Equipmake Holdings - Interim Results

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR").

 

18 January 2024

EQUIPMAKE HOLDINGS PLC

("Equipmake" or the "Company")

 

RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2023

 

 

Equipmake, the UK-based engineering specialist pioneering the development and production of electrification products across the automotive, aerospace, bus, coach and off-highway industries, is pleased to announce its unaudited results for the six-month period ended 30 November 2023 ("H1 FY24") and a trading update for the financial year ending May 2024 ("FY24").

 

Financial Highlights

• H1 FY24 revenue (including grants) of £2.07m represents a 97% year-on-year increase (H1 FY23: £1.05m).
• Improvement in gross margins for repowered vehicles reported in Powertrain (inc. integration) (H1 FY24: 9.2%, full year FY23: -12.9% gross loss), reflects initial progress on the cost reduction initiatives that are expected to deliver further significant margin improvements in the near term.     
• Operating losses of £2.97m, (H1 FY23: loss of £2.08m before exceptional items).  The increase in administrative costs are aligned with the Company’s financial plan and reflect the expansion of the business since the IPO in July 2022.  
• Contracted order book¹ of £11.17m as of 17 January 2024.
• Investment in tangible fixed assets and product development of £1.33m.
• Cash as of 30 November 23 was £3.91m (30 November 22: £7.44m).

 

Operational Highlights

• Delivered seven repowered buses to First Group, increasing the in-service fleet to 12 vehicles, meeting all operational KPIs.
• Secured new bus re-powering orders totalling £3.23m from Newport Transport and Big Bus Tours.
• Commenced production-intent motor/inverter development project with Perkins Engines Company Ltd (“Perkins”) (a wholly owned subsidiary of Caterpillar Inc., a global OEM leader in the off-road market), securing up to £3.24m of associated government grant funding through the Advanced Propulsion Centre UK (“APC”) over the three-and-a-half-year life of the project.
• Secured an order from a global specialist vehicle OEM for £0.56m to integrate the Company’s powertrain into an airside operational vehicle. 
• Additional facility of 50,000 sq. ft fully operational, including relocation of vehicle repowering team.

 

Trading update

 

Since the end of H1 FY24, Equipmake has:

• Secured a second order from Big Bus Tours for a further 10 buses, totalling £1.75m.
• Secured a new order for £0.72m for a production-intent development project with H55, further supporting aerospace sector growth.
• Secured a second order from a global specialist vehicle OEM for £0.4M to provide 2 EV powertrains for airside operational vehicles.
• Strengthened the Executive team and Board with the appointment of Dr Nick Moelders as COO.
• Increased the pipeline of opportunities to enter US electric vehicle (“EV”) markets, through a partnership models.

 

Whilst our order pipeline remains strong and our cost reduction initiatives remain on target to deliver the anticipated gross margin improvements, there have been some delays in implementation due to operational and supply chain challenges.  As a result, the Company has taken a prudent approach to its production ramp up and anticipates revenue for the full financial year being below market expectations, however strong cost control measures mean that operating losses are expected to be broadly in line with market expectations.

¹ The contracted orderbook is orders that have been contracted but where revenue hasn't been recognised.

 

Commenting of the results and trading update Ian Foley, CEO of Equipmake said:

 

"I am pleased to share an update on our progress on delivering our ambitious strategy, as laid out originally at the time of our initial public offering in July 2022. We continue to see excellent demand for the leading-edge electric vehicle ("EV) products and integrated solutions that we can supply. Our half-year results demonstrate strong progress on our journey to building revenue and operational profitability with revenue in this half year of £2.1m, being 97% ahead of the equivalent period in FY23. We are increasing gross margins on repowering vehicles, whilst also investing in an additional facility and adding to our operations and sales teams. We are anticipating strong revenue growth in FY24 vs FY23, however we are anticipating this being lower than our previous revenue expectations for the full year.

 

"As we have built our business over this interim period, we have been judicial in our approach to new opportunities, ensuring that we prioritise those directly in our target sectors (both end market and geography) and those that are most complementary in the nearer term with our existing product offering. Additionally, we have taken a view on opportunities that could build short-term revenue but would at this time not deliver the margins we require, ahead of our cost reduction initiatives being materially delivered by the end of FY24."

 

CEO Statement

 

A key tenet of our value proposition has always been our state-of-the-art products, developed from 20 years of experience, that work seamlessly as an integrated EV solution for our customers. This provides a strong competitive positioning for those very substantial markets where customers have specific needs to repower from ICE, or to develop new product, that requires proven, expertly engineered EV product in what remains an emerging field of technology. In this interim period, we have not only secured substantial new orders from new customers, but also extended our capacity and in-house capabilities through targeted investment and driven hard on productionising to realise unit cost reductions that are already beginning to have an impact.

 

Strengthening the Leadership Team

 

I was delighted earlier this month to announce the appointment of Dr Nick Moelders to the Board as COO, replacing James Bishop. Nick brings a wealth of proven delivery capability in our sector, as well as significant knowledge and network in the US market.

 

In his most recent role, Nick led the development and scaling to production of the electrification division of Sensata, a $5bn market cap Tier 1 and 2 sensor business. This is the latest step of an ongoing process by the Board to ensure the Company has the scope and scale of leadership talent to deliver its strategy. 

 

Equipmake Strategy

 

We firmly believe that the world is on an irreversible path to far greater electrification, and the transport sector is front and centre of that. The internal combustion engine has dominated this sector for over 100 years, from micro-mobility to passenger cars, mass transit and industrial vehicles. All these applications are, and will continue, transitioning to electrification. Opportunities abound for those companies that offer proven, high quality EV products and systems that are fit for purpose. The overall transport market for electrification is enormous, and the sub-sectors of that, including mass transit (bus & coach), industrial (generally off-road) and aerospace each represent very significant market segments, in their own rights. Even when further segmented into new vehicles and solutions to repower existing vehicles - necessary in many sectors to meet new emission targets in time - the addressable markets remain enormous. These markets are our North Star, and we think carefully about how we will be successful in our chosen ones, using common core products and Zero Emission Drivetrain solutions from our established portfolio.

 

The adoption of many new technologies follows a well-researched "S curve", with 3 phases: early adoption then rapid acceleration, followed by maturity. These periods of new technology adoption often result in existential crises for incumbents and create opportunities for new entrants who can think differently, and deliver real product, when it is needed. One particular feature of large incumbents, and why they often struggle, is their need to operate out-dated facilities and supply chain models which attempt to compromise customers' needs into existing business models and product solutions. This is the advantage that new entrants, particularly those with vertically integrated product solutions like ours that are designed to meet today's customers' needs, bring to the competitive landscape. The strong value proposition of the integrated solutions approach we have is substantial and worthy of highlight.  We design, engineer and manufacture our own motors, inverters, control units and other key components in house, providing us not only with huge flexibility to meet our customers' requirements, but also strong cost competitive advantage. Many of our competitors purchase these components externally at retail prices and consolidate them into their "solutions". The economics of these operating models are materially different, providing a distinct cost and flexibility advantage to Equipmake, something we increasingly see in our conversations with customers.

 

Our long-established presence in the EV sector, delivering products for many years into different end markets has prepared us well for scaling our activities, as the adoption cycle moved from early adoption into rapid acceleration. We are addressing the challenges of driving costs from our products as volume has increased and have also proven our ability to consistently deliver high quality, customer-ready products that literally hit the ground running. Our market-leading uptime within the buses we have repowered to date is a strong testament to this, as are the repeat orders we are seeing across our customer base. Building the business does take time, and creating the customer relationships and driving product costs down also consumes time and other resources on the path to true scaling.

 

We are seeing our strategy play out as anticipated, although taking a little longer in this phase than we had originally planned, as we became more selective in the opportunities we pursue whilst we ensured our product costs and manufacturing capabilities were ready for the next phase. We have successfully built relations (and taken initial orders) with several global customers and, whilst this has taken some time, the future business potential from these customers is very significant.

 

 

Vehicle Repowering and Original Equipment supply - Equipmake positioning

 

Repowering is the process of converting an existing vehicle (usually powered via an ICE) to a Zero Emission Drivetrain powered vehicle. Original Equipment ("OE") supply is the supply of EV components or wider systems to customers that manufacture new vehicles.

 

Equipmake is addressing both these market opportunities in particular sectors, within repowering most notably bus, coach and industrial vehicles, with OE adding aerospace as a further market.

 

Repowering enables us to address substantial markets that exist today and that we believe will continue to grow for many years. It provides the opportunity to prove our products in multiple real-world uses, build our knowledge, customer base and reputation. Examples are our repowering with First Group (13 vehicles), Big Bus Tours (now 20), and Newport Transport (8).

 

Simultaneously, we are building our capability and product offering to scale into the OE market. Our recent announcement with Perkins, where we are now developing motor and inverter products for potential future OE application, is a recent example. Perkins is a wholly owned subsidiary of Caterpillar, the world's largest off-road vehicle manufacturer. Perkins specialise in the supply of diesel engines for niche off road applications, manufacturing 200,000 units per annum at their Peterborough factory.  Under the terms of our contract, Equipmake will design and manufacture bespoke motors and inverters for a "drop in" replacement for a diesel engine. Under this project Equipmake will develop a bespoke motor / inverter which will be integrated by Perkins into a hybrid system. The project is part funded with a grant to Equipmake of up to £3.2m from the Advanced Propulsion Centre. The target is to begin production in 2028.

 

Prior to awarding this project, Caterpillar undertook 12 months' due diligence comparing Equipmake technology and production readiness with competitors.

 

A further example of our expanding product offering is our presence in the EV Fire Truck market, where we supply Emergency One, the largest Fire Truck manufacturer in the UK (80% UK market share). Through this relationship we have delivered a complete drivetrain for REV Group, the second largest manufacturer of Fire Trucks in the US. Emergency One are marketing their product, with the Equipmake powertrain, globally, with the first European order taken. REV Group have begun production delivery in North America with further orders being taken.  A final example is our work with a Global ground support equipment company to supply a full electric drivetrain for a special vehicle application. Equipmake's vertical integration capability was key with the ability to deliver the project within 6 months.

 

Other commercial initiatives

 

Our project to develop an aerospace certified electric motor to integrate with a full electric powertrain being developed by H55 continues on target. We recently won the next stage of this contract for £0.7m for the development of the production version.

 

In May we announced entering into a licence agreement with Sona Comstar in India. Sona is a leading manufacturer of low voltage automotive motors, selling over two million units per annum, including to customers outside India such as General Motors and Ford. Sona has licenced certain motors and inverters from Equipmake to support their entry into the high voltage traction market in India. Their initial focus is buses, and the parties are working to accelerate the start of production, which is currently targeted by the end of the 2025 calendar year.

 

Opportunities in the USA

 

Following approaches from potential partners we have recently begun a review of the growing opportunity to supply our products in the USA, initially focussed on repowering of existing ICE buses. The opportunity is significant, with appealing economics and substantial volume of existing vehicles that would be suitable for repower. There are over 80,000 transit buses in the USA, and almost 500,000 school buses.

 

Our intention is to leverage our existing IP through high quality partnerships to address different sectors and territories. However, if the review deems an alternative approach is more appropriate, then we will modify our strategy accordingly. We have identified a number of such partners and evaluation is underway, to build suitable business and supply chain models that optimise our economics and manage any execution risks.

 

In summary, we have successfully completed the delivery of vehicles into service, the orderbook is building, and interest in repowering is increasing. We remain confident in achieving our margin targets. We have signed 2 major Global OEMs as customers and we are seeing increasing interest in our value proposition. 

 

CFO Statement

The financial performance for H1 of FY24 shows year-on-year revenue growth (including grants) of 96.5%, including the delivery of 7 repowered buses into service for First York, taking the in-service fleet up to 12 buses for this client. We have continued to invest in collaborative R&D and the funding of the grant projects secured during the past 12 months has contributed to the year-on-year revenue growth.  Total gross margin for H1 of FY24 includes a £157k gross loss on grants due to the partially funded nature of these match-funded projects.  Whilst grant projects are extremely valuable to the business, funding levels for current projects is between 50% and 60% of costs incurred, which translates in a reported gross loss for grant funded projects.

 

Excluding grants, there was improvement in margin rates across key product lines but the overall blended gross margin of 14.65% (H1 FY23: 18.3%) was slightly lower than the previous year, due to a difference in product mix.

 

The 34.8% growth in administrative costs is a reflection of the business expansion and capability development that has taken place since the IPO in July 2022, including:

• the addition of a 50,000 sq ft unit to support the production of vehicle repowers,
• significant investment in headcount.  Total headcount increased by 30 people or 37% over the past 12 months (November 2023: 111, November 2022: 81).  

 

Other operating income, which primarily consists of the gross RDEC revenue, shows a year-on-year increase of 28.7% and should continue to compare favourably to prior year figures following the increase in the RDEC rate from 13% to 20% from April 2023.                                            

 

During H1, £653k of development costs have been capitalised, reflecting the ongoing investment in products and system development.  The £678k investment in tangible fixed assets relates to plant and machinery for the new production site.

 

As part of our strategy to manage supply chain risks, we have invested significantly in stock over the past 12 months. The £1.8m increase since May 23 is primarily to support the delivery of revenue in the second half of FY24.

 

The cash balance of £3.9m at the end of November (2023) was aligned with our expectations following the investments made during the first half of the year.

 

 

 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 NOVEMBER 2023

 

 

		Period Ended		Period Ended		Year Ended
		30 November		30 November		31 May
		2023		2022		2023
		(Unaudited)		(Unaudited)		(Audited)
	Note	£		£		£
Revenue	2	2,072,750		1,054,857		5,053,540
Cost of sales		(1,949,576)		(823,889)		(3,845,263)
Gross profit		123,174		230,968		1,208,277
Administrative expenses		(3,267,845)		(2,423,063)		(5,346,307)
Other operating income		196,801		152,968		280,658
Share based payment charge		(26,831)		(40,749)		(475,321)
Exceptional items		-		(615,064)		(615,064)
Operating loss		(2,974,701)		(2,694,940)		(4,947,757)
Interest receivable and similar income		35,414		13		16,908
Interest payable and similar expenses		(20,786)		(66,346)		(86,505)
Loss before taxation		(2,960,073)		(2,761,273)		(5,017,354)
Tax on loss	3	(17,862)		(24,775)		185,979
Loss for the period		(2,977,935)		(2,786,048)		(4,831,375)
Total comprehensive income for the period		(2,977,935)		(2,786,048)		(4,831,375)
Loss for the period attributable to:
Non‑controlling interests		‑		‑		‑
Owners of the parent Company		(2,977,935)		(2,786,048)		(4,831,375)
		(2,977,935)		(2,786,048)		(4,831,375)
Basic loss per share in pence	5	(0.3)		(0.4)		(0.6)

 

 

 

INTERIM CONSOLIDATED BALANCE SHEET

AS AT 30 NOVEMBER 2023

 

		30 November		30 November		31 May
		2023		2022		2023
		(Unaudited)		(Unaudited)		(Audited)
	Note	£		£		£
Fixed assets
Intangible assets		1,390,816		460,418		783,037
Tangible assets		1,286,999		604,516		772,681
		2,677,815		1,064,934		1,555,718
Current assets
Stocks		4,743,020		1,638,213		2,958,325
Debtors: amounts falling due within one year		2,418,113		1,820,115		4,501,978
Cash at bank and in hand		3,913,331		7,442,678		6,999,686
		11,074,464		10,901,006		14,459,989
Creditors: amounts falling due within one year		(2,514,085)		(2,047,254)		(1,957,276)
Net current (liabilities)/assets		8,560,379		8,853,752		12,502,713
Total assets less current liabilities		11,238,194		9,918,686		14,058,431
Creditors: amounts falling due after more than one year		(385,772)		(328,853)		(255,183)
Provisions for liabilities
Other provisions		-		(99,080)		-
Net (liabilities)/assets		10,852,422		9,490,753		13,803,248
Capital and reserves
Called up share capital	4	95,101		82,353		94,823
Share premium		19,128,427		13,217,647		19,128,427
Other reserves		5,748,311		5,748,311		5,748,311
Profit and loss account		(15,195,796)		(10,172,534)		(12,217,861)
Share-based payments reserve		1,076,379		614,976		1,049,548
Equity attributable to owners of the parent Company		10,852,422		9,490,753		13,803,248
Non‑controlling interests		-		-		-
		10,852,422		9,490,753		13,803,248