WAE softwareThanks for the video link Tony. What do I think?...

WAE software
Thanks for the video link Tony. What do I think? Interesting stuff and smart people. It sounds to me like they are using probabilistic models for the embedded tech - especially the estimated battery life and battery fill %. The other stuff appears to be directly measurable. And the estimations are modelled using the data from the cloud product. So it sounds like the 2 go hand in hand: they couldn't build the embedded product without the cloud data.

What surprises me is why haven't any of the battery manufacturers (e.g. BYD) already done this? And what is the moat for WAE with this software?

What is interesting is their talk of partnering with fleet managers. It makes sense and confirms my thinking. And if their testing can confirm dud cells ex factory, then it also makes sense for the manufacturer to get on board and pay for the service per vehicle which they would recoup through higher sales and /or prices via guaranteed battery life & quality etc. So why has this not happened yet?

Where do I see WAE going? Either a stand-alone entity worth billions in its own right, or just another cost centre in FMG if they can't crack the China and US markets. It appears historic battery sales were relatively low, so gearing up for selling large battery units in the US will take time and money. The good news is they can test these large units in Pilbara.

WAE financials
Apologies for diving into the historical numbers (again) but something isn't sitting right for me.

If you are wondering where I got the WAE GBP data, it is from the 'companies house' website in the UK (similar to the ASIC companies register) - company number is 08012215. I think UK filing requirement for overseas owned companies is they must file annual accounts within 13 months of year end so we might have to wait for the next data drop.

Segment reporting
I have an issue with how FMG are showing the FFI segment information. In other jurisdictions they show the full revenue and NPAT but then have an additional column for intercompany eliminations when looking at the numbers from a group perspective. If FMG did this that would provide more transparency into FFI.

Transparency
The 2022 AR for FMG disclosed 4 and 12 month USD sales & NPAT for WAE ($26/$81 revenues, and loss of $3m for 4 months and $5m for 12 months). Given the $26 was for 4 months and the $81 was for 12, then the annual increase for 2023 was closer to 32% YoY, rather than 4 fold.

Quote: "On 28 February 2022, Fortescue acquired WAE.The acquired business contributed revenues of US$26 million and net loss of US$3 million to the Group for the period from28 February to 30 June 2022. If the acquisition had occurred on 1 July 2021, consolidated pro-forma revenue and loss for theyear ended 30 June 2022 would have been US$81 million and US$5 million respectively."

Incredible savings?
What isn't sitting right are the GBP figures for WAE in the 6 months ended December 2021. I am hoping they didn't pull a Dick Smith special and write everything down in the 6 months prior to acquisition to help margins and profits thereafter. And maybe they took an axe to overheads from July 2021...some 8 months prior to being taken over? Known numbers below are bold, estimates are in normal font. GBP figures sourced from WAE, USD figures sourced from FMG. Conversions between currencies is estimated using Yahoo weekly average closing rates and the yellow parts are splitting the known GBP values into the 2 periods by back-solving the GBP equivalents from the FMG disclosures:

	Sales	Months	GBP	USD
1	2020	12	41.2	52.9
2	2021	6	16.6	23.0
3	2022	12	60.9	81.0
4	2023	12	88.8	107.0
5
6	2021/2022	18	77.5
7
8	NPAT	Months	GBP	USD
9	2020	12	-14.5	-18.6
10	2021	6	-12.9	-18.0
11	2022	12	-3.8	-5.0
12	2023	12	-2.4	-3.0
13
14	2021/2022	18	-16.7

Assuming the FMG disclosure for 2022 is correct and is for 12 months, how does WAE make a GBP13m loss in the 6 months ended June 2021 on revenues of GBP16-17m? And how did GP improve from 2%? {I now can't see where I sourced the 28% GP for WAE under FMG....grrr}

WAE acquisition
What I do like is the WAE acquisition had a nett cash cost of $210m which was mostly funded by the green bond at $205m. Using other peoples money until the business starts to make money....nice. But paying $210m for something haemorrhaging cash seems a bit off......Twiggy must see something in this. BUT rather than spend say $10m p.a. with WAE helping Pilbara (GBP8m per the WAE accounts), they can own the whole company where it only cost FMG $3m in 2023. That makes financial sense...assuming losses have been stopped.