Saietta Group share price, company news, analysis and interviews

Saietta Group plc (LON:SED) is the topic of conversation when Canaccord Genuity London’s Senior Analyst Alex Brooks caught up with DirectorsTalk for an exclusive interview.

Q1: Alex, what were the highlights from Saietta Group’s FY23 results, in your view?

A1: So, really there are three things. Obviously, these were somewhat delayed results so it’s good to have them out in the first place.

The real highlights are, firstly, there are some new orders. There is an additional order for the Indian joint venture, an additional product line for the Indian joint venture, and the preparation of an additional contract for Sunderland, which is their UK manufacturing hub. So, those were the kind of key operational highlights.

Obviously, financially, the group has been very much in a ramp-up phase over the course of the last couple of years, and hopefully we can come back a bit later to the financial outlook and the company’s stated need for further capital.

Q2: So, the Group announced two new customer product lines since it secured its first order for a major Indian OEM, that was 27th September. What impact will the new customer product lines have on the company, do you think?

A2: Well, what these lines are, these are electric drive systems for two and three-wheeler vehicles, mainly for the Indian market.

There’s one customer, the existing customer, which is a global OEM with large operations in India, and then there’s a second product which is being explored for a different Indian customer.

These are volume awards, obviously, India is a very large market, and remember that the Group makes money on these in two ways; one is from the licence payments, and the other is from its 50% share in the Indian joint venture.

All of these really give confidence in the ability of the company to get further awards, there are multiple other customers in India, and also give us some real visibility on earnings for that Indian joint venture.

Q3: So, just how important is the Indian two and three-wheeler markets to the Group following the order?

A3: I think if you look across their revenue base, that market will be in the very near term more than half of their revenue, the other half will be coming from some UK manufacturing, some of which is for export, and some modest licence payments from a big US customer, ConMet.

In the medium term, that is one of the leading growth markets in automotive, there are more than 18 million two and three-wheelers sold in India annually. The number is growing at high single digits annually, and it’s a market where there is real space for electrification and a real push by those OEMs to move to electric solutions.

Q4: Would you say that the company is now delivering on its IPO vision?

A4: I think if you look back to the IPO vision, the company went out with a plan to sell this innovative axial flux technology motor, which is really about changing the way the coils are oriented in a motor to give it better torque at low voltage. That low voltage is particularly important for the Indian market, where you tend to have a lot of roadside repairs and you don’t really want to be running with potentially deadly voltages in the vehicles.

What they’ve done since IPO is they’ve done a couple of acquisitions, one of those brought inverters, the other one brought a radial flux technology. They also came with some other things as well, which have largely been discontinued or suspended.

The combination of what they’re selling now, which is the electric motor, the inverter, the control unit and the gearboxes, and they can do that either with the relatively higher cost axial flux design or the relatively lower cost radial flux design, gives something which is really attractive to manufacturers.

If you look at what they are selling, what the backlog is for SaiettaVNA, it’s a real mixture of AFT and RFT designs, but it is all eDrive systems, and it’s that eDrive system that’s really the important bit.

Q5: You mentioned the two different eDrive systems, AFT and RFT, can you explain for us the difference between the two?

A5: Radial flux technology is the traditional motor architecture, which is where you have essentially the lines of the coils in the motor, which are in line with the axle of the motor, and then an axial flux is where they’re basically shifted through 90 degrees.

The big advantage of axial flux is that it enables a much, much higher torque at lower speed and it also gives a much more steady motion at lower speed.

What they have developed in axial flux is a set of geometries and a set of manufacturing techniques that really address some of the traditional challenges with AFT motors. What that means is that they’re able to manufacture them at a price point that is appropriate for the Indian market.

If you look at other people doing AFT motors, there’s a couple of other European players, but they’re typically at price points that are triple or more of the Group is able to manufacture. That really has been the core technology for them is this AFT.

Obviously RFT is a lower priced unit for a much lower power, typically a very, very small three-wheeler unit or a small two-wheeler.

Q6: What’s your view of the Group’s strategy to refocus the company on the lightweight eDrive systems?

A6: Well, two of the things that have happened since IPO are they bought some assets from Evergrande in the Netherlands and they bought a manufacturing facility in Sunderland.

What the Evergrande facility brought with it was inverters and gearboxes, obviously both of which are pretty important to the integrated E-Drive system, and what Sunderland brought with it is a domestic UK manufacturing capability, which has really supported their initial order from AYRO.

The key thing that has shifted in the strategy is, as I say, moving from purely being a motor manufacturer to being an integrated eDrive supplier, and those acquisitions have enabled that.

Now, with those acquisitions also came some other activities which frankly have just proven a distraction, and so the joint venture with ConMet to do in-wheel motor manufacturing, there was a truck and bus retrofit business and a marine motor business, all of those are either disposed of or suspended or otherwise not a distraction.

We’re really very much back to the core IPO vision of sales into the two and three wheeler market in Asia, predominantly in India.

Q7: You mentioned earlier the outlook for the company, how do you view its future earnings and its financial health?

A7: Well, obviously the company has put in the full year results, this statement that they are in need of further equity capital by the end of the current quarter, so by the end of December.

If you look at the cash position at the end of August, they were on £1.2 million in cash, they have some recovery that’s possible from things that were bought by the Group that are then going into the Indian joint venture so there’ll be cash upstream into the parent.

The outlook for SaiettaVNA is extremely attractive. You’ve got a business which we think on the basis of the existing disclosed products could easily be doing north of £100 million in revenue, and profitably, and they have a 50% share of that business.

You have the royalty revenues, which come from SaiettaVNA and from ConMet, which is the US manufacturer, which is licensing their technology, and you have an engineering design service business, which is also profitable.

So, you’ve got a set of things that are attractive and the company, the management are giving guidance that they expect to be profitable in the financial year ending March 2025.

Clearly, there is a financial bridge to cross to get there, and that is what the company is very focused on at the moment and frankly, what the focus of my organisation is right now.

Saietta Group plc (LON:SED) Executive Chairman Tony Gott and Chief Financial Officer Steven Harrison caught up with DirectorsTalk for an exclusive interview to discuss a new Letter of Assignment, what it means for the group & its shareholders, progress with small commercial vehicles, the signing of a suite of contracts, and the outlook for the company going forward.

Q1: First off, Tony, a couple of weeks ago you announced a new Letter of Assignment for a third vehicle line with an existing Indian client. Can you tell us about this third line and what’s being produced?

A1: It’s very significant for Saietta this, we’ve been working with these clients on the introduction of our Axial Flux e-drives for two platforms. This latest announcement really is a tremendous, huge endorsement of the state of that original programme and also our capabilities in a related sector.

So, for us, we’re super pleased about it because everything is going on the right tracks, at the right time, with the approval of the client.

This latest one features Radial Flux Technology, we have integrated inverters complete with transmissions etc., and that takes us into a slightly different product range, it’s a light duty vehicle that is for personal us.

It significantly demonstrates to the Indian market our Radial Flux Technology as well as our previous Actual Flux so very important for us to be able to demonstrate the capabilities of that system also in that market. We also see it as a huge endorsement and validation of the work we’re doing with the OEM.

Q2: What does it mean for the Group and for shareholders?

A2: The shareholders here, we’re moving into a market which is bigger, nearer and more certain that ever before so that enables us to deliver increased shareholder value sooner, basically.

That’s the reason why this is an important signal I think to shareholders that our strategy is now crystalising in our chosen market and chosen sector and it’s coming to us, as I said, sooner, bigger and more certain that ever before.

Q3: Are you still on track for the first projects for the two small commercial vehicles?

A3: Again, this further endorsement is a clear sign that everything is on track.

Importantly, our new manufacturing facility in Gurugram in Delhi is in the last stage of completion of fit out. Gurugram, by the way, is the home of Google, Meta, Hyundai, JLR, a lot of our supply chains and customers.

That is progressing very very well, machinery is going inside the factory as we speak, and the technical programmes, those vehicles running round at the client’s premises all successfully.

The programme delivery and the supply chain is all progressing well, the supply chain is in place, and it’s important to reinforce that our supply chain are all very very large Indian companies, well used to supplying at volume with the quality systems required by an OEM.

So, the whole entity is now coming to fruition in India to supply units from now onwards.

Q4: You also announced the signing of a suite of contracts to replace the joint commercialisation and development agreement, how has the agreement changed and what does it mean for the Group now?

A4: This is a strategic move. As you might remember, in November ’21, we acquired a company called e-Traction, that brought into the company some specific technologies in heavy duty motors and high voltage controllers. The IP sits now within the Group and is held with our technical teams in Silverstone.

November last year, we signed the agreement with ConMet to leverage that background IP and move it into new products in-wheel generator, in-wheel motor. Since then, the project’s gone really well, progress has been really good.

For us though, we were aware that the time to market for these products was moving to the right in terms of getting the revenue streams in place, and so it was our decision, our Board’s decision, to concentrate on the market that is right in front of us, which is light duty market around the world but predominantly in India. To be able to relieve ourselves of the management bandwidth issues that are caused by managing a very completely different market opportunity, which is trucks in the US.

In doing that, we’ve managed to secure a free cash injection for the company which will be applied to our Indian programmes but significantly the IP that we bought for €1.7 million two years ago, now will return back in value to the company to the tune of up to €20 million, as those new products come to market.

So, we’re very happy that we’re taking the right technical decisions moving forward.

Q5: Just turning to your Steve, what does this mean now for the outlook for Saietta Group going forward?

A5: This has been a very helpful move, firstly because it’s obviously brought in some additional funds so it’s €3.3 million of cash coming in, and also because it’s helped reduced the burn rate on our cash anyway, because there’s about €2 million of costs that we now won’t be incurring.

All of this enables us to direct our funds towards expansion in light duty, and the culmination of all these factors is our ability to get to EBITDA positive in the first quarter of calendar year 2024, which is something we’ve stated and this obviously helps us feel much more comfortable with fulfilment of that.

Saietta Group plc (LON:SED) Executive Chairman Tony Gott caught up with DirectorsTalk to discuss the e-drive units order from AYRO, why the deal is so important, why they chose to work with Saietta, building on the recent supply agreement in India and what investors can expect over the coming months.

Q1: Tony, 3,000 bespoke e-drive units, you must be delighted that you’ve managed to secure this order from AYRO. Could you tell us more about it?

A1: We are really delighted on several levels.

To AYRO themselves, we think they’re ahead of the game in providing well thought out thorough e-mobility solutions and I think those are the sorts of clients now that are gravitating to our technology. We’ve been working with them for over a year now, and we’re truly delighted to receive this production order from them, 3,000 e-drives.

Importantly, it starts to prove the demand for our technology is truly global. We’ve reported earlier our major successes in landing contracts  with Indian customers. We also have contracts in place in Europe and now, in the US so over three continents. Our technology is beginning to make real inroads into this very very important market for the future.

So, yes, truly delighted with the order, truly delighted to be working with AYRO and very delighted to be working with a US company.

Q2: Why is the AYRO deal important for Saietta?

A2: I think it’s that global demand, really. You’ve got to imagine that over a few years now, we’ve designed our e-drive systems with a lot of knowledge about the requirements of the market.

Light duty vehicles in urban communities is a market that has fantastic huge potential, and what we’re able to offer is a number of aspects which we think are relatively unique:

• The core of our motor – we’ve said before but bringing Axial Flux Technology to this sector is a very important step. It brings an efficiency level which is really class leading,
• Our transmission – there’s modular transmissions so that we can tune the transmission ratio to any particular clients’ duty cycles and,
• Invertor technology and the software that sits within it.

This means we can optimise the whole e-drive system or any particular usage around the world because we understand how the duty cycle works in the urban environment.

So, for us, this is one example about how our technical group here in Silverstone has been able to optimise the system for AYRO, in this case, and they’re working with a whole host of other clients to optimise the solutions for them also.

I think it’s important to remember for these types of companies that own fleets of vehicles, what’s important for them is the cost per mile, at the end of the day. For us to be able to introduce this technology at a relatively low cost for an Axial Flux motor, the whole system for them, means that they can amortise maybe an increase in price for the powertrain over millions and millions of miles of duty cycles.

Those companies that really understand the market, both the usage and the commercial imperatives that sit behind their business, they can see that we truly have an optimised system for them.

So, I think that’s helping people to understand what we offer; something very different, market-leading in a market that, as I say, has got this huge potential across the world.

Q3: I know you’ve been working with AYRO for a while now, how did the deal come about and why did they initially decide to work with Saietta?

A3: I think it’s the understanding. These companies that are on the button, as it were, they do a good trawl across the world’s technologies and landed upon us, over a year ago. At the time, obviously pleased to say that they saw something that could potentially help them to get their competitive advantage.

We’ve been working with them over that time, a whole host of vehicles have been on the roads now in the US, with our powertrains in them.

It’s the nature in which we work with OEM customers very very closely. The two engineering teams act as one, and the team here at Silverstone are very very used to working at a detailed engineering level with vehicle engineering companies. Most of the engineers here, including myself way back, are vehicle engineers so we understand how the powertrains fit into these vehicles and the requirements for packaging, space, optimisation of chassis and so on. So, we understand all of that and can help them.

So, they don’t need to go and try and source an electric motor from somewhere, electronics from somewhere else, transmission from someone else, they come to us and get the whole package. This is optimised for them both commercially and in the duty cycles they need, that’s what we’re about.

Q4: How does this build on your recent electric vehicle supply agreement in India?

A4: Well, it’s a perfect parallel stream of activity. As I say, we’ve got this tremendous fraction now in India, and the project I can report is working absolutely to plan, where those products will come into the first phase of production in the summer. It’ll be hitting full scale production at the end of the year, just as we’ve announced earlier.

This one as well, it’s another parallel stream. In this case, the motors will be produced from our plant in Sunderland which is also great, and they’re a fantastic process and production engineering team up there. The ones from India will come out of our joint venture in India so were producing in region, and the ones from Sunderland will also go to Europe as well.

So, it fits in with our overall business plan of optimising our assets across the world but really demonstrates that we can supply a number of OEMs now, globally. It’s the start of something quite remarkable, I think.

Just bear in mind that the scale of the market we’re talking about here. Across the world as the urban communities struggle to get environmental solutions for their ‘last mile delivery’ vehicles or waste collection etc, the solutions really is in lightweight utility vehicles that are electrically powered.

In that case, the battery technology fits the end use, our technology is perfect for the actual drivetrain and it’s a market that’s exploding in India. We’re right at the front of that and we expect that to also happen across Europe and the US.

So, we’re at a great place with great products and we’re now physically in the right places around the world to be recognised and noticed and engaged.

I can say AYRO are only one of a number of US clients that the team here behind me in the office is already working within the US, as well as the clients that we have in Europe and India.

Q5: Since we last spoke, the share price seems to have moved up nicely, it’s still got that momentum there. You must be pleased with that?

A5: Yes, we are. However, it’s very different from what it was a year ago so we fully understand that we are in a process of earning our way up in terms of share price.

The announcement a couple of weeks ago with a partner in India, AVTEC, that I think was recognised by the market as a very significant move, certainly is highly significant for us. This one also means we’re opening up a new very large market in the US, we hope that also communicates our confidence moving into the future.

You should expect over the course of the coming months, a whole series of announcements as to what’s happening both with momentum in the US and other projects etc. It’s our mission to keep the investor community very very closely involved with the evolution of this company over the next few months and years.

I think it’s going to be an exciting rise and we’re going to be very proud every time we come on screen to give people the latest information of the journey. I know there’s things coming along and hopefully they’ll come to be realised in terms of contracts, agreements and so on. The moment they do, we’ll be here to tell you all about it.

Saietta Group plc (LON:SED) Executive Chairman Tony Gott caught up with DirectorsTalk to discuss their collaboration with AVTEC, what’s driving demand for cost effective EV solutions, production capability in India, validation of their solution, future for the business, targeting other markets and expanding on the eDrive solution product range.

Q1: Tony, this collaboration with AVTEC, it’s a real breakthrough moment for the company. What are the various synergies that working with AVTEC will bring to Saietta?

A1: It’s really very significant and anyone that’s been associated with the automotive industry, especially in recent years, has recognised the importance of a secure supply chain. We’ve all heard stories about computer chips and so being difficult and therefore undermining some of the OEMs’ performance.

In setting up our operations in India, it’s critical for our experience to get that supply chain in place, and so today with this announcement, we’re super proud and pleased to be working in partnership with AVTEC.

For those that don’t know the company, they’re the automotive division of a very very large company called CK Birla Group, also centred in India but global. CK Birla are a $2.8 billion Indian multinational conglomerate, massively important in many sectors, and AVTEC is their automotive division, again based in India.

They supply a vast array of components including transmissions, which is our relationship with them, to basically all the famous names in the world for global OEMs, so BMW, Ford, General Motors, Daimler Benz etc.

So, we’re so proud and really think it’s a fantastic relationship we have with AVTEC now on two levels really i), just as a pure supplier of a major component of our eDrive systems in India, which is the transmission unit, and ii) as a partner in onward marketing of our eDrive systems across those OEM clients.

To be alongside a company which is so trusted as AVTEC, in India, is a really important foundation stone for our growth in India. It’s brilliant news! You could say ‘Ok, they’ve got a supplier’ but actually in the automotive world, this is very significant.

Q2: Your eDrive solution puts you now right at the heart of the revolution in lightweight eMobility in India. What’s been driving this enormous demand for a cost effective EV solution that’s also ‘Made in India’?

A2: ‘Make in India’ is v important – that’s a national directive within the country and of course, there’s tremendous advantages for us as a company, hence the joint venture with Padmini, another very powerful supplier in the Indian market.

First of all, what makes us in a great place?

Firstly, the technology that we’re using now in India: our Axial Flux motor has some extraordinary performance characteristics. It’s high torque at low revs and low voltage which means it’s very very high efficiency on the urban cycle, and more importantly, it’s at the right price. So, for us, this is a breakthrough technology. That is why we launched the company onto the AIM market in ’21 and therefore, the base performance of our electric motor technology brings a real competitive advantage in the market.

In addition to that, we supply not just the motor but the invertor and the transmission and the vehicle control unit, the VCU – all four components of an eDrive. Very very few companies globally have the ability to supply all four of those as a complete system into the OEMs. So, these things set us apart from others, and it’s also about timing. This last year, for the first time, 1 million vehicles went electric in India. By 2030, by various consultant analysts, the volumes are scheduled to grow to anywhere between 10-15 million vehicles a year moving to electric new vehicles every year. We’re right in this beautiful, sweet spot now, being at the start of that growth with some technology which has some real advantages.

On the back of the major contracts we announced late last year with a global OEM operating out of India, we then we have a further 11 new enquiries from other major OEM companies – those that you have heard of, but I can’t mention, and we’re in detailed commercial discussions, timing and technical discussions. They’re very very interested in seeing how we might be able to help them in the future, from our new factory which is now being created in India.

So, for many reasons, whether it’s tech, market position, supply chain partners, it’s all coming together in a cohesive way for us to take advantage of that very exciting time.

Q3: You’ve talked about demand there, just in terms of meeting the domestic demand in India, could you talk us through the production capability?

A3: It’s coming together now. We’re heading towards the next few months; 2/3/4 months’ time, the establishment of the full manufacturing capability in our joint venture in India.

The production lines are now designed, the capital equipment procurement is now beginning to start, site selection has happened, teams are in place, and therefore, our pre-production ramp up is now all planned. Again, with the benefit of having these very very trusted capable supply chain partners in place that underpin all of that.

Importantly, I think it’s also interesting to recognise the benefits of having our team in Sunderland, experts in electric motor manufacturing, and the most difficult item to make new in India is what we call the ‘stator’. It’s the thing at the heart of our motor which is very complex and requires very sophisticated manufacturing techniques to make, at low cost. All of that process has been in pilot production in Sunderland.

We’re now at a cycle time of around 34 minutes per motor up there, and motors are going on the shelf, in stock, to be able to guarantee the supply of that highly technical part to the first production call in India.

So, those parts will be made in India as soon as we can feel safe that the technology can now be shipped across but every possible way of mitigating any risk to the start- up of production is already underway. So, things are looking really good and there’s no key concerns at the moment in that process.

What we want to be able to do is to come back to you now over the next few months, very regularly, to bring people on board in this exciting process that’s building up to the product launches which will happen mid-summer. It’s going to be a great thing to watch happen now, I think, and we would like to include everybody in that.

Q4: You have also announced a first contract supply to a leading OEM in the Indian lightweight market. It’s a very encouraging validation of the demand for your solution.

A4: Yes, it’s absolutely critical. When the company floated, it had some tech, and it thought it was correct for this market. We understood the market potential was there and so on, but we needed to  prove to everybody that that was really all true. So, the agreement with this global OEM, operating in India, is a complete validation.

This is a large contract for a flagship product. They’re very proud to be associated with it and I think we’ll see in the launch of the product later in the year, that they’ll be featuring the eDrive as part of the product. It’s a very special part of it so we’re super proud.

To have that validation of us, as a company and our approach to the market through the joint venture and supply agreements is massively important, and we hope it’s the first in a series of dominos which will then fall over for other people to take advantage of what we can offer them.

Q5: What are your thoughts for the future of the business?

A5: Well, I think its focus is in our core technology and our core markets, which is India. We’ve always felt that the mass transition of electrification of vehicles will really happen from East to West. We, here in the West, naturally think of normal passenger cars as a leading part of that transition but in actuality, the market for vehicles really is, the huge volume of it, comes from the lightweight sector in an urban environment.

Remember, our mission was helping to clean up the air in the world’s major cities. India has five of the most highly polluting cities in the world and therefore, there’s a huge government and national movement to help create the solutions for that. They’re all lightweight vehicles over there really. It’s a dominant sector, and they’re all going electric so the potential is enormous so that’s our focus in India.

We also have opportunities in heavy duty, and we announced last year a joint development agreement with a major American company on that to produce some new technology which would help the transition to electrification of heavy duty vehicles in that market. That’s going very well as well.

Also in the marine sector, we still face a great opportunity with that, and we’re going to putting extra focus on that over the coming months, to get that going in Europe.

So, we have existing projects and clients now in the three continents, major ones in Asia, growing ones in Europe and the US for our Axial Flux technology. We also have opportunities which are going very well with the joint agreement on heavy duty, mainly focused in America.

So, those angles are all very positive for the business moving forward.

Q6: You mentioned a domino effect that you were hoping for and a pipeline of enquiries. Should investors anticipate that Saietta will target other markets with this solution, and perhaps expand on the eDrive solution product range?

A6: Yes, in time we will. At the moment, we need to really establish our presence in the market through delivery so we’re very conscious that over the next few months, we’ll involve people in the final delivery of major volume supply in that market.

That’s the first step and without concentrating and dreaming too much on the next step, that it the important thing now for the business to achieve. I’ve got great confidence that will be achieved without problem. Once we’ve achieved that, then the other opportunities will, I suspect, fall into place because the demand is so high.

So, it’s now beginning to really transition from an R&D company into a true manufacturing turnover growth business. Our EBITDA is forecast to go positive for the first time in the very early part of next year, and then the company is on a really substantial self-determining growth.

So, that first step is to make sure that’s done professionally, and in the meantime we’re in discussion with a whole load of other people. I’d be surprised if we weren’t able to announce another one or two major contracts this year in our major target market in India, alongside other developments that are maybe a bit more organic.

When we do announce those things, another part of the business strategy is we’d like to be in a position where we can announce that they’re fully funded as well, so that the business is then really stabilised and growing very strongly in a hugely potential growth market.