VivoPower International PLC (VVPR) Q2 2021 Earnings Call Transcript

VivoPower International PLC (NASDAQ: VVPR) Q2 2021 earnings call dated Feb. 24, 2021

Corporate Participants:

Kevin Chin — Executive Chairman & Chief Executive Officer

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the VivoPower International PLC Half Year Results Conference Call. At this time, all participant lines are in a listen-only mode. Please be advised that today’s conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Kevin Chin, Chairman and CEO. Thank you. Please go ahead, sir.

Kevin Chin — Executive Chairman & Chief Executive Officer

Welcome to the VivoPower International half year results presentation for the six months ended 31 December 2020. I’m going to kick off with a strategic and operational review. And then I’ll also cover the financial review for the period.

So just going straight to the executive summary, which is set out on Page 3. The headline is our results for the half year were affected by strict COVID lockdowns, but our growth outlook is very strong, as a result of the Tembo acquisition.

Our revenues declined 28% year-on-year to $22.7 million, primarily as a result of strict COVID-19 lockdowns in Australia, causing delays to scheduled works for our Aevitas business units.

As a consequence, gross profit decreased 18% year-on-year to $4.6 million. And notwithstanding that our GP margin did improve to 20% versus 18% in the previous corresponding year, and that was a result of strong focus on project execution and labor efficiency.

Our EBITDA declined to $1.2 million for the half year period from $4.3 million in the previous corresponding period. Again the primary drivers were the COVID lockdown related revenue drop. But in addition, we did increase our headcount to support hyperscaling of the Tembo business.

Our balance sheet has been however fortified with the capital raising that was consummated in October 2020, raising gross figure of $28.75 million. Our cash balance as a result has increased from $2.8 million as at the end of June 2020 to $17.4 million as at 31 December of the same year. We also refinanced our parent company shareholder loan which is consummated in January with longer maturity dates and lower interest rates, which reflects the improved credit profile of the company.

As I mentioned at the outset, the Tembo acquisition has really transformed the growth trajectory of VivoPower. We completed the 51% acquisition of Tembo in November 2020. And subsequent to this reporting period, we move to 100% ownership in February 2021. We also signed a major partnership deal with GB Auto also to distribute our Tembo electric vehicles in Australia and that deal is worth up to USD250 million in revenue over four years.

Last but not least, I’m also pleased to announce and report that we have secured our first sustainable energy solution deal with Tottenham Hotspur Football Club in the UK, one of the world’s leading football clubs, and we’ve become their Global Battery Partner, as part of the transaction as well. This is our first SES holistic deal and also our first in relation to infrastructure assets being the stadium Tottenham Hotspur in the UK as well as their training facilities. We expect further orders in the second half of FY ’21 from our mining sector customers in particular across the globe.

Jumping to Page 4, just to review where we are at in terms of our FY ’21 key objectives which we shared the market back in August at the time of our full year results. We’re ahead of schedule at the moment. And in a nutshell, we are tracking at 55% completion in terms of the objectives that we’ve set out and we’re on track to deliver on the risks before the end of June 2021.

Moving on to the specific business units, firstly, I’ll touch on Aevitas which is our critical power and site-specific electrical Infrastructure business in Australia. Revenues, GP and EBITDA declined across the Board, again due to the strict COVID lockdowns that were experienced in Australia. Business delivered $22.2 million in revenues, which is down 29% year-on-year. Gross profit was $4.6 million compared to $5.6 million in the prior period. Gross margins did however improved as a result of efficiency gain. The underlying EBITDA for the business was $3.3 million, that is down 18%, reflecting the lower gross profit, although that was partially offset by further overhead cost savings.

Notwithstanding these results, we continue to win work and deliver on it. We are seeing conditions improve since the start of calendar 2021. And the outlook remains very buoyant for the Aevitas business unit. We’ve also completed the refinancing of funding facilities, which have resulted in a 38% reduction in financing costs as well as the retirement of some redundant working capital lines that we no longer need.

Moving on to our Solar Development business, which is called Vivo Solar. So we have both the U.S. portfolio, as well as an Australian portfolio, starting off with the U.S. portfolio first. As mentioned during the full year results back in August, we have taken over management control of the joint venture from our joint venture partner. We’ve been focused on maximizing value across the portfolio. We are however still hamstrung by negotiations that continue with our joint venture partner in relation to settlements of the joint venture arrangements where we are shifting as a minimum, and have offered as a minimum their 50% of the portfolio for nominal consideration. We are still live in terms of negotiations on that. We do expect to complete that before the end of the fiscal year.

As far as the portfolio is concerned, the net megawatts is 882 which — that’s in total, and that is slightly down on the original economic share that we had at the outset which is 922. That said, we have made progress in terms of the development path for a number of these projects. The outlook also has improved. Obviously, with the Biden’s presidency being far more accommodating to renewable as an industry in the U.S. So that’s been a real positive for that portfolio.

On the Australian fronts, we have been seeking to monetize our smaller solar projects in that market. And during the post balance date periods, we have successfully managed to sell Daisy Hill and we’re closing in on a sale of Yoogali Solar as well. Both are expected to be profitable overall. Additionally, J.A. Martin which is one of our Aevitas business units has successfully completed over 150 megawatts of solar projects now. And they have another 300 megawatts in the pipeline. So the solar development activities in Australia have fed the J.A. Martin business in terms of electrical on-site installations for solar farms.

Moving on, I’m going to talk about Tembo now, so Tembo obviously is the electrical vehicle business that we acquired back in November last year and move to 100% ownership up in February this year. So, just to recap, it focuses on customized and ruggedized applications including for the mining sector globally and that’s very much been our focus of attention as far as securing orders. Other sectors that we are prioritizing our infrastructure, which is where the Tottenham deal fixing, as well as utilities and government services.

We signed a landmark deal with GB Auto Group in January 2021 as well, and that agreement sees GB Auto were very well regarded in the Australian market place, particularly, amongst the mining companies. They are committing to purchase at least 2,000 Tembo EV kits in the first four years of a seven-year agreement with a minimum 500 kits in the first year.

This deal as I mentioned before is worth up to USD250 million, and VivoPower and GB Auto are working very closely on a number of opportunities that we’re seeking to close before the end of the financial year. In terms of results, the revenues contribution from Tembo was pretty small for the half year periods, the consolidated revenues of 0.4 million reflect only two months of contribution post the acquisition in October, and that was primarily from delivery of existing orders to key long-term customers.

Revenues were, excuse me, lower year-on-year due to operational disruption and delays in production and delivery as a result of COVID-19 lockdown in the Netherlands and in the customer markets as well. Net loss for the period was $0.5 million, driven by a number of non-recurring items. Work importantly has commenced on the next generation 72 kilowatt per hour.

And so the VivoPower onboarding integration program commenced and is near completion at the time of this update. We are also live a recruitment campaign to beef up the team in terms of engineering capabilities, in particular.

So moving along, as again, we’ve flagged previously at the full year results presentation. Tembo really enables VivoPower to provide a holistic decarbonization solution, which helps our customers to move towards achieving net-zero status. And the key elements of that SES solution, as we call it, Firstly, the electric vehicle, secondly, sites electrification including microgrids and charging stations. And last but not least, a battery life cycle management program.

SES is fundamentally an enterprise solution, so it comprises a full suite of hardware, software and services that encompass battery management systems, telematics and vehicle monitoring systems, the hardware in the form of vehicles, the hardware in the form of microgrids and charging stations and batteries. And this is ultimately where we are going to see the business of VivoPower move towards as far as providing this holistic solution to our customers.

On that note, I’m going to talk a bit more about the battery partnership with Tottenham Hotspur, which was announced today. So this is a platform for our first full suite SES deal. So Tottenham has engaged us to help them achieve net zero carbon status, which is first of its kind deal with them and it’s part of the drive to become a net zero carbon business and decarbonize both of the key infrastructure assets being the stadium in North London, as well as the state-of-the-art training center, not too far from the stadium. And we’re targeting actionable outcomes by the end of June.

Tottenham recently named the Premier League’s greenest club following a study carried out by BBC Sports and the -backed sports positive summit. It’s also a signatory of the UN Sports for Climate Action Framework. So what will VivoPower be doing for Tottenham? We’ll start off by evaluating with a view to supplying, installing and maintaining a large solid state battery likely to be more than 3 megawatts at the stadium. This will be the largest of any stadium or arena in Europe and the purpose is to balance and guarantee the venues’ power supply.

In addition to that, we are evaluating the potential to install a full suite sustainable energy solution at their training grounds. So that will include rooftop solar panels, battery storage, custom microgrid capacity, as well as electrical infrastructure to enable EV usage. So that will run in parallel to the process with respect to the stadium. Also as the Club’s Official Battery Technology Partner, VivoPower will benefit from visibility on digital signage at Tottenham Hotspur’s home matches be featured in content on the club’s popular social media channels, which last year had an audience reach of over 433 million football fans.

So we’re very excited by this deal. It also is our first deal in the UK market for SES. UK is arguably the most attractive markets for battery storage in the world at the moment. So we are confident that this deal will catalyze further interest in what VivoPower can offer to other corporates in the UK.

Just to wrap up on these strategic and operational review, just some other corporate developments that were completed in the last six months. So we established an Advisory Council with world-class experience and relevant skills, and they are adding significant value in terms of our growth plan, particularly for Tembo.

We’ve also added to the Board, sir Gemma Godfrey who is based in London has joined us. So she has extensive entrepreneurial experience in financial services, technology, media, public policy and sustainability. On the executive fronts, we hired Matthew Nestor, who is our Sales Director for North America which is a key market focus for us going forward; Gary Challinor has joined us as Director of Sustainable Energy Solutions for Australia and New Zealand; and we’ve just recently hired a General Counsel. That announcement will be formally made shortly. So team has been beefed up and we expect to add further hires in the near-term.

We’re very pleased also to have been awarded the Real Leaders Top 50 Impact awards, and we ranked 47th globally amongst 150 leading companies that are making a positive social or environmental impact on the world. So other Real Leaders Impact Award winners include Tesla, Patagonia, as well as parent entity Arowana.

By virtue of the Tembo acquisition, we now have a presence in the EU with The Netherlands obviously being the base of Tembo’s activities at present. We’ve also opened new offices in Virginia in the U.S. as well as Toronto in Canada, both homes to some of the what’s largest mining infrastructure and utility companies. And we continue to maintain our strong presence in the Australian market.

So jumping to the financial review, I’ll cover that as well. So just to recap, revenues were down and for the half were $22.2 million versus $31.3 million previous corresponding period. As for the last period, there was very little by way of solar developments revenues and Tembo’s contribution to the half year results was really just two months and $0.4 million is the revenue contribution there. Gross profit was — this comes primarily from the critical power services business in Australia. As mentioned before, GP margin improved, but it’s still down overall versus the prior period.

Our adjusted EBITDA is ended at $1.3 million versus $5.4 million in the previous corresponding period. There are number of non-recurring costs that were incurred principally relating to litigation expenses involving the former CEO. I’m pleased to say that that chapter has been concluded. And we have cleared all those expenses relating to that matter.

Group basic EPS was negative $0.03 versus positive $0.08 in the previous period. On an underlying basis, it’s $0.10 versus $0.14 for the same periods in question.

I’ll jump straight to the balance sheet summary. So in terms of the balance sheet, the key item to note here is obviously the increase in unrestricted cash from $2.8 million as at the end of June to $17.4 million as at the end of December. In addition to that, there has been a decrease in current liabilities as well as a decrease in long-term liabilities. And net assets have improved and increased significantly, principally as a result of the equity capital raising that we completed in October last year. Net debt as a result declined from $23.1 million to $8.3 million. So that’s significantly improved the credit profile of the company.

Thank you for listening into today’s updates. If you have any questions, please feel free to email shareholders@vivopower.com.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.