VivoPower International PLC (NASDAQ:VVPR) Q4 2022 Earnings Conference Call August 29, 2022 5:00 PM ET
Company Participants
Kevin Chin – Chief Executive Officer
Operator
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.
Kevin Chin
Thank you, Victor and welcome everyone to the FY ‘22 earnings call for VivoPower International PLC. We will 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 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 mentioned at 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 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 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 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, 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 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 6 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 Ottawa & 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 equal 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 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 wins that I mentioned. Key achievements included 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 U.S. Solar portfolio. We re-branded that back in Q1 and pivoted to 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 conditions. So obviously, there has been a lot in terms of the development mining. We have put that on hold firstly.
Other updates, we executed an LOI to acquire 100% of GB Auto, but 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 you to assemble and manufacture out of the Netherlands and 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 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 and supply chain issues around the world. As mentioned, it might tend to scale up production out of Poland to St. Kitts around the world. So, we have not been producing and sending kits out, but they haven’t hit come up stage 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 feasibility studies to Tottenham. That said, in terms of building our engineering and sales teams, we have not [Technical Difficulty] very much on the EV side of things. I mean to focus our resources and attention. 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 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 6 months on reshaping the team for the next phase of strategic execution and our hedge our strategy in that regard has three objectives. Number one is orientated leadership team; two, capabilities in operations, product, engineering, assembly as well as market factory. We have also wanted to strengthen our safety quality development just in capabilities in Tembo. And we have also executed on outsourcing middle office and back office to help us to scale, but at an 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. He is where we’re seeing the Aevitas operations in particular. So his impact growth in that.
On to the next slide. We, as I mentioned, 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 UK. And this is a very important as a group.
Moving to Page 7, just delving into the numbers a bit more. So in terms of the Aevitas portion you see there a breakdown between the discontinued as well as retained operations, which include the fast-growing solar segment operations account [Technical Difficulty] million of revenues and all that in terms of in the next slide.
So Group GP declined, as you can see, from $0.3 million to $1.3 million, that includes the $1.9 million of cost overruns on the Bluegrass project. And in terms of dusted underlying as mentioned, lightened from $1.4 over the last [Technical Difficulty]
Moving to the next slide. So just breaking down further the P&L from a basis and reconciling that to continuing operations. So for FY ‘22, you can see there that accounted for $15.2 million of revenues, GP attributable to was [Technical Difficulty] million. For continuing operations at $32.4 million was the revenue. And if we exclude the Bluegrass GP was $2.2 million.
If you look back at the prior year, which was less COVID affected, you can see that continuing operations [indiscernible] million, which is around 18%. And as mentioned in previous conference, we started to sell the – 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 [Technical Difficulty] post divesting the non-core 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 this 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 as well as December. We, as mentioned, we had our cash balance declined from $8.6 million to $1.3 million, but on a post-balance date forward basis has been replenished [Technical Difficulty] million. Now in terms of net debt, that increased from $14.5 million to $27.3 million. Pro forma seller $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 negative. 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 rate out in early calendar ‘23, and we expect to going to scale up production release of that kits for late on.
We’re very much focused on continuing execution with respect to our micro fresh and the rollout of the market. We have identified the U.S. in Southeast Asia in markets to launch these market factors. 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 in enough to balance 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 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 EVs and so our present the UAE last year is done before.
With regards to Toyota, that partnership in relation to news and we’ve been doing working with its 300 credit team and to hit the mutual objectives that we’ve set in the – on Aevitas protected Australian lockdowns very much impacted our results, but the outlook is very positive. There is an unpriced pipeline of over 23 gigawatts of solar farm products being built across at the moment. And this is buoyed by the election of a new federal level comments in May 2022, who are very supportive of towards more renewables or Australia.
So we are very much experiencing a green rush, if you will, in Australia, very old rush of the 19th country. And we are targeting for our Solar Electrical Solutions business to deliver revenues exceeding the revenues that we not [indiscernible] In terms of compound annual growth rate, that Solutions 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 a looking for that contribute in excess of what we permits.
We have decided to focus on the mining sector. It augments well as Tembo EV as well as other entities. So we’re seeing an increasing number of SCS opportunities with small customers fleet by concerns and passions have now pivoted to not just it’s also on-site critical power EBIT badging, management, energy storage, microbatteries in 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 and bring revenue in Australia focused on the money. And that will help expand our capabilities as well as changes. 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, very positive for Caret Solar. There is a renewed focus on data infrastructure, including 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 expert 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 EVs as well as RCS.
Turning to FY ‘23 and our key objectives, 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, on financial parts, financial year-end. So, we have got a solid deployment [ph] up to FY ‘23. So, we secured 1,000 new kits in terms of EV elements with state owned enterprise, as I mentioned before. We have, however, on close the after truck NOI given our needs are very much focused on the Fed Australia and Arctic, which we very electrify as well. But even resource and time commitments. We do need to focus on Toyota Australia as well as the [indiscernible], which is what the most distributors and customers.
We obviously executed on strategic transactions to bolster our cash balance at $8.9 million in divesting the non-core units as well as operating on Nasdaq. We are capitalizing on opportunities to higher worlds EV front and take advantage of the many EV that’s happening with any other companies. We want very few that are still in hiring mode, but we are doing it on a very selective and judicious assets. Very importantly, we secured important ESG certifications and awards with product as well. We have re-orientated the GB offshore relationship post-COVID, as mentioned, this involves ceasing the distribution agreement and the letter and to acquire GB Auto, but they very much remain a valued and preferred part and the subcontracting. And last but not least, we have engaged with advisers in relation to current spin-off. The Inflation Reduction Act is real positive. And we are looking to spin-off Caret as a parent business Tembo VivoPower. That’s it from our presentation.
Question-and-Answer Session
A – Kevin Chin
Next question is knowing the demand for the 70 Series is high combined with supply chain and [Technical Difficulty] still having a report back how the GB Auto and 70 Series affecting your production? Have there been conversations with Toyota to produce only the next to speed up the installation reduction? It’s put something like this help Toyota to ship the 70 Series out faster and is this a possible with treatment production? Yes, a great question. So, obviously, Toyota is the gatekeeper in terms of releasing vehicles on vehicles. And with respect to the 70 Series, I think going to say with our bridging covers. We are comfortable in terms of what’s available to meet 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 met. So, at this moment, we don’t see an issue in the short-term. And I think in terms of medium term, we are all expecting that the supply chain and semiconductor just coming off strain, particularly in semiconductors. So, short-term, we don’t envisage a real issue, medium-term, yes, it’s contingent upon supply chain.
Next question is, can you confirm or deny whether the Tembo kits growth during testing? And this, I think came out in a well-rational 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 are very confident with of our Tembo kits. And say that once Land Cruiser has it inside, it becomes a very powerful animal. The talk is amazing. And for those who are off-road, driving as I am. You would appreciate the effect of EV for [Technical Difficulty].
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 have had for most of the last six months where we have had deals and transactions and our agreements that have been delayed in terms of to be able to announce the volume. So, I have committed on my salary to be credited and we are in an open window. I hope we will be buying [Technical Difficulty]. So that has a range. And as I have mentioned before, this is very much a long decision that the team is very determined to successfully deliver on to customers and that the impact go through.
Kevin Chin
Those were the key questions. I think we will wrap up on that basis. Obviously, if you have had questions feel free to reach out to the shareholders at the line we have dedicated to now building that. And thank you for joining the call.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
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