VivoPower International PLC

Ladies and gentlemen, thank you for standing by and welcome to Viva Power International PLC FY22 Half Year Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would like to turn the conference over to your host, Mr. Kevin Shin. Please go ahead.

Thank you and welcome everyone to the half year results presentation for Vivo Power. Let's jump straight to page four, the executive summary. So the headline is we've made good strategic progress over the last six months, but our results have been affected by extended COVID lockdowns in our key markets, particularly Australia. So the six month revenue decreased 11% year on year to 18.9 million. reflecting the lockdown regime that we had to contend with principally in Australia, which extended from July 21 and really just has finished now in February 22. And that's caused delays to scheduled works for the business units, as well as significantly curtailing kit deliveries as well. Our gross profit and GP margin both declined as a result of the revenue drop. And in addition, we incurred a $1.1 million one-off COVID-driven loss on the Bluegrass Solar Project in Australia. That was principally due to the Queensland border closure, which prevented us from sending staff up to Queensland. And additionally, we had a COVID outbreak on site, unfortunately, in January as well. EBITDA-wise, our adjusted EBITDA declined to minus $4.9 million versus positive $1.2 million from the previous corresponding period. Operating loss increased to $7.3 million versus $0.4 million for the prior year. drivers I mentioned before and in addition we've also increased corporate costs and invested in growth OPEX to support the scaling up in particular of the 10-bill business. In terms of balance sheet cash that's declined from 8.6 million to 3.3 million reflecting the investment the blue glass loss as well as the increase in OPEX costs but that has increased post-balance dates as we've started to see debtor collections come in as well as some strategic funding that we've received from the major shareholder. As mentioned, key strategic initiatives, we have executed upon a number of those over the last six months despite the disruptions that we've had to deal with. We've expanded our distribution partner network to six continents. I recently established a subsidiary in the UAE, which is the largest off-road market in the world. We've also prioritized the developments of 72 kilowatt-hour battery kits, which is a significant upgrade on the previous 28 kilowatt-hour. and we've achieved full control of our U.S. solar joint venture and has foreshadowed at the full year results presentation in August last year. We have now entered an LOI to launch a renewable-powered digital asset mining business, Carrot Decimal, and we've contributed an initial 206.5 megawatts DC from our solar portfolio at a valuation of $20 million. which is really above the good value of $12.10 for the entire portfolio. Last but not least and importantly, we have been re-certified as a B Corp. That's a difficult process. So following the mandatory reassessment review, we're pleased to have been re-certified. and happy also to have been recognized again as a top global impact company for the second year in a row. Moving on to page five, so I wanted to also go through some updates from post-1st January. So personally, on the leads front, as mentioned, very difficult last six months, but pleasing news is that our head of work, is actually up 72% year-on-year versus this time last year, reflecting pent-up work and additional projects in the solar data center and infrastructure sectors. Cash flow is also improving with material cash inflows since mid-January, as mentioned. On the Tembo front, we've secured a new facility, so we'll be moving to an expanded facility next to Eindhoven Airport on the 1st of May. The new facility comprises just under 30,000 square foot of space, which is more than double the current facility, and can potentially accommodate an assembly of up to 5,000 ELV kits per annum. That is, however, subject to the micro factory strategy that we're working on at the moment in relation to how best to scale up assembly on a global basis going forward. On a couple of the collaborations that have been outstanding, TMCA and Arctic Trucks, so firstly on TMCA, that collaboration has experienced delays, but negotiations in agreement with TMCA for the exclusive supply of LC kits focused on the mining sector in Australia remain ongoing. The Arctic Trust's LOI has been extended to the end of June and to allow time for further assessment of the next generation batteries. We continue to work on non-diluted funding work streams and have made good progress in that regard. So the key ones there, firstly in the UK, R&D tax offsets work up to 33% of R&D spends. And there are other UK government mobility, automotive innovation and green grants that we qualify for. So going through a process there in terms of getting access to those funds. In the EU, we have access to the European Innovation Council grants of up to 2.8 million. And there's also potential equity investments to fund startup costs of up to 17 million. And last but not least in a global scale, and this is the most important aspect of funding, which is working capital, there are numerous facilities, debtor finance, supply chain, trade finance, some of which we've already secured, but we continue to work to build that up. So as I mentioned last year, funding through the equity markets is not something that's we will look to do, especially given where current share cost levels are at and market sentiment is at. And there are other leaders, being these ones I've talked about, that we're primarily focused on. Next item, the GBIOTO LOI is being extended for now. There's been disruption on our end since December. It's caused delays to the due diligence programs, That extension is expected to provide a buffer for any further disruption. And last but not least, Cardecimal has also executed an LOI to acquire Decimal Digital, which is our partner on the digitalized mining side. And that will deliver over 1,000 latest generation mining rigs. That will be for initial consideration of $14 million. and we'll accelerate the path to revenue generation for Carrot Decimal. So fundraising has already commenced at the Carrot Decimal level. Again, this is not at Vivo Power level. We have capital raising advisors engaged to raise $15 million for us on that front. And as mentioned last year, ultimately we see this business potentially spinning off and out of Vivo Power. Going on to the next slide, these were the objectives we set out back in August last year when we announced our full year. The green items are what we've completed. The orange are still in progress. We remain on track despite disruptions to date and to get as many of these objectives done before the end of our fiscal year in June. So now moving on to the specific business units, and I'll take you to page eight, which is TEMBO electric vehicles. So TEMBO revenues were up versus last year, 0.9 billion. However, you know, impacted and lowered in budget due to operational disruption and delays in assembly and delivery of kits. underlying EBITDA loss of 2.3 million, as mentioned, reflects primarily growth in OPEX investments and work is progressing on the next generation semi-secure one-hour cash platform. Moving on to critical power on page nine and unpacking the numbers a bit more. So the business itself recorded 18 million revenue, which is down 14% year-on-year. really due to the effects of a very long and hard lockdown in Australia. Gross profit was down to 0.80 versus 2.3 in the prior year. That does, however, include a one-off of $1.1 million for the Bluegrass Solar Project. So excluding that, it would have been $1.9 million. underlying EBITDA excluding 3.0. This is 1.3 million. We remain very positive on this business going forward given the head of works that I mentioned and given that Australia for all intents and purposes is now open. There are no more inter-country and inter-state lockdowns of notes except for Western Australia which has announced that it's finally reopening in early March, and also its national borders are now reopened. That took effect from Monday the 21st, so three days ago. We've been awarded electrical works for the 119 megawatt Hellstone solar farm, so that's been a very positive development in the last few weeks as well. Moving on to page 10, with respect to SES, this is obviously a newly established segment. Revenues are immaterial at this point and would not incur any significant cost to date. We are on track with Tottenham with respect to what they want to do at their training ground and adjacent to the stadium. And in addition to that, we've commenced dialogue with major mining and board infrastructure companies to commence feasibility studies for whole-of-facility electrification projects that could lead to not just vehicle kits being ordered, but also microgrids, charge stations, etc. We also signed an MOU with Re-Electrify, a leading supplier of battery energy storage systems, utilizing second-rank EV batteries And we are collaborating further to explore redeployments of 10-bit batteries with Re-Electrify. And last but not least, we've now developed tools to allow total cost of ownership and ROI to be assessed at a more sophisticated level for our customers. Going on to page 11, this is Carrot Solar. which is the new name for our solar business in the U.S., and that's the rebrand, and a power to X strategy, which was foreshadowed last year, is being progressed. We've, as mentioned, contributed 206.5 megawatts of more advanced projects out of the 682 that we have to Carrot Decima, We also commenced reassessments of previously mocked all projects. They total about 1.1 gigawatts. And so we're revaluating the developments. What we're seeing, you know, across the U.S. is a very strong interest in renewable power sites, including from crypto hosting companies who are at the moment facing lead times of 12 months plus to accommodate future customers wanting to mine crypto on their platforms. So they're looking for more sites. We've had a number of parties approach us, but we're very much focused on the character decimal opportunity and fundraising at that level at the moment. The next few slides, slides 12, 13, 14, 15, show you some schematics of the three initial sites that we are looking to develop. They're all in Texas, so there's TX145, TX144, and TX165, all relatively close to each other. One of those sites also has the option to significantly upsize the load, which will create incremental value. And on page 13, 14, and 15, you can see the design schematics of these sites. So they're practically ready to build, subject to financing being completed. and we would look to commence construction later this year. So these sites primarily comprise the solar array that you can see, as well as data centers to house leaks, and all very strategically located. Now, moving on to the financial review, I'll take care of that as well. So going up to page 17, this unpacks the P&L further. So you can see there the numbers that I sort of shared before in terms of both critical power and electric vehicles and all sort of cascading down into a good cross-profit level of 0.5 mil, but that is after the 1.1 mil one-off loss attributable to blue glass and compares to 3.3 in the prior year. And that in turn cascades down into the underlying EBITDA of negative 4.9 versus 1.2 for the previous corresponding period. So again, as mentioned, looking for a rebound now in terms of the particularly the Evita's business and being unshackled on the EV side as well. What we will have to, however, navigate is supply chain issues. So just like everyone else, we're starting to see that really come to the fore. So that is something we'll need to navigate. Next two slides are really just a reconciliation of adjusted EBITDA and adjusted EPS to increase financial measures. And then on page 20, the last slide is set up at the balance sheet. And so, as mentioned, the first line out in the project investments that represents principally carrots, for which there's 13 mil of carrying value, uh, and, uh, unrestricted cash, you know, 3.3 as at the balance state, as mentioned, that's, that's now, uh, increased, um, and, uh, uh, with respect to borrowings, that's, uh, that's increased slightly as at the balance state. Uh, so translating into a net debt figure that, uh, that is now 21.9 versus 14.5, um, Important to note that there's practically no external debt per se. This is all shareholder loans from the largest shareholder who's been very supportive of Beaver Power for a number of years. So on that note, I think key takeaway, it's been a tough six months. We really felt like we've been running against the hard winds, but very pleased now to have border restrictions and lockdowns removed in our key markets and some positive developments in the post-balance state period in terms of pipeline, in terms of cash, in terms of funding, and in terms of strategic developments. I'll end on that note. I'm happy to open it up to Q&A. Thank you all for tuning in.

Thank you, Mr. Shin. Ladies and gentlemen, if you have a question at this time, please press start in the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. The first question comes from the line of Jeffrey Kempdell from Alliance Global. Your line is open.

Hi, Kevin. I noted the Timbaland. the Tembo roofline expansion in the Netherlands of interest. I wondered if there's still interest in creating Tembo facilities closer to Southeast Asia, Australia.

Definitely. Definitely is. And I think I've mentioned that Thailand was one market that we had looked at in the past. We're very close to an active relationship with some of the leading families in Thailand's as well as various government officials. Thailand's got a very good automotive ecosystem, so the Thailand has also been closed, and they are just starting to reopen again. So definitely we'll look at a macro-factory strategy close to our key markets, and we see the United Arab Emirates as another potential location. So Netherlands is not the only site that we'll be looking at.

Great. Thanks for that, Carl. I'd like to ask a couple of CARAT questions, and then I'll be done. The CARAT decimal press release indicated that the primary endpoints for developing the 206 megawatts of solar power was cryptocurrency mining and other power-intensive blockchain computing applications. Could you add some color on these other blockchain applications that that's referring to? Yes, no problem.

So we actually see CAD Decimal as principally an infrastructure business. you know, underpinned by the renewable sites that we have and the data centers that will be built on them. And in future, this will accommodate not just crypto mining. And if you look at blockchain, it's really the blockchain and the process of cryptography that is very energy intensive. And the way I look at it, there are basically three seeds in terms of segments of blockchain. So one is crypto, as in crypto mining. two is content and you can include you know nf2s in that you can include vr ar you know the metaverse and all the uh all the sort of products that are being developed they're all very energy intensive and then last but not least contracts so three series crypto content contracts contracts being smart contracts um and you have numerous uh fortune 500 companies and we talk globally are now getting into smart contracts in a big way. So that is also very energy intensive. So what we're looking to do is create an infrastructure that goes beyond just crypto mining but is able to effectively be a HPC facility that accommodates other applications such as what I just mentioned.

Okay, great. And finally, bearing in mind that crypto has undergone increasing U.S. regulatory scrutiny lately, and I refer to Meta's recent failed effort as an example. How does your strategy, your current strategy, take this into account? And should something untoward change, what do you think of as the best backup uses for the infrastructure that you're developing should crypto somehow become uneconomical or regulated in some way that makes it less attractive than it is now.

Good question, Jeff. Our own view is that crypto will be regulated. That's not necessarily a bad thing. However, to your point, there is a risk that renders it uneconomic for mining. But that sort of goes back to our strategy, which is really this is infrastructure that's designed ultimately for blockchain applications and, you know, related, you know, high energy intensive computing applications as well. So you can see from the designs there that there are data centers in place, you know, adjacent to the solar arrays. And these sites are very strategic. We can see, you know, one of them is very close to a Tesla substation. And, you know, Ultimately, our view and our strategy is to build these things so that they're not dependent on crypto mining. It just so happens that crypto mining is the highest and best use for now. But there are multiple use cases for these sites, even without crypto mining. you know, the trend here is the, the mega trend is not just crypto mining, but blockchain and other high energy intensive computing applications.

Yeah, I appreciate that color. And I'm not sure that a lot of investors really appreciate that. Blockchain is actually quite mature. I mean, uh, offshore drillers were using a blockchain to pull together all the disparate parts that, uh, go on to a drill ship or on to a production platform four or five years ago. So, yeah, I appreciate that answer very much. Thank you.

Well, I mean, you're spot on, Jeff. And, you know, today the, you know, the computing or high-performance computing industry contributes to 3.7% of global emissions. You know, as compared to, say, the mobility, including the auto industry, which is more than 11%, that's the highest, and production of steel and iron ore is number two. You know, I think HPC computing is going to be the fastest growing in terms of emissions. And, you know, the amount of content that's being generated for online consumption, whether it's the metaverse or even if, you know, with Netflix... and the sort of computing power associated with that and the energy intensity of that, that's not sort of widely understood.

Yeah, that's a great point. I mean, we didn't really hit our question that way, but I'm certainly seeing increasing ESG scrutiny of computing in general, data centers in general, and crypto and the rest. So what you just said makes perfect sense. Thank you for the call.

No worries. Thank you. Happy to take all the questions as well.

Thank you. Once again, in order to ask a question, please press star, then the number 1 on your telephone keypad. Once again, that will be star, then the number 1 on your telephone. I'm not seeing any further questions at this time. You may continue, Mr. Shin.

Thank you. Well, again, thank you, everyone, for joining. I know there's a lot going on in the world at the moment, so I appreciate the time and wish you all well. We'll close this meeting now. Thank you.

Thank you, everyone. This concludes today's conference call. You may now disconnect.