Saietta Group Plc (LON:SED), the multi-national business which designs, engineers and manufactures complete electric drive (eDrive) systems for electric vehicles, has announced the signing of a suite of contracts to replace the Joint Commercialisation and Development Agreement with Consolidated Metco Inc, a major global manufacturer and supplier of commercial automotive components.
This will enable Saietta to narrow its near-term focus on immediate revenue generating opportunities in the rapidly expanding global lightweight electric vehicle (“LEV”) sector and especially in Asia, whilst retaining longer-term revenue potential from the US heavy duty sector.
Under the JCDA, announced on 3 August 2022, the parties agreed to cooperate to bring two new products, an in-wheel generator (“IWG”) and an in-wheel motor (“IWM”), to commercial production. The development costs and potential profits were to be split 50:50 between both parties and Saietta would also benefit from a royalty payment from pre-existing intellectual property.
Saietta announced on 7 March 2023 a strategy to reduce costs, review all key relationships and focus on the delivery of major near-term revenue streams from the LEV sector. Although the JCDA has progressed well, the parties have agreed to replace it with asset purchase and licence agreements which fully reflects this strategy.
Benefits of the new ConMet contracts for Saietta
· ConMet and its affiliates will pay Saietta approximately €3.3 million comprised of:
o An upfront cash fee of approximately €2.7 million as consideration for the assignment of jointly developed intellectual property (“IP”)
o A further sum of €0.6 million for an agreed list of machinery and equipment being transferred by Saietta
· Thereafter Saietta will incur no further costs associated with the development and production of the IWG and the IWM which will be 100% borne by ConMet and its affiliates, who will also benefit from 100% of the resulting revenue and profit
· The parties have entered into a licence agreement under which Saietta has granted exclusive and non-exclusive licences over its existing IP in consideration for the payment of 2.5% of an agreed uplift to the product cost of future IWG and IWM sales incorporating Saietta’s licensed IP, capped at €20 million
· All 27 Saietta employees at its Netherlands office who are engaged exclusively on the JCDA project will transfer to ConMet’s affiliate, and facilities related to motor development and testing will be leased by ConMet’s affiliate, thereby reducing Saietta’s annual costs by approximately €2 million
The €3.3 million outlined above will be reallocated to Saietta’s Light Duty eDrive operations. Saietta’s Heavy-Duty eDrive function will move from the Netherlands to its Global Technical Centre in Silverstone, UK. Importantly, Saietta remains free to develop any eDrive products for trucks and buses apart from IWG and IWM for truck hubs.
Of the €2.7 million cash inflow described above, over half represents non-capitalised project costs that meet the criteria of engineering design services and thereby constitute revenue for 2022/23. This has already been factored into market guidance and, accordingly, the Company’s current guidance for FY 2022/23 remains unchanged.
The new arrangements with ConMet and its affiliates mean that approximately £1 million of UK Government grant funding relating to the JCDA project will not be available to Saietta. However, this is fully offset in the first year by the €2 million annual cost savings outlined above and the Company’s ability to accelerate its activities in the global LEV market.
Separately, the Company expects to publish its audited financial statements for FY 2022/23 in mid September
Tony Gott, Executive Chairman & Interim CEO of Saietta, commented:
“To fully exploit the significant and immediate revenue opportunities from selling Saietta’s electric drive technology to manufacturers of lightweight electric vehicles globally, it is vital that we focus our time and resources in that area.
“As such, we have reached a pragmatic solution to restructure the ConMet arrangement given commencement of revenue generation from the JCDA does no longer meet our short-term revenue strategy. This will enable us to benefit from an immediate cash payment and accelerate our activities in the LEV sector where there is greater near-term revenue potential.
“This development is fully aligned with our stated strategy of driving Saietta into positive EBITDA as soon as possible, with a target of early 2024.”
As the JCDA was only created in August 2022, there are no historic reported revenues or profits associated with the agreement.