Thinfilm R2R equipment 1

Preparing for initial product sales

Thin Film Electronics 1 March 2021 Update
Download PDF

Thin Film Electronics

Preparing for initial product sales

FY20 results

Tech hardware & equipment

1 March 2021

Price

NOK0.92

Market cap

NOK958m

US$0.12/NOK

Net debt ($m) at end December 2020 (excluding $1.6m restricted cash and $12.2m financial lease liabilities)

8.8

Shares in issue

1,041.2m

Free float

89.3%

Code

THIN

Primary exchange

OSLO

Secondary exchange

OTCQB

Share price performance

%

1m

3m

12m

Abs

53.8

150.3

43.5

Rel (local)

51.1

133.0

33.2

52-week high/low

NOK1.22

NOK0.25

Business description

Thin Film Electronics’ (Thinfilm) solid-state lithium battery technology combines advanced energy cell design with proprietary materials and manufacturing innovation to produce thin, flexible batteries that can power safer and more capable wearable devices and connected sensors.

Next event

Q121 results

26 May 2021

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Thin Film Electronics is a research client of Edison Investment Research Limited

Thin Film Electronics’ (Thinfilm) FY20 results show how it has restructured operations to support the commercialisation of its proprietary ultra-thin microbattery product for applications such as hearing aids, earbuds and wearable medical devices ahead of the anticipated initial product revenues in late 2021. Operating costs were substantially lower, supporting a cash runway potentially extending through 2021, depending on the volume of warrants exercised.

Year end

Revenue ($m)

EBITDA
($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

12/17**

5.9

(50.9)

(54.5)

(0.06)

0.00

N/A

12/18**

3.4

(49.3)

(54.3)

(0.93)

0.00

N/A

12/19**

1.2

(30.6)

(35.9)

(0.61)

0.00

N/A

12/20

0.5**

(11.4)

(15.3)

(0.04)

0.00

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Discontinued business.

Restructuring operations on battery development

Thinfilm generated $0.5m revenues during FY20 from sales of the legacy stock of anti-theft tags. Following the restructuring initiatives that took place in Q319 and H120, payroll costs were $12.9m lower year-on-year in FY20 and total operating costs were $19.4m lower. As a result, operating losses, excluding a $42.4m impairment loss in FY19, narrowed by $22.7m to $12.0m.

Potential cash runway through 2021

Net debt (excluding restricted cash and finance leases) increased by $2.8m to $8.8m at end FY20 as $11.9m losses from operations and $3.2m net interest payments were partly offset by a fund-raising programme generating $13.3m (net) from the issue of shares and exercise of warrants. Capital expenditure was minimal. At end FY20, cash (excluding restricted cash) totalled $4.0m, which management estimates is sufficient to fund the company through Q121 with a potential NOK170m ($20.4m) financing from warrants yet to be exercised. Management estimates that additional funding relating to the exercise of warrants requested so far this year by holders is sufficient to support operations well into Q221. Depending on the volume and timing of warrants being exercised, management estimates that the company may be able to fund planned operations through 2021. In future fund-raising efforts, management has indicated interest in pursuing institutional investment in Europe and the United States.

Valuation: Potential market of over 1bn units a year

Thinfilm is initially targeting the medical wearables and hearables markets, followed by the connected sensor and sport and fitness wearables markets. Our scenario analysis calculates that a 5–10% share of these markets represents annual revenues of $330–550m and EBITDA of $211–365m. However, we note that the company is at the early stage of its development, with execution delivery and funding availability key to its success.

Preparing for initial product sales in late FY21

Exhibit 1: Commercialisation timeline

Source: Thinfilm Electronics

As discussed in our January flash note, at the start of FY21 Thinfilm announced that it had taped out its first product design, which was optimised for form factor-constrained applications, and signed evaluation agreements with potential customers and partners. Following that, management has provided details of the intervening steps required to meet its stated target of generating its first product revenues by the end of FY21. Activities are grouped in three areas: integrating the parts of the battery demonstrated during FY20 to create products to meet specific customer requirements; bringing the roll-to-roll facility back into operation and qualifying it for volume production of micro-batteries; and securing additional signed agreements with customers and partners. Discussions with the five top manufacturers of hearing aids globally, as well as some innovative start-ups, have established that Thinfilm’s rectangular format battery with terminals at the ends is more suitable for integration with surface mount assembly processes that the lithium-ion coin cells currently used.

Partnership with Energous for simplified charging

An example of the type of partnership that Thinfilm is working on is the recently announced partnership with Energous (WATT:US), which has developed a radio frequency (RF) based technology for contact and over-the-air charging at distances of up to 15 feet. The two companies intend to work together to help manufacturers of form factor sensitive electronic devices such as hearables, wearables and connected sensors to develop products that are easier to use and, in the case of hearables and wearables, more comfortable. For example, manufacturers of hearing aids deploying Thinfilm’s microbattery technology will potentially be able to offer devices that are safer than those using conventional lithium-ion coin cells, work for twice as long between charges and only need the batteries replacing after three or four years of being recharged every night rather than only one year. Adding Energous’s technology, which is also targeted initially at applications where space is an issue, simplifies charging. Energous’s flexible antenna design enables the creation of devices with small footprints and surfaces which are not flat and thus more comfortable to wear. Wireless charging means there are no connector openings or exposed metal, which results in full waterproof and dustproof designs.

Valuation: Addressing a market of over 1bn units/year

Since Thinfilm is still at the pre-revenue stage with regard to its solid-state battery technology and there are no consensus estimates, we prefer to present a scenario analysis rather than a formal valuation based on peer multiples.

Exhibit 2: Potential annual revenues from milliWatt hour market ($m)

Market share (%)

1%

3%

5%

7%

10%

Price/unit (US$)

1

11

33

55

77

110

2

22

66

110

154

220

3

33

99

165

231

330

5

55

165

275

385

550

7

77

231

385

539

770

10

110

330

550

770

1,100

Source: Edison Investment Research

Referencing research from IDTechEx and others, management notes that the medical wearables, hearables, connected sensor and sport and fitness wearables markets are predicted to grow to more than 1bn units/year by 2025. These markets require batteries in the mWh–1Whr capacity range. This capacity range is already covered by conventional lithium-ion batteries, although the relative size of lithium-ion batteries compared to solid-state batteries makes it likely that a material percentage of device manufactures will elect to pay a premium for the solid-state option. Last year, when the company was still defining its first product, management believed that it would be able to secure a price/unit in the lower single-digit dollars for its batteries, ie at a relatively modest premium to conventional lithium-ion rechargeable coin cells. At this price per battery ($2–3/unit), our analysis shows that a 5–10% share of these markets represents annual revenues of $165–220m. Now that Thinfilm has a product design to present to potential customers, it has been able to have more detailed discussions with them on pricing, and has recently stated that it believes a price of US$3–10/unit is achievable. Our analysis shows that a 5–10% share of the target markets at this price range represents annual revenues of $330–550m. Based on management guidance of c $20m fixed costs and 30% variable costs, this gives an EBITDA range of $211–365m.

Exhibit 3: Financial summary

US$m

2017

2018

2019

2020

Year-end December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

5.9

3.4

1.2

0.5

EBITDA

 

 

(50.9)

(49.3)

(30.6)

(11.4)

Operating Profit (before amort. and except.)

 

 

(54.8)

(53.3)

(34.5)

(11.4)

Intangible Amortisation

0.0

0.0

0.0

0.0

Exceptionals

(3.0)

(15.6)

(42.4)

0.0

Share-based payments

(2.2)

(1.8)

(0.2)

(0.6)

Operating Profit

(60.1)

(70.6)

(77.1)

(12.0)

Net Interest

0.4

(1.1)

(1.4)

(3.9)

Profit Before Tax (norm)

 

 

(54.5)

(54.3)

(35.9)

(15.3)

Profit Before Tax (FRS 3)

 

 

(59.7)

(71.7)

(78.5)

(39.1)

Tax

0.1

(0.0)

0.0

0.0

Profit After Tax (norm)

(54.3)

(54.4)

(35.9)

(15.3)

Profit After Tax (FRS 3)

(59.6)

(71.7)

(78.4)

(39.1)

Average Number of Shares Outstanding (m)

862.7

58.6

58.6

393.2

EPS - normalised ($)

 

 

(0.06)

(0.93)

(0.61)

(0.04)

EPS - (IFRS) ($)

 

 

(0.07)

(1.22)

(1.34)

(0.10)

Dividend per share ($)

0.00

0.00

0.00

0.00

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

34.2

35.3

0.6

0.8

Intangible Assets

2.2

2.4

0.0

0.0

Tangible Assets

20.5

22.5

0.0

0.2

Other

11.5

10.4

0.6

0.6

Current Assets

 

 

115.1

44.1

11.7

6.9

Stocks

0.7

2.6

0.0

0.0

Debtors

16.2

8.9

2.8

1.1

Cash including restricted cash

98.1

32.6

8.9

5.8

Other

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(7.3)

(8.1)

(6.8)

(32.7)

Creditors

(7.3)

(8.1)

(5.5)

(29.5)

Short term borrowings

0.0

0.0

(1.4)

(3.2)

Long Term Liabilities

 

 

(12.1)

(11.5)

(25.1)

(21.9)

Long term borrowings excluding finance leases

0.0

0.0

(11.8)

(9.7)

Other long-term liabilities

(12.1)

(11.5)

(13.2)

(12.2)

Net Assets

 

 

129.9

59.7

(19.7)

(46.9)

CASH FLOW

Operating Cash Flow

 

 

(52.3)

(52.3)

(29.1)

(11.9)

Net Interest

0.3

0.3

(1.4)

(3.2)

Tax

(0.0)

(0.1)

0.0

0.0

Capex

(27.1)

(11.2)

(5.1)

(0.3)

Acquisitions/disposals

0.0

0.0

0.0

0.0

Financing

103.3

(0.0)

0.0

13.3

Dividend payments and Other items

0.2

(1.6)

0.0

0.0

Net Cash Flow

24.4

(64.9)

(35.5)

(2.1)

Opening net debt/(cash) excluding finance leases

 

(74.2)

(98.1)

(32.6)

4.3

Finance leases initiated

0.0

0.0

0.0

0.0

Other

(0.5)

(0.6)

(1.4)

(0.7)

Closing net debt/(cash) excluding finance leases

 

(98.1)

(32.6)

4.3

7.2

Source: Company accounts

General disclaimer and copyright

This report has been commissioned by Thin Film Electronics and prepared and issued by Edison, in consideration of a fee payable by Thin Film Electronics. 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 2021 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 Thin Film Electronics and prepared and issued by Edison, in consideration of a fee payable by Thin Film Electronics. 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 2021 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

Share this with friends and colleagues

You may be interested in