Thanks once again Tony. TLDR: WAE was a financial hot mess...

Thanks once again Tony.

TLDR: WAE was a financial hot mess before FMG bought it, but the vertical integration makes sense for FMG mining operations. The jury is out on future profitability from this part of the FMG Energy segment unless there is a significant change somewhere/somehow. We will need those green electrons to make meaningful contributions.

FYI for others, this is the software Tony referred to for WAE:

• Elysia Embedded: "Proven on the racetrack, designed for the real world: Elysia Embedded encompasses a suite of powerful BMS algorithms that ... can be integrated into existing software stacks, unlocking performance, safety and lifetime from any battery system." https://www.elysia.co/embedded
• and Elysia Cloud which looks to be mainly data analytics: https://www.elysia.co/cloud

I'm not convinced about the value of the cloud/analytics side of it - I have seen enough software ventures fail over the years that were built on selling data. The embedded part looks to be more easily saleable given greater benefits for users but it needs significantly more volume to be meaningful for FMG. Perhaps partnering with manufacturers?

I agree subscription revenue is a lot more valuable to an organisation than one-off. Trouble is if you install the software at the time of manufacture, how do you get the consumer to pay for it? So maybe something like fleet managers could be more lucrative.

The move to the USA is interesting. Gross Profit at 28% last year is not great although an improvement on the previous year which suggests some semi-variable costs - so as scale increases so might GP.

I also see in the last FMG HY report that deferred revenues increased to $183m from $99m for FY23. It could be the soft revenues for WAE in H1 are due to timing of project completions.

Thinking top-down for WAE; FMG have purchased the upstream supply chain to modify the WAE technologies to suit the mining industry*. This keeps the margin with FMG, allows additional external revenue streams and FMG get to iron out the kinks on their own fleet before rolling out elsewhere. BUT such intercompany transactions are (quite rightly) eliminated on consolidation so the level of activity within WAE is likely much higher than we are seeing in the FMG financial reports.

Visibility on WAE financials is limited but for the 18 months ended June 2022 they had revenues of GBP77m, of which GBP8m came from FMG. They also had a GP of 2% (yes you read that correctly) - although I'm not sure if we are comparing apples with apples given FMG are showing 28% GP for WAE. 90% of WAE income came from services, 7% from sale of goods and the rest from royalties & grants. Prior to the takeover WAE were making horrendous losses given their slim GP.

*this was subsequently confirmed in the WAE financial report.