Clean energy concept

Toyota agreement a major milestone

VivoPower International 22 June 2021 Update
Download PDF

VivoPower International

Toyota agreement a major milestone

Strategic announcement

General industrials

22 June 2021

Price

US$7.01

Market cap

US$118m

US$1.40/£

Net debt (US$m) at 31 December 2020

8.3

Shares in issue

16.9m

Free float

42.4%

Code

VVPR

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.7

(25.4)

349.4

Rel (local)

(0.9)

(30.9)

229.5

52-week high/low

US$17.9

US$1.3

Business description

VivoPower International’s strategy is to provide sustainable energy solutions on an international scale. Key activities at present are electric vehicles, critical power and solar development. Its primary operations are in Australia, Europe and North America.

Next events

Results

TBC

Analyst

David Larkam

+44 (0)20 3077 5700

VivoPower International is a research client of Edison Investment Research Limited

VivoPower has signed a letter of intent (LOI) with Toyota Australia, which provides a significant endorsement of Tembo’s electric vehicle technology. Along with three other distribution agreements announced in 2021, it provides increasing certainty to the anticipated volume ramp-up.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/20

48.7

(1.0)

(12.0)

0.0

N/A

N/A

06/21e

41.6

0.1

0.4

0.0

N/A

N/A

06/22e

52.3

(0.9)

(4.1)

0.0

N/A

N/A

06/23e

133.1

(1.4)

(6.2)

0.0

N/A

N/A

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

Toyota LOI corroborates Tembo’s technology

Toyota Australia has signed an LOI with VivoPower's electric vehicle (EV) subsidiary, Tembo, for a collaboration programme using Tembo conversion kits to electrify Toyota Land Cruisers. The final agreement is expected to confirm Tembo as an exclusive partner for electrification of Toyota Land Cruisers for a five-year period. This is the culmination of two years of collaboration and field trials in the harsh environment of the Australian mining sector. Toyota is the largest car company in the world (9.5m units in 2020), a position it has gained through technology, quality and manufacturing excellence. Hence, we see this agreement as providing strong endorsement of Tembo’s technology.

Commercial agreements provide clarity to ramp-up

VivoPower has now signed four agreements/LOIs in 2021 as it builds an international distribution network for its EV business. This brings greater clarity and certainty to the volume profile as it looks to ramp up production in the coming years.

Valuation: $19/share

The DCF valuation in our March initiation note stands at $19 per share using a 13% WACC. The key delta is inevitably the fortunes of Tembo, including an assumption of 5,000 units per year in 2025. The agreements announced to date do not yet suggest the need to upgrade volume requirements, at least until the volumes from the Toyota LOI become clearer. However, these announcements are starting to reduce the risk associated with such a growth profile.

Toyota LOI

VivoPower announced it has signed an LOI with Toyota Motor Corporation of Australia (TMCA) for a collaboration programme using the conversion kits designed by VivoPower subsidiary Tembo for electrification of the powertrain for Toyota Land Cruisers. The LOI is expected to convert into a master service agreement (MSA) under which Tembo will become Toyota’s exclusive electrification partner for Land Cruisers for a period of five years. The deal is with TMCA hence, we understand, covers only Australia at present. We note that Australia is a key market for Toyota and Land Cruiser. We also understand that TMCA has been tasked by Toyota Motor Corporation (TMC) to develop an electric Land Cruiser and that this is the only such project globally within Toyota. This would suggest the potential for significantly greater geographic scope, particularly as we believe Toyota is unlikely to want to use multiple powertrain variances as this would add to complexity and cost.

Background

Tembo and Toyota have been working together for a number of years. Around two years ago they started collaborating on vehicles for two international mining groups in Australia. The Land Cruiser/Hilux is the vehicle of choice in the mining sector and Tembo has experience in ruggedisation and electrification. These vehicles have since been undergoing field trials, highlighted by the recent announcement from BHP.

The partnership, which initially involves the Land Cruiser only, will enable the launch of an off-road EV utility vehicle, fully tested in the harshest environment, into the wider market. The partnership will also permit a more seamless and lower-cost integration from the previous retrofit model (ie Tembo will be fitted into the original vehicle frame rather than the vehicle being purchased with an internal combustion engine and converted).

Volumes

Toyota sells c 400,000 Land Cruisers a year worldwide (total sales since launch in 1951 are now more than 10 million). In 2020, Toyota sold over 25,000 Land Cruisers in Australia and over 40,000 Hilux models. No volume commitments have been announced and they will, in part, depend on the speed of customer adoption of EVs. However, the potential would appear to be a magnitude greater than other recent Tembo agreements, as shown below. We expect the mining sector to be an early adopter given the expected financial benefits (reduced mine ventilation requirements, reduced vehicle maintenance and operating costs), along with increasing commitments to reducing emissions.

Future opportunities

The technology agreement covers Land Cruisers. There is potential to extend to other Toyota vehicles, with the Hilux being the closest model. Following this technology agreement, there is potential for further co-developments of the drive system and powertrain to improve performance.

Our interpretation of the agreement

The agreement is clearly a strong endorsement of Tembo and its technology. Not only is the agreement with the Australian subsidiary of the largest automotive company in the world, but it also covers a flagship model. It is also a step change for Tembo from re-kitting existing vehicles to being an integrated part of the manufacturing process.

Other recent contract announcements

VivoPower’s Tembo EV business has signed a number of commercial agreements in 2021.

Exhibit 1: Summary of recent agreements

Date

Partner

Region

Contract

Technology

Volume (units)

Timescale

Value

January 2021

GB Auto

Australia

Definitive agreement

Conversion kits

2,000

4 years

$250m

May 2021

Accès Industriel

Canada

Heads of terms

Conversion kits

1,675

5.5 years

$120m

June 2021

Arctic Trucks

Nordic

Heads of terms

Conversion kits

800

5.5 years

$58m

June 2021

Toyota

Australia

Letter of intent

Technology partnership

5 years

Source: VivoPower

GB Auto

GB Auto is based in Australia. It is a leading provider of services, products and technology to fleet, heavy vehicle and mobile equipment, and specialises in the mining sector. GB has signed a definitive seven-year agreement under which it has committed to purchasing 2,000 Tembo electric conversion kits in the first four years including at least 500 kits in the first year. The value of the converted vehicles over the four years is estimated at around $250m. The collaboration will focus on the next-generation 72kWh battery kit for the Land Cruiser and Hilux models and the mining sector.

Accès Industriel

Accès Industriel is a supplier of mechanical equipment to the mining and industrial sector in Canada. Activities include sales, servicing, customisation/ruggedisation and leasing. Tembo has entered into a non-binding heads of terms to distribute Tembo in Canada. Under the proposed agreement, Accès would purchase 1,675 Tembo electric drivetrain conversion kits through to December 2026 with an estimated value of $120m.

Arctic Trucks

Arctic Trucks specialises in re-engineering, ruggedisation and conversion of four-wheel drive vehicles for extreme conditions. Tembo has entered into a non-binding heads of terms with Arctic to convert vehicles using Tembo electric kits in the Nordic region of Norway, Sweden, Iceland and Finland. Under the proposed agreement, Arctic Trucks would commit to purchasing 800 Tembo conversion kits over the next five and a half years with an estimated value of $58m.

Exhibit 2: Financial summary

$000s

2018

2019

2020

2021e

2022e

2023e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

33,647

39,036

48,710

41,592

52,320

133,149

Cost of Sales

(28,524)

(32,726)

(40,885)

(35,963)

(47,313)

(112,438)

Gross Profit

5,123

6,310

7,825

5,629

5,007

20,711

EBITDA

(6,335)

(3,990)

3,935

4,940

5,254

11,551

Normalised operating profit

(7,595)

(5,410)

2,169

2,281

217

2,103

Amortisation of acquired intangibles

0

0

0

0

0

0

Exceptionals

(23,156)

(2,017)

(3,410)

(1,900)

0

0

Share-based payments

0

0

0

0

0

0

Reported operating profit

(30,751)

(7,427)

(1,241)

381

217

2,103

Net Interest

(3,386)

(3,239)

(3,149)

(2,194)

(1,110)

(3,474)

Profit Before Tax (norm)

(10,981)

(8,649)

(980)

86

(893)

(1,371)

Profit Before Tax (reported)

(34,137)

(10,666)

(4,390)

(1,814)

(893)

(1,371)

Reported tax

6,258

(557)

(713)

453

223

343

Profit After Tax (norm)

(10,981)

(8,649)

(1,176)

65

(670)

(1,029)

Profit After Tax (reported)

(27,879)

(11,223)

(5,103)

(1,360)

(670)

(1,029)

Basic average number of shares outstanding (m)

13,557

13,557

13,557

15,700

16,500

16,500

EPS - basic normalised (c)

(81.00)

(63.80)

(12.00)

0.41

(4.06)

(6.23)

EPS - diluted normalised (c)

(81.00)

(63.80)

(12.00)

0.41

(4.06)

(6.23)

EPS - basic reported (c)

(205.64)

(82.78)

(37.64)

(8.66)

(4.06)

(6.23)

Dividend ($)

0.00

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

55,034

36,826

41,907

44,803

54,192

84,154

Intangible Assets

36,402

31,762

29,849

31,750

40,423

46,206

Tangible Assets

1,915

2,951

2,486

3,678

4,393

28,573

Investments & other

16,717

2,113

9,572

9,375

9,375

9,375

Current Assets

21,278

36,283

20,473

46,143

22,580

32,839

Stocks

0

0

0

1,146

1,588

5,476

Debtors

7,903

14,992

12,556

10,721

12,399

19,770

Cash & cash equivalents

1,939

7,129

2,824

29,182

5,000

5,000

Other

11,436

14,162

5,093

5,093

3,593

2,593

Current Liabilities

(20,610)

(29,133)

(19,679)

(16,472)

(19,004)

(28,704)

Creditors

(14,082)

(24,639)

(15,395)

(13,046)

(14,891)

(22,511)

Tax and social security

(103)

(449)

(75)

(528)

(305)

38

Short term borrowings

(3,955)

(2,327)

(1,312)

0

0

0

Other

(2,470)

(1,718)

(2,897)

(2,897)

(3,808)

(6,231)

Long Term Liabilities

(18,699)

(21,460)

(24,811)

(26,954)

(21,297)

(54,051)

Long term borrowings

(18,385)

(19,359)

(24,642)

(25,954)

(19,983)

(51,901)

Other long-term liabilities

(314)

(2,101)

(169)

(1,000)

(1,314)

(2,151)

Net Assets

37,003

22,516

17,890

47,519

36,470

34,237

Minority interests

0

0

184

6,300

6,301

6,302

Shareholders' equity

37,003

22,516

18,074

53,819

42,771

40,539

CASH FLOW

Op Cash Flow before WC and tax

(6,335)

(3,990)

3,935

4,940

5,254

11,551

Working capital

18,461

570

(3,145)

(829)

1,040

(584)

Exceptional & other

(3,229)

684

(4,999)

(3,843)

(500)

0

Tax

0

0

(477)

(475)

0

0

Net operating cash flow

8,897

(2,736)

(4,686)

(208)

5,793

10,967

Capex

1,196

116

(452)

(4,752)

(14,426)

(39,410)

Acquisitions/disposals

(17,823)

11,736

746

(1,500)

0

0

Net interest

(3,386)

(3,243)

(515)

(2,194)

(1,110)

(3,474)

Equity financing

0

0

0

26,358

0

0

Dividends

0

0

0

0

0

0

Other

Net Cash Flow

(11,116)

5,873

(4,907)

17,705

(9,742)

(31,918)

Opening net debt/(cash)

(9,285)

(20,401)

(14,557)

(22,945)

(5,240)

(14,983)

FX

0

1,102

(3,100)

0

0

0

Other non-cash movements

0

(1,131)

(381)

0

0

0

Closing net debt/(cash)

(20,401)

(14,557)

(22,945)

(5,240)

(14,983)

(46,901)

Source: VivoPower International accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by VivoPower International and prepared and issued by Edison, in consideration of a fee payable by VivoPower International. 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 VivoPower International and prepared and issued by Edison, in consideration of a fee payable by VivoPower International. 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