to 75% of maximum Personal up to 100% of maximum STI Award Corporate up to 100% of maximum Personal up to 100% of maximum 81 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORTRemuneration Report For the year ended 30 June 2023 10. SUMMARY OF REMUNERATION COMPONENTS AND HOW THEY OPERATE (continued) 10.3. Long Term Incentives 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. Executive KMP participants Managing Director and Chief Financial Officer How is it paid? Performance Rights. Executive KMP are invited by the Board to apply for performance rights (Rights) on an annual basis under the LTIP as part of their Total Remuneration. How many Rights are granted? The number of Rights granted to each Executive KMP is calculated by dividing the % of TFR eligibility by the Company volume weighted average share price for the 30 days of the June prior to the commencement of the performance period. Managing Director – 50% of TFR (Managing Director participation was approved at the 2022 Annual General Meeting). CFO – 30% of TFR From the 2024 financial year: Managing Director – 90% of TFR (Managing Director FY2024 participation to be approved at the 2023 Annual General Meeting). Performance period 3 years. CFO – 50% of TFR For Rights issued prior to 4 November 2022, the Rights convert to ordinary shares in the Company on a 1 for 1 basis at the end of the 3 year performance period depending upon the extent to which performance hurdles are achieved and service conditions met. Amendments to the Performance Rights Plan were approved at the Annual General Meeting held on 4 November 2022. For Rights issued on and from 4 November 2022, at the end of the 3 year performance period, the Rights convert into ordinary shares in the Company on a 1 for 1 basis are paid in cash calculated by multiplying the number of rights by the share price at the time of vesting, or a combination of ordinary shares and cash, at the Board’s discretion. Performance hurdles The performance hurdles for Rights granted prior to 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 the Company holds relative to the benchmark group for the relevant 3-year performance period: TSR Ranking (TSR) TSR is 50% or less Vesting outcome Nil vesting TSR is more than 50% but less than 75% Pro rata vesting TSR is 75% or more 100% vesting 82 Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 10. SUMMARY OF REMUNERATION COMPONENTS AND HOW THEY OPERATE (continued) – 50% of the rights will vest upon achievement of growth in EPS. Vesting is determined by the growth in EPS from the financial year immediately prior to the start of the Performance Period (base year) to the end of the third year of the Performance Period, measured against specific EPS targets outlined below: Earnings Per Share (EPS) EPS growth rate of <4% EPS growth rate of ≥4% to ≤12% EPS growth rate of >12% Vesting outcome Nil vesting Pro rata vesting 100% vesting While the TSR hurdle remains the same, the EPS hurdle for the Rights granted from FY2021 onwards is different to that attached to Rights granted prior to that. For Rights granted from FY2021 onwards: – 50% of the rights will vest based on compound growth in annual 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 Service Condition Participants must remain continually employed with the Company until the date of vesting. Vesting Rights that do not vest at the end of the 3-year period lapse unless the Board in its discretion determines otherwise. Upon cessation of employment prior to the vesting date, Rights will 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. Why relative TSR and Compound EPS? The Board believes that these hurdles represent an appropriate balance between internal performance and external benchmarking. EPS is a relevant indicator of increase in shareholder value and the EPS hurdles provide a line of sight to encourage performance. Relative TSR is aligned with the Group’s growth strategy. Restrictions Participants are prohibited from entering transactions or arrangements which operate to transfer or limit the economic risk of any Rights held under the LTIP while they are subject to performance hurdles or otherwise unvested. 11. CONTRACT DURATION AND TERMINATION REQUIREMENTS The Company has contracts of employment with no fixed tenure requirements with the Executive KMP. 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 8 Executive KMP Notice Periods Name Kees Weel Martin McIver Position Managing Director Chief Financial Officer Notice Period 6 months 3 months 83 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORTRemuneration Report For the year ended 30 June 2023 12. REMUNERATION OF NON-EXECUTIVE DIRECTORS 12.1. 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, – – obtain independent external remuneration advice when required. remunerate Directors at market rates for their commitment and responsibilities, and The Main Board Package (MBP) approved by Shareholders in 2022 is $1,000,000 per annum (inclusive of superannuation contributions). The Board determines the distribution of Non-Executive Director fees within the approved MBP. 12.2. NED Remuneration The following table sets out the Main Board Package for the Chairman and Non-Executive Directors throughout the reporting period. Table 9 Non-Executive Director Main Board Package Role Chairman Non-Executive Director and Chairman Audit, Risk and Sustainability Committee Non-Executive Director 1. Includes $20,000 per annum for taking on role of Chairman of Audit, Risk and Sustainability Committee during FY2023 MBP during Reporting Period $ 195,000 130,0001 110,000 84 Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 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 t s o P s t i f 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 : 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 d n a 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 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 0 1 e b a T l E L B A T N O I 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 . 3 1 $ l a t o T $ s t h g i r $ e v a e 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 n m i r e T $ r e p u S s t i f e n e b $ l a t o T 0 0 0 5 9 1 , 6 7 7 0 7 1 , 0 0 0 0 3 1 , 5 2 5 5 1 1 , 0 0 0 0 1 1 , 0 0 0 5 9 , 3 3 8 5 4 , - , 3 3 8 0 8 4 1 0 3 , 1 8 3 - - - - - - - - - - - - - - - - - - - - - - - - 9 2 5 8 1 , 5 2 5 5 1 , 2 5 3 2 1 , 1 7 4 6 7 1 , , 1 5 2 5 5 1 8 4 6 7 1 1 , 2 0 5 0 1 , 3 2 0 5 0 1 , - - - - 1 8 8 0 3 , 7 2 0 6 2 , 0 0 0 0 1 1 , 0 0 0 5 9 , 3 3 8 5 4 , - , 2 5 9 9 4 4 , 4 7 2 5 5 3 $ - - - - - - - - - - s t i f e n e b h s a c - n o N $ 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 - - - - - - - - - - 1 7 4 6 7 1 , 3 2 0 2 i t t o c d n a H a s e r e T , 1 5 2 5 5 1 2 2 0 2 r o t c e r i D e v i t u c e x E - n o N , n a m r i a h C s r o t c e r i D e v i t u c e x e - n o N t n e r r u C 8 4 6 7 1 1 , 3 2 0 2 3 2 0 5 0 1 , 2 2 0 2 0 0 0 0 1 1 , 3 2 0 2 0 0 0 5 9 , 2 2 0 2 3 3 8 5 4 , 3 2 0 2 - , 2 5 9 9 4 4 2 2 0 2 3 2 0 2 , 4 7 2 5 5 3 2 2 0 2 r o t c e r i D e v i t u c e x E - n o N 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 ) i ( y e l s O m y K 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 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 3 2 0 2 y r a u r b e F 1 d e t n o p p A i ) i ( 85 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORT Remuneration Report For the year ended 30 June 2023 % d e t a l e r e c n a m r o f r e p n o n o i t r o p o r P i t a r e n u m e r f o $ l a t o T $ $ $ $ ) i i i ( s t h g R i e v a e l e c n a m r o f r e P e c i v r e s g n o L s t i f e n e b n o i t a n m i r e T r e p u S s t i f e n e b $ l a t o T $ h s a c - n o N ) i i ( s t i f 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 s t n e m y a p s t i f e n e b d e s a b - e r a h S m r e t - g n o L t s o P s t i f 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 ) d e u n i t n o c ( E L B A T N O I 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 . 3 1 86 - % 8 5 2 . % 8 5 2 . % 0 3 3 . % 2 5 2 . % 6 3 2 . % 6 5 2 . % 5 7 2 . % 4 9 1 . % 9 2 2 . 2 6 1 , 3 8 9 7 6 3 , 1 1 1 3 8 2 5 2 , - 9 1 1 , 6 0 8 - - - 7 3 8 2 1 , , 1 3 2 9 9 5 5 5 4 9 1 1 , 7 3 2 8 , 6 4 5 , 1 1 5 5 8 7 5 8 , , 8 2 9 4 8 4 0 5 9 4 3 , - - , 8 0 7 4 9 4 , 1 2 5 1 , 7 9 1 3 8 2 5 2 , , 8 7 2 0 9 8 , 1 5 0 4 4 5 1 , 4 7 0 , 1 2 , 1 4 5 5 7 9 , 1 2 5 1 , 7 9 1 3 8 2 5 2 , 9 7 5 , 1 7 2 2 , 5 0 4 4 5 1 , 4 7 0 , 1 2 - - - - - - - - - - 0 5 2 6 2 , , 2 6 2 0 2 8 7 2 0 2 5 , 1 4 5 2 4 1 , , 4 9 6 5 2 6 3 2 0 2 0 0 0 5 2 , 2 8 2 8 6 7 , 0 8 0 9 3 , , 4 4 7 7 0 2 8 5 4 , 1 2 5 2 2 0 2 - - - - - 3 2 0 2 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 o t c e r i i D g n g a n a M ) i ( n o s y r B w e h t t a M 0 0 0 5 2 , , 9 3 5 6 4 4 ) 0 0 3 9 1 ( , 7 4 1 , 8 7 2 9 6 7 8 3 , 2 2 0 2 r e c i f f l i O a c r e m m o C d n a l i a c n h c e T f e h C i 2 9 2 5 2 , 8 6 5 3 2 , 2 4 5 , 1 5 8 6 5 3 7 , , 9 6 4 0 0 4 8 4 3 3 , 9 2 9 2 4 , 2 9 1 , 4 5 3 3 2 0 2 r e v I c M n i t r a M , 0 1 4 6 2 4 0 1 9 8 1 , 3 4 6 9 7 , 7 5 8 7 2 3 , 2 2 0 2 r e c i f f l i O a c n a n F f e h C i i , 1 3 7 0 2 2 , 1 5 7 3 5 5 , 0 7 4 5 8 1 , 6 8 8 9 7 9 , 3 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 1 3 2 , 1 4 6 , 1 0 9 6 8 3 , 4 3 5 5 6 3 , , 7 0 0 7 3 2 , 1 2 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 5 9 5 9 9 , , 5 0 5 6 9 9 , 1 0 9 6 8 3 , 4 3 5 5 6 3 , , 1 8 2 2 9 5 , 1 2 2 0 2 3 2 4 2 8 , , 3 8 6 0 7 6 , 1 5 7 3 5 5 , 0 7 4 5 8 1 , , 8 3 8 9 2 4 , 1 3 2 0 2 n o i t a r e n u m e R P M K – l a t o T l y u J 1 m o r f l e n n o s r e P t n e m e g a n a M y e K a s a d e i f i s s a l c r e g n o l o n s i s e i t i l i b i s n o p s e r n i e g n a h c s i h o t e u d d n a r e c i f f O l i a c r e m m o C d n a l i l i a c n h c e T f e h C o t e o r d e g n a h c n o s y r B w e h t t a M l , 1 2 0 2 y u J 1 n O ) i ( . e t a d g n i t s e v o t e t a d t n a r g m o r f d o i r e p e h t l r e v o y n e v e d o i r e p g n i t r o p e r h c a e o t d e t a c o l l a d n a t n a r g f o e t a d e h t t a d e t a u c l l a c s i s t h g i r e h t f o e u a v r i l a f e h T ) i i i ( t n e m e v o m T B F d n a e v a e l l a u n n A ) i i ( i l s e r u s o c s i d d e t a c o s s a d n a t r o p e R n o i t a r e n u m e R e h t f o e s o p r u p e h t r o f 2 2 0 2 Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 14. 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 11 Shareholdings of KMP Name Non-Executive Directors Teresa Handicott Jeff Forbes Roland Dane Kym Osley Executives Kees Weel(i) Martin McIver Shareholdings of KMP Opening Balance 1 July 2022 Shares acquired during the year Shares disposed of during the year Closing Balance 30 June 2023 Other 40,500 20,000 1,000 - 63,729 10,039 – 20,307,788 1,200 – - - - - - – (1,000,000) - - - - – - - 41,500 20,000 7 3 ,768 – 19,307,788 1,200 (i) 61,385 shares held by Lazy Weel Super Fund. Kees Weel is a beneficiary of the Super Fund. 19,246,403 shares held by entities controlled by Kees Weel (10,000,000 shares held by Wagon Weel Co. Pty Ltd as trustee for the Wagon Weel Trust. At 30 June 2023 Kees Weel is a director of the trustee and beneficiary of the Wagon Weel Trust; 9,246,403 shares held by KPW Property Holdings Pty Ltd as trustee for the KPW Holdings Trust. At 30 June 2023 Kees Weel is a director of the trustee and beneficiary of the trust). 15. VOTING AND COMMENTS MADE AT THE COMPANY’S FY2022 ANNUAL GENERAL MEETING The Company received 99.85% ‘for’ votes on its remuneration report for FY2022. The Company did not receive any specific feedback or comments at the FY2022 AGM on its remuneration report. 16. EQUITY INSTRUMENTS 16.1. Performance rights over equity instruments Details of performance rights over ordinary shares in the Company that were granted as remuneration to Executive KMP during the reporting period are included in Table 13 Executive KMP Performance Rights Over Equity Instruments on page 88. There were no alterations to the terms and conditions of performance rights granted as remuneration to Executive KMP since their grant date. 87 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORTRemuneration Report For the year ended 30 June 2023 16. EQUITY INSTRUMENTS (continued) 84,294 performance rights vested during the reporting period. Total Performance Rights on issue at 30 June 2023 are as follows: Table 12 Rights Over Equity Instruments Granted as Remuneration Executive KMP Description of Rights Number of Rights granted TSR Component $ EPS Component $ Grant Date Vesting Date Expiry Date Fair Value per Right at Grant Date Kees Weel Managing Director Martin McIver Chief Financial Officer Total on Issue to Executive KMP Total on Issue to Non KMP Total on issue at 30 June 2023 Total Vested during the reporting period Total Forfeited due to resignation FY2023 LTIP FY2022 LTIP 50,077 15,690 FY2023 LTIP 17,485 9.35 8.15 9.35 10.19 08/10/22 01/09/25 01/03/26 9.31 01/10/21 01/09/24 01/03/25 10.19 08/10/22 01/09/25 01/03/26 83,252 287,090 370,342 84,294 8,628 The movement during the reporting period, by number of rights over ordinary shares in PWR Holdings Ltd held, directly, indirectly or beneficially by each member of the Executive KMP, including their related parties, is as follows: Table 13 Executive KMP Performance Rights Over Equity Instruments Held 1 July 2022 Granted as compensation Exercised Lapsed Forfeited Held 30 June 2023 Vested during year Vested and exercisable at 30 June 2023 Martin McIver 15,690 - 50,077 17,485 - - - - - - 50,077 33,175 - - - - Rights Kees Weel The forfeited Rights represent those Rights that did not vest due to failure to meet service conditions. During the reporting period, the following shares were issued on the exercise of Rights previously granted as compensation: Table 14 Rights That Vested to Executive KMP During the Reporting Period Executive KMP Kees Weel Martin McIver 88 Number of shares Amount paid per share $ - - - - Directors’ ReportPWR Holdings Limited Remuneration Report For the year ended 30 June 2023 16. EQUITY INSTRUMENTS (continued) The value of Rights over ordinary shares in the Company granted and exercised by each Executive during the reporting period is detailed below. Table 15 Value of Rights That Vested to Executive during the Reporting Period Executive KMP Kees Weel Martin McIver Granted in year $(a) Value of rights exercised in year $(b) 489,252 170,828 - - (a) (b) 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. 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. 16.2. 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 17 August 2023 Kees Weel Managing Director Brisbane 17 August 2023 89 Annual Report 2023 YEAR IN REVIEWADDITIONAL INFORMATIONFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP DIRECTORS’ REPORT Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2023 Revenue Other income Raw materials and consumables expenses 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 B3 B3 C5 B4 B1 E1 2023 $’000 2022 $’000 118,326 101,072 1,882 1,590 (23,819) (20,851) (47,124) (38,897) (1,351) (8,863) 39,051 (8,475) (8,475) 198 (531) (333) (750) (6,417) 35,747 (7,225) (7,225) 172 (202) (30) 30,243 (8,491) 21,752 28,492 (7,649) 20,843 1,638 23,390 624 21,467 Basic and diluted earnings per share B5 21.67 cents 20.79 cents The accompanying notes are an integral part of these financial statements. 90 Financial StatementsPWR Holdings Limited Consolidated Statement of Financial Position At 30 June 2023 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 Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liabilities Deferred Income Contract liabilities Employee benefits Current tax liabilities Provisions Total current liabilities Non-current liabilities Lease liabilities Deferred Income Contract liabilities Employee benefits Deferred tax liabilities 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. Note 2023 $’000 2022 $’000 C1 C2 C3 C4 C5 C6 C7 F1 F2 C8 D1 E2 F1 F2 C8 D1 E2 F3 17,626 16,006 17,789 2,050 53,471 53,766 15,919 69,685 123,156 7,667 2,565 476 450 4,041 657 297 16,153 15,722 742 – 502 1,567 18,533 34,686 88,470 26,807 3,001 58,662 88,470 21,499 13,813 12,746 2,847 50,905 32,594 15,027 47,621 98,526 7,532 1,903 469 907 3,324 218 263 14,616 4,839 1,219 440 348 667 7,513 22,129 76,397 26,484 864 49,049 76,397 91 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Consolidated Statement of Changes in Equity For the year ended 30 June 2023 Note Balance at 1 July 2022 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 D3 F4 Issued Capital $’000 26,484 – – – 323 – 323 Foreign currency translation reserve $’000 Share based payments reserve $’000 Retained earnings $’000 Total equity $’000 9 – 1,638 1,638 – – – 855 49,049 76,397 – – – 499 – 499 21,752 – 21,752 1,638 21,752 23,390 – (12,139) (12,139) 822 (12,139) (11,317) Balance at 30 June 2023 26,807 1,647 1,354 58,662 88,470 Balance at 1 July 2021 26,223 (615) 627 37,727 63,962 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 2022 D3 F4 – – – 261 – 261 26,484 – 624 624 – – – 9 – – – 228 – 228 855 20,843 20,843 – 624 20,843 21,467 – (9,521) (9,521) 489 (9,521) (9,032) 49,049 76,397 The accompanying notes are an integral part of these financial statements. 92 Financial StatementsPWR Holdings Limited Consolidated Statement of Cash Flows For the year ended 30 June 2023 Cash flows from operating activities Cash receipts from customers Government grants received Cash paid to suppliers and employees Cash generated from operating activities Interest paid Income tax paid Note 2023 $’000 2022 $’000 121,827 95,534 48 70 (88,476) (72,082) 33,399 23,522 (6) (9) (5,694) (6,472) Net cash from operating activities C1 27,699 17,041 Cash flows from investing activities Government grant income received Interest received Proceeds from sale of property, plant and equipment Payment for acquisition of business 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 B6 C5 F1 F1 – 147 17 (2,024) 1,083 20 70 – (15,046) (5,023) (16,906) (3,850) (12,139) (9,521) – – (2,498) (2,016) (14,637) (11,537) (3,844) 21,499 1,654 19,857 (29) (12) Cash and cash equivalents at 30 June C1 17,626 21,499 The accompanying notes are an integral part of these financial statements. 93 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 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 2023 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 (OEM), aerospace and defence, and automotive aftermarket 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 17 August 2023. (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. 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 Note C6 (Intangible assets). A3 Significant accounting policies The accounting policies set out in Section I (Significant Accounting Policies) to the consolidated financial statements have been applied consistently to all periods presented in these consolidated financial statements. 94 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION B BUSINESS PERFORMANCE B1 Operating segments The Group has 2 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 C&R Designing and manufacturing high end motorsports, OEM, aerospace and defence, and automotive aftermarket products for non-USA markets. Designing and manufacturing high end motorsports, OEM, aerospace and defence and automotive aftermarket products primarily for the USA market. The PWR C&R segment is also referred to as PWR North America and C&R. 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 C&R 2023 $’000 2022 $’000 2023 $’000 2022 $’000 Total 2023 $’000 85,362 73,076 30,588 26,604 115,950 Revenue from sale of manufactured products Revenue from services External revenues Inter-segment revenues Segment revenue Segment EBITDA1 73 85,435 7,896 93,331 33,611 67 73,143 3,916 77,059 28,538 2,303 32,891 4,122 37,013 5,350 Depreciation and amortisation (6,604) (5,776) (1,871) Segment profit/(loss) before interest and tax Capital expenditure 27,007 9,420 22,762 3,003 3,479 5,626 2022 $’000 99,680 1,392 101,072 7,537 1,325 27,929 3,621 2,376 118,326 12,018 31,550 130,344 108,609 7,384 (1,449) 5,935 2,020 38,961 (8,475) 30,486 15,046 35,922 (7,225) 28,697 5,023 1 Segment 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 2023 $’000 2022 $’000 130,344 108,609 (12,018) (7,537) 118,326 101,072 30,486 28,697 90 (333) (175) (30) 30,243 28,492 95 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION B BUSINESS PERFORMANCE (continued) Major Customers 3 customers in the PWR Performance Products segment comprise 14 % of Group’s revenue for the year ended 30 June 2023 (2022: 3 customers comprised 15%). Geographic information The Group operates manufacturing facilities and sales offices in Australia, the UK and the USA, and sells its products to customers in various countries throughout the world. Below is an analysis of the Group’s revenue based on the location of the Group’s customers and location of the Group’s non-current assets. 2023 2022 Revenue $’000 Non-current assets(i) $’000 Revenue $’000 Non-current assets(i) $’000 11,065 31,248 36,351 15,711 7,799 16,152 36,453 18,423 14,809 – – – 118,326 69,685 11,438 26,067 32,513 11,867 5,901 13,286 101,072 35,174 11,295 1,152 – – - 47,621 2023 $’000 2022 $’000 115,952 2,374 99,680 1,392 118,326 101,072 1,864 (30) 14 – 34 1,540 (20) 38 32 – 1,882 1,590 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 Profit / (Loss) on sale of assets Government grants – COVID-19 assistance Paycheck Protection Program Government grants – incentive assistance 96 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION B BUSINESS PERFORMANCE (continued) Customer Revenue by Market Sector 2023 2022 Advanced Cooling1 $’000 Emerging Technologies2 $’000 Total $’000 Advanced Cooling1 $’000 Emerging Technologies2 $’000 Total $’000 55,285 21,469 15,845 7,130 1,343 Motorsports Automotive OEM Automotive Aftermarket Aerospace and Defence Other 55,026 21,935 17,796 7,230 3,704 3 – 10,533 668 1,431 96,188 62,256 25,639 17,799 10,533 2,099 47,476 18,007 15,485 – 671 7,809 3,462 360 7,130 672 22,138 118,326 81,639 19,433 101,072 1 2 Advanced Cooling includes revenue from products and services excluding revenue from Emerging Technologies. Emerging Technologies 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 $896,055 (2022: $905,000) in customer revenue from satisfying performance obligations for contract liabilities (refer Note C8). B3 Expenses and Income Changes in inventories of finished goods and work in progress The expenses are adjusted for changes in the inventories of finished goods and work in progress as outlined below: Raw materials and consumables expenses Employee expenses 2023 Finished goods and work in progress movement $’000 Net expense $’000 Gross Expense $’000 2022 Finished goods and work in progress movement $’000 594 958 (23,819) (21,247) (47,124) (39,446) 1,552 (70,943) (60,693) 396 549 945 Gross Expense $’000 (24,413) (48,082) (72,495) Net expense $’000 (20,851) (38,897) (59,748) Research and Development The Group recognised $10,058,487 (2022: $9,777,059) as an expense in relation to its research and development activities. This is included in employee expenses, raw materials, consumables and other expenses in the income statement. 97 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION B BUSINESS PERFORMANCE (continued) B4 Finance income and finance costs Interest income Gain on derivatives Finance income Interest expense Finance costs Net finance income/(costs) B5 Earnings per share Profit attributable to equity holders Weighted average number of ordinary shares (basic) Issued ordinary shares at 1 July Effect of shares issued during the year Weighted average number of ordinary shares at 30 June (basic) 2023 $’000 2022 $’000 147 51 198 (531) (531) (333) 20 152 172 (202) (202) (30) 2023 $’000 2022 $’000 21,752 20,843 2023 2022 100,296,046 100,179,7 74 61,893 76,771 100,357,939 100,256,545 Basic and diluted earnings per share 21.67 cents 20.79 cents 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. B6 Business combinations Docking Engineering On 19 August 2022, the Group acquired the business and assets of Docking Engineering (Docking) located in the United Kingdom for a cash payment of $0.856 million (£0.496 million). Docking is a leading supplier of racing radiators, oil coolers, charge air coolers and motorsport fabrication services. The acquisition provides a platform for the Group to build and grow a manufacturing facility based in the United Kingdom to service European customers and to alleviate demand pressure on Australian based fabrication. Since the acquisition, Docking has contributed revenue of $1.242 million and profit after tax of $0.160 million. If the acquisition had occurred on 1 July 2022, management estimates that Docking Engineering would have contributed revenue of $1.434 million and profit after tax of $0.184 million. Bespoke Motorsport Radiators Limited On 30 January 2023, the Group acquired the business and assets of Bespoke Motorsport Radiators Limited (BMR). BMR is one of the leading core manufacturers and suppliers of high-performance motorsport radiators, intercoolers, and oil coolers in the United Kingdom. The $1.168 million (£0.675 million) acquisition price was funded out of existing cash. Since the acquisition, BMR has contributed revenue of $0.428 million and profit after tax of $0.015 million. If the acquisition had occurred on 1 July 2022, management estimates that BMR would have contributed revenue of $1.051 million and profit after tax of $0.275 million. 98 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION B BUSINESS PERFORMANCE (continued) Acquisition related costs The Group incurred acquisition related costs of $0.076 million relating to external legal fees and due diligence costs. These costs have been included in other expenses in the consolidated statement of profit and loss and other comprehensive income. Identifiable assets acquired and liabilities assumed The following table summarises the recognised amounts of assets and liabilities assumed at the date of acquisition: Plant & Equipment Inventories Employee benefits Total identifiable net assets acquired Fair values measured on a provisional basis The following fair values have been determined: – Plant and equipment; – Inventories; and – Customer contracts. Goodwill Goodwill arising from the acquisition has been recognised as follows: Total consideration transferred Fair value of identifiable net assets Customer contracts1 Goodwill 1. Customer contracts have been fully amortised during the year Docking $’000 83 184 (7) 260 BMR $’000 752 301 – 1,053 Total $’000 835 485 (7) 1,313 Docking $’000 856 (260) (19) 577 BMR $’000 1,168 (1,053) – 115 Total $’000 2,024 (1,313) (19) 692 The goodwill is attributable mainly to the skills and technical talent of the Docking and BMR workforce, and the synergies expected to be achieved from integrating the businesses into the Group’s existing business. 99 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION C OPERATING ASSETS AND LIABILITIES C1 Cash and cash equivalents Bank balances Term Deposit 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 (gain)/loss on derivatives 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 (excluding research & development tax credit) Net cash from operating activities C2 Trade and other receivables Trade receivables Trade receivables due from related parties (refer Note H2) 2023 $’000 12,626 5,000 17,626 2022 $’000 16,499 5,000 21,499 21,752 20,843 8,475 (1,898) 432 822 30 (2,193) (5,043) 135 797 871 282 3,237 27,699 7,225 (1,540) (225) 489 20 (4,472) (6,257) 2,199 (1,201) 740 (2,563) 1,783 17,041 16,006 13,813 – – 16,006 13,813 Provisioning for trade receivables has been assessed considering known factors consistent with prior reporting periods, resulting in a bad debt provision of $Nil (2022: $133,370). 100 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION C OPERATING ASSETS AND LIABILITIES (continued) C3 Inventories Raw materials Work in progress Finished goods Consumables Allowance for inventory obsolescence 2023 $’000 8,845 1,767 8,327 59 (1,209) 17,789 2022 $’000 6,039 1,050 6,533 137 (1,013) 12,746 The cost of inventories sold and recognised as an expense during the year end 30 June 2023 was $23,819,048 (2022: $20,850,798). C4 Other assets Prepayments Other assets 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 1,298 752 2,050 2,125 722 2,847 55,969 46,377 (26,852) (20,766) 29,117 25,611 443 (324) 119 25,162 (8,100) 17,062 7,468 53,766 385 (340) 45 11,689 (5,564) 6,125 813 32,594 101 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION C OPERATING ASSETS AND LIABILITIES (continued) Reconciliations Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Closing balance 25,162 55,969 2023 Cost Opening balance Additions Additions from business combinations Transfers Disposals Effect of movements in exchange rates Accumulated depreciation Opening balance Disposals Depreciation Effect of movements in exchange rates Closing balance Net carrying amount 2022 Cost Land and buildings $’000 Plant and equipment $’000 Motor vehicles $’000 Under construction $’000 Total $’000 46,377 385 11,689 12,643 – – – 830 787 835 7,537 (95) 528 5,564 20,766 – 2,536 – 8,100 17,062 (57) 5,915 228 26,852 29,117 – – 95 (47) 10 443 340 (46) 24 6 324 119 813 14,259 – (7,632) – 28 59,264 27,689 835 – (142) 1,396 7,468 89,042 – – – – – 7,468 Land and buildings $’000 Plant and equipment $’000 Motor vehicles $’000 Under construction $’000 Opening balance 11,590 42,188 377 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 – – – 99 11,689 3,674 – 1,890 – 5,564 6,125 82 4,634 (1,383) 856 – – – 8 46,377 385 16,362 (1,287) 5,317 374 20,766 25,611 313 – 18 9 340 45 474 4,941 (4,634) – 32 813 – – – – – 813 The land and buildings balances comprise right-of-use assets with carrying value of $17,062,298 (2022: $6,124,583). 102 26,670 (103) 8,475 234 35,276 53,766 Total $’000 54,629 5,023 – (1,383) 995 59,264 20,349 (1,287) 7,225 383 26,670 32,594 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION C OPERATING ASSETS AND LIABILITIES (continued) Right-of-use assets The Group leases its office and factory facilities where leases typically run for between 5 years and 20 years. The property leases include extension options exercisable by the Group between 3 and 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. Right-of-use assets relate to leased properties that do not meet the definition of investment property and are presented as property, plant and equipment and included in land and buildings. 2023 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 2022 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 Amounts recognised in Profit or Loss Deemed interest charge for the year Amortisation charge for the year Expenses relating to short term leases Land and Buildings $’000 6,125 12,643 (2,536) 830 17,062 Land and Buildings $’000 7,916 – (1,890) 99 6,125 2022 $’000 193 1,890 12 2,095 103 2023 $’000 525 2,536 6 3,067 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION C OPERATING ASSETS AND LIABILITIES (continued) C6 Intangible assets 2023 Cost Accumulated amortisation 2022 Cost Accumulated amortisation Reconciliations 2023 Carrying amount at beginning of year Additions resulting from business combinations Effect of movements in exchange rates Balance at the end of the year 2022 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 4,934 10,985 15,919 - - - 4,934 10,985 15,919 4,042 10,985 15,027 - - - 4,042 10,985 15,027 4,042 10,985 15,027 764 128 - - 764 128 4,934 10,985 15,919 3,930 112 4,042 10,985 – 10,985 14,915 112 15,027 Impairment For impairment testing, goodwill and trademarks are allocated to the Group’s cash generating units (CGUs) as follows: PWR Performance Products PWR C&R 2023 $’000 2,768 8,432 11,200 2022 $’000 2,111 8,432 10,543 2023 $’000 2,166 2,553 4,719 2022 $’000 1,931 2,553 4,484 Goodwill Trademarks 104 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION C OPERATING ASSETS AND LIABILITIES (continued) 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 5-year period and include a terminal value at the end of year 5. The cash flow projections over the 5-year period are based on the Group’s budget for 2024 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 other factors on each CGU’s financial performance. The cashflow projections for each CGU include management’s estimates of the expected growth in aerospace and defence, automotive aftermarket, motorsports and automotive OEM. 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 post-tax discount rate based on a weighted average cost of capital adjusted for country and industry specific risks associated with each CGU. Management have considered sensitivities to the recoverable amount. No reasonable possible change in the assumptions would result in an impairment of the assets in either CGU. Key assumptions used in the estimation of value in use over the 5-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 C&R Discount rate – pre tax Terminal value growth rate Revenue – compound annual growth rate Average EBITDA margin 2023 % 2022 % 12.8% 2.0% 5.2% 34.6% 11.5% 2.0% 9.2% 16.6% 12.2% 2.0% 5.0% 32.2% 10.4% 2.0% 10.0% 18.4% 105 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 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 2023 $’000 4,301 3,366 7,667 2022 $’000 2,885 4,647 7,532 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 in 2023 was $896,055 (2022: $905,000). Less than 1 year Between 1 and 2 years Between 2 and 5 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 2023 $’000 450 – – 450 2022 $’000 907 440 – 1,347 2023 $’000 2022 $’000 2,983 1,058 4,041 2,478 846 3,324 502 348 During the year ended 30 June 2023, the Group contributed $2,518,243 (2022: $2,029,863) 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 106 2023 $’000 1,671 – 82 197 25 2022 $’000 1,996 – 100 154 21 1,975 2,271 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 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) first approved at the Company’s Annual General Meeting on 21 October 2016 and revisions approved at the Company’s Annual General Meeting on 4 November 2022. 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 an EPS growth target and total shareholder return (TSR) ranking). The performance period for the rights issued during FY2023 is from 1 July 2022 to 30 June 2025. Performance rights issued to key management personnel (KMP) and non-key management personnel (Non KMP) during the year are 50% subject to the EPS performance hurdle and 50% subject to the TSR performance hurdle. At 30 June 2023, all of these performance rights remain on issue. The EPS performance hurdle for the performance rights is based on the compound annual growth rate in EPS. 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 $822,527 (2022: $488,566) was recognised during the year and included in “employee expenses” in the statement of profit or loss and other comprehensive income. 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 2023 2022 TSR component EPS component TSR component EPS component $9.35 $10.63 Nil 40% 3.50% $10.19 $10.63 Nil N/A N/A $8.15 $8.49 Nil 40% 0.98% $9.31 $8.49 Nil N/A N/A 2.82 Years 2.82 Years 2.84 Years 2.84 Years 1.51% 1.51% 1.32% 1.32% Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price prior to the grant date. 107 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION D EMPLOYEE BENEFITS (continued) Reconciliation of the number of outstanding performance rights 2023 2022 KMP Non KMP Total KMP Non KMP Total Opening outstanding balance 83,720 189,618 273,338 82,259 225,493 307,752 Reclassified during the year1 (68,030) 68,030 - - - - Granted during the year 67,562 122,364 189,926 32,878 48,980 81,858 Exercised during the year Forfeited during the year - - (84,294) (84,294) (31,417) (84,855) (116,272) (8,628) (8,628) - - - Closing outstanding balance 83,252 287,090 370,342 83,720 189,618 273,338 Vested and exercisable at 30 June – - - - - - 1. On 1 July 2021, Matthew Bryson changed role to Chief Commercial and Technical Officer and due to his change in responsibilities is no longer classified as a Key Management Personnel from 1 July 2022 for the purpose of the Remuneration Report and associated disclosures Reconciliation of share based payment reserve Opening balance Employee expenses Shares issued during the year Closing balance SECTION E TAXATION E1 Income tax expense Current tax expense Current period Under/(over) provision in prior period Deferred tax expense Origination and reversal of temporary differences Over provision in prior period 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 Other 108 2023 $’000 855 822 (323) 1,354 2022 $’000 627 489 (261) 855 2023 $’000 2022 $’000 7,244 426 7,670 1,041 (220) 8,491 21,752 8,491 30,243 9,073 (563) (487) 468 8,491 6,398 (23) 6,375 1,274 – 7,649 20,843 7,649 28,492 8,548 (462) (511) 74 7,649 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION E TAXATION (continued) E2 Tax assets and liabilities Current tax assets and liabilities The current tax liability of $657,177 (2022: $218,140) 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 2023 Property, plant and equipment (2,499) (1,291) Intangible assets Employee benefits Accruals Inventories Unrealised foreign exchange Tax losses Other items Net tax assets/(liabilities) 2022 Property, plant and equipment Intangible assets Employee benefits Accruals Inventories Unrealised foreign exchange Tax losses Other items Net tax assets/(liabilities) (766) 1,272 48 581 (220) 392 525 (667) (2,136) (766) 997 52 372 (42) 1,364 929 770 – 490 183 (26) (29) 233 (381) (821) (363) – 275 (4) 209 (15) (972) (404) (1,274) – – – – – (79) – – (3,790) (766) 1,762 231 555 (328) 625 144 – – 1,762 231 656 – 625 778 (79) (1,567) 4,052 – – – – – (163) – – (163) (2,499) (766) 1,272 48 581 (220) 392 525 (667) – – 1,272 48 680 – 392 1,058 3,450 (3,790) (766) – – (101) (328) – (634) (5,619) (2,499) (766) – – (99) (220) – (533) (4,117) 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. 109 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION F CAPITAL STRUCTURE AND BORROWINGS F1 Lease liabilities Current Lease liability Non-current Lease liability Total lease liability 2023 $’000 2022 $’000 2,565 2,565 15,722 15,722 18,287 1,903 1,903 4,839 4,839 6,742 Reconciliation of movements in liabilities to cash flows arising from financing activities Non-cash changes 2022 Opening Carrying Value $’000 Cash flows $’000 Foreign exchange movements $’000 Deemed Interest movements $’000 Right-of-use movements $’000 2023 Closing Carrying Value $’000 Lease liabilities 6,742 (2,498) Total liabilities from financing facilities 6,742 (2,498) 875 875 525 525 12,643 18,287 12,643 18,287 Non-cash changes 2021 Opening Carrying Value $’000 Cash flows $’000 Foreign exchange movements $’000 Deemed Interest movements $’000 Right-of-use movements $’000 Lease liabilities 8,456 (2,016) Total liabilities from financing facilities 8,456 (2,016) 109 109 193 193 – – 2022 Closing Carrying Value $’000 6,742 6,742 110 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION F CAPITAL STRUCTURE AND BORROWINGS (continued) Finance facilities The terms and conditions of the Group’s finance facilities were as follows: Facility Corporate credit card Corporate credit card Bank guarantee facility Finance lease Multi-currency facility Currency Nominal interest rate Maturity 2023 Facility limit $’000 Carrying amount $’000 2022 Facility limit $’000 Carrying amount $’000 AUD USD AUD AUD Variable Variable 1.54%pa Variable 2026 – 2026 2026 100 100 200 7,500 AUD Variable 2026 10,000 – – – – – 100 100 – 7,500 10,000 – – – – – 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. F2 Deferred income Less than 1 year Between 1 and 5 years Balance at end of year Note I5 2023 $’000 476 742 1,218 2022 $’000 469 1,219 1,688 Government grants Government grants received by the Group for the purchase of equipment have been recognised as deferred income, with the deferred income amortised over the useful life of the equipment in relation to which the grant was provided. F3 Capital and reserves Issued capital Ordinary shares 2023 No. of shares $’000 2022 No. of shares $’000 Balance at beginning of year 100,296,046 26,484 100,179,774 26,223 Issue of shares on vesting of FY19 performance rights Issue of shares on vesting of FY20 performance rights – 84,294 – 323 116,272 - 261 - Balance at end of year 100,380,340 26,807 100,296,046 26,484 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. 111 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION F CAPITAL STRUCTURE AND BORROWINGS (continued) F4 Dividends Dividends recognised by the Company are: 2023 Interim 2023 ordinary Final 2022 ordinary Total amount 2022 Interim 2022 ordinary Final 2021 ordinary Total amount Cents per share $ Total amount $’000 Franked/ unfranked Date of payment 3.60 3,614 Franked 24 March 2023 8.50 8,525 12,139 Franked 23 September 2022 3.50 3,510 Franked 25 March 2022 6.00 6,011 9,521 Franked 24 September 2021 Franked dividends declared or paid during the year were fully franked at the tax rate of 30 percent. Dividend franking accounts The 30 percent franking credits by Group entity: PWR Holdings Limited PWR IP Pty Ltd P.W.R Performance Products Pty Ltd Total franking credits available at 30 June 2023 $’000 912 1,297 3,157 5,366 2022 $’000 1,155 845 3,132 5,132 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. The following dividend was declared by the Directors since the end of the financial year: Final 2023 ordinary dividend Total amount Cents per share 8.90 Total amount $’000 8,934 8,934 Date of payment 22 September 2023 The financial effect of these dividends has not been brought to account in the consolidated financial statements for the year end 30 June 2023 and will be recognised in subsequent financial reports. F5 Commitments At 30 June 2023, the Group had agreed to purchase plant and equipment for $4.4 million (2022: $5.0 million) within 12 months. 112 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION G GROUP STRUCTURE G1 Parent entity information As at and throughout the financial year ended 30 June 2023, the parent and ultimate parent entity of the Group was PWR Holdings Limited. Statement of profit or loss and other comprehensive income Profit 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 2023 $’000 10,011 10,011 142 30,781 30,923 76 - 76 2022 $’000 9,252 9,252 11 32,330 32,341 189 - 189 30,847 32,152 26,807 26,484 1,354 2,686 30,847 854 4,814 32,152 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 2023 or 30 June 2022. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in the notes. 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. PWR Performance Products Pty Ltd PWR IP Pty Ltd PWR Europe Limited C&R Racing Inc PWR EU B.V. Ownership interest Country of incorporation Australia Australia UK USA Netherlands 2023 % 100 100 100 100 100 2022 % 100 100 100 100 100 113 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION G GROUP STRUCTURE (continued) 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 6 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: PWR Performance Products Pty Ltd PWR IP Pty Ltd Both subsidiaries became a party to the Deed on 18 May 2017. 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, is set out below. Statement of profit or loss and other comprehensive income Revenue Other income Raw materials and consumables expenses 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 114 2023 $’000 80,874 1,878 2022 $’000 70,637 1,564 (12,589) (11,743) (33,492) (28,897) (614) (5,969) 30,088 (5,805) 24,283 1,785 (1,463) 322 24,605 (523) (3,916) 27,122 (5,628) 21,494 1,593 (1,374) 219 21,713 (7,209) (5,829) 17,396 17,396 36,119 (315) (12,139) 41,061 15,884 15,884 29,848 (92) (9,521) 36,119 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 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 Lease liabilities Employee benefits Deferred income Contract liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Lease liabilities Deferred income Contract liabilities Deferred tax liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 2023 $’000 2022 $’000 11,898 9,682 12,327 869 34,776 17,481 2,404 8,011 2,443 30,339 24,629 23,422 11,751 6,800 7,142 4,739 55,061 89,837 3,971 626 3,612 441 450 6 169 9,275 2,961 623 – 5,637 502 9,723 18,998 70,839 26,807 2,971 41,061 70,839 11,751 6,535 7,142 3,366 52,216 82,555 3,955 1,287 2,914 435 907 (348) 145 9,295 2,905 1,069 440 3,785 348 8,547 17,842 64,713 26,484 2,110 36,119 64,713 115 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 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 2023 $’000 17,626 16,006 33,632 2022 $’000 21,499 13,813 35,312 Cash and cash equivalents The Group held cash and cash equivalents of $17,626,406 at 30 June 2023 (2022: $21,498,660), 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. 116 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 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: Australia UK USA 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 bad debt Carrying amount 2023 $’000 1,648 11,551 2,807 16,006 11,049 4,386 516 55 2022 $’000 1,312 7,150 5,351 13,813 9,385 3,658 714 189 16,006 13,946 - 16,006 (133) 13,813 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. No impairment losses were recognised in respect of trade and other receivables during the year (2022: $133,370). 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$200,000 bank guarantee facility; – A$100,000 corporate credit card facility; and – USD$100,000 corporate credit card facility. – 117 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 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. 2023 Trade and other payables Right of use liabilities 2022 Trade and other payables Right of use liabilities Note Carrying amount $’000 Contractual cash flows Total $’000 12 months $’000 1-5 years $’000 C7 F1 C7 F1 7,667 18,287 (7,667) (24,379) (7,667) (3,107) 25,954 (32,046) (10,774) - (21,272) (21,272) 7,532 6,742 14,274 (7,532) (6,871) (14,403) (7,532) (1,903) (9,435) - (4,968) (4,968) 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), US dollar (USD), and Euro (EUR). The currencies in which these transactions are denominated are primarily AUD, GBP, USD, and EUR. Under the Group’s financial risk management policies, the Group may use derivative financial instruments to manage its foreign currency risks. At 30 June 2023, the Group had entered into convertible forward contracts to manage its exposure to sales denominated in GBP. These contracts, which settle monthly until 21 December 2023, have a total notional amount of £6.6 million (2022: £3.1 million) and have been accounted for at fair value through the profit and loss. The fair value at year end was a liability of $553,289 (2022: $8,846 liability). During the year ended 30 June 2023, the Group recognised $482,692 in realised gains (2022: $73,679 losses) and $431,945 in unrealised losses on derivatives (2022: $225,444 gains). This has been included in finance income or costs in the income statement. 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: 30 June 2023 30 June 2022 AUD $’000 GBP £’000 USD $’000 EUR €’000 AUD $’000 GBP £’000 USD $’000 EUR €’000 1,290 5,437 2,214 313 1,592 3,847 3,838 (1,729) (937) (1,544) (31) (1,099) (311) (794) (439) 4,500 670 282 493 3,536 3,044 - 2,300 - - - 3,100 - – - – – Note C2 C7 Trade receivables Trade payables Net statement of financial position exposure Notional amount of foreign currency derivatives 118 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION H OTHER INFORMATION (continued) Sensitivity analysis At 30 June, exchange rates used to translate the above were 0.5246 to the GBP, 0.6618 to the USD, and 0.6087 to the EUR (2022: 0.5676 to the GBP, 0.6886 to the USD and 0.6591 to the EUR). A strengthening (weakening) of the GBP, USD or EUR 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 2022, using consistent foreign exchange rate variances, as indicated below. 30 June 2023 GBP (10% movement) USD (10% movement) 30 June 2022 GBP (10% movement) USD (10% movement) Profit or loss (net of tax) Equity (net of tax) Strengthening $’000 Weakening $’000 Strengthening $’000 Weakening $’000 (600) (71) (436) (309) 546 64 396 281 (600) (71) (436) (309) 546 64 396 281 The impact of the movement in EUR during the year and in prior years was not material. 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 assets Financial liabilities Variable rate instruments Financial assets Financial liabilities Nominal amount 2023 $’000 5,000 - 2022 $’000 5,000 - 5,000 5,000 12,626 16,499 - - 12,626 16,499 C1 F1 C1 F1 119 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION H OTHER INFORMATION (continued) Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the beginning 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 2023 Variable rate instruments Cash flow sensitivity (net) 30 June 2022 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 $’000 123 123 150 150 (123) (123) (150) (150) 123 123 150 150 (123) (123) (150) (150) Fair values The fair values of the Group’s financial assets and liabilities approximate their carrying amounts recognised in the statement of financial position. 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 Triple Eight Race Engineering Pty Ltd (i) Sales of goods Triple Eight Race Engineering Pty Ltd (i) Purchases of goods Transaction values during the year Balance outstanding Receivable/(Payable) 2023 $’000 100 - 2022 $’000 81 (20) 2023 $’000 2022 $’000 - - - - (i) Triple Eight Race Engineering Pty Ltd is an entity associated with Roland Dane, which purchases goods from and sells goods to the Group. 120 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION H OTHER INFORMATION (continued) H3 Auditor Remuneration Audit services Auditors of the Group – KPMG Audit and review of financial statements Accountability GB 2023 $ 2022 $ 195,000 158,900 Audit and review of financial statements – controlled entity – 19,828 Magma Chartered Accountants UK Audit and review of financial statements - controlled entity 26,115 Other services Auditors of the Group - Accountability GB Payroll services for controlled entity 8,794 – H4 Subsequent events The Board declared a fully franked final ordinary dividend of 8.90 cents per share. The financial effect of the 2023 declared final dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2023. 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. 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 2022. A number of other new standards are effective from 1 July 2022 but they did not have a material effect on the Group’s financial statements. New Standards and Interpretations Not Yet Adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2023 reporting and have not been early adopted by the Group. The most significant of these to the Group are AASB 2021-6 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates, AASB 2021-5 Amendments to Australian Accounting Standard – Deferred Tax related to Assets and Liabilities arising from a Single Transaction 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. 121 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 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 9. Intangible assets and goodwill 10. Share capital 11. Provisions 12. Leases 13. Financial instruments 14. Fair value measurement 15. Government Grants 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 can 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. 122 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 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 due to 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. 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. 123 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 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. Inventories 7 Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted-average cost method, 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. 124 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) The estimated useful lives are as follows: Land and buildings Plant and equipment Motor vehicles 2023 2022 10-27 years 10-27 years 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. 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 1 vote per share at meetings of the Company. 125 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 12 Leases Leased assets The Group, as a lessee, assesses whether a contract is or contains a lease. A contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period 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. Right of use assets are presented as Property, Plant and Equipment. However, the Group has elected not to recognise right of use assets and 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 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 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 measured at amortised cost using the effective interest rate method. 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 assets recognised. 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. 126 Financial StatementsPWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2023 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 127 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Directors’ Declaration For the year ended 30 June 2023 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 90 to 127 and the Remuneration Report on pages 71 to 89 in the Directors’ Report, 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 2023 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; 2. 3. 4. (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. 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 2023. 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 17 August 2023 128 Financial StatementsPWR Holdings Limited Independent Auditor’s Report to the Members of PWR Holdings Limited For the year ended 30 June 2023 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 2023 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Consolidated Statement of financial position as at 30 June 2023; • 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 • 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. 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 these requirements. 129 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. 129 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Independent Auditor’s Report to the Members of PWR Holdings Limited For the year ended 30 June 2023 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 this matter. Valuation of goodwill and intangible assets ($15.92m) Refer to Note C6 to the Financial Report The key audit matter How the matter was addressed in our audit 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 13% of total assets). The Group uses complex value-in-use 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. Significant forward looking assumptions applied in their value in use modes include forecast revenue growth, EBIT margin and discount rates applied on net cash flows. 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. 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 revenue growth, EBIT margin 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 C&R’s ability to convert OEM and emerging technology opportunities. We compared forecast growth rates to published analyst reports, comparable companies, and considered differences for the Group’s operations. 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. 130 130 Financial StatementsPWR Holdings Limited Independent Auditor’s Report to the Members of PWR Holdings Limited For the year ended 30 June 2023 • 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. Other Information Other Information is financial and non-financial information in PWR Holding 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 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. 131 131 Annual Report 2023YEAR IN REVIEWADDITIONAL INFORMATIONDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP Independent Auditor’s Report to the Members of PWR Holdings Limited For the year ended 30 June 2023 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. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of PWR Holdings Limited for the year ended 30 June 2023, 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 71 to 89 of the Directors’ report for the year ended 30 June 2023. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG 132 Erin Neville-Stanley Partner Brisbane 17 August 2023 132 Financial StatementsPWR Holdings Limited Additional Information ASX Additional Information Shareholder Information at 4 August 2023 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 4 August 2023. 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 1,040,879 5,278,247 3,765,509 8,084,529 82,211,176 2,605 2,034 512 339 25 100,380,340 5,515 201 shareholders hold less than a marketable parcel of ordinary shares of 57 shares as at 4 August 2023. 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 4 August 2023. Rank Name Number of ordinary shares held Percentage of capital held % 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED WAGON WEEL CO PTY LTD KPW PROPERTY HOLDINGS PTY LTD NATIONAL NOMINEES LIMITED MAMLEC PTY LTD BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD NETWEALTH INVESTMENTS LIMITED BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD WEELY’S INVESTMENT HOLDINGS PTY LTD NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT> CITICORP NOMINEES PTY LIMITED TRUEBELL CAPITAL PTY LTD ANACACIA PTY LTD BNP PARIBAS NOMS (NZ) LTD WASK MANAGEMENT PTY LTD UBS NOMINEES PTY LTD 20 ECAPITAL NOMINEES PTY LIMITED Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (Total) Total Remaining Holders Balance 20,218,481 14,594,705 13,092,819 10,000,000 9,246,403 3,273,513 3,175,000 1,595,312 1,135,970 669,630 658,445 622,267 612,264 516,773 480,000 426,100 413,728 364,575 339,643 163,163 81,598,791 18,781,549 20.14 14.54 13.04 9.96 9.21 3.26 3.16 1.59 1.13 0.67 0.66 0.62 0.61 0.51 0.48 0.42 0.41 0.36 0.34 0.06 81.29 18.71 133 YEAR IN REVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP ADDITIONAL INFORMATIONAnnual Report 2023ASX Additional Information Shareholder Information at 4 August 2023 SUBSTANTIAL SHAREHOLDERS At 4 August 2023, PWR Holdings Limited had 2 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 ATF KPW Holdings Trust on its own behalf and on behalf of Kees Weel and Paul Weel, and Lazy Weel Pty Ltd ATF Lazy Weel Super Account and Wagon Weel Co Pty Ltd AustralianSuper Pty Ltd Number of shares % 19,307,788 5,029,725 19.2% 5.01% RIGHTS The number of performance rights on issue are set out below: Number of rights holders Number of rights on issue 18 370,342 VOTING RIGHTS 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. 134 Additional InformationPWR 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 Kym Osley, AM, CSC COMPANY SECRETARY Lisa Dalton PRINCIPAL REGISTERED OFFICE PWR Holdings Limited PWR Performance Products Pty Ltd 103 Lahrs Road Ormeau, 4208 Queensland, Australia Phone: +61 7 5547 1600 +61 7 5547 1666 Fax: info@pwr.com.au Email: POSTAL ADDRESS PO Box 6425 Yatala QLD 4207 NORTH AMERICA OFFICE C&R Racing Inc. 6950 Guion Road Indianapolis, IN 46268 USA Phone: +1 317-293-4100 +1 317-293-4110 Fax: info@crracing.com Email: UK OFFICE PWR Europe Limited Unit C, Valley Point Valley Drive Rugby Warwickshire, CV21 1TN United Kingdom Enquiries Phone: +44 (0) 1327 362940 Fax: +44 (0) 1327 362960 Email: sales@pwreurope.com LOCATION OF SHARE REGISTRY Computershare Investor Services Pty Ltd Level 1, 200 Mary Street Brisbane, 4000 Queensland ASX TICKER CODE: PWH 135 YEAR IN REVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTS OUR VALUE CREATION FRAMEWORK LEADERSHIP ADDITIONAL INFORMATIONAnnual Report 2023

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