VivoPower International PLC (VVPR) Q4 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the VivoPower International PLC Fiscal Year 2022 Full Year Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Chin.

Thank you, Victor, and welcome, everyone, to the FY '22 earnings call for VivoPower International PLC. we'll jump straight into Slide 2, which is the executive summary. So in a nutshell, we've made significant strategic progress over the last 12 months, but we had certain 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 declines to $37.6 million, primarily attributable to the COVID lockdowns, which we previously [indiscernible] in the half year results, which unfortunately did expand through the majority of the periods over the last 6 months as well. And that caused delays in works for our business [indiscernible] today. In addition, there's been a sharp drop in the exchange rate since January 2022. On a constant FX rate basis revenue decline 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 that, in particular, we had a $1.9 million cost overrun on the Bluegrass solar project due interstate border closures in Australia. Our GP margin declined 4% versus 16% year-on-year. And this in turn reflects increased client cost increases in supply chain costs as well as the one-off Bluegrass solar project COVID-driven cost overruns. GP margin adjusted for the cost overruns of Bluegrass, was 9% for FY '22. 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 loss widened to $14.6 million versus $4.8 million previously. Again, this was driven by FX. The reduced lockdown period revenues in the first half of the year, the Bluegrass solar project overruns. We did progress with budgeted increases in growth OpEx to support hyperscaling 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 $8.9 million that was because of the sale of the noncore business units as well as the shelf rating we did in. In terms of uses of cash during the year, we were quite judicious in terms of how we invest cash [indiscernible] Tembo scale-up and product developments. That said, we did incur, as I mentioned, $1.9 million in one-off Bluegrass Solar leakage unplanned and beyond our control. We did execute on a number of transformational strategic initiatives despite significant disruptions in terms of our distribution partner network. We expanded that to 6 continents in 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 bought our inversion 2 batch conversion kit as the key focus. We divested our non-core businesses within Aevitas and to allow would enable proceeds to be reinvested in our higher growth business. And we also established VivoPower and Tembo subsidiaries and operating units in markets globally as soon as borders reopened included the UAE, Australia as well as SouthEast Asia. Last but not least, we recertified our B Corp status, which is the mandatory requirement from equal in terms of the reassessments. We were named again as one of the best B Corp in the world for governance and recognized as a top 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 and as well as an update on some of the prior announcements that we made. So a significant strategic and operational progress despite the COVID interventions. Key achievements included during the definitive agreement with Toyota Australia as well as with GHH and Bodiz and winning record levels of solar, electrical solutions contracts [indiscernible]. Just going specifically despite of the previous announcements and updates on those. We acquired full control of the U.S. Solar portfolio rebranded that [indiscernible] pivoted Power-to-X strategy with a view to then renewable powered digital asset mining operation to be spun off company. That is on hold at the moment due to market [indiscernible]. So obviously, there's been a lot in terms of develop mining. We have put that on hold [indiscernible]. Other updates, we executed an LOI to acquire 100% of GB Auto [indiscernible] to -- on a consensual basis to cease that LOI as well as the distribution agreement. And that's all because Tembo 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 sub-contracter. We'll be working with them in terms of [indiscernible]. Elsewhere, as I mentioned, we've 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 and scale up assembly and production capabilities in key markets around the world close to our customers. It doesn't make you [indiscernible] to assemble and manufacture out of the Netherlands and send it to far away in Australia or Asia or Africa [indiscernible]. 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 expect 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 supply chain issues around the world. And I mentioned [indiscernible] it tends to scale up production out of Poland to send kits around the world. So we have been producing and sending kits out. They haven't hit [indiscernible] come up stage in terms of volumes [indiscernible]. The other area where we have had slippages on the right is of the SES business units. So we get feasibility study [indiscernible]. That said, in terms of building our engineering and sales teams, we've not [indiscernible] priority and very much on the EV side of things. I mean to focus our resources and attention that [indiscernible]. That said, on a post balance date basis, we have executed a couple of investments in joint ventures to increase our capabilities [indiscernible]. And that includes an investment in Australian mining, energy storage company [indiscernible]. On to the next slide, this is a quick update in terms of the team. So we've been focused in the last 6 months on reshaping the team for the next phase of strategic execution. And our HR strategy in that regard has 3 objectives. Number one is oriented leadership team; two, capabilities in operations, product, engineering, assembly as well as microfactory. We've 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 help in -- to help us to scale, but [indiscernible] level. Some of the key hires that we've made during the year, Alun Evans appointed as Tembo Head of Quality. Nathan McCormick as Tembo Head of Functional Safety as well as Test Manager and Jean Diego Banon, who's with me on the call today as VivoPower Head of Corporate Development also joined with me. Key promotions. Matthew Nestor has stepped up to the Head of Partnerships. He's taking over from [ Matt Cahir ], who's been instrumental and really getting VivoPower and Tembo to where we are today, but will be leaving to focus on personal matters and Nestor he is taking the baton and has been really instrumental in driving all the partnerships that we have with us today. Gary Challinor has been promoted to Group Chief Operating Officer, and done a great job, particularly in relation to the Toyota relationship as well as helping to internationalize this mindset as well as focus. And Iain Folley has been promoted to Financial Controller in the Asia Pacific region. He has been probably seeing the Aevitas operations in particular. So [indiscernible] his impact growth [indiscernible]. 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 governance by B Lab U.K. And this is a very important [indiscernible] as a group. [Audio Gap] Moving on to Page 7, just delving into the numbers a bit more. So in terms of the Aevitas Critical Power operations you see there a breakdown between the discontinued as well as retained operations, which include the fast-growing solar segment operations account [Audio Gap] million of revenues and all that in terms of [indiscernible] 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, lightened from $1.4 million [indiscernible]. Moving to the next slide. So just breaking down further the P&L from pre-divestiture basis and reconciling that to continuing operations. So for FY '22, you can see there that discontinued operations for $15.2 million of revenues, GP attributable [indiscernible] $1.3 million. For continuing operations at $22.4 million was the revenue. And if we exclude the Bluegrass COVID 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 at $24 million, and gross profit at $4.4 million which is around 18%. And as mentioned in previous conference, we started to sell the [indiscernible] 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 units [indiscernible] post divesting the noncore operations. Next slide, I want 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[indiscernible] including foreign exchange[indiscernible]. On the next slide, Page 10, I won't go through that in detail 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 pro-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 pro-forma basis [indiscernible] $19.7 million post balance date and most of that in terms of debt is attributable to [indiscernible]. 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 [indiscernible]. The outlook remains very positive. We get approached on a daily basis by people seeking to convert it and we are, as mentioned, from a focus perspective, prioritizing the release its next gen 72kWh kits in early calendar '23, and we expect to going to scale up production release of that kits for late [indiscernible]. We're very much focused on continuing execution with respect to our microfactory strategy and the rollout on the key markets globally. We have identified the UAE, SouthEast Asia and Australia in markets to launch these microfactory. In addition, what we're also doing is opportunistically recruiting world-class EV talents available as a result of the headcount reductions that are going on at many other EV companies. The capital that we've raised [indiscernible] talent once 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 the [indiscernible] EV markets and the other EV players to add to our talent base. One development in the Middle East, just lag is that we have find MOU with the Jordanian state-owned enterprise, which involves 1,000 EV kits [indiscernible] and so our talking about presence in the UAE last year is done [indiscernible]. With regards to Toyota, that partnership in relation to [indiscernible] 300 credit team and to hit the mutual objectives that we've set in the [indiscernible]. On Aevitas protected 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 being built across Australia at the moment. And this has been followed by the election of a new Federal Labour Government in May 2022, who are very supportive of towards more renewables Australia. So we are very much experiencing a Green Rush, if you will, in Australia, very much akin to Gold Rush of the 19th country. And we are targeting for our Solar Electrical Solutions business to deliver revenues exceeding the revenues [indiscernible]. In terms of compound annual growth rate, that 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 [indiscernible] looking for that contribute in excess of what we [indiscernible]. In terms of SES we have decided to focus on the mining sector. It augmenting Tembo EV as well as other industries. So we're seeing an increasing number of SES opportunities as more customers seek fleet electrification solutions and [indiscernible] have now pivoted to not just [indiscernible] but also on-site critical power EV Charging, [indiscernible], battery storage, microgrids, battery recycling as well. So we're focused on expanding our capabilities through partnerships and joint ventures. And as Vivo made a seed investment in Green Gravity energy in Australia focused on the mines and that will help expand our capabilities as well as [indiscernible]. In terms of Caret, we created incremental value over the year through development activities, but very much feel there's more to come from the Inflation Reduction Act. With 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 [indiscernible]. And so notwithstanding the digital asset mining correction that we've had over the last 6 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 to EV as well as our SES. Turning to FY '23 and our key objectives. So focus is on scale up assembly and production for EV is I won't go through every single item here, but there's 18 items that were fighting on and the microfactory is a key element and a key enabler of the scale up of the introduction. Just to touch on Page 17, events post financial year-ends. So we've got a solid momentum up to FY '23. So we secured 1,000 new kits in terms of EV elements from the Jordanian State Owned Enterprise, as I mentioned before. We have, however, on 4 on pause, The Artic Truck LOI given our needs are very much focused on the Toyota Australia and LandCruiser Arctic Truck, has focused on [indiscernible] which we very [indiscernible] electrify as well. But even resource and time commitments. We do need to focus on Toyota Australia as well as the LandCruiser, which is what the most distributors and customers wants. We obviously executed on strategic transactions to bolster our cash balance at $8.9 million in divesting the noncore units as well as [indiscernible] operating on NASDAQ. We are capitalizing on opportunities to higher world class EV talent and take advantage of the many EV winter thats 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 assets. Very importantly, we secured important ESG certifications and awards is with [indiscernible]. 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 and the subcontracting. And last but not least, we've engaged with advisers in relation to current spin-off. The Inflation Reduction Act is real positive. And we're looking to spin-off Caret as a Power2X business [indiscernible] back into VivoPower. That's it from our presentation.

There have been a number of questions sent through and we [indiscernible] with the audio [indiscernible] I might just address those questions that have come through. So one of those questions is 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 [indiscernible] such as the Global Mining Guidelines Group [indiscernible] with new pipeline to that [indiscernible] or certified with current guidelines. One answer is yes. We have one of the most -- foremost mining safety experts advising us in relation to the [indiscernible] requirements for mines, particularly underground. So yes, we are deeply entrenched [indiscernible] ensuring that electric vehicle convergence are safe. That is the absolute #1 priority right for customers in the mining sector as well as [indiscernible]. The second question is, does the semi series have digitalization feature [indiscernible] location and this capability to help manage vehicle [indiscernible] mines? And what are you doing to make sure you're [indiscernible] as battery electric vehicle in the use more and more? And you're looking for ways to create new technologies or making more technologies compatible with one? This is a great question. And the short answer is yes. [indiscernible] can accommodate digitalization fees that follow 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 [indiscernible] in to capture and yes, we are always looking for to create new technologies, new IP. And so the short answer to that yes. Next question is knowing the demand for the 70 Series is high combined with supply chain and [indiscernible] 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 component [indiscernible] is to speed up the installation productio kits? It's put something like this help the Toyota to ship the 70-Series out faster and is this a possible for [indiscernible] production? Yes, a great question. So obviously, Toyota is the gatekeeper in terms of releasing vehicles [indiscernible] on 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 [indiscernible] 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 are [indiscernible] 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 [indiscernible] just coming on stream, particularly in semiconductors. So short term, we don't envisage a real issue, medium term, yes, it's contingent upon supply chain [indiscernible]. Next question is, can you confirm or deny whether the Tembo kits broke [indiscernible] during testing? And this, I think, came out in a [indiscernible] few months ago. Again, without sort of breaching confidence is, we have not put out a statement to deny that, nor has any other party involved. Yes. I think we're very confident [indiscernible] that of our kits. And say that once [indiscernible] it becomes a very powerful animal. The talk is amazing. And for those who are in the off-road, driving as I am. You would appreciate the effect of EV [indiscernible]. Next question is when are you expecting to buy shares? I made a commitment that I would perhaps fortunately, I have been not able to because I mentioned that we've had for most of the last 6 months where we've had deals and transactions and our agreements that have been delayed in terms of being able to announce that one [indiscernible]. So I have committed on my salary to be [indiscernible] and we're in an open window. I will be buying was able to that [indiscernible] 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 [Audio Gap] successfully deliver on into help our customers and that the impact [Audio Gap] 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 [indiscernible] 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.