Delay to formation of cell manufacturing JV

Leclanché 15 September 2020 Update
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Leclanché

Delay to formation of cell manufacturing JV

Update on strategic restructuring

Renewable energy

15 September 2020

Price

CHF0.60

Market cap

CHF96m

Net debt (CHFm) at end December 2019 (including CHF31.0m convertible debt)

41.7

Shares in issue (before conversion of debt-to-equity)

160.3m

Free float (before conversion of debt to equity)

31.8%

Code

LECN

Primary exchange

SIX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.0)

(25.6)

(62.2)

Rel (local)

(4.7)

(30.3)

(63.6)

52-week high/low

CHF1.62

CHF0.50

Business description

Leclanché is a fully vertically integrated energy storage solution provider. It delivers a wide range of energy storage solutions for homes, small offices, large industries and electricity grids, as well as hybridisation for mass transport systems such as bus fleets and ferries.

Next events

H120 result

September 2020

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Leclanché is a research client of Edison Investment Research Limited

Leclanché is not proceeding with the agreements with Eneris announced in June to create two JVs: one manufacturing battery cells, the other assembling battery modules. Instead it is in discussions with key customers as well as Eneris to form a JV manufacturing up to 2.4GWh of battery cells annually. Our estimates remain under review until there is greater visibility regarding this JV.

Year end

Revenue (CHFm)

EBITDA*
(CHFm)

PBT*
(CHFm)

EPS
(CHF)

DPS
(CHF)

P/E
(x)

12/17

18.0

(31.1)

(37.8)

(0.68)

0.00

N/A

12/18

48.7

(36.9)

(47.8)

(0.62)

0.00

N/A

12/19

16.3

(57.5)

(71.5)

(0.53)

0.00

N/A

12/20e

N/A

N/A

N/A

N/A

N/A

N/A

Note: *Adjusted for exceptional items, amortisation of acquired intangibles and share-based payments.

Capital-light model for production maintained

In June 2020, Leclanché announced that its cell manufacturing plant in Germany and module assembly facility would be transferred to two JVs, which would continue to supply Leclanché with cells and modules as required. JV partner Eneris was expected to invest more than CHF53m in the JVs to expand capacity and provide up to CHF42m in working capital as a loan directly to Leclanché. Eneris has not been able to provide this finance, so Leclanché is working with key customers that may become shareholders in a battery cell manufacturing JV alongside Eneris. Leclanché’s majority shareholder FEFAM has agreed to provide up to CHF34m in working capital as an interim measure and to convert CHF50.9m of debt to equity. Golden Partner will convert CHF10.7m of fees to equity. Collectively, these actions will reduce debt to c CHF15m but will result in the issue of around 97m additional shares (c 61% of outstanding capital), and raise FEFAM and related party Golden Partner’s shareholdings from 68.2% to 79.4%.

Creation of standalone operating companies

Management is reorganising the group’s operating model so that the eTransport Solutions business unit, which is focused on the electrification of fleet vehicles and marine vessels, and the Stationary Storage Solutions business unit, which is focused on utility-scale battery energy storage systems, become standalone operating companies. The Stationary Storage Solutions company will move to a build-own-operate (BOO) model, as described in our June update note. New investors will be able to take a direct stake in either of these companies. In parallel, management is either selling the non-core Speciality Battery Systems business unit or transferring it to a separate JV.

Valuation: Awaiting progress on JV

Our valuation and estimates remain under review until there is greater clarity on the business reorganisation and the formation of the JV.

Formation of cell production JV

Capacity constraints limiting growth in e-transport

Leclanché has been successful in winning contracts to develop energy storage systems for e-transport applications. For example, its memorandum of understanding with Bombardier Transportation, which covers around 10 different railway projects, is potentially worth more than €100m over a five-year period. With regards to the e-marine sector, as of September 2019 the combined value of purchase orders related to projects for delivery between 2019 and 2021 exceeded CHF35m, with over CHF50m of orders in the final stages of negotiation or contracting. This shows there is demand from this sector as well, with customers including Kongsberg Maritime. Moreover, the technology is proven, with e-transport systems from the group having completed more than 36,000km of marine run time and more than 700,000km of road run time. However, a lack of financing has severely limited the group’s ability to increase the volume of battery cells it can produce in-house, preventing it from maximising the opportunities presented by the decarbonisation of the transport sector.

Formation of manufacturing JV

The capital expenditure required to expand battery cell production to 2.4GWh/year in two phases is more than CHF110m. Noting that a Volvo electric bus has a 76 kWh lithium-ion battery and the Ellen e-ferry had a 4.3MWh battery pack, this represents sufficient annual capacity for 32 thousand buses or over 500 similar size ferries. The potential transfer of ownership of Leclanché’s cell production facility in Germany to a manufacturing JV which has a consortium of key e-mobility customers and Eneris as its backers provides a mechanism for funding the capacity increase without being dilutive for existing shareholders. The potential transfer to a JV could also reduce Leclanché’s operating costs by up to 20%.

Interim financing from FEFAM

Under the terms of the various agreements signed in June, Eneris was to provide up to CHF42m in working capital as a loan directly to Leclanché. This was intended to supplement the convertible loan facility of up to US$40m (c CHF39m) agreed with US-based investment firm Yorkville Advisors, which was announced in February 2020. The initial CHF2.9m tranche of this was drawn down in February, followed by a second tranche of CHF0.7m in June and a third tranche of CHF0.9m in August. Leclanché’s majority shareholder FEFAM has stepped into the gap and will provide up to CHF34m in working capital as an interim measure.

Creation of standalone operating companies

Management is reorganising the group’s operating model so it is composed of two standalone, independently investable operating companies. These are based on the former eTransport Solutions business unit, which provides energy storage systems for buses, trains and marine vessels, and the former Stationary Storage Solutions business unit, which provides utility scale battery energy storage systems. The module manufacturing operation, which is located in Switzerland, will become part of the new eTransport company. The smaller, non-core Speciality Battery Systems business, which is located in Switzerland and is loss-making, will either be sold or transferred to a separate JV.

Exhibit 1: Segmental information

CHFm

eTransport

Stationary Solutions

Speciality

FY19

FY18

FY19

FY18

FY19

FY18

Revenue

2.1

0.8

7.8

36.2

6.0

6.9

EBITDA

(21.1)

(3.6)

(25.4)

(12.4)

(5.6)

(2.3)

EBIT

(23.6)

(4.3)

(27.8)

(14.2)

(5.9)

(2.6)

Net assets

33.5

14.8

27.3

53.2

5.1

7.3

Source: Company data

Shift to build-own-operate model ongoing

Management is still in the process of creating a separate holding company, which will own the St Kitts solar farm and energy storage facility, and other BOO developments that have already been identified and will generate additional EBITDA. Leclanché will own the majority stake in this holding company and is in the process of securing equity finance from external investors. Subject to completing financing, management expects that this holding company will generate c CHF5m in annual EBITDA from the St Kitts project for a 20-year period from 2022 onwards. A large infrastructure fund in New York has already committed a construction loan of CHF46m, but management still has to secure the equity finance. If this is not obtained, the group will revert to merely providing engineering, procurement and construction services for the project, as it did for the 20MWhr Marengo energy storage project in Chicago that was commissioned in Q418.

The shift to a BOO model had an adverse impact on FY19 performance, preventing the group from recognising over CHF50m revenues, which would have enabled it to show revenue growth during FY19 rather than a drop from CHF48.7m in FY18 to CHF16.3m. However, the move makes the group less exposed to yearly variations in revenue associated with the completion of individual projects.


Exhibit 2: Financial summary

CHFm

2017

2018

2019

Year-end Dec

PROFIT & LOSS

Revenue

 

18.0

48.7

16.3

Cost of Sales

(15.7)

(45.7)

(31.8)

Gross Profit

2.3

3.0

(15.5)

EBITDA

 

(31.1)

(36.9)

(57.5)

Operating Profit (before amort. and except.)

 

(35.3)

(39.9)

(63.7)

Amortisation of acquired intangibles

0.0

0.0

0.0

Share-based payments

(0.7)

(0.8)

(0.8)

Exceptionals

(0.1)

(1.3)

(10.8)

Operating Profit

(36.1)

(42.1)

(75.3)

Net Interest

(2.5)

(8.0)

(7.2)

Share of profits from JVs and associates

0.0

0.0

(0.5)

Profit Before Tax (norm)

 

(37.8)

(47.8)

(71.5)

Profit Before Tax (FRS 3)

 

(38.5)

(50.0)

(83.1)

Tax

0.1

(0.7)

(0.3)

Profit After Tax (norm)

(37.7)

(48.6)

(71.8)

Profit After Tax (FRS 3)

(38.5)

(50.7)

(83.4)

Minority interest

0.0

0.0

0.0

Net income (norm)

(37.7)

(48.6)

(71.8)

Net income (FRS 3)

(38.5)

(50.7)

(83.4)

Average Number of Shares Outstanding (m)

55.3

79.0

136.4

EPS - normalised (CHFc)

 

(68.3)

(61.5)

(52.6)

EPS - normalised fully diluted (CHFc)

 

(68.3)

(61.5)

(52.6)

EPS - FRS 3 (CHFc)

 

(69.6)

(64.2)

(61.1)

Dividend per share (CHFc)

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

16.6

25.1

32.7

Intangible Assets

4.5

5.6

5.0

Tangible Assets and Deferred tax assets

12.1

19.5

27.7

Current Assets

 

52.1

62.2

40.4

Stocks

12.7

19.9

19.8

Debtors

32.8

33.9

19.1

Cash

6.6

8.4

1.5

Current Liabilities

 

(35.7)

(20.2)

(51.0)

Creditors including tax, social security and provisions

(20.6)

(14.8)

(31.7)

Short term borrowings

(15.1)

(5.4)

(19.3)

Long Term Liabilities

 

(22.1)

(48.7)

(34.8)

Long term borrowings

(13.3)

(37.5)

(23.9)

Retirement benefit obligation

(8.5)

(10.8)

(10.5)

Other long-term liabilities

(0.4)

(0.4)

(0.4)

Net Assets

 

11.0

18.4

(12.7)

Minority interest

0.0

0.0

0.0

Shareholders’ equity

 

11.0

18.4

(12.7)

CASH FLOW

Operating Cash Flow

 

(44.6)

(47.9)

(45.2)

Net Interest

(0.1)

(2.2)

(1.8)

Tax

0.0

(0.1)

(0.4)

Investment activities

(6.6)

(14.2)

(9.2)

Acquisitions/disposals

0.0

0.0

0.0

Equity financing and other financing activities

6.5

0.0

0.0

Dividends

0.0

0.0

0.0

Net Cash Flow

(44.7)

(64.4)

(56.7)

Opening net debt/(cash)

 

17.8

21.7

34.5

HP finance leases initiated

0.0

0.0

0.0

Other

(40.8)

(51.6)

(49.4)

Closing net debt/(cash)

 

21.7

34.5

41.7

Source: Company data


General disclaimer and copyright

This report has been commissioned by Leclanché and prepared and issued by Edison, in consideration of a fee payable by Leclanché. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Leclanché and prepared and issued by Edison, in consideration of a fee payable by Leclanché. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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