Last checked at 27 May 2021 07:00
This announcement contains inside information
27 May 2021
Invinity Energy Systems plc
("Invinity" or the "Company" or the "Group")
2020 Review and Current Trading
Invinity Energy Systems plc (AIM:IES), manufacturer of vanadium flow batteries delivering renewable energy on demand, is pleased to provide a review for the year ended 31 December 2020 and an accompanying update on current trading ahead of the publication of its audited 2020 financial results and annual report which will occur during June 2021.
2020 Review
Financial
2020 was a transformational year for the Group which saw the successful completion of a merger with Avalon Battery Corporation, the launch of a new product, the VS3, and the refinancing of the Group which closed the year debt-free with £22.0m of cash to fund operational expansion.
Key unaudited financial highlights are stated below for the period ended 31 December 2020:
• | Revenue £0.4m (2019: £0.2m) |
• | Gross loss £0.8m (2019: £0.05m) |
• | Expected revenue contribution from 2020 closed orders of £11.7m with sales deposits of £2.6m received as at 31 December 2020 |
• | Cash balance as at 31 December 2020 £22.0m |
Commentary on the above is included at the end of this announcement.
Commercial
Invinity's commercial group achieved a record-breaking level of orders in 2020, growing the Company's market share and promoting greater acceptance of Vanadium Flow Battery (VFB) technology across Invinity's focus markets of California and the rest of the U.S., UK and Australia.
· 18.6 MWh of closed orders in the year, more than twice the capacity of combined historic redT and Avalon sales.
· Numerous 'beach-head' projects with opportunities for follow-on sales:
o 5.0 MWh Energy Superhub Oxford project, UK;
o 1.8 MWh Flow + Hydrogen + Tidal project, Orkney Islands, UK;
o 0.5 MWh California Energy Commission funded project, California, USA;
o 8.0 MWh Yadlamalka Energy solar-plus-storage power plant, South Australia; and
o 0.8 MWh Scottish Water treatment plant solar-plus-storage, Perth, UK.
Operationally, Invinity focused on three distinct areas during the year; Integration, Execution, and Product Direction, each of which are covered in further detail below.
Integration
• | During 2020, the Group focused on successfully integrating the redT and Avalon businesses into a single, scalable organisation.
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• | Numerous integration milestones were achieved in 2020, including the launch of the Invinity website and brand, design and launch of the latest VS3 product generation and implementing an organisational structure delineated by function rather than geography.
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• | Post-period, the Company successfully deployed capital raised in December 2020 to significantly scale up its manufacturing capabilities to meet demand. |
Execution
• | The focus in 2020 was on winning significant projects for the Group such as Energy Superhub Oxford ("ESO"), Yadlamalka and EMEC. 2021 has seen the Company achieve important milestones in the delivery of these major projects in the areas of system architecture, manufacturing of the core VFB modules, electrolyte sourcing, and approval of site infrastructure. For projects to be delivered this year, manufacturing is now complete for 40% of stacks and 70% of the balance of system. The first phase of the ESO project is expected to be ready for delivery in Q3 2021, with all remaining projects expected to be ready for delivery before year end.
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• | During 2020 and continuing into the current financial year, the Company's operations, logistics and supply chain were inevitably impacted by COVID-19, delaying some manufacturing steps. However, at no point did the Group experience a total shutdown and Invinity's operations team has been able to minimise disruption across the entire business.
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• | Two new dedicated teams were formed within the Company during the period: Solutions Engineering (separate from Product Development) and Customer Operations (separate from product manufacturing and supply chain). Together, they are tasked with the successful system architecture, delivery and commissioning of Invinity's projects. |
Product Direction
• | The Company continually looks to reduce the cost of its VS3 product in order to enhance sales margins and open up additional market applications. Accordingly, Invinity's Product Development team has made numerous design improvements focused on reducing cost, increasing performance and driving operational robustness. Specific advancements were made to product modularity alongside improvements to Invinity's proprietary Battery Management System (BMS) algorithms.
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• | In parallel, Invinity's manufacturing team was also able to achieve design-for-manufacturing improvements alongside the improved economies of scale realised through higher volume production at the Company's facilities. This activity lowered manufacturing costs.
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• | Invinity's Research and Development group also achieved advances in core technology materials performance, core electrochemical process operation and proprietary component design. The team's work has in part been reflected in the 18 patents granted to Invinity since August 2020. |
Current Trading
Commercial Update
A strong macro environment for Invinity products continues to support Invinity's commercial progress, including:
· widespread acceptance of the critical nature of energy storage in the transition to renewable energy-based economies, especially within Invinity's core markets of the USA, UK and Australia;
· greater understanding of the limitations of lithium-based battery systems and emerging appreciation for VFBs' strengths in high cycle and long duration applications;
· launch of numerous 'alternative-to-lithium-ion' energy storage competitions and grant opportunities in the UK and USA; and
· favourable tax treatment and policy developments for 'renewables plus energy storage' projects in our core markets as governments seek to stimulate investment as part of their pandemic recovery strategies.
The Company was pleased to announce on 17 May 2021 that it had closed an additional project backed by the California Energy Commission (CEC). The 0.5 MWh project, scheduled for delivery in Q4 2021, is located at a US Marine Corps base in Southern California and is expected to contribute revenue of approximately £450,000 to the Group.
The current commercial opportunity pipeline, updated as at 17 May 2021 is stated below. Since last disclosed in the March Trading Update, Invinity's total qualified opportunity pipeline has increased by approximately 30% or 70 MWh. This was driven primarily by a significant increase in the 'Pipeline' category, due to greater early-stage interest in the Company's products propelled by both a greater market awareness of the benefits of Invinity's products and the previously mentioned strong macro environment.
| Closed | Base | Upside | Pipeline |
17 May 2021 4 March 2021 | 19.1 MWh 18.6 MWh | 10.1 MWh 9.1 MWh | 30.8 MWh 50.3 MWh | 232.0 MWh 143.7 MWh |
% Change | + 3% | + 11% | - 39%* | + 61% |
\* The reduction in 'Upside' category was primarily due to a delay to the expected close date of a single large project well into 2022, with that project now forming part of our 'Pipeline'.
The commercial team is pleased to note a 44% increase in average deal value, year-on-year across the overall pipeline. Further details on the commercial pipeline, including fundamental methodology and category definitions, are available in the Company's recent RNS announcements.
Joint Development of a Grid-Scale Flow Battery with Gamesa Electric
Invinity was pleased to announce on 11 May 2021 that it had entered into a Joint Development and Commercialisation Agreement with Gamesa Electric S.A.U., a wholly-owned subsidiary of Siemens Gamesa Renewable Energy ("SGRE"). This strategic partnership with a leading multinational player in the energy industry to jointly develop and commercialise a grid-scale flow battery product is an important achievement for the Group, reinforcing the strengths of Invinity's core technology, product direction, and market positioning.
Invinity and Gamesa Electric have also entered into an Option Agreement granting Gamesa Electric or its nominee within the SGRE group an option for 9.99 per cent. of Invinity's issued share capital as at 11 May 2021 at £1.75 per share, the same price as Invinity's most recent placing in December 2020. If the option were to be exercised, Gamesa Electric or its nominee would have the right to appoint a director to Invinity's board subject to Gamesa Electric or its nominee maintaining a minimum 5% shareholding in Invinity. The ability to exercise the Option is subject to Company shareholders' approval which the Company plans to seek at the upcoming AGM, notice of which will be given in due course.
The Company has already begun working with the Gamesa Electric and SGRE teams, with multi-party 'kick-off' meetings taking place during May 2021 laying the groundwork for this current phase of development. The Company will keep investors informed of progress as the programme moves through major milestones.
Liquidity
The sales contracts signed during 2020 represent future revenue of approximately £11.7 million the majority of which is expected to be received in the second half of 2021.
The 2021 opening cash balance of £22.0 million sets the Group up to expand its manufacturing capacity significantly and deliver on its closed sales.
Cash balance at the end of April 2021 was £16.4 million. Latest cash flow forecasts indicate average monthly cash usage is expected to continue at approximately £1.1 million over the next 12 months. Therefore, existing cash will be sufficient to fund the business for at least that period. However, consistent with a company at this stage in its growth cycle, the Company is reliant on timely sales receipts and therefore expects to have a material uncertainty in its audited going concern statement.
Outlook
Invinity's achievements in 2020 were focused on building solid foundations for future growth - merging two companies, integrating teams, establishing commercial traction and raising capital to grow the business. 2021 is the year in which Invinity will start to demonstrate its product and project capabilities in earnest. Through the delivery of the large projects that are currently underway, the Company will demonstrate, at scale, the numerous competitive advantages that VFBs enjoy over other mature battery technologies.
By building on 2020's commercial successes, maintaining an ongoing commitment to product evolution through improving performance and cost reduction without sacrificing reliability, and by leveraging the strategic relationship now in place with Gamesa Electric, the Group will achieve rapid, sustainable growth which generates long term value for its shareholders.
Enquiries:
Invinity Energy Systems plc | +44 (0)204 551 0361 |
Larry Zulch, Chief Executive Officer |
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Peter Dixon-Clarke, Chief Financial Officer Joe Worthington, Director of Communications |
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Canaccord Genuity (Nominated Adviser and Joint Broker) | +44 (0)20 7523 8000 |
Henry Fitzgerald-O'Connor / James Asensio |
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VSA Capital (Financial Adviser and Joint Broker) Andrew Monk / Simon Barton | +44 (0)20 3005 5000
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Hudson Sandler (Financial PR) Nick Lyon / Nick Moore | +44(0) 207 796 4133 |
Notes to Editors
Invinity Energy Systems plc (AIM:IES) manufactures vanadium flow batteries for the large-scale energy storage requirements of businesses, industry and electricity networks.
Developed specifically for high-utilisation applications, Invinity's highly scalable, factory-built flow battery products make low-carbon renewable generation reliable and can run continually with no degradation, charging and discharging for over 25 years. Energy storage systems based on Invinity's batteries are safe, reliable, and economical, and range in size from less than 250 kilowatt-hours to tens of megawatt-hours.
Invinity was created in April 2020 through the merger of two flow battery industry leaders: redT energy plc and Avalon Battery Corporation. With over 10 MWh of systems deployed to date across 40 sites in 14 countries, Invinity is active in all major global energy storage markets and has operations in the UK, Canada, USA, China and South Africa. Invinity Energy Systems plc is listed on the London Stock Exchange.
To find out more, visit invinity.com or call Investor Relations on +44 (0)204 551 0361.
Supplementary 2020 Financial Information
In addition to the key unaudited financial highlights presented above, the Company is pleased to provide the following supplementary financial information.
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Unaudited 2020 |
Restated 2019 |
| £'000 | £'000 |
Revenue | 406 | 227 |
Cost of sales | (1,221) | (275) |
Gross loss | (815) | (48) |
| Unaudited 2020 | Restated 2019 |
| £'000 | £'000 |
Battery systems and associated control systems | 369 | 222 |
Integration, commissioning and other services | 34 | - |
Other services | 3 | 5 |
Revenue | 406 | 227 |
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Revenue of £0.4 million (2019: £0.2 million) was recognised in the period and all of it related to sales of the legacy AFB units. Grant income received in 2019 as a contribution to operating costs has been reclassified from revenue to offset cost of sales in line with the Group's revised policy on grant income implemented from 1 January 2020.
Of the seven AFB sales recognised in the period, all generated a positive gross margin other than the first two contracts.
| Unaudited 2020 | Restated 2019 |
| £'000 | £'000 |
Movement in inventories of finished battery systems | 436 | 263 |
Production costs | 374 | 45 |
Depreciation of production facilities, equipment and intangibles | 107 | 15 |
Movement in provisions for warranty costs | 304 | (48) |
Cost of sales | 1,221 | 275 |
The above includes unabsorbed overheads, which were primarily due to COVID-enforced downtime and delays.
Administration costs, before exceptional and financing costs are expected to be in the region of £9.7 million (2019: £6.9million).