Alexander Melville Chief Executive Officer Tropical Battery Company Limited Has Released The Following Interim Report To Shareholders Q3 Fy2024 (April 1, 2024 To June 30, 2024)

Financial Highlights

For the Quarter April 1 to June 30, 2024

For the third quarter of 2024, we reported exceptional financial results, with gross operating revenue reaching $1.9 billion from $782.8 million last year, an increase of 143.6% year-over-year. This growth is primarily attributed to the 100% acquisition of Rose Batteries in San Jose, California, and the 51% acquisition of Kaya Energy in the Dominican Republic. These strategic moves have significantly contributed to our growth trajectory.

Our gross profit for the quarter was $623.3 million, up 172.6% from the previous year. This indicates higher sales volumes, improved cost efficiencies, and favourable pricing strategies.

The quarter’s EBITDA was $255.1 million, a 272.8% increase year over year, which underscores our ability to optimise cost structures and enhance profitability from core operations.

Net income for the quarter more than doubled to $121.3 million, up 212.5% from last year. This shows our effective expense management and execution of growth strategies. Additionally, our Return on Equity (ROE) for the quarter was 38.7%, reflecting robust financial health and efficient management.

For the 9 Months YTD

Our financial performance saw material growth for the first nine months of FY2024, with gross operating revenue doubling from $2.13 billion in the previous year to $4.27 billion.

Gross profit rose by approximately 104% from $667 million to $1.36 billion. Operating profit has increased 136% from $195 million to $460 million, underlining good operational management and strategic execution. This was supported by notable non-recurring acquisition-related costs of approximately $77 million, reflecting our strategic investments for long-term growth. Additionally, administration, marketing, and selling expenses rose by 74.1%, from $472 million to $821 million, due to expanded operations.

Despite these costs, our Profit After Tax (PAT) for the nine months increased by 65.8% to $220 million.
This financial summary underscores Tropical Battery Company Limited’s year-to-date performance, which is marked by revenue growth, cost management, and profitability. This position puts the company on a solid path toward achieving its long-term financial targets.

The acquisitions of Rose Batteries and Kaya Energy have been instrumental in driving this impressive growth, reflecting the company’s strategic focus on expanding its market presence and enhancing its product offerings.

Industry Update

In 2024, the energy storage and renewable energy industries are witnessing noteworthy growth, driven by healthy investment, technological innovation, and strong policy support.

Energy Storage Industry

The energy storage sector is experiencing expansion, highlighted by a 3.56% increase in companies globally, totalling 13,900, and the addition of 114,000 new jobs, bringing the workforce to 1.7 million.

Investment remains vibrant, with an average funding round value of $84 million across over 5,230 rounds. Technological advancements are robust, with 31,700 patents filed focusing on battery technologies, supercapacitors, and grid storage systems. Notably, prices for lithium-ion batteries and energy storage systems are expected to decrease, benefiting both the electric vehicle and stationary storage markets.

Renewable Energy Industry

The renewable energy sector is also expanding, with a 2.45% growth and an employment surge to 8.2 million globally. The industry sees substantial funding, with over 25,000 rounds recorded and significant technological advancements in modular electrolyser systems, distributed energy resource management, and advanced photovoltaics. Supportive policies and large infrastructure investments are enhancing grid resilience and accelerating the deployment of renewable technologies.

Both industries benefit from the involvement of major investors and a conducive regulatory environment, positioning them as key drivers in the global shift toward sustainable energy solutions.

Strategic Developments

Our strategic acquisitions have played a crucial role in our growth this quarter. The integration of Kaya Energy and Rose Batteries has expanded our market presence and brought in advanced technological capabilities and a wealth of expertise, increasing our team to 185 outstanding members.

We have seen significant improvements in operational efficiencies. Our cost management strategies have been instrumental in achieving higher gross profit and EBITDA margins. The seamless integration of our recent acquisitions has enhanced operational collaborations and efficiency, contributing to our overall positive financial performance.

Key Performance Indicators (KPIs)

Operational efficiencies have seen significant improvements across the board. Our inventory turnover ratio improved from 2.5 to 3.5, and the cash conversion cycle was reduced significantly to 109 days from 148 days, highlighting our enhanced management of working capital.

ESG

Our commitment to Environmental, Social, and Governance (ESG) principles remains strong. We completed essential regulatory compliances and continued our community engagement and environmental stewardship efforts. We collected and recycled significant amounts of plastic and participated in community-enriching activities, including beach clean-ups and educational support.

Our dedication to safety, compliance, and continuous improvement was evident this quarter through several vital achievements. We completed our Jamaica Ferry location’s statutory equipment inspection certification and submitted it to the Ministry of Labour. Additionally, we submitted the renewal application for our Factory Re-registration and successfully underwent a site inspection by the Ministry of Labour.

Our Public Procurement Certification was also renewed, enabling us to bid on government contracts. Our corporate social responsibility initiatives demonstrated our commitment to sustainability and community support. As part of our waste management program, we collected and recycled 166 pounds of plastic bottles, reducing environmental impact. We also collected and exported 203 metric tons of lead-acid spent batteries, filling ten 20-foot containers.

We also supported the Little Einsteins Learning Centre by sponsoring trophies and awards for their graduation ceremony.

Collaborating with Tropical Renewable Energy and the JPS Foundation, we participated in a beach clean-up exercise, underscoring our commitment to environmental stewardship. Additionally, we sponsored Labour Day projects, including a beautification project in Montego Bay and a tree-planting exercise at the Hydel Group of Schools.

Outlook

Looking forward, Tropical Battery Company Ltd. is set on maintaining a robust growth trajectory with a strategic focus on expanding our operations, optimising efficiency, and exploring new market opportunities. Our goal to achieve consistent double-digit revenue growth and elevate PAT above 10% by leveraging our group entities’ strengths and innovative technologies is more aligned than ever.

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Alexander Melville Chief Executive Officer Tropical Battery Company Limited Has Released The Following Interim Report For 2nd Quarter 2024

Overview
Tropical Battery Company Limited experienced a remarkable period of growth in Q2 FY2024, marked by substantial revenue and gross profit increases. This success is primarily attributed to strategic acquisitions, including Rose Batteries in Silicon Valley, California, and Kaya Energy Group, acquired in Q3 FY2023.
The Rose Batteries team’s strength was further enhanced by adding key personnel, including Katey Daniel as the new Customer Success Manager and Noelle Machado as the Procurement Manager, who have made significant positive impacts. Wouter Potman, Rose’s recent Project Management hire, has also made substantial improvements in professionally documenting the status of the development pipeline, reinforcing the effectiveness of the project management strategies.
KAYA Energy successfully navigated public relations challenges and regulatory uncertainties in the renewable energy sector to close several vital deals north of $250 million for the quarter.

Financial Review
The statement of financial position as of March 31, 2024, illustrates a dynamic period of growth fuelled by strategic acquisitions and significant capital investments. The acquisition of substantial new assets and the expansion into new facilities have poised the company for continued success in its market sector. Moreover, the planned deleveraging through an Additional Public Offering indicates a proactive approach to managing increased debt levels, aiming to optimise the financial structure and enhance shareholder value. The overall economic health of Tropical Battery is robust, with strong liquidity and asset bases that provide a solid foundation for future growth and profitability.

Revenue and Gross Profit
During Q2 FY2024, Tropical Battery’s gross operating revenue increased, climbing from $700 million in Q2 FY2023 to $1.5 billion in the current fiscal year, representing a surge of approximately 121%. This significant rise is directly linked to the company’s recent acquisitions, which expanded its market presence and operational scale. The gross profit also reflected this positive trend, increasing from $223 million to $489 million, translating to a growth of 119%. These figures underscore the successful integration of the new acquisitions and suggest an effective management strategy for leveraging new assets to enhance overall profitability.

Expenses and Operating Profit
During the fiscal period, we witnessed notable increases in specific expense categories. Non-recurring acquisition-related costs amounted to $77 million, reflecting the one-time cost of the recent acquisitions. Additionally, administration, marketing, and selling expenses rose from $161 million to $305 million, an increase of 90%. This escalation is due to the expanded operations and the need to support a larger organisational structure post-acquisition.
Despite these increased outlays, operating profit improved significantly by 71%, from $62 million in Q2 FY2023 to $107 million in Q2 FY2024, indicating effective cost management relative to the increased revenue. Furthermore, if we add back the one-time nonrecurring acquisition-related cost of $77 million, the increase in operating profit would be significantly higher.

Finance Costs and Net Profit
Finance costs presented a challenge, escalating by 526% from $16 million to $102 million. This rise was partially offset by increased finance income, which increased from $11 million to $38 million. Net finance costs after adjustments stood at $64 million. These costs notably impacted profit before taxation, which decreased from $50 million to $27 million.

Strategic Financial Planning
Tropical Battery plans to deleverage its balance sheet through an Additional Public Offering (APO) to enhance financial stability and reduce interest costs. This offering is set to raise significant capital and pay down existing debt substantially, which is expected to lower interest costs moving forward and contribute positively to the company’s financial health.

Company Outlook
Tropical Battery Company Limited’s strategic financial decisions have dramatically transformed its landscape over the last six months. The investment in acquisitions and capital expenditures, supported by substantial financing activities, has set the stage for expanded operations and potential revenue growth.
To achieve greater cohesion across the markets we serve — Jamaica, the Dominican Republic, and the United States — we plan to capitalise on the synergies among Tropical Battery, Kaya Energy, and Rose Batteries. This strategy is designed to expand growth opportunities and realise cost efficiencies throughout the group. By synchronising our operations, strengthening our market presence, and leveraging our brand advantages, we aim to develop a unified group strategy that enhances efficiency and increases profitability.

Our approach includes thoroughly reviewing and integrating systems and processes to ensure smooth coordination among the three companies. This alignment is expected to enhance our return on capital employed, drawing on the combined strengths of these distinguished brands to foster growth, drive innovation, and deliver exceptional customer service.

The planned APO represents a proactive strategy to optimise the financial structure and support sustainable development. The strategic benefits of these acquisitions and financial strategies are expected to materialise over the coming periods, potentially leading to enhanced economic performance.

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In the last three months, the ustomised smart battery industry has also made significant strides alongside the broader growth observed in the renewable energy and energy storage sectors. This niche within the energy storage market has been gaining momentum, fuelled by technological advancements and increased demand for personalised energy solutions that cater specifically to unique operational needs that benefit us.

The industry’s development is buoyed by the regulatory and financial frameworks propelling the renewable sector, particularly the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA). These acts have facilitated a surge in investments to enhance battery technology capabilities, including developing intelligent batteries that are more efficient, durable, and capable of interfacing with various digital management systems.

Customised intelligent batteries are increasingly critical components in integrating renewable energy systems. They offer optimised storage solutions that adapt to different scales and types of renewable energy installations. They are vital in applications requiring high reliability and efficiency, such as utility-scale solar and wind projects, where they help stabilise the grid and manage output variability.

Moreover, the drive towards domestic production emphasised by recent policy initiatives has strengthened the supply chain for intelligent battery components. This domestic focus not only aids in reducing logistic vulnerabilities but also supports the U.S. economy and job creation in the tech and manufacturing sectors. As more companies enter the smart battery market, competition is spurring innovation, leading to rapid advancements in battery technology that could further enhance the performance and cost-effectiveness of these systems.

Customised intelligent batteries are increasingly critical components in integrating renewable energy systems.

The customised smart battery industry is well-positioned to capitalise on the growing shift towards cleaner energy solutions. It will play a pivotal role in the green transition while continuing to evolve in response to technological advances and market demands.

Alexander Melville Chief Executive Officer Tropical Battery Company Limited

Tropical Battery Company Limited (JSE:TROPICAL), a leader in innovative energy solutions, is pleased to announce the strategic acquisition of Rose Electronics Distributing Company (Rose Batteries), based in San Jose, California, in the heart of Silicon Valley.

Founded in 1963, Rose Batteries is a manufacturer of specialized batteries for high value industries requiring critical power, including healthcare and aerospace. The company has built a solid reputation for the customized design and assembly of highly reliable batteries providing essential power and charging solutions to a broad range of B2B customers.

The company’s strength lies in its ability to cater to original equipment manufacturers (OEMs), offering customized solutions that supply continuous power in challenging environments. Rose’s approach in providing tailor-made contract manufacturing solutions has redefined industry standards and garnered a loyal customer base supporting stable, recurring revenue streams.

The acquisition of Rose Batteries represents a significant milestone in Tropical Battery’s strategy of diversification into new complementary product lines, market segments and geographies, and reaffirms the company’s commitment to technological innovation and growth in the global energy market. The acquisition was completed through Tropical’s US subsidiary Tropical Battery USA LLC. The purchase price is subject to strict non-disclosure restrictions, however the price significantly exceeds 50% of the market capitalisation of Tropical.

The integration of Rose Batteries into the Tropical Battery group of companies represents much more than simply an expansion into the world’s largest economy; it’s a significant step forward in boosting technological capabilities, innovation potential, and key financial indicators. The acquisition is projected to materially enhance Tropical Battery’s free cash flow, improve its cash conversion cycle, and increase the return on capital, thereby enhancing shareholder value and financial strength.

Rose CEO Itamar Frankenthal, an influential shareholder who has led the company since 2016, will join Tropical Battery as a shareholder and board member, continuing his focus on growth opportunities in the United States. His extensive experience, shaped by his Harvard MBA journey, along with his transformative leadership at Rose, underscores the expertise and visionary approach he will bring to the Tropical Battery group of companies. Rose COO Chris Wunderlich will become the new CEO of Rose Batteries, bringing a rich blend of experience in management, engineering, operations, and technology.

Following the acquisition of Dominican Republic-based KAYA Energy Group in 2023, and now, the acquisition of Rose, Tropical Battery will focus on integrating and harmonizing these three dynamic organizations to leverage synergies, optimize costs, and explore new growth opportunities across various markets.

“This acquisition reaffirms our commitment to transforming Tropical Battery into a multinational organization at the vanguard of innovative growth in emerging segments driving the transition to more sustainable energy solutions,” commented Tropical Battery Managing Director Alexander Melville.

“The integration of Rose Batteries will position the Tropical Battery group of companies to offer even greater value to our customers and stakeholders than ever before. We are reinvigorated by this next chapter in our growth and passionate about enabling a more sustainable, technologically driven future in the energy sector, while strengthening our financial performance with the support of pioneers in the Caribbean financial services ecosystem like Sygnus Capital, which served as lead arranger in this transaction.”

“Sygnus Capital’s partnership with Tropical Battery for this transformative acquisition reinforces our commitment to delivering innovative solutions that drive the growth of medium-sized businesses throughout the Caribbean,” noted Gregory Samuels, Senior Vice President & Head of Investment Banking at Sygnus Capital Limited. “We believe in empowering local companies to acquire overseas assets, thereby boosting our country’s foreign exchange inflows. This move aligns with our focus on impactful and sustainable investments, while also deepening our longstanding relationship with a valued client, namely Tropical Battery’s holding company, Diverze Assets. Together, we pave the way for growth, innovation, and financial resilience in the energy sector,” Samuels added.

About Tropical Battery Company

Established in 1950, Tropical Battery has become a household name in premium energy solutions in the Caribbean. Listed on the Jamaica Stock Exchange in 2020, the company has diversified beyond its core car battery business into automotive care products, renewable energy and electric mobility as part of its transformation into a diversified energy group enabling sustainability with innovation, technology and exceptional service delivery.

About Rose Batteries

With over 60 years in business, Rose Batteries has emerged as a leading contract manufacturer of specialized batteries for high growth industries driving the adoption of cutting-edge technologies. The company’s dedication to innovation and sustainable practices has positioned it as a vital partner across several sectors, including healthcare, robotics, aerospace and telecommunications.

Jamaica stands at a critical juncture in transforming its transportation sector to achieve both economic resilience and sustainable development. Reflecting on the broader goals within the realms of energy efficiency and sustainability, it becomes imperative to examine the factors influencing Jamaica’s transportation efficiency. As an island nation with a high dependency on imported fossil fuels, Jamaica faces unique challenges that directly impact its transportation sector’s efficiency and sustainability.

External Economic Vulnerabilities

Being economically vulnerable to external factors, such as fluctuations in global energy prices, significantly influences Jamaica’s transportation sector. This vulnerability stems from an over-reliance on imported oil, making the cost of transportation susceptible to global oil market dynamics. Such dependencies not only increase the operational costs of transportation but also hinder efforts towards achieving efficiency and sustainability.

The volatility of oil prices directly impacts the operating costs for both public and private transportation modes, translating into higher fares for commuters and increased expenses for goods transportation. This scenario underscores the urgent need for Jamaica to diversify its energy sources and reduce dependency on imported oil.

Integrating renewable energy sources into the transportation sector could serve as a viable mitigative strategy. Utilizing Jamaica’s abundant renewable resources, such as solar and wind, could significantly reduce the dependency on fossil fuels, thereby insulating the transportation sector from external economic shocks and contributing to enhanced efficiency.

However, transitioning to renewable energy-powered transportation systems involves overcoming a range of structural, economic, and technical challenges. Investments in infrastructure, public awareness, and regulatory frameworks are essential to facilitate this transition.

Societal Consumption Patterns

Jamaica’s high consumption society profoundly impacts transportation efficiency. Choices in vehicular purchases, for instance, are seldom made with energy efficiency in mind. This inclination towards high-consumption models contributes to greater fuel use and increased greenhouse gas emissions, further straining the push towards transportation efficiency.

Addressing societal consumption patterns requires a shift in public perception and behavior towards transportation. Encouraging the adoption of energy-efficient vehicles through incentives and awareness campaigns could play a significant role in this regard. Additionally, promoting public transportation and non-motorized transport modes as viable and efficient alternatives could also help reduce the transportation sector’s overall energy footprint.

Furthermore, enhancing public awareness about the interconnectedness of lifestyle choices, energy consumption, and environmental impact is crucial. Education and outreach initiatives that highlight the benefits of energy-efficient transportation choices could foster a societal shift towards sustainability.

The Government of Jamaica’s role in championing energy efficiency via policy interventions, such as the National Energy Policy and the Vision 2030 Jamaica Plan, plays a pivotal role in steering society towards more sustainable consumption patterns. Regulatory instruments, alongside targets and incentives for energy efficiency, can provide a balanced mix of push and pull factors to drive efficiency improvements across the transportation sector.

Infrastructure and Technology

Infrastructure and technology advancements are pivotal for enhancing Jamaica’s transportation efficiency. The existing transportation infrastructure often does not support optimal energy use or facilitate the deployment of modern, energy-efficient technologies.

Investing in infrastructure modernization and maintenance can significantly reduce energy consumption in the transportation sector. Improvements in road quality, for example, can decrease fuel consumption by reducing vehicle wear and tear and travel times.

Adopting advanced transportation technologies such as electric vehicles (EVs) and implementing smart traffic management systems can also contribute to efficiency. However, such technological transitions require supportive infrastructure, including EV charging stations and integrated traffic management systems.

In conclusion, a multi-faceted approach encompassing policy interventions, societal shifts, and infrastructure and technological upgrades is essential for improving transportation efficiency in Jamaica. Addressing these key factors will not only contribute to reducing Jamaica’s carbon footprint but also pave the way towards a more resilient and sustainable transportation sector.

• Economic vulnerabilities due to reliance on imported oil significantly impact transportation costs and efficiency.
• Societal consumption patterns and preferences towards high-consumption vehicles impede efforts towards transportation efficiency.
• Investments in infrastructure and technology are crucial for enabling the adoption of energy-efficient transportation solutions.
• Government policy and regulatory frameworks play a pivotal role in driving the transition towards more efficient and sustainable transportation systems.