Announcement PDF RNS Number : 0871O Equipmake Holdings PLC 29 November 2024 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"). 29 November 2024 Equipmake Holdings PLC ("Equipmake" or the "Company" or the "Group") Final Results for the year ended 31 May 2024 Equipmake, a market leader in engineering-driven differentiated electrification technologies, products and solutions across the automotive, truck, bus and speciality vehicle industries, is pleased to announce its final audited results for the year ended 31 May 2024. The annual report containing full details will be made available on the Company's website shortly and posted to shareholders in the coming days. Corporate Highlights · During the year the Group strengthened its leadership and talent base as it further rolls out its commercialisation and growth plans: o Nicholas (Nick) Moelders was appointed Chief Operating Officer and a Director of the Company in January 2024; o Anthony (Tony) Ratcliffe was appointed Chief Financial Officer, Director and Company Secretary in April 2024; and o Jinsong Dai joined as VP Sales and Business Development in May 2024. · These additions to the team have a strong pedigree of delivering significant growth in fast moving international technology businesses and they are already positively impacting the business; · The Company raised £4.1 million of new funds, before expenses, from new and existing investors in February 2024 to support future growth initiatives; and · The Company announced a number of significant Tier 1 new client contract wins (including Caterpillar, Rev Group and Textron) as it continues its growth trajectory. Operational highlights The year was transformational for the Group as it scaled its operations in order to deliver greater volumes of business from a range of targeted areas. The Group delivered attractive revenue growth and increased margins from the manufacture and supply of electric vehicle components and full zero emission drivetrain solutions. This is the core strategic growth area for the business as customer traction accelerates with Original Equipment Manufacturers ("OEMs") and Tier 1 suppliers (which are direct suppliers to OEMs). · The largest increase in revenue was from Equipmake's bus repowering business ("Bus Repowering"). This growth was driven by strong demand and a naturally shorter sales cycle. Although there were significant cost challenges leading to a gross loss for this business line, Bus Repowering provided material revenues and, most importantly, it showcases the quality, reliability and practical usability of the Company's products and solutions, which the Company believes has been invaluable in accelerating the interest in the Group's components and drivetrain supply business lines with targeted OEMs and Tier 1 suppliers; · Equipmake was selected by Textron Ground Support Equipment Inc. ("Textron"), a leading US aircraft, defence and industrials conglomerate for the supply and installation of a prototype electric-powered airside de-icing vehicle in September 2023. Following a successful trial an order was placed for the supply of drivetrain kits for two further vehicles; · Equipmake was selected by Perkins Engine Company Limited, a subsidiary of Caterpillar Inc (the world's leading OEM of construction and mining equipment and off highway plant) to leverage the Group's electric drivetrain technology and expertise to develop a motor and inverter for a new offhighway hybrid system, in October 2023. Government grant funding totalling £3.2 million over the 3.5-year life of this project was secured via the Advanced Propulsion Centre; · Equipmake won a development contract with H55, a leading Swiss aerospace propulsion company, for the development and supply of electric motors for use in electric aircraft, in January 2024; · Equipmake won a contract in September 2023 with Big Bus Tours, the world's largest bus sightseeing company, to repower ten double deck sightseeing buses, with a further ten added in January 2024; and · Equipmake won a £2.0 million contract with Golden Tours in February 2024 to install its zero-emission electric drivetrain solution into vehicles in its fleet, with an additional contract awarded post yearend, in June 2024, to supply and install zero emission electric drivetrain solutions in additional vehicles. Financial highlights · Revenue for the year ended 31 May 2024 was £8.1 million compared to £5.1 million in the prior year, a growth of approximately 60%; · Excluding grant revenue, delivery against commercial agreements generated revenue in the year of £7.3 million compared to £4.9 million in the prior year, a growth of 47%; · Revenue from the supply of components and full zero emission drivetrain solutions was £3.0 million combined compared to £2.4 million in the prior year, a growth of 25%; · Revenues from Bus Repowering were £3.9 million, compared to £0.9 million in the prior year, driven by strong demand; · Revenue from Technology, which includes engineering projects consultancy, was £0.4 million compared to £1.3 million in the prior year, the reduction driven by a strategic focus towards only offering engineering services around core products associated with OEM and Tier 1 partnerships, rather than offering bespoke general technical consulting services; · Cash balances at 31 May 2024 totalled £2.5m (FY2023: £7.0m). The Group had no debt, other than in relation to items held under finance leases. Phasing of billing, which was weighted more towards the end of the financial year, meant that receivables balances, at circa £2.5 million, were correspondingly high at the year-end date; · Bus Repowering operations have scaled rapidly during the year. This has resulted in a number of additional unanticipated and under-estimated direct costs and consequently the adjusted EBITDA1 loss was £7.4 million compared to an adjusted EBITDA1 loss of £3.6 million in the prior year; · The Group recognises the labour-intensive nature of Bus Repowering when working at modest volumes, across various platforms and with inconsistent quality in recipient vehicles. Whilst efficiencies continue to improve, this business line incurred material additional staff costs, including temporary labour, in order to ensure deliveries met key customer agreed timelines. Post year-end highlights · The Group announced further traction as it focuses on higher margin Drivetrain and EV Components Supply to OEM and Tier 1 customers, with South American bus manufacturer Agrale; · Following a successful trial and the initial order for the supply of drivetrain kits for two further vehicles, Equipmake signed a Manufacturing and Supply Agreement with Textron; · Equipmake is in advanced discussions with a major automotive supplier in relation to it licencing the Group's functional safety technology and systems integration capability for its commercial vehicle business. The licence agreement has terms currently envisaged, which include a total of $6 million (equivalent to approximately £4.6 million) of milestone payments over the two years following entry into the licence agreement as well as future volume-based royalty revenues. However, there can be no guarantee that terms of this potential licence agreement will be agreed or that this licence, or any other licence currently in the pipeline, will be finalised; · On 25 October 2024, the Company announced details of a £3 million financing round, before expenses, which subsequently closed in early November 2024. Excluding the potential cash inflows if the licence agreement referred to above is signed, the Group has a limited cash runway estimated to approximately March 2025. Further details of the Group's liquidity are detailed in the going concern statement below; · The Group is progressing a number of cost-reduction initiatives and manufacturing improvement programmes, including lower cost battery and component sourcing, and substantially reducing its headcount; and · Tony Ratcliffe resigned as Chief Financial Officer, Director and Company Secretary with effect from 30 November 2024. Adjusted EBITDA1 is defined as earnings before interest, taxation, depreciation and amortisation, and before any non-recurring costs or share based payments charges, if applicable. **ENDS** For further information, please contact: Equipmake Via St Brides Partners Ian Foley, CEO Tony Ratcliffe, CFO Panmure Liberum (Corporate Adviser & Joint Broker) Tel: +44 (0) 20 7886 2500 James Sinclair-Ford / Josh Moss Mark Murphy / Sam Elder VSA Capital Limited (Joint Broker) Simon Barton / Alex Cabral Tel: +44 (0) 20 3005 5000 St Brides Partners (Financial PR Adviser) Tel: +44 (0) 20 7236 1177 Susie Geliher / Paul Dulieu / Will Turner equipmake@stbridespartners.co.uk About Equipmake Equipmake isa UK-based industrial technology company specialising in the engineering, development and production of electrification products to meet the needs of the automotive and other sectors in support of the transition from fossil-fuelled to zero-emission drivetrains. Equipmake is a leader in high performance technologically advanced electric motors, inverters and complete zero-emission electric drivetrains and power electronic systems.Equipmake has developed a vertically integrated offering providing fully bespoke solutions to its customers. The Company is focussed on accelerating traction with OEM and Tier 1 suppliers in relation to higher margin component and drivetrain supply under long-term growth contracts and securing high margin licencing transactions. Key differentiators of the Company offerings are its advanced technology and performance, reliability and adherence to ASIL-D2 functional safety. Equipmake's advanced motor and inverter technology, featuring ASIL-D compliance, are designed to customers' highest Functional Safety standards. With decades of experience in electric drivetrain integration and a dedicated prototype vehicle testing facility, Equipmake can significantly accelerate product development for customers. 2 Automotive Safety Integrity Level ("ASIL") is a risk classification scheme defined by the ISO 26262 - Functional Safety for Road Vehicles standard and is a critical requirement for road vehicles. Of the four ASILs identified by the standard, ASIL-D dictates the highest integrity requirements on the product, which require exceptional rigour in their development. NON-EXECUTIVE CHAIRMAN'S STATEMENT I referred in last year's Annual Report to the route to net zero being firmly on the agenda of many stakeholders and the benefits such a transition could bring. Over the last year we have seen the positive impact to Equipmake of this highest-level ambition, as customers seek out innovative, reliable, safe, and cost-effective products and solutions to achieving the electrification of their vehicle fleets. Equipmake's focus is as a technology leader and manufacturer of highly engineered electric drivetrain products and solutions for commercial vehicles and other demanding applications that require high-performance electrified solutions. What has become increasingly clear is that the effective integration of these products into efficient solutions and Equipmake's functional safety offering are distinct competitive advantages. These advantages are a testament to the heritage and ethos of our Group and enable us to continue to engage with global OEM and Tier 1 partners, who are looking to electrify their current and future product ranges. Over many years, Equipmake has undertaken many hundreds of person years of research and development and has built up significant amounts of know-how as well as a comprehensive patent portfolio. Its product offerings include high quality motors and inverters, as well as full drivetrain solutions, which are gaining solid and increasing traction in the marketplace. Bus Repowering has generated significant early revenues for the Group and has undoubtedly proven a very important demonstrator of our products, showing the reliability of Equipmake's solutions in demanding realworld use. It has been challenging to deliver an attractive margin from this offering whilst volumes are low and there are multiple product variations.. Equipmake's engagement with global OEMs and Tier 1 suppliers has accelerated strongly. The Group's focus is to translate these and other pipeline opportunities into continued revenue growth with attractive gross margins from the manufacture and supply, or licencing, of components and drivetrains delivered against what are expected to be longer-term contracts. Equipmake is now increasingly focussing its commercial scale-up on opportunities in North America and Europe in particular and plans to increase its commercial team to maximise the benefits from these opportunities. We have been pleased with continued investor support as we have secured additional working capital to finance the Group. The Board continues to believe that its current make-up is appropriate to the Group's current needs and to meet its governance commitments, however it expects to build the Board further in due course. The Board is committed to high standards of governance and has adopted the QCA (Quoted Companies Alliance) Code. I wish to thank all staff for their significant efforts in growing the business in the year. I also wish to thank our investors for their support and we all look forward to a very busy and productive year ahead. Clive Scrivener Non-Executive Chairman CHIEF EXECUTIVE OFFICER'S STATEMENT Introduction The financial year ending 31 May 2024 has been another busy year for Equipmake. The Group delivered record breaking revenues, which totalled £8.1 million, a growth of 60% following significant demand for its zero emission electric motors, inverters, drivetrains and Bus repowering offerings. Business Overview The year was a transformational one for Equipmake. Following the Admission to Aquis in July 2022, the Company has continued to aggressively grow its business operations to exploit opportunities in its commercial vehicle markets. The Group has four principal business lines: Drivetrain Supply, EV Components, Technology and Bus Repowering. The Group also undertakes a number of focussed grant funded programmes, designed to build intellectual property and unlock downstream commercial opportunities. As noted in the Chairman's Statement, the core long-term focus of growth and building shareholder value is in securing highly attractive commercial transactions with OEMs and Tier 1 suppliers for the supply of EV components and drivetrain solutions, under longer term contracts. I am delighted to report a 25% revenue growth in the supply of components and drivetrain solutions combined, with an increase in gross margin from 24% to 29%. Whilst Bus Repowering has been a major contributor to revenues, itself showing more than a four-fold increase in revenue in the year, it was disappointing that the direct costs incurred by this business line were materially higher than expected. The Group has since secured a more cost-effective supply of battery and other components. Whilst the Group experienced a number of forecasting, lead time and other procurement challenges, it did not experience the additional supply chain challenges that were seen in the prior year in relation to securing electrical components at the right time and right price. Increasingly, the Group expects to outsource manufacturing where possible and source the more commoditised components at reduced prices, particularly as volumes increase. Market Equipmake is targeting the electric heavy duty and medium duty commercial vehicle markets. This includes heavy duty trucks, medium duty trucks, speciality vehicles such as refuse trucks and ground support equipment, buses, for the transit, tourist and school markets, and off-road construction, agricultural and mining vehicles. This is an addressable market that the Company believes is growing at approximately 28% CAGR and is estimated will be worth approximately $3.8 billion globally by 2035 for motors and inverters alone. Whilst widespread adoption of electric solutions in these markets is estimated to be around five years behind that seen in the passenger vehicle markets, the Board believes that the adoption rates are now poised to dramatically accelerate, in a similar trend to that which started to be seen in passenger vehicles around five years ago. The focus for the Group is now aggressive commercialisation, which is likely to require additional commercial headcount. Offerings Equipmake has invested heavily in what is now an attractive complement of motors, inverters and drivetrain solutions. Equipmake's key differentiators are advanced technology, high performance, reliability, systems integration and functional safety. The high performance and reliability have been positively demonstrated by the suite of different vehicles now successfully operating in the field. Adherence to ASIL-D2 functional safety is a highly prized and, in certain markets or with certain customers, a rare attribute. Equipmake's advanced motor and inverter technology, featuring ASIL-D compliance, is designed to customers' highest functional safety standards. Automotive Safety Integrity Level ("ASIL") is a risk classification scheme defined by the ISO 26262 - Functional Safety for Road Vehicles standard and this is a critical requirement for road vehicles. Of the four ASILs identified by the standard, ASIL-D dictates the highest integrity requirements on the product, which therefore require the most exceptional rigour in their development. Achieving this functional safety is challenging, typically requiring large teams over two or three years with multi-million-dollar project budgets, projects which often cannot be condensed into shorter timeframes however much resource is expended. Whilst clearly a priority in ultra-high volume passenger car offerings, customers can find the economics to achieve this standard in-house challenging for products with volumes of 1,000's or 10,000's of units per annum. Equipmake has secured this compliance following its historic investment and can offer OEMs and Tier 1 suppliers appropriate solutions that include this functional safety. The Group is in discussion with a number of potential customers and partners in relation to providing its solutions with functional safety. Business model A brief description of Equipmake's principal business offerings and models is summarised below: Business line Description Business model and focus EV Components The manufacture and supply of motors, inverters and other high value electric vehicle components. Direct engagement with global OEMs and Tier 1 suppliers. A very high priority, with the ultimate goal of substantial high value mutiyear contracts with global partners and customers. Drivetrain Supply The manufacture and supply of complete drivetrains, including motors, inverters, HVAC, power electronics, control systems and battery packs. Equipmake is vertically integrated to provide a full solution. This is seen as a highly valuable opportunity, generating high margins. The customer will themselves, or with their contractors, install Equipmake's drivetrains in new or used vehicles. Technology Licencing of Equipmake technology - for territories or markets where Equipmake or its partners may not want to address directly. Potential to realise value by selling or licencing non-core intellectual property. Licencing - typically up-front fees, milestone payments then royalties based on future partner sales volumes. Engineering projects - consulting, contract development work undertaken by Equipmake. Bus Repowering Supply of drivetrains plus the retrofit installation into customer's used vehicles. Non-recurring engineering (NRE) spend on projects - typically directly related to particular solutions, charged on a fixed, time and materials or capped fee arrangement. A recent focus providing early revenues and product validation, but given the labourintensive nature, challenging to achieve high margins. Outlook · As Equipmake's market position has strengthened, it intends to focus generally on higher gross margin business lines, principally the supply of EV components and drivetrain solutions and securing high value licence transactions; · Equipmake has established valuable relationships with a number of OEMs, within its EV Components and Drivetrain Supply business lines, a key focus for the Group as it looks ahead. These include Perkins Engine Company Limited, a subsidiary of Caterpillar Inc.; Agrale, a leading South American truck, bus and utility vehicle manufacturer; Textron, a leading US aircraft, defence and industrials conglomerate; Emergency One, the largest manufacturer of fire trucks in the UK; and Rev Group, the manufacturer of speciality industrial vehicles, including fire trucks; · The Group is also in discussions with a number other global OEM and Tier 1 suppliers, in relation to the supply of motors and inverters. They are looking to leverage Equipmake's high performance, differentiated offerings which include functional safety (a much sought after compliance requirement for road vehicles) and system integration expertise; · Bus Repowering has provided meaningful revenues to date and has already successfully demonstrated the quality, reliability and significant benefits of the Group's solutions in real world operation on a wide variety of platforms, helping to accelerate traction with OEMs and Tier 1 suppliers in relation to components and drivetrain solutions supply. As the Group's market position has strengthened and it is securing greater customer interest for its Drivetrain Supply, EV Components and Technology licencing offerings, the Group plans to rationalise its Bus Repowering offering towards a limited number of platforms and vehicles, with the objective of improving overall gross margins. The Group therefore expects the revenues from Bus Repowering to materially reduce in the current financial year. The Group plans to actively encourage the supply of drivetrain solutions, as opposed to offering the full Bus Repowering, to those customers seeking to retrofit existing diesel vehicles with an EV drivetrain; · The Group is also progressing a number of cost-reduction initiatives and manufacturing improvement programmes. These include switching battery sourcing as well as other component level sourcing for inclusion in the Group's product portfolio. Equipmake expects significant cost reduction from batteries and overall cost reductions from a number of initiatives, including substantially reducing its headcount, to benefit gross margins and earnings impacting principally from the second half of the current financial year; · Equipmake has a pipeline of Technology licencing transactions, with one potential licence agreement with a major automotive supplier being particularly far advanced which could, if agreed, provide $6 million (or approximately £4.6 million) of milestone payments over the first two years. However, there can be no guarantee that terms of this potential licence agreement will be agreed or that this licence, or any other licence currently in the pipeline, will be finalised; · In due course, Equipmake intends to further strengthen its commercial team, particularly in the US and mainland Europe, in order to accelerate commercialisation and closely manage key relationships with existing and potential OEM and Tier 1 partners; and · The Board is pleased to see demand across its range of products and solutions but recognises the need to focus aggressively on the most strategically important and financially rewarding of markets, especially given the limited working capital currently available. Overall, the Group remains committed to reaching financial breakeven and profitability as soon as possible and anticipates a very busy year ahead. I look forward to updating shareholders of our further progress over the coming months. Ian Foley Chief Executive Officer CHIEF FINANCIAL OFFICER'S STATEMENT Revenue Revenue for the year was £8.1 million (FY2023: £5.1 million), an increase of 60%. Excluding grant income, the revenue totalled £7.3 million (FY2023: £4.9 million), an increase of 47%. Revenue is summarised across the business lines as below: Drivetrain Supply EV Components Technology Bus Repowering Grant income Total revenue For the year ended 31 May 2024 £'000 For the year ended 31 May 2023 £'000 2,181 846 399 3,854 7,280 788 8,068 850 1,575 1,612 900 4,937 116 5,053 The Group has four principal commercial business lines - Drivetrain Supply, EV Components, Technology and Bus Repowering. In addition, the Group operates a number of grant funded projects. Revenue and gross margin are typically reviewed both before and after grant projects. The principal long-term growth priorities are the Drivetrain Supply, EV Components and Technology business lines. The Drivetrain Supply business generated revenues of £2.2 million (FY2023: £0.9 million) and the EV Components supply business line generated revenues of £0.8 million (FY2023: £1.6 million), together a combined £3.0 million (2023: FY £2.4 million), a growth of 25%. The Technology business line generated revenues of £0.4 million (FY2023: £1.3 million), the reduction largely being caused by the phasing of incidental engineering project work and the inclusion of a £0.3 million licence fee in the prior year. The Bus Repowering business line generated revenues of £3.9 million (FY2023: £0.9 million). This increase in output, which represented the repowering and delivery of 26 customer vehicles in the year compared to five vehicles in the prior year, was driven by significant customer demand. The Group's premises on the Scottow Enterprise Park, which was secured on a flexible lease, became operational in early 2024, facilitated this increase in volume. This business line has generated material revenues and showcased the quality, reliability and practical usability of the Group's products and solutions, which the Board believes has been invaluable in accelerating the interest in the Company's EV Components, Drivetrain Supply and Technology business lines with targeted OEMs and Tier 1 suppliers. Grant revenues totalled £0.8 million (FY2023: £0.1 million), the increase generated by the addition of a second grant programme. Gross profit The overall gross loss in the year was £2.6 million (FY 2023: gross profit £1.2 million). Excluding grant projects, the overall gross loss in the year was £1.9 million (FY2023: gross profit of £1.3 million). The Drivetrain Supply business generated a gross profit of £0.6 million, representing 29% of revenue (FY2023: £nil million, representing negative 3% of revenue) and the EV Components business line generated a gross profit of £0.2 million, representing 28% of revenue (FY2023: £0.6 million, representing 39% of revenue). Together the Drivetrain Supply and EV components businesses generated a combined gross profit of £0.9 million, representing 29% of revenue (2023: FY £0.6 million, representing 24% of revenue), an increase of 5% gross margin. The engineering projects within the Technology business line generated a gross profit of £0.1 million, representing 26% of revenue (FY2023: £0.5 million, representing 37% of revenue), the reduction caused by lower value engineering projects in the year. The Bus Repowering business line generated a gross loss of £2.9 million, representing a negative 76% of revenue (FY2023: gross loss of £0.1 million, representing a negative 13% of revenue). The increased direct costs in Bus Repowering were caused by a number of additional unanticipated and under-estimated direct costs incurred as the Group scaled volumes very quickly in the second half of the year across a number of vehicle platforms and with inconsistent quality in recipient vehicles. Whilst efficiencies have since improved, the business line incurred material additional staff costs, including temporary labour, in order to ensure deliveries met key customer agreed timelines. As previously mentioned, these issues are believed to have been addressed and indeed Bus Repowering is not expected to be a core activity going forward. Grant projects generated a gross loss of £1.9 million (FY2023: £1.3 million), the increase driven by a second grant programme. Grant projects rely on their full costs being partially externally funded so, by definition, should be expected to generate a negative gross profit. Sales, general and administrative expenses Total expenses (excluding cost of sales) in the year amounted to £7.0 million (FY2023: £6.4 million), although the year included non-recurring costs of £1.1 million (FY2023: £0.6 million) and the prior year also included £0.5 million of share-based payments. Excluding these costs, expenses in the year totalled £5.9 million compared to £5.3 million in the prior year. The growth like-for-like of £0.6 million was driven primarily by headcount recruitment as the Group aggressively scaled its operations in contemplation of further revenue growth. Adjusted EBITDA The Board's key measure of underlying business profitability and assessing trends across periods is adjusted earnings before interest, tax, depreciation and amortisation, share based payments and non-recurring costs (adjusted EBITDA). In the year, the Company achieved an adjusted EBITDA loss of £7.4 million (FY2023: adjusted EBITDA loss of £3.6 million). This is an Alternative Performance Measure. This translated to an adjusted EBITDA loss percentage in the year of 92 % (FY2023: 72%). As noted above, there were share based payments in the year of £nil (FY 2023: £0.5 million). Non-recurring costs incurred are highlighted below. Whilst there was significant revenue growth in t