VivoPower International PLC (VVPR) 2022 Q4 法說會逐字稿

Good day and thank you for standing by. Welcome to the VivoPower International PLC fiscal year 2022 full-year earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded.

I will now like to hand the conference over to your speaker today, Kevin.

Thank you, Victor. And welcome, everyone, to the FY22 earnings call for VivoPower International PLC. We'll jump straight into slide 2, which is the executive summary.

So in a nutshell, we have made significant strategic progress over the last 12 months. But we've had to continue with quite a few headwinds including lingering COVID effects from our businesses in Australia as well as foreign exchange.

So going through key points. Firstly, revenue declined to $37.6 million, primarily attributable to the strict COVID lockdowns, which we previously [provided] during the half-year results which unfortunately did expand through the majority of the periods over the last six months as well. And that caused delays in works for our business today.

In addition, there has been a sharp drop in the exchange rate since 2022. On a constant FX rate basis, our revenue declined by 3% year on year.

In terms of gross profit, this includes the discontinued operations. They decreased by $4.7 million to $1.6 million for the same reasons I mentioned before. And in addition to that, in particular, we had a $1.9 million cost overrun on the Bluegrass solar project due to interstate projects in Australia.

Our GP margin declined 4% versus 16% year on year. And this in turn reflects increased compliance costs, increases in supply chain costs as well as the one-off Bluegrass solar project cost overrun. GP margin adjusted for the cost overruns of Bluegrass was 9% for FY22. And excluding the discontinued operations, was 10%.

EBITDA including discontinued operations declined to $10.4 million loss versus $1.4 million loss in the previous year. Our operating losses widened to $14.6 million versus $4.8 million in the previous year. Again, this was driven by FX, the reduced lockdown period revenues in the first half of the year, and the Bluegrass solar project overruns. We did [repress] with budgeted increases in growth OpEx to support hyper-scaling of the Tembo business.

In terms of our cash balance, as at year end, it was $1.3 million, down from $8.6 million in the previous year. However, post-balance date, we replenished this to $8.9 million. That was because of the sale of the non-core business units as well as the shelf rating we did in July.

In terms of uses of cash during the year, we were quite judicious in terms of how we invested cash for Tembo scale-up and product development. That said, we did incur, as I mentioned, $1.9 million in one-off Bluegrass solar costs that were unplanned and beyond our control.

We did execute on a number of transformational strategic initiatives despite significant disruptions. In terms of our distribution partnership network, we expanded that to six continents and 50 countries, with EV commitments and orders increasing to over 8,000. Very importantly, we secured a commercial design services agreement with Toyota Australia, with prioritization of the developments of the next generation 72-kilowatt-hour (sic - see slide 2, "72kWh") and version 2 battery conversion kit as the key focus.

We divested our non-core businesses within Aevitas, and that would enable proceeds to be reinvested in our higher-growth businesses. And we also established VivoPower and Tembo subsidiaries and operating units in markets globally as soon as borders reopened including the UAE as well as Southeast Asia.

Last but not least, we recertified our B Corp status, which is the mandatory requirement from B Corp in terms of the reassessments. We were named again as one of the best B Corps in the world for governance and recognized as a 100 global impact company for the second year in a row by the Real Leaders Impact Awards.

Turning to slide 3. This is a recap of the year-end as well as an update on some of the prior announcements that we made. So a significant strategic and operational progress despite the headwinds that I mentioned.

Key achievements included, again, the definitive agreement with Toyota Australia as well as with GHH and Bodiz and winning record levels of solar electrical solutions contracts. Just going specifically despite the previous announcements and updates on those, we had acquired full control of the US Solar portfolio. We rebranded that back in Q1 and pivoted to the Power-to-X strategy with a view to then (technical difficulty) renewable powered digital asset mining operation to be spun-off [in the] company.

That is on hold at the moment due to market conditions. So obviously, there has been a [fall off] in terms of the digital [asset] mining. We have put that on hold [for the time being].

Other updates, we executed an LOI to acquire 100% of GB Auto (technical difficulty) to, on a consensual basis, to cease that LOI as well as the distribution agreement. And that's simply because Tembo is now directly established in Australia. And we will proceed to selling directly in our own rights. With that, GB Auto remains a trusted and valued partner as well as contractor. We will also be working with them in terms of (technical difficulty).

Elsewhere, as I mentioned, we have established subsidiaries and operating units now for Tembo in key markets globally. That is very much focused on a priority going forward in terms of scale-up assembly and production capabilities in key markets around the world close to our customers. It doesn't make any sense to assemble and manufacture out of the Netherlands and then send it to places far away in Australia or Asia or Africa for that matter. So that is a real focus.

Going to the next slide just in terms of key objectives that we set out at the start of the fiscal year back in July last year. We have delivered on 13 out of the 18 objectives that we've set. In terms of the ones that are still outstanding, assembly, and our production is still to be executed upon. It's been a challenging period with logistics and supply chain issues around the world.

I've mentioned that (technical difficulty) tends to scale up production out of [pawns] to send kits around the world. So we have been producing and sending kits out, [but] they haven't hit an upstage in terms of volumes.

The other area where we have had slippages in the right is in terms of the SES business units. So we have completed feasibility studies through Tottenham Hotspur partnership. That said, in terms of building our engineering and sales teams, we have not -- we don't have it yet. Our priorities have been very much on the EV side of things and to focus our resources and attention that from.

That said, on a post-balance date basis, we have executed a couple of investments in joint ventures to increase our capabilities yet. And that includes an investment in a mining, energy storage company called Green Gravity.

On to the next slide. This is a quick update in terms of the team. So we have been focused in the last six months on reshaping the team for the next phase of strategic execution. And our HR strategy in that regard has three objectives.

Number one is orientate our leadership team to capabilities in operations, product, engineering, assembly, as well as market factory. We have also wanted to strengthen our safety, quality, development and testing capabilities in Tembo. And we have also executed on outsourcing middle-office and back-office functions to the Philippines to help us to scale (technical difficulty) effective level.

Some of the key hires that we have made during the year: Alun Evans has joined as Tembo Head of Quality; Nathan McCormick as Tembo Head of Functional Safety as well as Testing Manager; and Jean Diego Banon, who is with me on the call today as VivoPower's Head of Corporate Deployment, also joined recently.

Key promotions. Matthew Nestor had stepped up to the Head of Global Partnerships. He is taking over from Matt Cahir who has been instrumental in really getting VivoPower and Tembo to where we are today. But Matt will be leaving to focus on personal matters, and Matthew Nestor is taking the baton and has been really instrumental in driving all the partnerships that we have today.

Gary Challinor has been promoted to Group Chief Operating Officer and has done a great job particularly in relation to the Toyota relationship as well as helping to internationalize Vivo in terms of its mindset as well as focus.

And Iain Folley has been promoted to Financial Controller in the Asia Pacific region. Iain has been overseeing the Aevitas operations in particular. So (technical difficulty) his impact growth in that.

On to the next slide. We, as I mentioned, retained our B Corp and have been recognized again for global impact leadership. Importantly, we were named one of the best B Corp for governance by B Lab UK. And this is a very important [achievement] as a group.

Moving to page 7, just delving into the numbers a bit more. So in terms of the Aevitas Critical Power operations, you'll see there a breakdown between the discontinued as well as retained operations which include the fast-growing solar segment operations account added (technical difficulty) million of revenues and well on that in terms of the [P&L] in the next slide.

So group GP declined, as you can see, from $6.3 million to $1.6 million. That includes the $1.9 million of cost overruns on the Bluegrass project. And in terms of adjusted underlying [EBITDA], as mentioned, widened from $1.4 million to $10.4 million over the last 12 months.

Moving to the next slide. So just breaking down further the P&L from a pre-divestiture basis and reconciling that to continuing operations. So for FY22, you can see there that the discontinued operations accounted for $15.2 million of revenues, GP attributable to $1.3 million.

For continuing operations at $22.4 million was the revenue. And if we exclude the Bluegrass-related cost overruns, GP was $2.2 million. If you look back at the prior year, which was less COVID affected, you can see that continuing operations, $24 million; gross profit, $4.4 million, which is around 18%.

And as mentioned in previous announcements, we started to sell the discontinued operations through the [operating segments] which includes the solar electrical solution business unit in Australia. So that's been retained. As a word of note, the P&L after-tax figures here are not really representative units (technical difficulty) post divesting the non-core operations.

Next slide, I won't to go through in detail. That just shows a reconciliation to underlying EBITDA from net loss, but we had quite a number of [non-cash factors] including foreign exchange. On the next slide, page 10, I won't go through that either.

Going to the balance sheet on page 11. So project investments increased from $12.5 million to $16.4 million. That includes intangible development costs that have been capitalized in both Caret as well as Tembo. We, as mentioned, we had our cash balance declined from $8.6 million to $1.3 million, but on a post-balance date forma basis has been replenished to $8.9 million.

Now in terms of net debt, that increased from $14.5 million to $27.3 million. On a pro forma basis sale with a $19.7 million post balance date. And most of that in terms of debt is attributable to (technical difficulty) which as mentioned before, a very supportive shareholder as well.

Going to the individual business units. So firstly, for Tembo, we made significant progress during the year, but deliveries have been (technical difficulty). The outlook remains very positive. We get approached on a daily basis by people seeking to convert kits. And we are, as mentioned from a focus perspective, prioritizing the release of its [next gen 72kWh kits] in early calendar '23, and we expect to go into scale-up production release of that kit for the late [calendar 2023].

We're very much focused on continuing execution with respect to our microfactory [strategy] and the rollout of it in key markets globally. We have identified the UAE, Southeast Asia, and Australia as the key markets to launch these microfactories.

In addition, what we're also doing is opportunistically recruiting world-class EV talents [that has become] unavailable as a result of the headcount reductions that are going on at many other EV companies. The capital we've raised to balance (technical difficulty) would not have been available -- I mean we're not available if we rewind 12 to 18 months ago. So we are taking advantage of [these conditions] in markets and the other EV players to add to our talent base.

One development in the Middle East, just to [flag] is that we have find MOU with a Jordanian state-owned enterprise, which involves 1,000 EV kits. And so our presence the UAE last year is starting to get better.

With regards to Toyota, that partnership in relation to [news] and we've been doing working with its 300 credit team and looking to hit the mutual objectives that we've set in the (technical difficulty).

On Aevitas, protracted Australian lockdowns very much impacted our results, but the outlook is very positive. There is an unprecedented pipeline of over 27 gigawatts of solar farm projects currently being built across Australia at the moment. And it has been buoyed by the election of a new federal labor [government] in May 23 this year, who are very supportive towards more renewables across Australia.

So we are very much experiencing a green rush, if you will, in Australia. [Very much similar to] the gold rush of the 19th country. And we are targeting for our solar electrical solutions business to deliver revenues exceeding the revenues that were divested (technical difficulty) from our non-core business units.

In terms of compound annual growth rate, the solar electrical solutions business has grown 57% year on year since FY 2019. And we have a very strong pipeline with significant opportunities that's taken very (technical difficulty). Looking for that contribute in excess of what we have.

In terms of SES, we have decided to focus on the mining sector. It's augmenting well in our Tembo EV, [Aevitas], as well as other industries. So we're seeing an increasing number of SES opportunities as more customers seek fleet electrification solutions. And conversations have now pivoted to not just (technical difficulty), but also on-site critical power, EV charging and energy storage, microgrids, battery recycling as well.

So we are focused on expanding our capabilities through partnerships and joint ventures. And as we move forward, we have made a seed investments in Green Gravity, an energy storage in Australia focused on the mining. And that will help expand our capabilities as well as (technical difficulty).

In terms of Caret, we created incremental value over the year through development activities, but very much feel there is more to come from the Inflation Reduction Act, [which is] very positive for Caret Solar. There is a renewed focus on data infrastructure, including digital asset mining, and we are seeing more inbound interest in partnerships involving our various solar projects. And so notwithstanding the digital asset mining correction that we have had over the last six months, we are still looking with our Power-to-X strategy. Albeit time that appropriately as far as in the investor. Overall, the plan is to spin off this business unit and to reinvest proceeds into our core EV as well as our SES.

Turning to FY23 and our key objectives. So our focus is on scale up assembly and production for EVs. I won't go through every single item here, but there is 18 items that we are fighting on and the micro factory is a key element and a key enabler of the scale up of the assembly and production.

Just to touch on page 17, events post financial year-end. So we've got a solid momentum up to FY23. So we secured 1,000 new kits in terms of EV commitments from a Jordanian state-owned enterprise, as I mentioned before. We have, however, put on pause the Artic Truck LOI given our needs are very much focused on the Toyota Australia and LandCruiser.

Arctic Truck is focused on [high laps] which we very much intend to electrify as well. But given resource and time commitments, we do need to focus on Toyota Australia as well as the LandCruiser, which is what our most of our distributors and customers want.

We obviously executed on strategic transactions to bolster our cash balance at $8.9 million in divesting the non-core units as well as completing operating on NASDAQ. We are capitalizing on opportunities to hire world-class EV talent and take advantage of the many EV winter that's happening with many other companies. We want very few that are still in hiring mode, but we're doing it on a very selective and judicious [aspects].

Very importantly, we secured important ESG certifications and awards. This is with (technical difficulty). We've reorientated the GB Auto relationship post establishment of Tembo Australia. As mentioned, this involves ceasing the distribution agreement and the letter of intent to acquire GB Auto, but they very much remain a valued and preferred partner for Tembo for subcontracting [after-sales service].

And last but not least, we've engaged with advisers in relation to current spin-off. The Inflation Reduction Act is really positive. And we're looking to spin-off Caret as a Power-to-X business and reinvest proceeds back into VivoPower.

That's it for my presentation. There have been a number of questions sent through and we've (technical difficulty). With the audio [in this presentation], I might just address those questions that have come through.

So one of those questions is, because EVs and underground mining is relatively new, is Vivo involved with helping right safety guidelines to electric vehicles and online through your [brief] trials? If not directly involved, are you working with [mining safety guidelines] such as the Global Mining Guidelines Group (technical difficulty) or certified with current guidelines?

My answer is yes. We have one of the world's foremost mining safety experts advising us in relation to the safety requirements for mines particularly underground. So yes, we are deeply entrenched in terms of ensuring that electric vehicle convergence are safe. That is the absolute number one priority in terms of direction for our customers in the mining sector as well as for us.

The second question is, does the 70 series have digitalization feature for the [application] and this capability [to help manage vehicle like] mines? And what are you doing to make sure you're [on top] of the technoogy within the mining sector especially [as we use EVs] more and more? Are you looking for ways to create new technologies or making more technologies compatible with (technical difficulty)?

This is a great question. And the short answer is yes. [Vivo's experience] can accommodate digitalization fees that pull up our geolocation status backing, and that is very much data that's important for the miners. And in terms of our software, including telemetry, this very much (technical difficulty). And yes, we are always looking for to create new technologies, new IP, and so the short answer to that is yes.

Next question is, knowing the demand for the 70 series is high combined with supply chain and (technical difficulty) is still having a report back how the Toyota pause and 70 series affecting your production? Have there been conversations with Toyota to produce only the necessary components to speed up the installation production kits? Has something like this help the Toyota to ship the 70 series out faster and is this a possible [to streamline] production?

Yeah, a great question. So obviously, Toyota is the gatekeeper in terms of releasing vehicles, [our own] vehicles. And with respect to the 70 series, I think going to say without breaching confidence, we are comfortable in terms of what's available to meet short-term requirements especially in Australia, where most of the demand is coming from at the moment.

And we will continue to work very closely with Toyota to ensure mutually that our [products] are met. So at this moment, we don't see any issue in the short term. And I think in terms of medium term, we're all expecting that the supply chain and semiconductor (technical difficulty) that's coming on steam, particularly in semiconductors. So short-term, we don't envision a real issue; medium-term, yes, it's continued upon supply chain (technical difficulty).

Next question is, can you confirm or deny whether the Tembo kits broke [in final] during testing? And this, I think, came out in a [more coverage] in few months ago.

Again, without breaching confidences, we have not put out a statement to deny that nor has any other party involved. So yeah, I think we're very confident of our kits. And I'd say that once (technical difficulty), it becomes a very powerful animal. The talk is amazing. And for those who are into off-road driving as I am, you would appreciate the effect of EV [for off-road vehicle].

Next question is when are you expecting to buy shares? I made a commitment that I would. Unfortunately, or perhaps fortunately, I have been not able to because I mentioned that we've had for most of the last six months where we've had deals and transactions and our agreements that have been delayed in terms of being able to announce that one (technical difficulty).

So I have committed on my salary to be [directed] and we're in an open window. I will be buying (technical difficulty). So that has a range. And as I've mentioned before, this is very much a long vision that the team is very determined to successfully deliver on and to help our customers (technical difficulty) the impact.

Those were the key questions. I think we'll wrap up on that basis. Obviously, if you've had any other questions feel free to reach out to the shareholders (technical difficulty) now building that. And thank you for joining the call.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.