Interim Results

RNS Number : 1385N

Invinity Energy Systems PLC

28 September 2021

 

This announcement contains inside information

28 September 2021

Invinity Energy Systems plc

("Invinity" or the "Company" or the "Group")

Interim Results

Invinity Energy Systems plc (AIM:IES), leading global manufacturer of vanadium flow batteries, is pleased to announce its unaudited consolidated results for the six months ended 30 June 2021 (the "Period").

Invinity's management team will host a virtual results presentation and interactive Q&A for shareholders on Thursday 30 September at 5 pm (UK Time). To register to join the session, please do so via the registration page. Please note the deadline for registration is 23:59 (UK Time) on Wednesday 29 September.

HIGHLIGHTS

Financial 

• Operating loss of £8.8m (H1 2020 £5.0m)
• Inventory build-up of £8.6m (H1 2020 £0.1m)
• Cash at 30 June 2021 £10.9m (H1 2020 £4.5m)
• Loans and borrowings £nil (H1 2020 £0.9m)

Operational

The Period saw successful deployment of capital raised in December 2020 to scale up Invinity's manufacturing and organisational capabilities and progress with the delivery of key strategic projects. Highlights include: 

• Expansion of Invinity's global manufacturing capabilities leading to a 100% increase in capacity.
   
• Despite ongoing global supply chain disruption, significant progress toward the delivery of more than 16MWh of key projects including:

o	5MWh Energy Superhub Oxford project - currently in commissioning phase and scheduled for completion in Q4 2021. First stage of commissioning expected to complete within weeks.
o	0.8MWh Scottish Water project - currently in delivery phase, shipping expected to commence in early Q4 2021.
o	1.8MWh Flow + Hydrogen + Tidal project, Orkney Islands - manufacturing phase nearing completion, delivery scheduled to commence during Q4 2021.
o	8MWh Yadlamalka Energy solar-plus-storage power plant, South Australia - manufacturing nearing completion, shipping to site scheduled to commence later in Q4 2021. Delivery remains contingent on the customer's receipt of local construction approvals, which management have recently learned may require more time. Due to this delay, Invinity anticipates that the site may not be ready to receive delivery of product until early 2022. Further updates in respect of this project's timeline will be provided in due course.
o	Various other projects for delivery across the USA and Asia totalling 1.5MWh are in the final stages of manufacturing with delivery expected to take place during Q4 2021 and early 2022.

Commercial

Further to figures presented in the Group's 2020 Annual Report, the Group's latest commercial opportunity pipeline as at 14 September 2021 is summarised below.

	Base	Upside	Pipeline
14 September 2021	18.8 MWh	38.4 MWh	262.6 MWh
17 May 2021 (FY2020)	10.1 MWh	30.8 MWh	232.0 MWh
23 September 2020 (HY2020)	13.7 MWh	36.4 MWh	68.9 MWh
Year-on-Year Change	+37%	+5%	+281%

Movements in the commercial opportunity pipeline primarily reflect a significant increase in both the number and average size of prospective projects that have been qualified by Invinity's Commercial team over the course of 2021, driven in large part by significantly increased inbound interest in the Group's products and solutions. The number of opportunities categorised as either "Upside" or "Base" has increased 40% since May 2021, whilst early stage "pipeline" interest has continued to grow steadily, up 13% over the same period.

Invinity remains encouraged by the volume of opportunities that have progressed from "Pipeline", representing opportunities that have met certain qualification thresholds, to the "Upside" (expected to enter contracting in the near term) and "Base" (in contracting) categorisations which include deals with significant commercial traction and a high degree of certainty of near-term close.

Key contracts closed during the Period included the 0.5 MWh sale in California to Indian Energy LLC for a project supported by the California Energy Commission announced on 17 May 2021. Cash receipts for milestone payments during the Period totalled £3.2m.

Further information is provided in the commercial update section below.

Outlook

The global need for large-scale energy storage has become clearer and more compelling since Invinity's last report, while concerns about lithium-based systems are increasing, creating a large market opportunity for a utility-grade alternative to lithium storage. The Group is focused on establishing its position as the leading provider of that alternative by developing and delivering the Invinity VS3, our factory-built flow battery product. Overcoming obstacles and delays, the Group has doubled its manufacturing capacity, increased its product and project delivery capabilities, instituted quality systems and scalable processes, and advanced toward completion of signed projects.

Perhaps most significantly, the Group has entered into a Joint Development and Commercialisation Agreement with Gamesa Electric and Siemens Gamesa Renewable Energy to co-develop a next-generation vanadium flow battery able to address projects at utility scale. The gated development process is proceeding with the achievement of the first milestone anticipated before the end of the year. Finally, the Group has been progressing a number of sales contracts, completion of which, management expect to be able to announce soon.

Larry Zulch, Chief Executive Officer at Invinity said:

"We spent the Period building Invinity's ability to address the global opportunities for non-lithium energy storage now and for years to come. This vital 'behind the scenes' work is paying off as we establish Invinity as foremost in providing a factory-built flow battery product, progressing to our goal of being the global leader in utility-grade energy storage. Our VS3 is finally shipping as a standardized product into multiple projects, marking a highly significant inflection point for the Group. I couldn't be more pleased at the progress we've made, the size of the opportunity in front of us, and our ability to address it."

Enquiries :

Invinity Energy Systems plc	[phone]
Larry Zulch, Chief Executive Officer
Peter Dixon-Clarke, Chief Financial Officer Joe Worthington, Director of Communications
Canaccord Genuity (Nominated Adviser and Joint Broker)	[phone]
Henry Fitzgerald-O'Connor / James Asensio
VSA Capital (Financial Adviser and Joint Broker) Andrew Monk / Simon Barton	[phone]
Hudson Sandler (Financial PR) Nick Lyon / Nick Moore	[phone]

STRATEGY UPDATE

During the first six months of 2021, the Group made tremendous advances in its strategic goal of becoming the first battery manufacturer to offer a truly viable alternative to existing lithium-ion stationary energy storage systems. This strategy relies on delivering a modular, value engineered, factory-built product - not a prototype, one-off, custom installation, or experiment - and doing so efficiently and in volume.

It is only when combined with energy storage that wind and solar become a dispatchable asset rather than a periodic, and sometimes unreliable, contributor to global energy needs. As wind and solar take their proper place in the energy infrastructure, they must be matched with utility-grade energy storage. Until Invinity unveiled what we believe to be the industry's first flow battery delivered as a turn-key, factory-built product, battery energy storage with the following four primary characteristics was not available:

1) Safe. Utility grade storage must not pose a persistent fire risk. Invinity's VS3 stores energy in an aqueous electrolyte which simply cannot catch fire. Our products are designed with a "safety in depth" philosophy.

2) Long life. Utility grade energy storage should last as long as the renewable energy products it supports, which is generally 25 years for wind and solar products. The VS3 is designed to have a 25-year lifetime with no limitations on cycling.

3) Economical. The cost per unit of energy stored and discharged must be lower than the alternatives. Based on research, the costs per megawatt hour (MWh) of the Invinity VS3 are anticipated to be less than lithium-ion systems over the lifetime of the battery.

4) Proven. Utility-grade energy storage must be proven in operation in the field. Invinity has over 25 MWh installed or in committed projects. We expect this "proven" quality to be demonstrated upon the imminent completion of Energy Superhub Oxford, the first of a number of projects the Group will complete in 2021.

We don't believe any energy storage battery product without all four of these characteristics can accurately call itself utility grade. In this ability, Invinity stands alone.

Certainly, the timing is right to make utility-grade energy storage available to the global market. In many of today's largest energy markets, renewable penetration is currently constrained by the inability to use all the energy produced when the wind is blowing and the sun is shining, coupled with shortages when they are not. The UK, for example, will require a three-fold increase (an additional 200 GWh) to its grid capacity alone by 2050 to meet its renewable targets. Utility grade energy storage is expected to deliver a large proportion of this.

The amount of lithium needed to support the electrification of transport will impact global supplies, reducing its availability for the stationary storage applications where it would be in direct competition with our flow batteries. Finally, increasing scepticism about so-called "Blue Hydrogen" has propelled interest in "Green Hydrogen" made from renewable energy, which requires energy storage to provide a consistent electrical supply to the electrolysers as demonstrated by the Group's announced project with EMEC, the European Marine Energy Centre, which uses tidal power, smoothed by our vanadium flow battery, to create Green Hydrogen.

Preparing the Group to properly meet this global opportunity for stationary energy storage has been management's primary focus. Overseen by a team with exceptional experience in flow batteries and energy storage, the Group has deployed capital raised in December 2020 to add employees in product development, project management, quality systems, supply chain, manufacturing operations, customer solutions, logistics, and more. We have instituted systems, processes, and procedures to support the GroupÕs ability to scale including progress toward ISO certification. Plus we have efficiently built product now held as inventory which will imminently convert to revenue.

The Group has been addressing ever-larger commercial opportunities, progressing from hundreds of kilowatt hours (kWh) to multiple megawatt hours (MWh). But to properly meet future global demand for energy storage alternatives to lithium systems, the Group must be able to address requirements measured in 100s of MWh and even in gigawatt-hours (GWh).

Projects of this size are the goal of the Group's recently announced Joint Development and Commercialisation Agreement (JDCA) with Gamesa Electric and Siemens Gamesa Renewable Energy, leaders in grid-scale power systems and wind turbines. Together, Invinity and Gamesa Electric are developing the next generation of vanadium flow batteries with an unprecedented ability to scale to meet the largest, most significant requirements in the transition to a renewable energy future. The joint development process progresses as a sequence of defined milestones, the achievement of the first of which is expected by the end of 2021. The Group has devoted considerable resources to this effort and anticipates this commitment to continue for the two years of joint product development and the many years thereafter of joint commercialisation.

The Group's efforts toward building a robust product and a scalable organization will see its first external expression in Energy Superhub Oxford and other projects the Group will deliver in 2021. Like many companies over the past 18 months, we have had to overcome significant obstacles in completing and delivering our VS3 product. While the well-publicised global chip shortage, supply chain disruptions, shipping issues, and component delivery delays have put all our projects behind their original schedules, the Invinity team has persevered and solved the issues, emerging stronger and more confident than ever.

Everyone at Invinity is focused on realising the objective of being the flow battery leader. Indeed, we believe we are at the forefront of providing an alternative to lithium systems for stationary battery storage, we are deploying a compelling product, our market potential is of a very significant magnitude, our team is experienced and dedicated, and we enjoy the support of our shareholders and investors. We can't wait to show you what's next.

COMMERCIAL UPDATE

2021 has been a year when energy shortages and grid disruptions, from Texas to the UK, have repeatedly been front-page news. Universally one of the best responses to instability is to build resilience, meaning the addition of assets to the grid that can overcome supply shortages and extreme weather. This has generated significant discussion in our industry on the technical solutions and business models that can be deployed in response. Few mature energy storage solutions can deliver the same resilience and flexibility to the electric grid as Invinity's safe, robust and economical vanadium flow batteries.

As our market presence matures, Invinity is seeing an ever-larger number of industry players adopt exactly this view. In the days following the recent "thermal event" at a major battery project in Southern California, for example, we saw a tremendous increase in the number of enquiries seeking to understand how Invinity's VFBs can provide an alternative long-duration, high-throughput utility-grade energy storage solution with significantly lower risk.

This growing awareness that our VFBs deliver capabilities above and beyond those of other storage technologies in some of the toughest, heaviest-duty applications is one of the major reasons our commercial pipeline continues to grow. And while we continue to have a healthy group of opportunities which we categorise as "Base" (in contracting) and "Upside" (expected to enter contracting in the near term), our customers, their engineers and constructors, and the professionals who support them continue to manage the disruptions of the last year, slowing the completion of new contracts.

Nevertheless, we remain very positive about the opportunities in the nearer categories of our pipeline and expect that several will close before the end of 2021. There are some very exciting events to come: As stimulus bills focused on infrastructure in the U.S. and elsewhere become written into law, and as our lawmakers themselves gather for COP26 a stone's throw away from Invinity's newly expanded manufacturing facility in Bathgate Scotland, we expect the impetus for existing and new customers to contract for and to construct breakthrough storage solutions using Invinity's VFBs will only accelerate.

Against that backdrop, our commercial opportunities as at 14 September are as follows:

	Base	Upside	Pipeline
14 September 2021	18.8 MWh	38.4 MWh	262.6 MWh
17 May 2021 (FY2020)	10.1 MWh	30.8 MWh	232.0 MWh
23 September 2020 (HY2020)	13.7 MWh	36.4 MWh	68.9 MWh
Year-on-Year Change	+37%	+5%	+281%

As we reported in our 2020 Annual Report, we continue to see an increase in the average size of the opportunities in our commercial pipeline, with the average opportunity value 17% higher than in May 2021. As noted at that time, those larger opportunities tend to introduce complexities that present longer time horizons to close. We are at the early stages of development of even larger and truly exciting opportunities. As Invinity advances our VFBs to fulfil their promise as the first batteries that are utility-grade at utility-scale, we expect these enormous opportunities to become the focus of our future efforts.

FINANCIAL REPORT

The six-months under review have been characterised by scaling up manufacturing capability and expanding the business to service the current and growing future demand for our product. To this end, £11.2m of cash (£15.9m gross of receipts) was deployed in the Period. Of this £15.9m, notably £8.6m was used to build the inventory needed to deliver on our contracts and a further £3.9m to continue building the leading team in our sector. 

Income statement & balance sheet

The result for the six-month period was a loss of £8.8m (against £5.0m loss for the comparative period and £24.3m loss for the prior year). 

With revenue on closed contracts not being booked until commencement of delivery in the second half of this year, the primary drivers of the result were administrative expenses of £5.9m (H1 2020: £4.0m) and other items of £1.9m (H1 2020: £1.0m).  As ongoing product research and development is not typically capitalised, it is included within administrative expenses under the GroupÕs accounting policies.

Other items of £1.9m relates primarily to an increase in the provision for onerous contracts, which is mainly due to global cost increases in the supply chain being experienced by all manufacturers over the last twelve-months, particularly for shipping from China, which, for example, increased six-fold from approximately $3,700 to $21,000 per 40-foot container from China to Europe.

As planned, we have been deploying cash to deliver on contracts and build our ongoing capabilities. The main balance sheet movements have therefore been the £8.6m build of completed and in-process Inventory, a £3.0m increase in contract liabilities representing milestone payments on closed contacts received before revenue can be recognised for accounting, and the £11.2m use of funds (see table below).

Current terms of trade and the need for early orders for long-lead items mean that inventory payments are initially recorded as prepayments within other current assets until the goods or services are transferred to the Group, at which point they are classified as inventory until transferred to the customer. At the Period end, £4.6m of inventory related payments were classified as prepayments and £5.5m as inventory, before allocated contract losses.

Use of funds

A summary of the payments and receipts during the six-month period is as follows:

Payments and receipts	£'m
Inventory (including ESO & Yadlamalka)	8.6
Property, plant and equipment	0.6
Product related expenditure (including R&D)	0.8
Payroll	3.9
Other	2.0
	15.9
Receipts	(4.7)
	11.2

Payroll primarily reflects the investment in human resource within the Group to support growth targets with employee headcount increasing from 103 at the start of the Period to 132 at the end.  The increased headcount has allowed for the creation of a specific Customer Operations department and all but one of the new hires across the Group are product facing, as set out below:

Headcount	1 January 2021	30 June 2021
Operations	20	48
Commercial	17	17
Product development & technology	19	27
Solutions engineering and customer operations	14	26
Other	13	14
	103	132

Receipts include £1.0m from the exercise of warrants under the Riverfort facility and £0.5m of UK Government grants. The £3.2m balance relates to milestone payments on closed contracts. 

Going concern

The Group is debt free and had cash balances of £10.9m and £6.1m at the end of June 2021 and August 2021 respectively. It has closed contracts to the value of approximately £13.5m, of which £5.7m had been received by the end of June 2021 with most of the £7.8m balance expected by the end of June 2022. Most of the inventory payments required to deliver those contracts have already been made.

The Group has a growing pipeline of future sales (see above) with 57.2MWh of potential new contracts in Base and Upside and a further 262.6 MWh in Pipeline. This continued increase has largely been driven by the rapidly improving macro environment, both in terms of total addressable market and active and growing government support in its key markets.

The Group continually reviews its funding position and the funding options that are available to it. Based on this ongoing review and subject to the near-term rate of customer deliveries and new closed contracts, the Group expects to require additional finance within the next six months, assuming the continued rate of growth. The expectation is that additional finance will be available from both equity and non-equity sources or a combination of the two.

Having taken all of the above factors into account, the directors continue to believe it is appropriate to prepare these financial statements on a going concern basis, noting the material uncertainty arising from the need to secure additional funding within the coming months.

Financial outlook

The outlook for the Group remains positive both at a Group level and a macro level.

At the Group level, a further £7.8m of receipts are expected on closed contracts and revenue for most of those contracts is expected to be recognised in the second half of this year.  Site delays (see above) at Yadlamalka mean that the revenue, of about £6.7m, is unlikely to be recognised on that contract until 2022.

At a macro level, the growing imperative for a utility grade alternative to lithium places the Group in exactly the right place to take full advantage both in the near term and beyond.

Unaudited, consolidated statement of comprehensive loss
For the six months ended 30 June 2021

Continuing operations	Note	Six months ended 30 June 2021 £'000	Restated Six months ended 30 June 2020 £'000	Year ended 31 December 2020 £'000
Revenue	3	15	67	406
Cost of sales	5	(756)	(91)	(1,221)
Gross loss		(741)	(24)	(815)
Operating costs
Administrative expenses	6	(5,852)	(3,848)	(9,593)
Other items of operating income and expense	7	(1,856)	(1,047)	(9,822)
Loss from operations		(8,449)	(4,919)	(20,230)
Finance income		-	1	1
Finance costs		(17)	(67)	(2,298)
Loss on foreign currency transactions		(343)	(42)	(1,744)
Net finance costs		(360)	(108)	(4,041)
Loss before income tax		(8,809)	(5,027)	(24,271)
Income tax expense		-	(1)	-
Loss from continuing operations		(8,809)	(5,028)	(24,271)
Loss for the year		(8,809)	(5,028)	(24,271)
Other comprehensive loss
Items that may subsequently be reclassified to profit or loss:
Exchange difference on the translation of foreign operations		26	1,094	(2,162)
Total comprehensive loss for the year		(8,783)	(3,934)	(26,433)

Basic loss per share in pence
From continuing operations	8	(10.1)	(8.9)	(44.3)

Diluted loss per share in pence
From continuing operations	8	(9.58)	(8.9)	(44.3)

The above unaudited consolidated statement of comprehensive loss should be read in conjunction with the accompanying notes.

 

Unaudited, consolidated statement of financial position
At 30 June 2021

	Note	30 June 2021 £'000	Restated 30 June 2020 £'000	31 December 2020 £'000
Non-current assets
Property, plant and equipment	11	1,194	683	695
Right-of-use assets		967	881	1,014
Goodwill and other intangible assets	10	23,868	35,113	24,127
Total non-current assets		26,029	36,677	25,836
Current assets
Inventories	15	3,379	689	905
Other current assets	13	6,965	1,201	1,414
Contract assets	4	2	-	5
Trade receivables	4,12	173	42	33
Cash and cash equivalents	14	10,942	4,503	21,953
Total current assets		21,461	6,435	24,310
Total assets		47,490	43,112	50,146
Current liabilities
Trade and other payables	16	(3,340)	(1,813)	(2,468)
Contract liabilities	4	(5,656)	(970)	(2,644)
Lease liabilities		(240)	(167)	(161)
Provisions	4	(2,462)	(748)	(1,927)
Total current liabilities		(11,698)	(3,698)	(7,200)
Net current assets		9,763	2,737	17,110
Non-current liabilities
Lease liabilities		(514)	(689)	(595)
Total non-current liabilities		(514)	(689)	(595)
Total liabilities		(12,212)	(4,387)	(7,795)
Net assets		35,278	38,725	42,351
Share capital and share premium		163,399	138,544	162,415
Share based payment reserve		4,541	2,969	3,762
Accumulated losses		(130,994)	(102,942)	(122,185)
Other reserves		(1,668)	154	(1,641)
Total equity		35,278	38,725	42,351

The above unaudited consolidated statement of financial position should be read in conjunction with the accompanying notes.

 

Unaudited consolidated statement of changes in equity
For the six months ended 30 June 2021

	Share capital and share premium £'000	Share-based payment reserve £'000	Accumulated losses £'000	Translation reserve £'000	Other reserves £'000	Total £'000
At 1 January 2021	162,415	3,762	(122,185)	(1,680)	39	42,351
Total comprehensive loss for the year	-	-	(8,811)	-	-	(8,811)
Other comprehensive loss
Foreign currency translation differences	-	-	-	(26)	-	(26)
Total comprehensive loss for the year	-		(8,811)	(26)		(8,837)
Transaction with owners in their capacity as owners
Contribution of equity, net of transaction costs	975	-	-	-	-	975
Exercise of share options	9	17	-	-	-	26
Share based payments	-	762	-	-	-	762
Total contributions by and distributions to owners	984	779	-	-	-	1,763
At 30 June 2021	163,399	4,541	(130,996)	(1,706)	39	35,277

	Share capital and share premium £'000	Share-based payment reserve £'000	Accumulated losses £'000	Translation reserve £'000	Other reserves £'000	Total £'000
At 1 January 2020	109,192	2,250	(97,914)	482	(1,422)	12,588
Total comprehensive loss for the year	-	-	(5,028)	-	-	(5,028)
Other comprehensive loss
Foreign currency translation differences	-	-	-	1,094		1,094
Total comprehensive loss for the year	-	-	(5,028)	1,094		(3,934)
Transaction with owners in their capacity as owners
Contribution of equity, net of transaction costs	29,352	-	-	-	-	29,352
Share based payments	-	719	-	-	-	719
Total contributions by and distributions to owners	29,352	719	-	-	-	30,071
At 30 June 2020	138,544	2,969	(102,942)	1,576	(1,422)	38,725

	Share capital and share premium £'000	Share-based payment reserve £'000	Accumulated losses £'000	Translation reserve £'000	Other reserves £'000	Total £'000
At 1 January 2020	109,192	2,250	(97,914)	482	(1,422)	12,588
Total comprehensive loss for the year	-	-	(24,271)	-	-	(24,271)
Other comprehensive loss
Foreign currency translation differences	-	-	-	(2,162)	-	(2,162)
Total comprehensive loss for the year	-		(24,271)	(2,162)		(26,433)
Transaction with owners in their capacity as owners
Contribution of equity, net of transaction costs	31,734	-	-	-	-	31,734
Issue of ordinary shares as consideration for a business combination, net of transaction costs	21,403	-	-	-	-	21,403
Exercise of share options	86	-	-	-	-	86
Fair value realisation on note conversion	-	-	-	-	1,461	1,461
Share based payments	-	1,512	-	-	-	1,512
Total contributions by and distributions to owners	53,223	1,512	-	-	1,461	56,196
At 31 December 2020	162,415	3,762	(122,185)	(1,680)	39	42,351

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

 

Consolidated statement of cashflows
For the six months ended 30 June 2021

	Note	Six months ended 30 June 2021 £'000	Restated Six months ended 30 June 2020 £'000	Year ended 31 December 2020 £'000
Cashflows from operating activities
Cash used in operations	9	(11,497)	(6,032)	(10,885)
Interest received		-	-	1
Interest paid		(1)	(2)	(32)
Income taxes paid		-	(1)	-
Net cash outflows from operating activities		(11,498)	(6,035)	(10,916)
Cashflows from investing activities
Acquisition of property plant and equipment	11	(609)	(202)	(349)
Acquisition of intangible assets	10	(19)	-	(9)
Net cash outflows from investing activities		(628)	(202)	(358)
Cashflows from financing activities
Payment of lease liabilities		(17)	(82)	(163)
Proceeds from the exercise of share warrants		975	-	-
Proceeds from the issue of share capital, net of transaction costs		-	7,350	28,915
Proceeds from the issuance of convertible notes, net of transaction costs		-	-	1,944
Proceeds from borrowings		-	862	-
Acquisition of cash through business combination		-	1,279	1,264
Proceeds from the exercise of share options		1	-	37
Net cash inflows from financing activities		959	9,409	31,997
Net (decrease)/increase in cash and cash equivalents		(11,167)	3,172	20,723
Cash and cash equivalents at the beginning of the year		21,953	1,243	1,243
Effects of exchange rate changes on cash and cash equivalents		156	88	(13)
Cash and cash equivalents at the end of the year		10,942	4,503	21,953

The above statement of consolidated cashflows should be read in conjunction with the accompanying notes.

 

Notes
(forming part of the of the consolidated historical financial information)

1 General information

Invinity Energy Systems plc (the 'company') is a public limited company incorporated in Jersey under the Companies (Jersey) Law 1991. The company's registered address is 3rd floor, Standard Bank House, 47-49 La Motte Street, St. Helier, Jersey, JE2 4SZ. The company is listed on the Alternative Investment Market of the London Stock Exchange with the ticker symbol IES.L.

The principal activities of the company and its subsidiaries (together, the 'Group') relate to the manufacture and sale of vanadium flow battery systems together with associated installation, warranty and other services.

2 Summary of significant accounting policies

Basis of preparation

This unaudited condensed consolidated interim financial information for the six-months ended 30 June 2021 (the 'interim financial information') has been prepared in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union. The financial information should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2020, that were prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

The annual report and financial statements for the year ended 31 December 2020 are available on the company's website (www.invinity.com).

This interim financial information has been prepared using the historical cost basis of accounting. The accounting policies applied across all the Group's subsidiaries when preparing the financial information are consistent with those adopted and disclosed in the annual financial statements for the year ended 31 December 2020. The accounting policies have been consistently applied across all Group entities for the purpose of producing this interim financial information.

The financial information included in this document does not comprise statutory accounts within the meaning of Companies (Jersey) Law 1991. The comparative figures for the financial year ended 31 December 2020 are not the company's statutory accounts for that financial year within the meaning of Companies (Jersey) Law 1991. Those accounts have been reported on by the company's auditors and delivered to the Jersey Financial Services Commission.

The report of the auditors included in the annual report and financial statements for the year ended 31 December 2020 was unqualified. However, the auditors' report did contain an emphasis of matter related to the application of the going concern basis of preparation.

The Group's business activities, together with factors likely to affect its future development, performance and position, are set out in the operations and financial review sections of this report.

The financial position of the Group, its cash flows and liquidity position are described in the financial review section.

Going concern

The Group is debt free and had cash balances of £10.9m and £6.1m at the end of June 2021 and August 2021 respectively. It has closed contracts to the value of approximately £13.5m, of which £5.7m had been received by the end of June 2021 with most of the £7.8m balance expected by the end of June 2022. Most of the inventory payments required to deliver those contracts have already been made.

The Group has a growing pipeline of future sales (see above) with 57.2MWh of potential new contracts in Base and Upside and a further 262.6 MWh in Pipeline. This continued increase has largely been driven by the rapidly improving macro environment, both in terms of total addressable market and active and growing government support in its key markets.

The Group continually reviews its funding position and the funding options that are available to it. Based on this ongoing review and subject to the near-term rate of customer deliveries and new closed contracts, the Group expects to require additional finance within the next six months, assuming the continued rate of growth. The expectation is that additional finance will be available from both equity and non-equity sources or a combination of the two.

Having taken all of the above factors into account, the directors continue to believe it is appropriate to prepare these financial statements on a going concern basis, noting the material uncertainty arising from the need to secure additional funding within the coming months.

Estimates and judgements

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and of items of income and expense. Actual results may differ from these estimates.

In preparing this interim financial information, the significant judgements made by management in applying the Group's accounting policies were the same as those that applied to the consolidated financial statements for the year ended 31 December 2020. Similarly, the key sources of estimation uncertainty related to the financial information were the same as those encountered when applying the Group's accounting policies in relation to the preparation of the consolidated financial statements for the year ended 31 December 2020.

Principal risks and uncertainties

In preparing the condensed consolidated financial information management is required to consider the principal risks and uncertainties facing the Group. In management's opinion the principal risks and uncertainties facing the Group are unchanged since the preparation of the consolidated financial statements for the year ended 31 December 2020. Those risks and uncertainties, together with management's response to them are described in the risk review section of the annual report and financial statements for the year ended 31 December 2020.

Accounting policies

The accounting policies applied in this condensed consolidated financial information are consistent with those applied in preparing the financial statements for the year ended 31 December 2019.

Reclassification of prior year figures

Comparative figures for June 2020 have been restated, where necessary, to conform with the presentation of this period and 31 December 2020 results.

3 Revenue from contracts with customers and income from government grants

Segment information

The Group derives revenue from a single business segment, being the manufacture and sale of vanadium flow battery systems and related hardware together with the provision of services directly related to battery systems sold to customers.

The Group is organised internally to report on its financial and operational performance to its chief operating decision maker, which has been identified as the three executive directors as a group.

All revenues were derived from continuing operations.

Revenue from contracts with customers

	Six months ended 30 June 2021 £'000	Restated Six months ended 30 June 2020 £'000	Year ended 31 December 2020 £'000
Battery systems and associated control systems	-	-	369
Integration, commissioning and other related services	14	-	34
Other services	1	67	3
Total revenue in the statement of comprehensive loss	15	67	406

Grant income other than revenue

The Group receives grant income to help fund certain projects that are eligible for support, typically in the form of innovation grants. The Group also received grant income related to operating costs under government subsidy programmes as part of national COVID response efforts. The total grant income that was received in the year was as follows:

Grant income received	Six months ended 30 June 2021 £'000	Restated Six months ended 30 June 2020 £'000	Year ended 31 December 2020 £'000
Business support grants against cost of sales Ð COVID-19	-	-	17
Business support grants against employee costs Ð COVID-19	-	-	240
Grants for research and development	471	147	203
Economic and social development grants	-	35	35
Total government grants received	471	182	495

4 Contract related balances

	30 June 2021 £'000	Restated 30 June 2020 £'000	31 December 2020 £'000
Amounts due from contract customers included in trade receivables	173	42	33
Contract assets (accrued income for work done and not yet invoiced)	2	-	5
Contract liabilities (deferred revenue related to contract advances)	(5,656)	(970)	(2,644)
Net position of sales contracts	(5,481)	(928)	(2,606)

No revenue was recognised in the current or prior periods that was recorded as a contract liability at the end of the previous period.

Provisions related to contracts with customers

	Warranty provision £'000	Provision for onerous contracts £'000	Total £'000
At 1 January 2021	824	1,103	1,927
Charged/ credited to profit and loss:
Provision created in the period	318	1,003	1,321
Unused amounts reversed/ unwind of provision	(2)	(353)	(355)
Amounts used in the period	(431)	-	(431)
At 30 June 2021	709	1,753	2,462

	Warranty provision £'000	Provision for onerous contracts £'000	Total £'000
At 1 January 2020	95	-	95
Acquisition of subsidiaries	191	-	191
Charged/ credited to profit and loss:
Provision created in the period	136	358	494
Amounts used in the period	(32)	-	(32)
At 30 June 2020	390	358	748

	Warranty provision £'000	Provision for onerous contracts £'000	Total £'000
At 1 January 2020	95	-	95
Acquisition of subsidiaries	1,011	39	1,050
Charged/ credited to profit and loss:
Provision created in the period	340	1,084	1,424
Unused amounts reversed	(51)	-	(51)
Amounts used in the period	(571)	(20)	(591)
At 31 December 2020	824	1,103	1,927

Warranty provision

The warranty provision represents management's best estimate of the costs anticipated to be incurred related to known warranty claims from customers in respect of products sold that remain in their warranty period. It also includes a best estimate of the costs expected to be incurred in respect of claims that may arise in the future related to products already sold to customers.

The estimate of future warranty costs is updated periodically based on the company's actual experience of warranty claims from customers. The element of the provision that is related to potential future claims is based on management's experience and is judgemental in nature. As for any product warranty, there is an inherent uncertainty around the likelihood and timing of a fault occurring that would cause further work to be undertaken or the replacement of equipment parts.

A standard warranty of up to two years from the date of commissioning is provided to all customers on products sold and is included in the original cost of the product. Customers are also able to purchase extended warranties that extend the warranty period for up to a total of ten years.

Provision for contract losses

A provision is established for contract losses when it becomes known that a commercial contract has become onerous. A contract is onerous when the unavoidable costs of fulfilling the company's obligations under a contract are greater than the revenue that will be earned from the contract.

The unavoidable costs of fulfilling contract obligations will include both direct and indirect costs. Any provision made for contract losses will similarly include provision for both direct and indirect costs to fulfil the company's remaining obligations under a contract.

The creation of an additional provision is recognised immediately in profit and loss. The provision is used to offset costs that are incurred as the contract moves to completion.

5 Cost of sales

	Six months ended 30 June 2021 £'000	Restated Six months ended 30 June 2020 £'000	Year ended 31 December 2020 £'000
Movement in inventories of finished battery systems	-	-	436
Production costs	318	91	374
Depreciation of production facilities, equipment and intangibles	77	-	107
Movement in provisions for warranty costs	361	-	304
Total cost of sales	756	91	1,221

6 Administrative expenses

	Six months ended 30 June 2021 £'000	Restated Six months ended 30 June 2020 £'000	Year ended 31 December 2020 £'000
Staff costs	3,669	1,781	5,811
Research and non-capitalised development costs	288	662	1,099
Professional fees	371	381	960
Sales and marketing costs	222	43	96
Facilities and office costs	358	557	787
Other administrative expenses	944	424	840
Total administrative expenses	5,852	3,848	9,593

7 Other items of operating income and expense

	Six months ended 30 June 2021 £'000	Restated Six months ended 30 June 2020 £'000	Year ended 31 December 2020 £'000
Income
Gain on disposal of scrap inventory and equipment	-	-	27
Expense
Merger transaction costs	-	(1,047)	(1,412)
Provision for onerous contracts, net of amounts unwound	(700)	-	(1,064)
Impairment of inventory to net realisable value	(1,061)	-	(1,019)
Accelerated amortisation of development costs		-	(6,138)
Impairment of property, plant and equipment		-	(56)
Impairment of obsolete inventory and disposal of scrap inventory	(95)	-	(8)
Abnormal unabsorbed production overheads		-	(152)
Total other operating income and expense (net)	(1,856)	(1,047)	(9,822)

8 Loss per share

The weighted average number of shares used to calculate basic and diluted loss per share as presented in the consolidated statement of comprehensive loss was as follows:

	Six months ended 30 June 2021 £'000	Restated Six months ended 30 June 2020 £'000	Year ended 31 December 2020 £'000
In issue at 1 January	85,900,459	19,025,009	19,025,799
Shares issued in the year - weighted average	807,258	25,374,448	40,180,789
Weighted average shares in issue at the end of the period	86,707,717	44,399,457	59,206,588
Effect of employee share options and warrants not exercised	-	-	431,089
Potentially dilutive	5,197,536
Weighted average number of diluted shares at the period end	91,905,253	44,399,457	59,637,677

Additional potential shares used in the calculation of diluted earnings per share primarily relate to potential shares that may be issued in satisfaction of in-the-money employee share options. In addition, potentially dilutive shares also relate to warrants to subscribe for ordinary shares in the company that were issued for services or related to financing transactions that have an exercise price lower than the quoted share price and remain outstanding at the relevant period end.

Where additional potential shares have an anti-dilutive impact on the calculation of loss per share calculation, such potential shares are excluded from the weighted average number of shares used in the calculation.

Additional potential shares are anti-dilutive where their inclusion in the calculation of loss per share results in a lower loss per share.

9 Cashflows from operating activities

	Six months ended 30 June 2021 £'000	Restated Six months ended 30 June 2020 £'000	Year ended 31 December 2020 £'000
Loss after income tax	(8,809)	(5,028)	(24,271)
Adjustments for:
Depreciation and amortisation	188	267	577
Impairment of property plant and equipment	-	-	56
Accelerated amortisation of intangible asset	-	-	6,138
Loss on disposal of property plant and equipment	-	-	(6)
Impairment of inventory	1,156	-	1,027
Gain on disposal of scrap inventory	-	-	27
Taxation	-	1	-
Equity settled share-based payment expenses	786	(207)	707
Equity issued in lieu of service	-	61	68
Equity settled transaction costs on acquisition of a subsidiary	-	-	(456)
Equity settled interest and transaction costs on convertible notes	-	-	(592)
Fair value adjustment on convertible notes and warrants	-	-	300
Net finance costs/ income	17	108	2,297
Net foreign exchange differences	62	-	(1,220)
	(6,600)	(4,798)	(15,348)
Change in operating assets and liabilities
Decrease in inventories	(3,630)	(99)	(1,359)
Decrease in contract assets	3	-	53
(Increase)/ decrease in trade and other receivables	(140)	(2)	115
Decrease in other current assets	(5,551)	(810)	(750)
Increase/ (decrease) in trade and other payables	874	(1,448)	3,348
Decrease in warranty provision	(115)	-	(380)
Increase in onerous contract provision	650	463	1,060
Increase in contract liabilities	3,012	662	2,376
	(4,897)	(1,234)	4,463
Cash used in operations	(11,497)	(6,032)	(10,885)

10 Goodwill and intangible assets

	Goodwill £'000	Development costs £'000	Patents and certifications £'000	Software and domain names £'000	Total £'000
At 1 January 2021
Cost	23,944	-	203	29	24,176
Accumulated amortisation	-	-	(30)	(19)	(49)
Net book amount	23,944	-	173	10	24,127
Period ended 30 June 2021
Opening net book amount	23,944	-	173	10	24,127
Effect of movements in foreign exchange	(254)	-	-	-	(254)
Additions	-	-	-	19	19
Amortisation charge	-	-	(20)	(4)	(24)
Closing net book amount	23,690	-	153	25	23,868
At 30 June 2021
Cost	23,690	-	203	48	23,941
Accumulated amortisation	-	-	(50)	(23)	(73)
Net book amount	23,690	-	153	25	23,868

	Goodwill £'000	Development costs £'000	Patents and certifications £'000	Software and domain names £'000	Total £'000
At 1 January 2020
Cost	6,971	5,818	-	-	12,789
Accumulated amortisation	-	-	-	-	-
Net book amount	6,971	5,818	-	-	12,789
Period ended 30 June 2020
Opening net book amount	6,971	5,818	-	-	12,789
Acquisition of subsidiaries	21,283	-	-	-	21,283
Effect of movements in foreign exchange	651	390	-	-	1,041
Closing net book amount	28,905	6,208	-	-	35,113
At 30 June 2020
Cost	28,905	6,208	-	-	35,113
Accumulated amortisation	-	-	-	-	-
Net book amount	28,905	6,208	-	-	35,113

	Goodwill £'000	Development costs £'000	Patents and certifications £'000	Software and domain names £'000	Total £'000
At 1 January 2020
Cost	6,971	5,818	-	-	12,789
Accumulated amortisation	-	-	-	-	-
Net book amount	6,971	5,818	-	-	12,789
Year ended 31 December 2020
Opening net book amount	6,971	5,818	-	-	12,789
Effect of movements in foreign exchange	(1,233)	320	-	1	(912)
Acquisition of subsidiaries	18,206	-	203	2	18,411
Additions	-	-	-	9	9
Amortisation charge	-	-	(30)	(2)	(32)
Accelerated amortisation	-	(6,138)	-	-	(6,138)
Closing net book amount	23,944	-	173	10	24,127
At 31 December 2020
Cost	23,944	-	203	12	24,159
Accumulated amortisation	-	-	(30)	(2)	(32)
Net book amount	23,944	-	173	10	24,127

Goodwill
The opening goodwill balance on 1 January 2021 represents goodwill recognised in the year ended 31 December 2015 on the completion of the step acquisition by the company of Renewable Energy Dynamics Holdings Limited (REDH), the holding company for the redT energy storage business and goodwill related to the business combination transaction with Avalon that completed on 1 April 2020.

All goodwill is tested annually for potential impairment. At 30 June 2021, goodwill was tested for impairment using a fair value less costs of disposal methodology by reference to the company's quoted market capitalisation using the price of 117 pence per share at that date. No impairment loss was identified in relation to goodwill.

Patents and certifications

Patents and certification acquired in the 1 April 2020 merger transaction with Avalon were stated at their assessed fair value in the purchase price allocation used for consolidation accounting. There have been no events or circumstances since the merger that would indicate that the carrying value of patents and certifications may be impaired at 30 June 2021.

Development Costs
The development costs represent costs associated with the redT Gen 3 vanadium flow battery that has been superseded by the Invinity VS3 battery system were impaired in full in the period ended 31 December 2020.

11 Property plant and equipment

	Computer and office equipment £'000	Leasehold improvement £'000	Vehicles and equipment £'000	Total £'000
At 1 January 2021
Cost	748	513	753	2,014
Accumulated depreciation and impairment	(694)	(357)	(268)	(1,319)
Net book amount	54	156	485	695
Period ended 30 June 2021
Opening net book amount	54	156	485	695
Effect of movement in foreign exchange	-	1	3	4
Additions and transfers	60	23	526	609
Depreciation charge	(22)	(22)	(70)	(114)
Closing net book amount	92	158	944	1,194
At 30 June 2021
Cost	808	537	1,282	2,627
Accumulated depreciation and impairment	(716)	(379)	(338)	(1,433)
Net book amount	92	158	944	1,194

	Computer and office equipment £'000	Leasehold improvement £'000	Vehicles and equipment £'000	Total £'000
At 1 January 2020
Cost	747	302	105	1,154
Accumulated depreciation and impairment	(595)	(242)	(63)	(900)
Net book amount	152	60	42	254
Period ended 30 June 2020
Opening net book amount	152	60	42	254
Effect of movement in foreign exchange	(1)	1	3	3
Acquisition of subsidiaries	22	86	289	397
Additions and transfers	4	53	145	202
Disposals	(21)	-	-	(21)
Depreciation charge	(62)	(58)	(32)	(152)
Closing net book amount	94	142	447	683
At 30 June 2020
Cost	741	451	543	1,735
Accumulated depreciation and impairment	(657)	(300)	(95)	(1,052)
Net book amount	84	151	448	683

 

	Computer and office equipment £'000	Leasehold improvement £'000	Vehicles and equipment £'000	Total £'000
At 1 January 2020
Cost	747	302	105	1,154
Accumulated depreciation and impairment	(595)	(242)	(63)	(900)
Net book amount	152	60	42	254
Year ended 31 December 2020
Opening net book amount	152	60	42	254
Effect of movement in foreign exchange	2	(1)	(1)	-
Acquisition of subsidiaries	22	86	364	472
Additions and transfers	20	90	239	349
Disposals	(6)	-	-	(6)
Depreciation charge	(136)	(79)	(103)	(318)
Impairment charge	-	-	(56)	(56)
Closing net book amount	54	156	485	695
At 31 December 2020
Cost	748	513	753	2,014
Accumulated depreciation and impairment	(694)	(357)	(268)	(1,319)
Net book amount	54	156	485	695

The Group has no assets pledged as security. No amounts of interest have been capitalised within property, plant and equipment at 30 June 2021 (31 December 2020: £nil, 30 June 2020: £nil).

For the period ended 30 June 2021 manufacturing equipment includes £326,000 (31 December 2020: £nil, 30 June 2020: £nil) of assets under construction that have not been put into service and depreciated.

Impairment loss

The impairment loss related to vehicles and equipment recognised in the year ended 31 December 2020 was due to assets taken out of service, and hence written down, when new versions of the same assets came into service. The impairment loss was recognised within other items of operating income and expense in the consolidated statement of comprehensive loss for the year ended 31 December 2020.

Acquisition of subsidiaries
Assets acquired in 2020 relate to the combination transaction with Avalon that completed on 1 April 2020.

12 Trade and other receivables

	30 June 2021 £'000	Restated 30 June 2020 £'000	31 December 2020 £'000
Trade receivables from contracts with customers	173	59	33
Provision for doubtful receivables	-	(17)	-
Total trade and other receivables	173	42	33

Trade receivables are amounts due from customers for sales of vanadium flow battery systems in the ordinary course of business.

Trade receivables do not bear interest and generally have 30-day payment terms and are therefore classified as current. The actual credit loss in the six months to 30 June 2021 was determined to be 0% of total sales (year ended 31 December 2020: 0%).

13 Other current assets

	30 June 2021 £'000	Restated 30 June 2020 £'000	31 December 2020 £'000
Prepayments and deposits	5,427	591	1,108
Government grants receivable	267	72	-
Tax credits Ð recoverable	371	126	127
Due from joint venture	436	-	168
Other receivables	464	412	11
Total other current assets	6,965	1,201	1,414

14 Cash and cash equivalents

	30 June 2021 £'000	Restated 30 June 2020 £'000	31 December 2020 £'000
Cash at bank and in hand	10,752	4,208	21,760
Short term investments	190	295	193
Total cash and cash equivalents	10,942	4,503	21,953

Short term investments

Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours' notice with no loss of interest.

15 Inventories

	30 June 2021 £'000	Restated 30 June 2020 £'000	31 December 2020 £'000
Components and parts	3,330	336	698
Work in progress	49	186	207
Finished goods	-	167	-
Total inventories	3,379	689	905

Included in parts and components are third-party custom manufactured components, parts and electrolyte.

Total inventory, before impairment, is valued at £5,536,572 (31 December 2020: £2,001,561, 30 June 2020: £689,000).

Inventories recognised as an expense during the current period amounted to £nil (31 December 2020: £436,461, 30 June 2020: £ nil).  These were included in cost of sales.

Write-downs of inventories to net realisable value amounted to £1,061,017 (31 December 2020: £1,045,232, 30 June 2020: £ nil). 

16 Trade and other payables

	30 June 2021 £'000	Restated 30 June 2020 £'000	31 December 2020 £'000
Trade payables	1,818	710	498
Accrued liabilities	1,310	946	653
Accrued employee compensation	207	123	1,010
Government remittances payable	5	34	307
Total trade and other payables	3,340	1,813	2,468

Trade payables are unsecured and are usually paid within 30 days. The carrying amounts of trade and other payables are assessed as being the same as their fair values due to the short-term nature of the underlying obligation representing the liability to pay.

17 Events occurring after the reporting period

No events occurred after the end of the reporting period that require disclosure in this unaudited condensed consolidated interim financial information.

 

END

 

 

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