Order book exceeds CHF100m

Leclanché 10 October 2019 Update
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Leclanché

Order book exceeds CHF100m

Interim results

Alternative energy

10 October 2019

Price

CHF1.42

Market cap

CHF199m

Net debt (CHFm) at end June 2019

25.1

Shares in issue

140.7m

Free float

38.9%

Code

LECN

Primary exchange

SIX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.0)

(16.8)

(24.7)

Rel (local)

(8.9)

(15.7)

(31.4)

52-week high/low

CHF2.06

CHF1.42

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 event

FY19 results

Q220

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Leclanché is a research client of Edison Investment Research Limited

Leclanché’s H119 performance was adversely affected by delays in completing financing for the St Kitts project. Management had expected construction to start in Q219 but it has been pushed back to Q419. Given the scale of this project, which is the largest the company has undertaken to date, our estimates remain under review until there is greater visibility on when different phases of the project are scheduled to complete. We note that this project pushes the order book above CHF100m, with an additional CHF166m qualified pipeline projects for delivery between 2020 and 2023, including lithium-ion battery systems for Bombardier trains. Management is seeking CHF70m funding to realise this potential.

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)

0.0

N/A

12/18

48.7

(36.9)

(47.8)

(0.62)

0.0

N/A

06/19**

7.0

(28.6)

(33.6)

(0.27)

0.0

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Six months ended June 2019.

Delays affect H119 performance

Leclanché’s H119 results were adversely affected by delays in completing financing for a large solar generation plus energy storage facility in St Kitts and extended product qualification times. Group revenues declined from CHF22.3m in H118 to CHF7.0m. Because the cell manufacturing facility was underused and staffing was increased to support the ongoing e-transport and pending St Kitts projects, EBITDA losses widened by 31% y-o-y to CHF28.6m. Including CHF5.9m in additional debt related to the introduction of IFRS16, net debt reduced by CHF9.4m during the six-month period to CHF25.1m, as CHF36m convertible loans held by majority shareholder FEFAM were converted to equity, increasing its shareholding to 61%.

Financing required to execute CHF100m+ order book

Including c US$57m for the turnkey EPC contract in St Kitts, which remains subject to completion of due diligence by the financing entity in November, the group’s order book for delivery in H219 and FY20 is CHF120m. There is an additional CHF166m of qualified pipeline projects for delivery in FY20–FY23. However, to execute on these projects and be certain of continuing as a going concern, management is raising CHF30.0m to finance working capital requirements for FY20 and CHF40.0m to increase both cell and module production capacity.

Valuation: Awaiting clarity on St Kitts project

Our valuation and our estimates remain under review until there is greater clarity on the funding and the timing of deliveries for the St Kitt’s project.

Segmental analysis

Transport order book benefits from marine projects

Segmental revenue was modest (CHF0.3m vs CHF0.6m H118) despite the significant order book for marine projects. This partly reflected project timings, as revenues are not recognised until battery packs are delivered, and partly some product qualifications taking longer than originally expected to complete. Because staffing levels had been increased to support these marine orders, segmental EBITDA losses almost doubled from CHF3.2m to CHF5.7m.

Leclanché’s order book for this segment (see Exhibit 1) for delivery during FY19 and FY20 is CHF45m with a further CHF123m of qualified projects in the pipeline for delivery between FY20 and FY23. Cell manufacturing was suspended during August while management checked there were no issues with battery quality or safety. This was in response to fires at multiple battery energy storage facilities in South Korea, although the issue seems to have been poor battery management rather than anything inherently unsafe in the batteries, which were supplied from competitors including LG Chem. Cell production resumed in early September but the shut-down means transport segment deliveries are being rescheduled, precluding management from providing any segmental guidance for FY19. The shut-down does not affect stationary projects, which use third-party cells.

Exhibit 1: Pending and contracted transport projects

Project

Status

Size

Notes

Bombardier

Memorandum of Understanding

<93MWh for first three years, 180 MWh for subsequent three years

Leclanché preferred global provider of battery systems to power rail transportation. Potential business revenue of more than €100m over the next five years, delivering battery systems for about 10 different railway projects.

Off-road vehicle manufacturer

Pending

40MWh in Europe and 40MWH in India over next three years

Already delivered battery packs for second generation fully electric excavators.

Ashok Leyland/Sun Mobility, India

Pending

60 MWh over next three years

Multi-year master supply agreement pending successful completion of trials. Battery packs for electric buses. Battery packs for 40 vehicles delivered already for pilot.

Skoda Electric, Czech Republic

Pending

25MWh over next three years

Joint development agreement and framework purchase Contract announced June 2017. Testing modules on electric buses during October 2019. Larger, high-energy G-NMC based systems for overnight charging and smaller, ultra-fast charge LTO systems for topping up charge at bus stations during the day.

Kongsberg Maritime

Contracted

45MWh

Nine vessels including Yara Birkeland, the world's first autonomous and electric container vessel with zero emissions and hybrid roll-on/roll-off vessels for delivery in Q120 and Hyseas III, the world’s first hydrogen hybrid marine vessel that will be operated in the Orkneys, for delivery in 2019.

Source: Company data

JV in India

In 2018 Leclanché formed a JV in India with Exide Industries. The JV, Nexcharge, is to build lithium-ion batteries and commercialise energy storage systems for India’s electric vehicle market. Exide Industries holds a 75% stake, Leclanché 25%. Management expects the Nexcharge module and battery pack assembly manufacturing facility in India to be operational by the end of FY19. Management had expected the JV partner to commence investment in an associated lithium-ion cell production plant in H119, triggering the payment of an estimated CHF10m licence fee during the period. On this schedule, cell production would have started in mid-2020. Management notes the investment decision has been deferred until next summer.

Stationary order book boosted by St Kitts project

Segmental revenues dropped from CHF19.0m in H118 to CHF3.0m in H119 as Leclanché completed work the Almelo, Cremzov and NRStor projects but was unable to start constructing the St Kitts project in April 2019 as planned because of delays in completing financing. Because staffing levels had been increased in preparation for the St Kitts project, segmental EBITDA losses widened from CHF5.2m to CHF9.7m.

Leclanché’s order book for this segment (see Exhibit 2) for delivery during FY19 and FY20 is CHF70m, US$57m (CHF57m) of which relates to the St Kitts project and is subject to completion of the due diligence by the financial backer. This is expected to complete in October, enabling construction to start in November. Because there is uncertainty on what proportion of revenues attributable to the project may be realised in FY19 rather than FY20, management is not issuing guidance for this segment either. There is a further CHF38m of qualified projects in the pipeline for delivery between FY20 and FY23. This is relatively low number compared with the size of the opportunity because management is taking a cautious approach on projects receiving funding. It has started to focus on micro-grid projects for islands similar to the St Kitts project as these typically include a power purchase agreement with a fixed price for 10 years or more, making it easier to secure finance.

Exhibit 2: Recent and pending stationary storage projects

Project

Size

Notes

St Kitt’s, Caribbean

44.2MWh

Combined with 35.6MW solar farm. Project expected to provide 25–30% of the island’s existing power generation requirements and secure cost-savings of between 20–25% compared with diesel generated power. Construction commencing Q419 subject to completion of financing due diligence.

Cremzow, Germany

34MWh

Part of the primary control reserve mechanism in the state of Brandenburg, evening out imbalances between electricity generation and consumption to maintain grid stability. Leclanché is acting as turnkey systems integrator and engineering, procurement and construction contractor, integrating battery and power conversion systems and energy management software, as well as supplying the battery modules. First 2MW of plant was operational from April 2018. Completed H119.

Marengo, Illinois

19.5MWh

Battery energy storage system for frequency regulation. Completed by end 2018.

IESO Basin 1 and 2, Ontario

13.8MWh

Battery storage system to support grid stabilisation and resiliency. Completed by end 2018.

SWB Bremen, Germany

15MWh

Hybrid storage system with a battery energy storage system and heating system. Completed end 2018.

Romande Energie, Switzerland

5 MWh

Storage for photo-voltaic solar integration. Completed by end 2018.

NRStor C&I, Toronto

4.9MWh

Battery storage system for industrial customer for demand charge management. Completed H119.

S4 Energy, Almelo, Netherlands

2.8MWh

System for Fast Frequency Restoration markets in the Netherlands. Operational Q218.

Source: Company data

Speciality battery packs deployed in autonomous vehicles

Segmental revenues increased by 28% year-on-year to CHF3.2m. The segment is focused on the development of highly specialised battery packs for autonomous underwater vehicles for both defence and civil applications and automated guided vehicles for warehouse logistics. EBITDA losses widened by CHF1.9m year-on-year to CHF4.3m. This reflects additional sales resource recruited to develop the business, especially in the defence sector, the impact of development and engineering costs on projects yet to be delivered, and inventory write-off for discontinued activities such as domestic energy storage systems. Leclanché’s order book for this segment for delivery during FY19 and FY20 is CHF5m, with a further CHF5m of qualified projects in the pipeline for delivery between FY20 and FY23.

H119 group performance

Leclanché’s H119 results were adversely affected by delays in completing financing for a large solar generation plus energy storage facility in St Kitts and extended product qualification times. Group revenues declined from CHF22.3m in H118 to CHF7.0m. Because the German cell manufacturing facility was underused, resulting in an estimated CHF4.2m costs and staffing was substantially increased from levels to support future projects, EBITDA losses widened by CHF6.8m y-o-y to CHF28.6m. Depreciation, amortisation and impairment expenses increased by CHF1.3m, most of which related to the adoption of IFRS16 in January 2019. Loss after tax widened by CHF8.5m to CHF33.7m, although loss per share reduced from CHF0.31 to CHF0.27 because of the dilutive impact of debt-to-equity conversion.

Working capital decreased by CHF12.1m as a result of lower activity levels. CHF3.5m was invested in capital equipment, primarily expanding the formation tower for charging and testing battery cells at the German site, CHF2.0m in Nexcharge and CHF1.1m in intangible assets. This included the final instalment for the Energy Management Software acquired in FY18 and capitalised cell development costs. Free cash outflow totalled CHF24.3m. However, including CHF5.9m in additional debt related to the introduction of IFRS16, net debt reduced by CHF9.4m during the six-month period to CHF25.1m. This comprises CHF15.9m convertible loans and CHF7.6m non-convertible loans, all held by FEFAM and related parties.

The reason for the reduction in debt was that CHF36m convertible loans held by majority shareholder FEFAM were converted to equity, increasing FEFAM’s shareholding to an estimated 61%. The reduction in debt attributable to the debt-to-equity conversion was partially offset by a new convertible loan arrangement in April 2019, also with FEFAM, to provide Leclanché with a working capital facility of CHF35m, CHF8.4m of which had been drawn down at end H119. In September 2019 FEFAM agreed to convert a further CHF17.4m of its debt to equity, subject to shareholder approval. Management estimates this will result in the creation of a further 12.6m shares and increase FEFAM’s stake to 64%. Assuming that all of the working capital facility is drawn and converted to shares, this would result in a total of 160m shares in issue and give FEFAM a 66% holding. (FEFAM is AM INVESTMENT SCA, SICAV-SIF – Liquid Assets Sub-Fund, together with FINEXIS EQUITY FUND – Renewable Energy Sub-Fund, FINEXIS EQUITY FUND – Multi Asset Strategy Sub-Fund and FINEXIS EQUITY FUND – EMoney Strategies Sub-Fund, also called Energy Storage Invest).

Additional financing required

While noting that it still has around CHF26m of the working capital facility to draw down, as well as potentially deriving an estimated CHF34m from outstanding trade receivables, project receivables and pre-payments for hardware for the St Kitts project by the year end, management has stated it is seeking additional finance. It is working with its financial advisers to finalise a financing round by the end of FY19 to raise CHF30.0m to finance working capital requirements for FY20 and CHF40.0m to increase production capacity of both cells and modules so it can fulfil all of its orders in FY20 and beyond. Consequently, there remains material uncertainty over the turnaround and execution of the company’s growth plan, which may cast doubts on its ability to continue as a going concern. Management is reorganising the company into three standalone business units corresponding to the three market segments addressed. This is to enable shareholders to invest in individual units, providing each with the investment required to fully exploit the market opportunity. Details of this have not yet been disclosed other than advising that existing shareholders will have the option of investing in these units on preferential terms based on a fair market valuation provided by a third party.

Board changes

Two new non-executive directors, Bénédict Fontanet and Lluís M Fargas, were elected at the AGM. Mr Fontanet is the chairman of the board of directors of Golden Partner in Geneva, which is an investment adviser to FEFAM, the company's main shareholder. This brings the total of Golden Partner personnel on the board to three. Since November 2016, Mr Fargas has held the role of vice president tax, controller and corporate development Europe at Arconic, which comprises the rolling, plating, precision casting and fastening operations of Alcoa. Mr Fargas manages the European tax and country controllership function and is responsible for running the corporate development strategy of Arconic in Europe. Mr Fargas joined Alcoa in 1994, after five years as a senior manager at Coopers & Lybrand in Barcelona, Spain.

Exhibit 3: Financial summary

CHFm

2016

2017

2018

Year-end Dec

PROFIT & LOSS

Revenue

 

 

28.1

18.0

48.7

Cost of Sales

(26.2)

(15.7)

(45.7)

Gross Profit

1.9

2.3

3.0

EBITDA

 

 

(27.4)

(31.1)

(36.9)

Operating Profit (before amort. and except.)

 

 

(33.6)

(35.3)

(39.9)

Amortisation of acquired intangibles

0.0

0.0

0.0

Share-based payments

(1.0)

(0.7)

(0.8)

Exceptionals

0.0

(0.1)

(1.3)

Operating Profit

(34.5)

(36.1)

(42.1)

Net Interest

(3.2)

(2.5)

(8.0)

Profit Before Tax (norm)

 

 

(36.8)

(37.8)

(47.8)

Profit Before Tax (FRS 3)

 

 

(37.8)

(38.5)

(50.0)

Tax

0.6

0.1

(0.7)

Profit After Tax (norm)

(36.3)

(37.7)

(48.6)

Profit After Tax (FRS 3)

(37.2)

(38.5)

(50.7)

Minority interest

0.0

0.0

0.0

Net income (norm)

(36.3)

(37.7)

(48.6)

Net income (FRS 3)

(37.2)

(38.5)

(50.7)

Average Number of Shares Outstanding (m)

42.7

55.3

79.0

EPS - normalised (CHFc)

 

 

(85.0)

(68.3)

(61.5)

EPS - normalised fully diluted (CHFc)

 

 

(85.0)

(68.3)

(61.5)

EPS - FRS 3 (CHFc)

 

 

(87.2)

(69.6)

(64.2)

Dividend per share (CHFc)

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

16.9

16.6

25.1

Intangible Assets

6.9

4.5

5.6

Tangible Assets and Deferred tax assets

10.0

12.1

19.5

Current Assets

 

 

35.6

52.1

62.2

Stocks

9.6

12.7

19.9

Debtors

21.5

32.8

33.9

Cash

4.5

6.6

8.4

Current Liabilities

 

 

(46.2)

(35.7)

(20.2)

Creditors including tax, social security and provisions

(23.9)

(20.6)

(14.8)

Short term borrowings

(22.3)

(15.1)

(5.4)

Long Term Liabilities

 

 

(11.6)

(22.1)

(48.7)

Long term borrowings

0.0

(13.3)

(37.5)

Retirement benefit obligation

(9.5)

(8.5)

(10.8)

Other long term liabilities

(2.1)

(0.4)

(0.4)

Net Assets

 

 

(5.3)

11.0

18.4

Minority interest

0.0

0.0

0.0

Shareholders’ equity

 

 

(5.3)

11.0

18.4

CASH FLOW

Operating Cash Flow

 

 

(34.2)

(44.6)

(47.9)

Net Interest

(0.1)

(0.1)

(2.2)

Tax

0.0

0.0

(0.1)

Investment activities

1.6

(6.6)

(14.2)

Acquisitions/disposals

0.0

0.0

0.0

Equity financing and other financing activities

3.9

6.5

0.0

Dividends

0.0

0.0

0.0

Net Cash Flow

(28.7)

(44.7)

(64.4)

Opening net debt/(cash)

 

 

5.3

17.8

19.5

HP finance leases initiated

0.0

0.0

0.0

Other

(16.2)

(43.0)

(49.4)

Closing net debt/(cash)

 

 

17.8

19.5

34.5

Source: Company data


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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.

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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.

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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.

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Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

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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

1,185 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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