VivoPower International PLC (VVPR) Q2 2023 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the VivoPower International PLC Fiscal Year 2023 Half 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.

Good morning, ladies and gentlemen. Welcome to the VivoPower Half Year Results Presentation for the period ended 31st of December 2022. I'll take you firstly to Page 3 of our presentation, the executive summary. So at a headline level, we made very good strategic progress during the half year. However, our results were affected by unseasonal weather and foreign exchange. Our revenue declined due to project timing and a decline in the Australian dollar versus the U.S. dollar foreign exchange rate. So our half year revenue decreased 23% year-on-year to $8.7 million. This is primarily attributable to timing of project execution with 1 major solar project, Edenvale undertaken in Australia versus 2 in the prior period. Skill shortages have had an impact on our ability to take on new projects. However, on a constant Australian dollar, U.S. dollar exchange rate basis, our revenue decrease was reduced at 17%. Our gross profit and GP margin also declined. This was due to the decrease in revenue as well as one-off Edenvale project losses. So half year gross profit decreased by $3.1 million year-on-year to negative $3.6 million. This does include $3.6 million of specific one-off weather-driven cost overruns on the Edenvale solar project. And this was due to climate change-related higher-than-forecast rainfall, leading to damage of project works and delays in execution. Eden Vail is in a regional part of Australia, which normally doesn't encounter the extensive rainfall that was experienced, unfortunately, during the project. GP margin, as a result, declined to negative 42% versus the prior year of minus 4%. However, adjusted for Edenvale cost overruns, this was minus 1% for the half year. We also incurred EBITDA operating losses due to principally the one-off Edenvale project loss. So for the half year, our adjusted EBITDA loss, excluding Edenvale, actually improved to negative $3.9 million versus $4.5 million negative in the prior corresponding period. Operating losses did increase to negative $8.2 million versus $7.7 million for the first half of this fiscal year. Losses were also driven by foreign exchange, not moving favorably and reduced revenues in Australia as previously mentioned. With respect to our balance sheet, our cash position actually increased at 31st of December 2022 from the $1.3 million as at June 30, 2022. -- increased to $3.2 million as at half year-end. Our cash was principally invested for Tembo scale-up and product development. The one-off Edenvale solar loss was obviously unplanned. We did partially derisk our balance sheet through the extension of the repayment terms and duration with our major shareholder, AWN, which extended the loan by 18 months to the 1st of April 2025. Strategically, we made good progress, as I mentioned beforehand. So our distribution partner network for Tembo. We've been able to further expand that globally and also have entered into the much larger secondhand addressable markets, and our EV kit commitments and order book has now increased to over 10,000 kits. Importantly, the development of our next-generation electric utility vehicle, which we called EUV23 is on target with positive feedback from key customers who have visited and test driven the vehicle. We also completed the divestiture of our noncore business, JA, Martin Electrical as well as completed further financing and strategic investment initiatives to fund growth. Last but not least, in terms of the summary, we were named one of the best B Corps in the world for governance with a verified score in the top 10% of all certified B Corps in the world, and we were again recognized as a top 300 global impact company for the third year in a row by the real leaders impact awards. Just moving on to Page 4. So this covers some of the key items and key developments since the half year ended 31st December 2022. So firstly, we've commenced shipping our vehicles to partners, and we've also received our first orders for the next-generation EUV23. So we're thankful to our key partner in Canada key for our first material order of the EUV23 conversion kits. And we are in the midst of prioritizing ramping up production over the coming months to fulfill this order as well as others that we already have. Customer deliveries have been scheduled and agreed for GHH in South Africa as well as Jankel in the U.K. over the course of February and March 2023. The first version of the EUV23 is on track with regards to testing. We've already covered more than 400 kilometers trouble-free with the vehicle in difficult terrain. And now we're focused on extensive preproduction testing to define final third-party component suppliers for the production ramp up. We've also completed supplier audits for major component suppliers. So very much focused on the next stage with respect to Tembo, which is production and delivery ramp up. We've also executed on financing and strategic transactions post the half year balance date. So we've secured further bridge financing from our major shareholder, AWN, and that's been followed by private investments out of the Emirates committed to Tembo directly for an initial $2 million, noting that view of power still maintains majority control of Tembo. These funds will be used for Tembo's growth, including engineering, assembly and delivery of conversion kits. We've also been taking advantage of the EV winter, if you will, that's occurred over the last 6 months and accelerated in the past 3 months to recruit on a selective basis, great talent from other EV companies who are either downsizing or ceasing business. So VivoPower in Tembo remain one of the very few easy companies in the world that are in hiring mind at the moment. We are being very selective about it. And we're seeing that there is an abundance of talent now available in the market. That wasn't the case a year ago. Last but not least and very importantly, we are sitting on the Edenvale project, which has been clearly very disappointing and has hurt us financially over the last 6 months given the climate change related to the weather patterns that we've had to deal with there. So at this stage, we expect to conclude that project at the end of February 2023 in a few days' time, weather appears to be positive at the moment. So that should be on track. In addition to that, we're seeing our Kenshaw electrical business, which is part of Aevitas as well start to really build up its order book and pipeline. And recently, in the past few weeks, it executed a 3-year brother agreements with Glencore for reactive and scheduled maintenance, repair and overhaul as well as the sale of critical electric motors in New South Wales, Australia. So we expect to see further momentum from Kenshaw over the next 6 months. Moving on to Slide 5. This is the objectives and key results that we set for ourselves at the start of this fiscal year back in July 2022. We have completed 8 out of the 18 that we set for ourselves to achieve. As I mentioned before, we're very much focused now on ramping up assembly and production as well as deliveries over the next 6 to 12 months, and we'll be looking to build up our team's capabilities in order to do that. Jumping ahead to Page 7. I will talk a little bit more about Tembo. So in terms of the results, Tembo, for the half year, revenues of $0.9 million were achieved. Underlying EBITDA loss was negative $0.5 million, reflecting growth in OpEx investment, especially engineering talent. As mentioned, the first version of our next-generation EUV23 platform became available on time in December, which is a material upgrade on the previous generation 28 kilowatt-hour battery system. Our distribution partner network expanded with over 5,000 additional kits in the commitment and order book pipeline, and we've entered into the secondhand electrification and repowering markets through deal with ETC in Kenya as well as our deal with evolution in Australia and New Zealand. This is a very significant move for us and it materially expands our addressable market considerably. We've also beefed up the talent pool and hired amongst others, a new Head of Engineering, Phil Baker since December. So there's been a lot of progress on the Tembo front, both commercially, operationally and with respect to sales pipeline and commitments globally. Turning to Page 8. Aevitas, as I mentioned before, the big disappointment here has been the unplanned and uncontrollable weather dynamic, which has turned what was supposed to be a very profitable project for us at Edenvale into a loss-making one. And this obviously hurts coming off the [indiscernible] of Bluegrass, which affected our results in the previous 6 months. So we are very mindful now and are very cautious about weather patterns. And -- but notwithstanding that, we still see a lot of potential for growth in the space given the build-out of solar across Australia. As I mentioned before, the Kenshaw business is starting to see a pickup and a rebound in terms of its pipeline and order book, and we're confident that, that business will continue to grow and resume its growth over the second half of this year and beyond. Turning to Page 9. Sustainable Energy Solutions. We have pivoted our focus in that respect to mining and other industries to augment the customers and the partners' requirements for the Tembo vehicles. And in that regard, we have secured some capabilities through experienced advisers and partners and for example, we have identified an EV Chinese partner with hardware already being tested in collaboration with Tembo EUV. This is a global company. Distribution contract negotiations are ongoing at this stage. But we're confident that we will secure that and be able to offer a more holistic solution to our customers. Moving on to Page 10, Caret Solar. As foreshadowed a year ago, we were pivoting strategy for this to power tax applications, including looking at Bitcoin minus. Obviously, there's been a correction in the Bitcoin market, which has slowed things down with respect to our strategy in relation to this portfolio. However, in recent weeks, we've seen a reemergence of interest following the rebounds in the midpoint price. In addition to that, we've seen interest reemerge again in terms of solar developers seeking to buy into or partner with us on these projects, and this is in response to the inflation Reduction Act, which has seen the income tax credit incentive being restored in the United States. So that's a wrap up for me in terms of the half year results, so disappointing financial results due to weather and climate change. However, that's now been in stemmed -- and off the back of very strong strategic and operational progress in the first half. We're confident on executing on our objectives for the second half of the year. Thank you, everyone, for joining, and that wraps up the half year presentation for VivoPower. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.