Aurrigo International (LSE:AURR) — Interim Results

0:02 Good morning, and welcome to the AURRIGO INTERNATIONAL PLC interim results investor presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives 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 Keane. Good morning to you, sir.

0:34 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 six 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 Graham Keene, who co founded the company, and presenting alongside me today is Ian Grubb, our CFO, and Lewis Girdwood, our Executive Director of Aviation Technology.

1:33 All four 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. Graham and I formed the company over thirty 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.

2:23 In '14, we realized that a market for autonomous vehicles was emerging rapidly, and that the UK 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.

3:15 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're delivering strong growth from an ever expanding customer base, with some of those shown at the bottom of the slide. We're 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.

4:06 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 revenue shown in the left hand graph increased 160 percent. 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.

4:58 These derived from leads generated from demonstrations of the validated vehicles. Automotive revenues shown in the right hand graph are growing steadily year on year. Half year twenty three increased by 42% compared to half year twenty twenty two. And half year twenty four increased 11% compared to half year twenty twenty three. Just for clarity, I'll point out that the scale on the two graphs are not the same. Autonomous sales for 2024, pounds 800,000 compared to the automotive sales of 3,000,000. This slide shows a summary of the interim results. The gross profit has improved substantially from 700,000 to 1,400,000 through the increase of aviation sales seen in the last slide and on improved automotive product mix for the period.

5:54 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.

6:10 The balance sheet is in a healthy position to support H2 activities. Stock of 2,200,000 includes five auto dolly tugs 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 four vehicles. This project phase will continue through 2024 into the first half of twenty twenty five. Two of the four vehicles have already been delivered and project milestones are being completed.

7:00 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.

7:52 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.

8:41 Our strategy from 2018 has been to transform the current baggage and cargo operations at airports with a totally clean sheet approach.

8:50 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.

9:42 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 Louis 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 dolly tug, which is shown on the slide carrying a single unit load device and towing four ULD's. The ULD can normally hold up to 40 customer banks.

10:29 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 Dolly Tug. Our solution provides faultless, repeated operations, and we have now deployed the auto dolly tug in five airports in total with four in current operations across the three 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 dolly tuck 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 this 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.

11:23 Autosim is a three d digital twin software modeling tool that we use 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 charger 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. AutoConnect is our fleet management cyber secure software platform, which connects between the airport baggage system and our autonomous vehicle fleet. AutoConnect 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.

12:09 This is key to providing the unique end to end autonomous solution we provide, and more importantly, it can support not only on rego 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 £16,000,000 and we have continued protecting our product developments over the last two years, so we expect the IP portfolio to be worth considerably more as of today. Using our auto symptom, 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.

12:58 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 de risk 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 in three sixty degree turns make it the most agile and versatile vehicle available on the market. This has been achieved by the meticulous development of the vehicle over recent years through airside deployments 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 dolly tug to provide a return on investment in under three years.

13:56 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 is a very different proposition to what Tesla or Waymo trying to achieve with full road 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 to our technology and patented capability and we differentiate ourselves through. Fully automated driverless solution from the baggage hall to the aircraft, not the side of the aircraft stand as our competitors can only achieve, Auto Dolly Tug operates right up to the high loader or JCPR.

14:48 The agility of this vehicle is like no other Tug operating today, in 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 three sixty degrees enabling movement at all times regardless of other vehicles on the stand. Auto Dolly Tug 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 tow ULD's, 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.

15:37 And all this only really works for airports if the auto dolly tug 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 Dolly Tug and how the revenue increases over time as the journey evolves. We start with stages one and two, 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 dolly tunnel.

16:20 We then use that information to support our auto SIM development team, who is a separate piece of consultancy to map out the airport and provide the efficiency potential of moving to auto dolly tub and electric autonomous solutions and business case opportunities to self fund the investment. We then move to stage three, single vehicle deployment to demonstrate the auto dolly tug and support that with a specialist deployment team to run the deployment and ensure all opportunities are identified. Stage four is really the move from proof of capability at the airport to operating a fleet of four vehicles supported by the AutoConnect platform, And this increases the revenue streams from deployment, vehicle sales into connectivity, and movement revenues for operating the vehicles autonomously.

17:11 Stage five 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 rollouts 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 two is the use of the Autosim consultancy to support the evaluation and development of the projects. Stage three provides proof of concept and shows the five airports we have so far deployed vehicles in. Stage four, which is our lead customer of Changi Airport, is to move to a four fleet vehicle deployment and AutoConnect platform development.

18:00 And stage five is the growth and rollout of the solution over time as each customer passes their stage four rollout fleet size. 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.

18:24 They 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 two years. Our lead partner is Changi Airport, where we are now in phase 2B of a four vehicle deployment, but let's understand how that has developed to this stage. We first engaged with the airport in November

18:55 2019 as they looked to evolve their baggage handling efficiency and sought AURRIGO to help. In February 2020, shortly before COVID, we agreed a consultancy simulation using Autosim to map out efficiency potentials for the airport. In October 2022, we were awarded a six month contract for trials of Auto Dolly Tug 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 Dolly Tug.

19:31 Through the close partnership and vehicle development, we were immediately awarded the phase 2B contract in May 2024 to implement a four vehicle fleet deployment program worth £2,500,000, including involving the AutoConnect 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, Louis. Our business strategy. Let's look firstly at automotive and then aviation and then financial. 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.

20:30 The company has an excellent reputation, built over thirty years for high quality and right first time products. We were pleased to announce in July a £1,500,000 contract win for a major vehicle OEM starting mid-twenty twenty five and running for two years, and we anticipate further customer wins as projects move from development into product supply. Our aviation strategy is laser focused around three 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.

21:22 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 de risk 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.

22:09 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.

22:57 Strategic partnerships and significant pipeline interest 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. David, Ian Lewis, thank you very much for your presentation. What I'll do is I'll just bring your cameras back up at this point. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just while the company take a few moments through the questions that have been submitted today, I'd like to remind you that recording of this presentation along along with a copy of the slides and the published q and a, can be accessed via your investor dashboard.

23:57 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 and a, that'd be great, and then I'll pick up from you at the end. Yes that's great, thank you very much. Yes, thanks everyone. We've received quite a number of questions, which is great. Let's let's start getting through as many as we can. So the first question which was pre submitted: how many tugs do you expect to be operational at the end of FY24 and FY25?

24:28 I'm going to turn to Lewis just to comment on that if you could Lewis. Yeah. Yeah, No problem at all. Thanks, David. Yes. Obviously, from a from a forecast point of view, it wouldn't be appropriate to give you, absolute tugs, but I think the, sales and customer journey gives you a good flavor as to what we expect. We've currently got three single deployment TUG operations out there at the moment. So we would expect during the course of 2025 that we would like to see those move on to the next cycle as we showed in the customer journey. And obviously with the contract we've got with Changi, we've got four vehicles that will be operating for that contract. And I would hope that that would then move on to the next phase, which would then take that up and multiply that through. So hopefully that gives you a flavor as to how we'll see 2025 developing.

25:19 Thanks Lewis. Next question is another pre submitted question. You don't have enough cash to finance the short term deliveries while maintaining R and D and certainly not to roll out at scale, how will you finance the business? How will you fund a big order? Well that's that's a really good question and thank you for that. Well at the moment, it's difficult for me to comment on all of this, but at the moment we don't need additional funding for the projects that we've already established and announced. And certainly, one of the changes that we've brought about in some of those contracts is improved contract terms, where we've got some proportion of the contract paid up front and we've got very very defined milestone payment gateways which we are hitting and therefore we have a good cash management on those projects.

26:24 And of course a great question how will you fund a big order? Well it's a definition of what a big order looks like and certainly, the norm would be for us to have a proportion of that, paid up front and planned out over a period of time. So at the moment we are not looking for, to fund the business further than what we've got at the moment, but of course what we are doing is constantly reviewing, where we are on inbound inquiries and, and our customers and how they're moving through the pipeline that Lewis was just commenting on. So, hopefully that gives you, gives you an answer on that one. The next question is from Peter M. Thank you Peter.

27:10 I have a couple of questions. You've mentioned non dilutive funding for projects including grant funding. Could you elaborate on the types of projects these grants would support and the expected timeline for securing such funds? Well yes, one of the things we may have read but we haven't articulated in this presentation, up to IPO and past IPO we have consistently applied for grant funding. The majority of that has been in The UK, although we've had grant funding, awarded to us in Australia and in Canada. But a project that we're currently running is the project we've announced with UPS, where we're developing a slightly, revised vehicle that was in the presentation called Auto Cargo and that vehicle is specifically being designed with UPS, for, deployment at East Midlands Airport, which should happen in the first half of next year and, and that is a good example of how we're strategically applying for grant funding to use, funding to develop products that we know will have customer pull. So we're not working on anything that is grant funding, which isn't strategic in terms of how we're moving the business forward.

28:28 So hopefully, that's, that's answered the first part of Peter's question. The second half, and you mentioned that the pipeline for airside solutions has grown substantially, could you provide more details on how you plan to convert this pipeline into confirmed contracts? Well I think we've sort of articulated that in presentation, in terms of the phases that we are taking customers through and that really shows how we've taken Changi Airport for instance from stage one all the way through to stage four and, obviously it's our intention to bring other customers that we have in that pipeline through those stages, and that's literally how we plan to do that. And we know that those stages work because obviously we have Changi leading leading that.

29:22 A question from Rob B. Morning on cash balances and headroom, on cash balance and headroom, do you need additional liquidity? If yes, what options would you consider? Well as I've just outlined, at the moment we're not looking, for additional liquidity. There are obviously a number of ways we we could fund future activities we wanted to, but I don't think it would be appropriate for me to comment more on that at the moment. But of course this an opportunity and if opportunity arises from inbound inquiries or how projects are advancing, then of course we would look at what our options are to move forward.

30:08 Another question from P2C, is the contract, is the Changi contract at full value or have you given them an early adopter discount? Well again, I wouldn't like to comment on that because that's obviously commercial confidentiality, but what I would say is that that that contract is an exciting contract. It's moved Changi into phase four, it delivers four vehicles which will then operate as a fleet and that is an important part of the process to establishing a much wider rollout, not just at Changi, but giving the confidence to other customers in the pipeline and those yet to come into the pipeline.

30:53 So, hopefully that's, that's all I can say on that. And actually the next question again, do you expect the five year Changi timeline to be the norm for future contracts? Well the answer to that is no. There's two things about the Changi timeline. First of all, it was protracted because obviously it crossed over the Covid period and we were very fortunate really with the team at Changi who continued to work with us, during that lockdown period, such that we could continue the development, particularly of the AutoSIM product and in fact it's amazing, how companies can adapt and did adapt to work through Covid and we were one of those companies where we were able to digitally end to end develop that product and, we didn't even meet the Changi team over that period as you can imagine.

31:48 And the second part of my answer to that question is around establishing confidence for the other customers. So we are definitely using Changi, as our spearhead lead customer and everything we're doing with them really de risks the position for other customers in the pipeline, or indeed conversations we're having with customers, with potentials I should say, not yet in the pipeline. So the answer is a confident no, and, what we should see is projects speeding up with new customers coming in the pipeline. Next question from p to c. Where does the Autobus such as the ones in Sunderland stand as priority?

32:35 It sounds as though they're no longer a priority. Well that's an excellent question, because obviously, to get to the point we were beginning to be, looked at as experts in autonomous vehicles in aviation, we actually have to go through a period from 2014 of developing passenger vehicles. Passenger vehicles are still part of our portfolio, but the real focus and we have to focus the business is on the aviation, baggage and cargo handling. I'm I'm pretty sure that, we will come back round to the to the low speed passenger vehicles, particularly at airports actually. There are a number of really nice use cases, both airside and landside, that, that will will use, I believe, autonomous vehicles to carry passengers and indeed employees around the airport.

33:31 So we have that in our portfolio, but I can tell you the priority is absolutely working on aviation at the moment. Question from Julian R, are there any plans to expand your operational footprint beyond the current locations in Singapore, The UK, The US and Canada? Well, that's an excellent question because the reason we have operations in those locations is because really that's where we're driven by the customers. And, and never say never, obviously if there's a customer that drives us, to another location and that we need to set up a team and establish an entity there, then certainly we will we will look at that. But at the moment, we we don't have any plans to go beyond the locations that we're we're already in.

34:21 I think I think we've handled all of the, the questions there and and answered everything. That that's great. Thank you very much for answering the questions you can from investors. Of course, the company can review the questions submitted today, and we will publish those responses on the investor me company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, David, could I just ask you for a few closing comments? Yes, thank you. I'd just like to reiterate my thanks for everyone who's joined us today. We really do appreciate, everyone who's attended today and, this is our first opportunity on the platform and it's a great opportunity for us to, you know, showcase what great work we're doing. As I said in the words we spoke about in the presentation, we've got an exciting dynamic company in what is an absolutely massive market and we have the right technology right now and that market is a pull market.

35:22 So thank you very much for everyone who's attended and, I look forward in coming months to present more information to you with our with our excellent team. Thank you. That's great. Thank you very much for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations? This will then take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of AURRIGO INTERNATIONAL PLC, we'd like to thank you for attending today's presentation, and good morning to you all.