Aurrigo International plc (AURR.L) Earnings Call Transcript & Summary

Good morning, and welcome to the Aurrigo International plc Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received in the meeting itself. However the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, David Keene. Good morning to you, sir.

Good morning. Hello to everyone attending this presentation today. I am really pleased that so many of you have taken the time to join us. We are delighted to be able to share with you our interim results for the 6 months to June 2024. In this presentation, we will give an update on our products, our technology, our customers and our strategy for both the automotive and the aviation divisions. So let's get going with the usual disclaimer, which, of course, you can read at your leisure. Next slide, please. In day-to-day operations, I'm supported by a dynamic, talented and very experienced executive team, which includes my brother, Grahame Keene, who cofounded the company. And presenting alongside me today is Ian Grubb, our CFO; and Lewis Girdwood, our Executive Director of Aviation Technology. All 4 of us have significant business experience. Over many years across both sectors that the company is engaged in, namely aviation and automotive. I would like to quickly remind everyone about the company's history, capabilities and how we arrived at where we are today. Grahame and I formed the company over 30 years ago to design, develop and manufacture advanced products for the automotive industry. And today, that still forms an important part of the company's activities. We work directly with vehicle OEMs and first-tier suppliers and are regarded as a trusted partner delivering high-quality products and leveraging advanced technologies to meet their evolving needs. In 2014, we realized that a market for autonomous vehicles was emerging rapidly and that the U.K. government was prepared to fund innovative companies in this sector such as ours. It was clear, though, to us that the business case for autonomous passenger vehicles was not there. So instead, we looked for other off-road opportunities, which could be achieved at lower speeds and were more tightly defined such as an airport. Our breakthroughs came in 2019 when we were approached by British Airways, part of IAG to produce an autonomous vehicle for them that could carry baggage and cargo around Terminal 5 at Heathrow. And additionally, in 2020, when we started work with Changi Airport in Singapore. Since that time, the company has made significant strides in the aviation sector by developing autonomous vehicle solutions tailored for airport operations. We are now regarded as technology specialists in both aviation as well as automotive. We are delivering strong growth from an ever-expanding customer base with some of those shown at the bottom of the slide. We are accelerating momentum by building exciting strategic partnerships, which we believe will lead to significant pipeline growth and our performance is on track. This is truly exciting opportunity with a huge and receptive market backed by a clear customer business case and the whole of the Aurrigo team are laser-focused on delivery. I'm now going to hand over to Ian to present the headline financial results.

Thanks, David. I'm pleased to report that total revenues increased by 26% in the half year compared to the same period last year. Autonomous revenues shown in the left-hand graph, increased 160% Previously, 2023 revenues were split between autonomous passenger and aviation sales, while the 2024 revenues are purely aviation. This reflects the strategic focus on aviation going forward. 2024 autonomous sales includes completion of a single-vehicle deployment with our lead customer, along with the initiation of additional single-vehicle deployments with other customers, which have all been previously announced. These derive from these generated from demonstrations of the validated vehicles. Automotive revenues, shown in the right-hand graph, are growing steadily year-on-year. Half year '23 increased by 42% compared to half year 2022 and half year '24 increased 11% compared to half year 2023. Just for clarity, I'll point out that the scale on the 2 graphs are not the same. Autonomous sales for 2024 are GBP 800,000 compared to the automotive sales of GBP 3 million. This slide shows a summary of the interim results. The gross profit has improved substantially from GBP 0.7 million to GBP 1.4 million through the increase of aviation sales seen in the last slide and on improved automotive product mix for the period. Tightly controlled costs in line with sales show overheads of 74% of revenue, excluding depreciation or amortization and share-based payments. This compares to 85% in 2023. The balance sheet is in a healthy position to support H2 activities. Stock of GBP 2.2 million includes 5 Auto-DollyTug, and these are being used in contracted deployments already announced. Contracts with new aviation customers now require advanced payments, which help to manage cash along with that generated by the Automotive division. These advanced payment terms are expected to be included in all future contracts. So how do we look for the rest of the year? Our current lead customer moved from a single-vehicle deployment following successful trials into a contract for a small fleet of 4 vehicles. This project phase will continue through 2024 into the first half of 2025. Two of the 4 vehicles have already been delivered and project milestones are being completed. Additional single-vehicle deployments with other customers have started and will run through the rest of the year. These contracts include an Auto-Sim consultancy component, interest for which is gaining traction. In addition to the autonomous growth, automotive continues to perform well and generate cash. I'm now going to hand back to David.

Thanks, Ian. So what are the key problems that our customers and the aviation are faced with right now? Since COVID, the worldwide aviation industry has been recovering rapidly with passenger numbers in 2024 now ahead of those in 2019. However, baggage handling staff laid off during COVID have been difficult to replace, and therefore, shortages are leading to capacity constraints. Additional cost pressures from higher wages, health and safety legislation and environmental accountability have also added to those pressures. Less staff results in poor efficiency with slower aircraft turnaround times and mishandled baggage resulting in a poor customer experience and brand damage. In addition to these issues are significant costs for accidental damage caused by humans running into aircraft and the subsequent temporary loss of that aircraft from operations, again, leading to delays, customer dissatisfaction and brand damage. Let's now talk about how we're providing solutions to those industry problems. Our strategy from 2018 has been to transform the current baggage and cargo operations at airports with a totally clean sheet approach. Working with airports, we have listened carefully to what they would like to do, not what they are currently doing. This approach has enabled us to look at the industry problems with new and innovative thinking. The basis of this new approach is a fully integrated and seamless end-to-end solution for automated baggage and cargo operations airside. Using our automotive technology and our understanding of aviation operations, we have been able to create new and innovative software and hardware solutions, generating significant intellectual property and giving us first-mover advantage and a market-leading position. The problems that the aviation industry is facing that I outlined can be solved right now with our technology. Automation provides a solution to capacity issues, supplementing the staff that are already employed, reducing the cost of expanding operations as passenger travel continues to increase, streamlining movement of vehicles with optimum turnaround times and solving environmental issues from an all electric and efficient autonomous fleet. I'm now going to hand over to Lewis to take us through the product portfolio.

Thanks, David. I'm now going to take you through some more product information. As David says, the solution to the problem we are solving and our main focus is the Auto-DollyTug, which is shown on the slide carrying a single unit load device and towing four dollies. ULD can normally hold up to 40 customer bags. We know that the solution we provide is leading in approach and technology and no other autonomous vehicle operates up to an aircraft like the Auto-DollyTug. Our solution provides faultless repeated operations, and we have now deployed the Auto-DollyTug in 5 airports in total with 4 in current operations across the 3 continents of North America, Europe and Asia, demonstrating our international capability to deliver this solution. We do see other customer-demand-led products that we're able to provide, but the Auto-DollyTug remains our focus for now. Other products such as our Auto-Cargo project with UPS could provide future opportunities for growth. Moving to the right-hand side of the slide, let's talk about the software. As well as providing the latest hardware solutions, we're also a leading software solution provider with products developed specifically to solve problems airports are facing today. Auto-Sim is a 3D digital twin software modeling tool that we used to provide consultancy services to airports, airlines and ground handlers. The software enables us to simulate the complexity of change to introduce electrified vehicles airside and how to plan for charge installations and grid power requirements. In addition, it can assist in the business case for deployment of autonomous vehicles and how these can provide solutions to derisk resource constraints. Auto-Connect is our fleet management cyber-secure software platform, which connects between the airport baggage system and our autonomous vehicle fleets. Auto-Connect manages the deployment and task allocation of all our vehicles to individual inbound or outbound flights to enable baggage and cargo to arrive in a timely fashion. This is key to providing the unique end-to-end autonomous solution we provide. And more importantly, it can support not only our record vehicles, but other manufacturers' vehicles, allowing an airport to run just one single platform for all operations in the future. Finally, and because all these products are developed in-house, we ensure that we protect our intellectual property through patents on both the hardware and the software. These were independently valued at IPO in September 2022 at GBP 16 million, and we have continued protecting our product developments over the last 2 years. So we expect the IP portfolio to be worth considerably more as of today. Using Auto-Sim, we are able to review and understand the complexities of the airside operations and simulate the impact of moving from standard diesel tug operations to electric autonomous tugs. This allows us to understand how scarce airside resource can be deployed to other activities as the autonomous vehicles free up that resource and therefore, derisk the operations resource while upskilling people to operate the control rooms for the vehicles. We provide the leading technology solution for airside baggage operations and the patented differentiators of robotic arms for loading and unloading, right-hand and left-hand sideways drive and 360-degree turns make it the most agile and versatile vehicle available in the market. This has been achieved by the meticulous development of the vehicle over recent years through airside deployment and collaboration with Changi Airport to achieve the right solution, creating unique differentiators to our competitors. We know the technology solution as it is today, is a more expensive solution, but we also know the advantages and opportunities it provides enables an Auto-DollyTug to provide a return on investment in under 3 years. Finally, can I just touch on what we are and what we aren't. Our solutions for airside tightly regulated environments, which operate at low speed and while still challenging, it is a very different proposition to what Tesla or Waymo are trying to achieve with full load going passenger vehicles. The aviation market has a real business case to adopt autonomous vehicles with a very good rate of return, and that's why we are focused solely on this market opportunity. I touched on this on the value proposition slide, but we have true competition differentiation through our technology and patented capability, and we differentiate ourselves through fully automated driverless solution from the baggage room to the aircraft, not the side of the aircraft standards our competitors can normally achieve. Auto-DollyTug operates right up to the high loader or JCPL. The agility of this vehicle is like no other tug operating today and that it's able to operate in the tightest of spaces around the aircraft stand because it doesn't just drive forwards and backwards, but also is able to move sideways, left and right as well as being able to turn 360 degrees, enabling movement at all times regardless of other vehicles on the stand. Auto-DollyTug is the most maneuverable vehicle for underwing operation in the world. Our load size is unique as no other vehicle has been developed to carry a ULD as well as towing ULDs, providing an automatic increase in operational efficiency even if driven manually. Our adaptability of being able to automatically load and unload the ULD from either side of the vehicle completes the unique differentiators. And all this only really works for airports if the Auto-DollyTug can operate in heavy rain or snow, allowing the operation to continue unlike today, and therefore, provide a more resilient and faster recovery of the operation in the future. Let's move on to the sales cycle, demonstrating the customer journey and our current customer pipeline evolution. This slide helps us to demonstrate the customer journey for the implementation of the Auto-DollyTug and how the revenue increases over time as the journey evolves. We start with Stages 1 and 2, where we provide a consultancy-based engagement with the customer to deliver the safety case and operational engagement for deploying and evaluating routes for operating the Auto-DollyTug. We then use that information to support our Auto-Sim development team, who is a separate piece of consultancy, can map out the airport and provide the efficiency potential of moving to Auto-DollyTug and electric autonomous solutions and business case opportunities to self-fund the investment. We then move to Stage 3, a single-vehicle deployment to demonstrate the Auto-DollyTug and support that with a specialist deployment team to run the deployment and ensure all opportunities are identified. Stage 4 is really the move from proof of capability at the airport to operating a fleet of 4 vehicles supported by the Auto-Connect platform. And this increases the revenue streams from deployment, vehicle sales into connectivity and movement revenues for operating the vehicles autonomously. Stage 5 then flow easily into a ramping up of the vehicles with a controlled in-house training of the customers' own teams to operate and develop the rollout of the project while still providing close consultancy and support. We have a strong pipeline of customers we are engaged with, and these are very much becoming inbound driven rather than pull, which supports our lead position in the technology solution we provide. Stage 2 is the use of the Auto-Sim consultancy to support the evaluation and development of the projects. Stage 3 provides proof of concept and shows the 5 airports we have, so far, deployed vehicles in. Stage 4, which is our lead customer of Changi Airport is to move to a full fleet vehicle deployment and Auto-Connect platform development. And Stage 5 is the growth and rollout of the solution over time as each customer passes their Stage 4 rollout fleet signs. We're extremely proud to work with some of the world's leading and respected aviation partners. These partners provide us with a number of different benefits as they assist us in ensuring our aviation airside solutions are the right solutions across the industry and are not unique to one airport or customer. These partners also collaborate closely with us supporting introduction to other airports through their extensive network of partners and investments, which are clearly significant, as you can see from the number of airports associated with them. They also work closely with us by supporting customer visits to view the technology in a live operation such as Changi who have provided this over the last 2 years. Our lead partner is Changi Airport, where we are now in Phase 2b of a full-vehicle deployment, but let's understand how that has developed to this stage. We first engaged with the airport in November 2019 as they look to evolve their baggage handling efficiency and sought Aurrigo to help. In February 2020, shortly before COVID, we agreed a consultancy simulation using Auto-Sim to map out efficiency potentials for the airport. In October 2022, we were awarded a 6-month contract for trials of Auto-DollyTug in all weather conditions. This eventually extended out to April 2024 as both the vehicle and the solutions changed during the trials, which has enabled us to completely redesign and provide the solution we have today, Auto-DollyTug. Through the close partnership and vehicle development, we were immediately awarded the Phase 2b contract in May 2024 to implement a full vehicle fleet deployment program worth GBP 2.5 million, including involving the Auto-Connect platform development and an integrated solution at the airport, including a full cybersecurity independent review. Once this completes, we will then look to roll into a full commercial rollout of vehicles to extend the autonomous operations at the airport, obviously, subject to full sign-off and agreement. I'm now going to hand back to David.

Thanks, Lewis. Our business strategy, let's look firstly at automotive and then aviation and then financials. Our automotive strategy is clear and focuses on organic revenue improvement from new and existing customers with an objective to increase margins and generate maximum cash to support the overall business. The company has an excellent reputation, built over 30 years for high-quality and right first-time products. We were pleased to announce in July a GBP 1.5 million contract win for a major vehicle OEM starting mid-2025 and running for 2 years, and we anticipate further customer wins as projects move from development into product supply. Our aviation strategy is laser-focused around 3 key objectives: Firstly, continue to drive pipeline growth by raising the profile of the company at strategic airport industry events around the world, promote our company and senior team as thought leaders in emerging autonomous technology and solutions. Secondly, accelerate customers through the pipeline stages by leveraging our current strategic partnerships and customer deployments. And finally, use our long-standing experience of delivering complex and technically challenging projects in automotive to derisk adoption for our new aviation customers. Our financial strategy builds on our existing tight fiscal controls with the following additional priorities. Firstly, automotive growth continues to provide cash to the group. Secondly, aviation growth based on customer projects and containing upfront payment terms to improve cash flow. Thirdly, as aviation hardware volumes increase, costs will be driven down and margin improved. And finally, a determined focus to move to cash flow positive as soon as practically possible. So to finish, let's review some of the key highlights. Next slide, please. Strong revenue growth from aviation sales is now starting to come through, underpinned by continued solid automotive numbers, providing cash generation for the group. Our product portfolio of software and hardware solutions for the aviation industry are solving key problems faced right now in the airport and baggage cargo operations. Strategic partnerships and significant pipeline interests are demonstrating the industry's appetite for our market-leading solutions. We now believe we've established a revenue model and commercial strategy that will deliver long-term growth for the company. Aurrigo is an exciting company with the right technology and products for an industry that needs them right now. Thank you, and that concludes the formal presentation, and we can now move to questions and answers.

[Operator Instructions] I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received questions throughout today's presentation. And David, at this point, if I could hand over to you to chair the Q&A, that would be great, and then I'll pick up from you at the end.