Invinity Energy Regulatory News (IES)

16 July 2020

Invinity Energy Systems plc

("Invinity" or the "Group")

2019 Full Year Results

Invinity Energy Systems plc (AIM:IES), manufacturer of vanadium flow batteries for the large-scale energy storage requirements of businesses, industry and electricity networks, today announces its full year results for the year ended 31 December 2019.

It should be noted that these results are for the period prior to redT energy's merger with Avalon which took place post the financial year end.

HIGHLIGHTS

Financial

2019 financials were in line with management expectations. 2019 saw the sale of the first Gen 3 machine generating £0.2m revenue. Operating costs reduced significantly as development costs fell with the move from Gen 2 to Gen 3. Operating costs also reduced due to cost cutting measures introduced from March 2019 when the Strategic review was announced. In November 2019, Interim Funding was secured for the Avalon Merger process, this was partially drawn (£1.1m) by the year end.

· Revenue1 £0.7m (2018: £2.5m)

· Trading loss1 £6.9m (2018: £11.7m loss)

· Operating loss1 of £7.4m (2018: loss £12.3m)

· Year-end free cash £1.2m (2018: £3.3m)

· Loans and borrowings £1.1m (2018: £Nil)

(1) From continuing operations

Operational

· Contract to supply the Energy Superhub Oxford with 5MWh (162 units) of Invinity flow batteries

· Sale of remaining Camco US business

· Further commercial developments during the period

Post period activity

· Successful merger of redT energy and Avalon to create a leading global player in the flow battery sector

· Secured total debt and equity funding of £14.9m

· Strong pipeline of near and medium term opportunities

The table below details the latest analysis of Invinity's commercial prospects as at 1 July 2020. These are management estimates and they do not represent forecasts of the future financial performance of the Group.

Note: further details on the above, including category definitions are provided in the Chairman's report included later in this document.

Neil O'Brien, Chairman of Invinity Energy Systems plc said:

"It has been an eventful year culminating in the formation of Invinity post the year end. The merger integration is progressing smoothly and the business continues to operate effectively to reach our key strategic goals and milestones.

In terms of the wider market opportunity, I am pleased to note that the global market for energy storage remains strong with Bloomberg New Energy Finance predicting the sector will receive approximately US$620 billion in new investment by 2040. Although the energy storage market has, like most others, suffered a short-term shock due to COVID-19, I remain optimistic that vanadium flow batteries will play a key role in delivering the world's future energy needs.

Against this background and as evidenced in our latest trading update, I am pleased to report that our commercial team is continuing to close near-term sales from a strong pipeline of opportunities, whilst our technology and engineering divisions ramp up production to meet the needs of our customers.''

Enquiries:

Notes to Editors

Invinity Energy Systems plc (AIM:IES) manufactures vanadium flow batteries for the large-scale energy storage requirements of business, industry and electricity networks.

Developed specifically for high-utilisation applications that make low-carbon renewable generation reliable, Invinity's highly scalable, factory-built flow battery products don't degrade with use, charging and discharging for over 25 years. Energy storage systems based on Invinity's technology 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 flow battery industry leaders redT energy plc and Avalon Battery Corporation. With over 10MWh 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) 207 121 6111.

Chairman's report

2019 was a transformational year for the Group which saw the beginning of a new chapter in our corporate history as Invinity Energy Systems (Invinity).

The merger with Avalon Battery Corporation (Avalon) provided the main focus of work during the reporting period. In addition, the Group also completed a number of other key initiatives including:

· Contract to supply the Energy Superhub Oxford ("ESO") which will see 5 MWh (162 units) of Invinity flow batteries installed as part of a pioneering urban decarbonisation project in Oxford. The project received planning permission in July 2019 and the Group, having commenced manufacturing for the project in March 2020, plans to enter the delivery phase by the end of 2020. The project will be the largest vanadium flow battery in the UK and the largest vanadium flow plus lithium-ion hybrid energy storage system globally.

· The sale of the remaining Camco US business which was announced in April 2019. This resulted in a net cash benefit to the Group of £0.6m and completed the divestment of legacy Camco business activities.

· Further commercial developments during the period, which included the delivery and commissioning of a 300kWh battery to Anglian Water as part of a wider collaboration project to optimise solar and storage at the company's sites, and a framework agreement with Statkraft to offer a fully financed solar and storage package to the commercial and industrial sector.

The table below details the latest analysis of Invinity's commercial prospects as at 1 July 2020. These are management estimates and they do not represent forecasts of the future financial performance of the Group.

Definitions of the categories used and further information on how these management estimates are derived is detailed in the note below1.

1. Management analysis and estimates of Invinity's commercial performance is based on data extracted from the Group's Customer Relationship Management (CRM) platform. A 'module' is defined as a single Invinity manufactured battery module, and capacity is given in Megawatt Hours (MWh). For the purpose of reporting, the Group uses the following terms to categorise its commercial opportunities which are defined below.

CLOSED - contracted orders. Projects move out of this category when they are delivered and the corresponding revenue recognised.

BASE - projects which are in the final stages of contract negotiation or considered highly likely to close and for which, manufacturing is expected to start within the next 12 months.

UPSIDE - enquiries that are not as advanced as those in the "Base" category but are still considered likely to result in an order in the near term. Detailed analysis of the customers' requirements will be underway and initial discussion on contract terms started. Projects in this category have the potential to add to projects in the "Base" category or compensate for "Base" projects that are lost or delayed.

PIPELINE - these are enquiries which are at an earlier stage. They will have had an initial analysis conducted to ensure they are an appropriate application for vanadium flow batteries, fit with Invinity's strategy and are being actively pursued.

Following the launch of a strategic review in March 2019, the Group made changes to the Board, took measures to reduce the operating cost base and explored options to fund the Company . In July 2019, the Company announced that it had agreed to outline terms for a proposed merger with Avalon, another leading company in the vanadium flow battery sector.

The rationale behind the merger was clear. Both redT and Avalon were leading development- stage vanadium flow battery companies, each attempting to reach the scale and level of commercialisation required to compete in a global market currently dominated by large incumbent lithium-ion manufacturers from Asia and the United States. By combining the strengths of redT and Avalon, the scale and resources required to be the first commercially viable alternative to lithium for large-scale battery storage was achieved. Shareholder approval was granted on 1 April 2020 and the Group was re-listed under the new name, Invinity Energy Systems.

We are now a truly global Group, active in all major energy storage markets. As Invinity, we possess the necessary resources, in the form of both our product and our people, to participate effectively in the multi-billion pound opportunity these markets present.

The completion of the strategic review and the subsequent merger post year-end was a critical objective both for me personally and the business as a whole. As part of the process, and despite the most turbulent market conditions in decades owing to the impact of COVID-19, the Company was also able to secure total debt and equity funding of £14.9 million, including a US$5m convertible loan from AIM-listed primary vanadium producer Bushveld Minerals Ltd (Bushveld), advanced to Avalon and partially on-lent to the Company to fund both businesses through the reverse takeover process. Whilst the total monies raised fell short of our original target, the fact we were able to raise this amount in such challenging circumstances, whilst attracting a group of new institutional and strategic shareholders, speaks to the confidence in our story. Moreover, the funding we have in place is still sufficient for us to achieve our key development goals.

Recent measures introduced to limit the impact of COVID-19, including work-from-home regulations, have affected Invinity's operations in the UK, Canada, the US and its outsourced manufacturing in China. The Group was pleased to report in its June 2020 Trading Update that manufacturing operations in China had returned to normal capacity and the manufacturing facilities in Vancouver and the UK have restarted operations. Invinity's staff have continued to work remotely since the outbreak of the pandemic and are now returning to the facilities in the UK and Canada as required whilst adhering to local regulations and following best practices as advised by regional and national health authorities. Supply of components and assembly of flow battery modules for the fulfilment of orders is underway and the Group expects to resume deliveries in the second half of 2020.

With the execution of the strategic review and subsequent completion of the merger, I returned to my role as Non-Executive Chairman on 2 April 2020. I would like to take this opportunity to thank our dedicated and hard-working staff, who have discharged their duties with the highest degree of professionalism during an uncertain time for the business. The redT and Avalon teams have met every challenge presented to them over the last 12 months and together, we are now well placed to build on the market opportunities open to us as Invinity.

I would like to offer my thanks and best wishes to Scott McGregor and Jeff Kenna, former CEO and Chairman respectively, who left the business during the period. They were instrumental in creating the redT story and saw the potential of vanadium flow batteries from the start. I welcome Larry Zulch as Chief Executive Officer and Matt Harper as Chief Commercial Officer to the Board of Invinity, as well as Rajat Kohli, who recently joined as a Non-Executive Director. Finally, I welcome all our new North American colleagues based out of Canada and the USA. I look forward to working closely with all of you over the years to come.

Outlook

It has been an eventful year culminating in the formation of Invinity post the year end. The merger integration is progressing smoothly and the business continues to operate effectively to reach our key strategic goals and milestones.

In terms of the wider market opportunity, I am pleased to note that the global market for energy storage remains strong with Bloomberg New Energy Finance predicting the sector will receive approximately US$620 billion in new investment by 2040. Although the energy storage market has, like most others, suffered a short-term shock due to COVID-19, I remain optimistic that vanadium flow batteries will play a key role in delivering the world's future energy needs.

Against this background and as evidenced in our latest trading update, I am pleased to report that our commercial team is continuing to close near-term sales from a strong pipeline of opportunities, whilst our technology and engineering divisions ramp up production to meet the needs of our customers.

Notwithstanding the above, and as stated in the Admission Document published by the Company on 13 March 2020, should the expected sales orders not be forthcoming and the Group maintains its current operational capacity, it will be necessary to raise further equity or debt funding by the end of February 2021 to continue trading and deliver on its strategic objectives.

On behalf of the Board, I would like to thank our colleagues, partners and shareholders for their continued commitment and support. 

Neil O'Brien

Chairman

Financial review

Overall Group result

On 5 April 2019 the Camco US business was sold completing the exit from the legacy Camco activities. This transaction resulted in a gain on sale and net cash inflow of £0.6m. The results from Camco US up to the date of sale (£0.04m loss) are reported in the results from discontinued operations in these financial statements.

All amounts rounded to nearest £0.1m

Group revenue from continuing activities of £0.7m (2018: £2.6m) was attributable to the sale of its first Gen 3 machine (£0.2m) and grant income (£0.4m). The gross profit of £0.4m is attributable to the grant income; as expected the first Gen 3 machine sale did not generate a positive margin.

Group operating loss from continuing activities for the year of £7.4m (2018: £12.3m loss) was after significant adviser costs incurred in the year associated with the merger with Avalon. Excluding these costs and non-cash, share-based payments, gives an underlying trading loss of £6.9m (2018: £11.7m loss). The main contributor to the £4.8m reduction compared to 2018 was a £3.5m reduction in product development costs. In 2018 the Group installed 2.3 MWh of its Gen 2 machines to establish the technology and product in the marketplace. These sales were always expected to be loss making with the losses charged to product development. In 2019 the Group launched its Gen 3, 60kW/300kWh machine, installing the first machine at Anglian Water during the year. The product development costs associated with this 0.3MWh deployment were considerably less than those related to the 2.3MWh of machines deployed in 2018. Another contributor to the reduction was the cost cutting exercise implemented in March 2019 at the time the Strategic Review was announced. The objective was to reduce operating costs to a minimum whilst ensuring that the long-term value of the business was maintained during the Strategic Review process. This contributed approximately £0.9m of year on year savings.

Share-based payments reduced to £Nil (2018: £0.9m). This non-cash charge estimates the value of share-options given to employees by forecasting the probability weighted, potential increases in value of the share options based on historical volatility of the share price. This estimated increase in value is charged over the vesting period of the options. The reduction in the charge from 2018 to 2019 was due to the reversal of prior year charges as options were forfeit when staff left the business.

Cash and cash equivalents

At 31 December 2019, the Group had cash of £1.2m (2018: £3.3m) and borrowings of £1.1m (2018: £Nil). The borrowings relate to drawings on a loan of up to US$2.5m (£1.9m) agreed with Avalon on 1 November 2019. This loan was funded from a US$5.0m loan from Bushveld to Avalon to fund ongoing working capital requirements and merger expenses of both the Avalon and the Group through the merger process.

The key movements in net debt during 2019 were: cash outflow from operating activities of £6.6m (2018: £11.5m), net proceeds from issue of share capital of £2.9m (2018: £8.5m) and net cash received from sale of discontinued operations of £0.6m.

Merger and Fundraise Post the Balance Sheet Date

On 1 April 2020 the Company completed the following transactions:

· merged with Avalon Battery Corporation (Avalon) by acquiring of the entire share capital of Avalon in exchange for 1,735,397,545 new €0.01 ordinary shares in the Company. Outstanding options to acquire Avalon shares were also rolled over into options to acquire 61,009,238 and 52,789,430 €0.01 ordinary shares in the Company at exercise prices of 0.087p and 0.137p, respectively;

· raised £8.1m (before expenses) via a placing and open offer of 488,771,236 new ordinary €0.01 shares;

· discharged a US$5m loan (plus accrued interest and fees) from Bushveld to Avalon by issuing 302,978,063 new €0.01 new ordinary shares in the Company to Bushveld;

· entered into a two-year £3m convertible loan facility with RiverFort Global Opportunities PCC Limited and YA II PN, Ltd (the "RiverFort Facility");

· consolidated every fifty €0.01 ordinary shares in the capital of the Company, including the new shares mentioned above, into one consolidated €0.50 ordinary share.

Going concern and COVID-19

On 1 April 2020 the Company secured an investment of £8.1m (before expenses), which was supplemented with an additional £3m funding from the RiverFort Facility. This was despite the most turbulent equity market conditions in decades caused by the COVID-19 pandemic. The Group recognises that the amount raised was less than the funds needed to pursue the original business plan prepared at the start of the fundraise process and accordingly has amended its plans. This includes keeping costs to a level that enables the Group to deliver the existing contracts whilst continuing to develop market opportunities for its products, albeit on a more limited basis than had been planned originally. The updated business plan envisages a ramp up in closed sales orders, paying deposits, in the final quarter of 2020. These orders will be satisfied from production capacity that will increase during the second half of 2020, the initial output of which will be deployed onto the Energy Superhub Oxford project in late 2020 early 2021. Whilst the latest available information regarding the impact of COVID-19 pandemic has been incorporated into the updated business plan, there still remains some uncertainty as to what the full impact might be on future sales orders and production.

The cash and borrowings balances at the time of writing this review, were £5.1m and £1.0m respectively. The Group's latest cash flow forecasts indicate that, provided sales orders close as forecast, this cash combined with the remaining capacity on the RiverFort Facility will be sufficient to fund the business for at least the next 18 months. Based on encouraging ongoing discussions with potential customers, the Group is confident of meeting, if not exceeding its sales order forecast.

Should the closing of sales orders be delayed by two months or the level of deposits be more than 50% less than forecast, assuming the Group maintains its current operational capacity, it will be necessary to raise further equity or debt funding before the end of February 2021 to continue trading and deliver on its strategic objectives. Discussions with potential investors and debt providers are ongoing.

Based on the ongoing discussions with potential customers, investors and debt providers, the Board is optimistic that the necessary sales orders or, if delayed, additional funding will be secured in the appropriate time scale. It therefore considers it appropriate to present these financials on a going concern basis. However, the Group's need to secure sales orders or raise additional funding, creates a material uncertainty that casts significant doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that would be necessary if the group was unable to continue as a going concern. 

Fraser Welham

Chief Financial Officer

Consolidated Statement of Financial Position

At 31 December 2019

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

Consolidated Statement of Changes in Equity

For year ended 31 December 2019

Consolidated Statement of Changes in Equity

For year ended 31 December 2019

Consolidated Statement of Cash Flow

For year ended 31 December 2019

Notes

1 Summary of significant accounting policies

Invinity Energy Systems plc (the "Company") is a public company incorporated in Jersey under the Companies (Jersey) Law 1991. The address of its registered office is 3rd floor, Standard Bank House, 47-49 La Motte Street, St Helier Jersey, JE2 4SZ. The consolidated financial statements of the Company for the year ended 31 December 2019 comprise of the Company and its subsidiaries (together the "Group"). The Company's shares are quoted on AIM, a market operated by London Stock Exchange Plc.

(a) Basis of preparation

These consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union ("adopted IFRS and IFRS Interpretations Committee (IFRS IC) Interpretations"). These consolidated financial statements were approved by the Board on 16 July 2020.

These consolidated financial statements have been prepared in accordance with and in compliance with the Companies (Jersey) Law 1991, an amendment to which means separate parent company financial statements are not required.

The accounting policies set out below have been applied consistently in the year and presented in these consolidated financial statements. The accounting policies have been consistently applied across all Group entities for the purposes of producing these consolidated financial statements.

The financial statements have been prepared on historical cost and going concern basis.

(b) Critical accounting estimates and judgements

The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised, if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:

Impairment of goodwill - goodwill is tested annually for any impairment in accordance with the accounting policy stated in Note 1(m) below. These tests require the use of management estimates and assumptions as detailed in Note 12 - Intangible & goodwill.

Share-based payments - the expense relating to share-based payments is determined in accordance with the accounting policy stated in Note 1(j) below. The calculation of this expense requires the use of various management estimates.

Provision for warranty & onerous contracts - The estimated warranty claims in respect of products sold and the estimated unavoidable net costs relating to onerous contracts require management's analysis of contracts and use of management estimates and assumptions.

In the view of the directors there are no critical accounting judgements in the Group's financial statements.

(c) Going Concern Basis 

On 1 April 2020 the Company managed to secure an investment of £8.1m (before expenses), which was supplemented with an additional £3m funding from the Riverfort Facility. This was despite the most turbulent equity market conditions in decades caused by the COVID-19 pandemic. The Group recognises that the amount raised was less than the funds needed to pursue the original business plan prepared at the start of the fundraise process and has amended its plans accordingly. This includes keeping costs to a level that enables the Group to deliver the existing contracts whilst continuing to develop market opportunities for its products, albeit on a more limited basis than had been planned originally. The updated business plan envisages a ramp up in closed sales orders, paying deposits, in the final quarter of 2020. These orders will be satisfied from production capacity that will increase during the second half of 2020, the initial output of which will be deployed onto the Energy Superhub Oxford project in late 2020 early 2021. Whilst the latest available information regarding the impact of COVID-19 pandemic has been incorporated into the updated the business plan, there still remains some uncertainty as to what the full impact might be on future sales orders and production.

The cash and borrowings balances at the time of writing this review, were £5.1m and £1.0m respectively. The Group's latest cash flow forecasts indicate that, provided sales orders close as forecast, this cash combined with the remaining capacity on the RiverFort Facility will be sufficient to fund the business for at least the next 18 months. Based on encouraging ongoing discussions with potential customers, the Group is confident of meeting, if not exceeding its sales order forecast.

Should the closing of sales orders be delayed by two months, or the level of deposits be more than 50% less than forecast, assuming the Group maintains its current operational capacity, it will be necessary to raise further equity or debt funding before the end of February 2021 to continue trading and deliver on its strategic objectives. Discussions with potential investors and debt providers are ongoing.

Based on the ongoing discussions with potential customers, investors and debt providers, the Board is optimistic that the necessary sales orders or, if delayed, additional funding will be secured in the appropriate time scale. It therefore considers it appropriate to present these financials on a going concern basis. However, the Group's need to secure sales orders or raise additional funding, creates a material uncertainty that casts significant doubt about its ability to continue as a going concern.

In addition to the issues discussed above, the Directors have also reviewed other varying, and wide-ranging information relating to both present and future conditions when reaching their conclusion regarding going concern. These included:

• the opportunity presented by the rapidly emerging energy storage market;

• the commercial viability of Invinity's vanadium flow batteries within this market;

• contracts being delivered and projects currently in the pipeline.

The Group also has established relationships with a number of customers and suppliers and has the continuing support of existing investors, as evidenced by recent fundraises.

Having taken all 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 that exists arising from the need to secure sales deposits or long-term funding within the coming months.

The financial statements do not include any adjustments that would be necessary if the Group was unable to continue as a going concern.

(d) Basis of consolidation

Subsidiaries - subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial information of subsidiaries is included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

Transactions eliminated on consolidation - intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

Disposal of subsidiaries

Transactions that result in loss of control are accounted for by derecognising the previously consolidated assets and liabilities of the subsidiary and the carrying amount of any non-controlling interests in the former subsidiary and recognising any retained investment at its fair value at the date when control is lost and any consideration received. The resulting difference, including any related gains or losses previously recognised in other comprehensive income that qualify to be recycled to profit or loss, is recognised in profit or loss as a gain or loss on the disposal.

(e) Operating segments

Following the disposal of the Camco US business in April 2019 the Group comprises one reporting segment that provides energy storage solutions, using various energy storage technologies including its own durable and robust vanadium flow batteries.

The Groups' Chief Executive Officer (CEO) evaluates the performance of the Group and allocates resources based on the information provided by the Group's internal management system at a consolidated level.

(f) Foreign exchange translation

Functional and presentation currency

The financial statements are presented in Great British Pounds (GBP), the functional currency of the Company, rounded to the nearest thousand pounds Sterling.

Foreign currency transactions  

Transactions in currencies different from the functional currencies of the Company and its subsidiaries are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in currencies that differ from the functional currencies of the Company and its subsidiaries are translated at the exchange rate ruling at the balance sheet date. Foreign exchange differences arising on translation are recognised in the income statement on a net basis.

Non-monetary assets and liabilities that are measured in terms of historical cost in a currency different from the functional currencies of the Company and its subsidiaries are translated using the foreign exchange rate at the date of transaction.

Foreign operations

The historical financial information also includes the accounts of the Company and its subsidiaries whose functional currencies are Euro (EUR), USD (US Dollar), South African Rand (ZAR), Chinese Yuan Renminbi (CNY). Assets and liabilities have been translated using exchange rates prevailing at the end of each reporting period into Sterling. Income and expense items are translated into Sterling at the month-end rate for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in shareholders' equity.

Year-end FX rates to GBPs as applied in the financial statements: EUR 1.1715 (2018: 1.1094), USD 1.312 (2018: 1.2690), CNY 9.1590 (2018: 8.728), ZAR 18.539 (2018: 18.3107).

(g) Discontinued operations

A discontinued operation is a component of the Company's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale. When an operation is classified as a discontinued operation, the comparative income statement is restated as if the operation has been discontinued from the start of the comparative period.

(h) Revenue recognition

Revenue from contract with customers

The Group generates revenue from the sale and installation of energy storage systems and related hardware.

The Group measures revenue based on the consideration specified in the contracts with our customers excluding any tax amounts collected on behalf of third parties. Revenue is recognised when a performance obligation is satisfied by transferring control over a good or service to our customer either over time or at a point in time.

Where the customer has been billed in advance proceeding the performance obligations, the revenue will be deferred and recognised as a contract liability. Where a receivable has been recognised and receipt is not just conditional on the passage of time, the receivable is recognised as a contract asset.

Supply of individual battery units

Transfer of control of the battery units, related hardware and installation service and recognition of related revenue occurs when, considering the obligations of the parties to the sales contract, the battery unit and related hardware has been delivered, installed and are ready to operate.

Supply of integrated energy storage systems consisting of multiple battery units

The Group analyses each contact separately, recognising revenue based on the IFRS15 five-step model.

Warranty

The group provides standard warranty coverage on our systems for 12 months from operation providing remote support, non-consumable parts, and in some cases labour necessary to repair the systems during these warranty periods. These standard warranties cannot be purchased and do not provide a service in addition to the general assurance that the system will perform as promised. As a result, no revenue is allocated to these standard warranties.

Government grants

Government grants are recognised in profit or loss on a systematic basis over the periods in which the expenses, for which the grants are intended to compensate, are recognised in the profit or loss. Grant income may therefore be deferred on the balance sheet and recognised as the related costs are expensed in the profit or loss. Where grants are to compensate acquired assets the income is deducted from the carrying amount of the asset.

A government grant is recognised only when there is reasonable assurance that there is compliance with any conditions attached to the grant and the grant will be received.

(i) Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to business combinations or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or recoverable on the taxable income for the year using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to the tax payable in respect of previous years.

Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax liabilities are recognised only to the extent that they are not offset by unrecognised deferred tax assets.

(j) Employee benefits

Employee share schemes

The Group enters into arrangements that are equity-settled, share-based payments with certain employees (including Directors) in the form of share options. The fair value of these options are estimated at the date of grant and combined with the Group's estimate of options that will eventually vest to arrive at an overall expected value. This value is then amortised through the income statement on a straight-line basis over the vesting period. Fair value is measured by use of an appropriate model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than market conditions linked to the price of the shares of the Company. The charge is adjusted at each balance sheet date to reflect the actual number of shares expected to vest based on non-market performance conditions such as Group profit targets and employment service conditions where appropriate. The movement in cumulative charges since the previous balance sheet is recognised in the income statement, with a corresponding entry in equity.

Where the Company grants share based payment awards over its own shares to employees of its subsidiaries it recognises the corresponding movement directly in equity and recharges in the full the share based payment charge to the relevant subsidiary.

Annual Leave

The annual leave year runs from January to December and it is company policy that all leave must be taken within the year. There is therefore no liability in relation to annual leave at the end of the year.

Defined contribution pension scheme

In the UK, the Group operates a defined contribution retirement benefit plan for qualifying employees. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss when they are due.

(k) Finance income and expense

Finance income comprises interest income on surplus funds. Interest income is recognised as it accrues in profit or loss using the effective interest method.

Finance expenses comprise interest expense on borrowings, vendor credit and finance leases. Finance expenses costs are recognised in profit or loss using the effective interest method.

(l) Earnings per share

The Group presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.

Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS. Anti-dilution is when an increase in earnings per share or a reduction in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.

(m) Goodwill

On acquisitions since 1 January 2009 the group measures goodwill as the fair value of the consideration transferred, including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.

Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration.

A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.

The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree.

Transaction costs that the Group incurs in connection with a business combination, such as finder's fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.

Goodwill is subsequently measured at cost less accumulated impairment losses.

Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment.

(n) Intangible assets

Intangible assets recognised within the balance sheet relate exclusively to intellectual property (IP) as part of the acquisition of redT energy Holdings (Ireland) Ltd (formerly Renewable Energy Dynamics Holdings Limited) (REHI) business in September 2015. The IP related to expenditure incurred within two main categories, Technical Expertise (Personnel Costs) and Other Directly Attributable Administration Expenses incurred by the REHI business since 2010 until the date of acquisition. At the date of acquisition, the IP was capitalised as an intangible asset.

Amortisation of the intangible assets will begin once the energy storage system becomes fully commercialised, with the recognition of revenue in the statement of comprehensive income for the sale of a commercial system - See note 12

(o) Property, plant and equipment

Items of property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent expenditure is included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with that item will flow to the Group. All other repairs and maintenance costs are charged to the consolidated statements of comprehensive loss in the period in which they are incurred.

Depreciation is charged to the consolidated statements of comprehensive loss on a straight-line basis to allocate the costs less residual value over their estimated useful lives as this most closely reflects the expected pattern of consumption of the future economic benefits. Depreciation commences on the date the asset is brought into use. Work in progress assets are not depreciated until they are brought into use and transferred to the appropriate category of property, plant and equipment.

Estimated useful lives for property, plant and equipment are:

Computer and Office Equipment 3 years

Property plant and equipment 3 to 25 years

Leasehold improvements shorter of lease term and useful life

Depreciation methods, useful lives and residual values of assets are reviewed, and adjusted prospectively if appropriate, at each reporting date.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in other gains/(losses) in the consolidated statements of comprehensive loss.

(p) Impairment

The carrying amounts of the Group's property, plant and equipment, goodwill and other intangibles are reviewed at least annually to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For assets that have an indefinite useful life the recoverable amount is estimated at each balance sheet date.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised immediately in the income statement. The recoverable amount is the greater of the fair value less cost of disposal and the value in use. Value in use is calculated as the present value of estimated future cash flows, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

An impairment loss is reversed when there is an indication that the impairment loss may no longer exist because of a change in the estimates used to determine the recoverable amount. An impairment loss is only reversed to the extent that the asset's carrying amount does not exceed the carrying amount that the asset would have had, net of depreciation and amortisation, if no impairment loss had been recognised. An impairment loss in respect of goodwill on acquisition is not reversed.

 (q) Inventory

Raw materials and work in progress

Raw materials and work in progress are stated at the lower of cost and net realisable value.

Finished goods

Finished goods include completed battery systems that are awaiting shipment and is stated at the lower of cost and net realisable value.

Inventory is reviewed on an ongoing basis to ensure that any obsolete stock is written off and the carrying value of all inventory lines are at the lower of cost and net realisable value. The cost of inventories is based on the first-in, first-out principle.

(r) Cash and cash equivalents

Cash and cash equivalents comprise deposits held at call with banks, including amounts placed in money market funds for short-term period of less than 3 months.

(s) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefit will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Warranty

A provision is made for estimated warranty claims in respect of products sold which are still under warranty at the end of the reporting period. Since a warranty claim can be made any time during the warranty period the entire value of the warranty provision has been classified as current.

Onerous Contract

Any contracts relating to the supply, installation, and removal of machines where the unavoidable costs of meeting the remaining obligations under the contract exceed the remaining expected benefits to be received under it are considered onerous contracts. The unavoidable net costs relating to these onerous contracts at the year-end have been accrued and classified as current as they expect to be settled in the following year.

(t) Leases

As explained in note 1(v), the group has changed its accounting policy for leases where the group is the lessee from 1 January 2019. The new policy is described below and the impact of the change in note 22.

Policy to 31 December 2018

Leases of property, plant and equipment where the group, as lessee, had substantially all the risks and rewards of ownership were classified as finance leases. Finance leases were capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, were included in other short term and long-term payables. Each lease payment was allocated between the liability and finance cost. The finance cost was charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases was depreciated over the asset's useful life, or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term.

Leases in which a significant portion of the risks and rewards of ownership were not transferred to the group as lessee were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

Policy from 1 January 2019

At inception of a lease arrangement, the Group assesses whether a contract is, or contains, a lease component that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group accounts for any non-lease components separately from lease components.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset, or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the Group is reasonably certain to exercise that option. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the group's incremental borrowing rate. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability.

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

(t) Leases (continued) 

The Group has elected to apply the practical expedient not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less, as well as leases of low-value assets. The lease payments associated with these leases are recognised as an expense on a straight-line basis over the lease term.

(u) Financial instruments

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

All financial assets are recognised and de-recognised on trade date.

The Group determines the classification of its financial assets on the basis of both the business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets.

A financial asset is measured at amortised cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows, and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The group's financial assets are classified as follows:

Amortised cost

At initial recognition, the Group measures financial assets at amortised cost at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset.

Subsequent to initial recognition, financial assets at amortised cost are measured using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate except for short-term receivables where the interest revenue would be immaterial. Interest income, foreign exchange gains and losses, impairment, and any gain or loss on de-recognition are recognised in profit or loss.

Impairment of financial assets

The Group measures a loss allowance based on the lifetime expected credit losses. Lifetime expected credit losses are estimated based on factors such as the group's past experience of collecting payments, the number of delayed payments in the portfolio past the average credit period, observable changes in national or local economic conditions that correlate with default on receivables, financial difficulty of the borrower, and it becoming probable that the borrower will enter bankruptcy or financial re-organization.

Financial assets are written off when there is no reasonable expectation of recovery.

Financial liabilities

The Group determines the classification of its financial liabilities at initial recognition. The Group's financial liabilities are classified as follows:

Amortised cost

At initial recognition, the group measures financial liabilities at amortised cost at its fair value less transaction costs that are directly attributable to the acquisition of the financial liability.

De-recognition of financial liabilities

The Group de-recognizes financial liabilities when the Group's obligations are discharged, cancelled, or they expire.

(v) Changes in accounting policies

New and amended standards adopted by the group

The group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2019:

· IFRS 16 Leases

· Prepayment Features with Negative Compensation - Amendments to IFRS 9

· Annual Improvements to IFRS Standards 2015 - 2017 Cycle

· Interpretation 23 Uncertainty over Income Tax Treatments.

The group also elected to adopt the following amendments early:

· Definition of Material - Amendments to IAS 1 and IAS 8.

The group had to change its accounting policies as a result of adopting IFRS 16. This is disclosed in note 22. The group has applied IFRS16 recognising the cumulative effect of initially applying IFRS16 as an adjustment to opening equity at 1 January 2019. However, the group has elected to implement the standard in accordance with paragraph C8 (a) and (b) (ii) for leases previously classified as operating leases as follows.

· Recognise a lease liability at 1 January 2019 measuring the lease liability at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate at 1 January 2019.

· Recognise a right-of-use asset at 1 January 2019 which is equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before 1 January 2019.

The other amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

 (v) Changes in accounting policies (continued)

New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

2. Revenue

(a) Revenue

The group's revenue was derived from the following geographical regions:

The Group's revenue was derived from the following geographical regions:

Revenues from contracts with customers were derived from one (2018: three) customer(s) with revenues greater than 10% of revenue from contracts with customers. These customers' revenues were £198,738 (2018: £693,143, £584,456, £572,067)

(b) Assets related to contracts with customers

The Group has not recognised any assets related to contracts with customers.

(c) Liabilities related to contracts with customers

The Group has recognised the following liability related to contracts with customers which is classified in deferred revenue (note 18):

Revenue of £119,242 was recognised in 2019 that was recorded as a contract liability at the end of the previous year.

3. Discontinued operations

On 5 April 2019 the Group completed the divestment of its legacy Camco business with the sale of its wholly owned subsidiary Camco International Group Inc. ('CIG'). This business provides project development and asset management services to biogas projects in the USA.

CIG was sold to an entity controlled by Jim Wiest, Managing Director of CIG therefore the divestment constituted a related party transaction under the AIM Rules. The Directors concluded, having consulted with Investec Bank plc acting in its capacity as the Company's Nominated Adviser, that the terms of the sale were fair and reasonable insofar as the Company's shareholders were concerned.

Cash receipts from the sale consist of a distribution of US$1.0m (£0.8m) received by the UK Group funded by a loan into CIG from a third party plus US$0.5m (£0.4m) of further consideration paid in two instalments, the first paid in April 2019 and the balance in July 2019. The book and fair value of the net assets of CIG at the date of sale were £0.59m, including cash of £0.55m, giving rise to a profit on disposal of £0.6m

In the prior year, the Group ceased its Carbon activities on 10 January 2018 and, on 5 January 2018, it divested its holdings in Camco Africa Limited (CAL) for a nominal amount. The book and fair value of the net assets of CAL at the time of sale were £nil, so the profit on the disposal was also £nil.

The above businesses constitute the discontinued operations in these financial statements. Financial information relating to the discontinued operations to the dates of their disposal / cessation is set out below.

Results of the discontinued operation

The statement of comprehensive income for the year ending 31 December 2018 has been re-stated to reflect the above results on the line "(Loss)/profit from discontinued operations (net of tax)".

4. Breakdown of expenses by nature

The above expenses are charged within administration expenses.

Contributions to defined contribution plan

In the UK the Group operates a defined contribution, retirement benefit plan for qualifying employees. The assets of this plan are held separately from those of the Group. The only obligation of the Group is to make the contributions. There were £14,889 (2018 £15,837) of outstanding payments due to the plan at the balance sheet date.

Staff numbers

The average number of persons employed by the Group (including Executive Directors) during the year in continuing operations was 64 (2018: 70)

Services provided by the Group's auditor:

During the year the Group obtained the following services from the Company's auditor, PricewaterhouseCoopers LLP:

* Net of costs recharged to Avalon

5. Other losses

Included in comprehensive loss are the following:

Merger transaction costs, which are net of recharges to Avalon, include tax advisory, audit-related assurance services and legal advisory.

6. Net finance income / (costs)

* An additional £14k was received in discontinued operations.

7. Income tax expense

Recognised in the statement of comprehensive income

Reconciliation of effective tax rate

The Company's subsidiaries carry on business in other tax regimes where the corporation tax rate is not zero. At 31 December 2019, the Group had tax losses carried forward within certain UK and Irish subsidiaries available for use in future periods amounting to £32,145k (2018: £22,174k). Under current tax legislation these tax losses can be carried forward indefinitely and be set of against future profits arising from the same activities at the tax rate prevailing at that time.

Due to the uncertainty regarding the timing and extent of future profits within these subsidiaries, no deferred tax assets have been recognised in respect of these tax losses. Deferred tax is also not recognised on the timing differences between accounting and tax treatment in these subsidiaries given the off-setting tax losses on which no deferred tax has been recognised.

Deferred Tax

There was no deferred tax charge in year and the deferred tax balance at 31 December 2019 was £nil.

Timing differences and tax losses on which deferred tax is not recognised

8. Share-based payments

Over its history the Group has operated various share-based incentive plans: Long-Term Incentive Plan, the Camco 2006 Executive Share Plan the 2015 redT Employee Share Plan and the 2018 redT Employee Share Plan details of which are given below.

Long-Term Incentive Plan (the "LTIP")

The Board approved the LTIP under which Directors and employees were entitled to equity-settled payment following annual vesting dates from 31 December 2008 up to 31 December 2012, upon certain market and non-market performance conditions being met in the years preceding the vesting dates.

The purpose of the LTIP was to incentivise Directors and employees to meet profit and share price

performance targets over the years ending on the vesting dates. The LTIP aligned Director's objectives with those of the shareholders.

The LTIP is now closed and accordingly no further awards were made during the year. As at the beginning and end of the year, there were 750,000 options, vested and exercisable at 1.0 € cent per share.

Camco 2006 Executive Share Plan (the "Plan")

On 27 July 2012, the Company resolved at a general meeting to amend the terms of the Plan such that awards could be made under the Plan for a period of 10 years from 27 July 2012 over up to 10 per cent of the ordinary shares in issue as 27 July 2012 plus any shares subsequently issued.

Under the Plan the Company can make awards of share options or conditional rights to receive shares ("awards") to selected Directors and employees.

The purpose of the Plan was to incentivise Directors and employees to meet market (share price) and non-market (operational) performance targets over the vesting period.

The Plan is now closed and accordingly no further awards were made during the year. As at the beginning and end of the year there were 3,406,358 options, vested and exercisable, at 1.0 € cent per share.

2015 and 2018 redT employee Share Plans (the "2015 Plan" and "2018 Plan")

On 30 November 2015, the Company resolved at a general meeting to approve the 2015 Plan, which allowed for awards to be made up to 10% of the issued share capital of the Company from time to time.

Under the 2015 Plan the Company can make awards of share options or conditional rights to receive shares ("awards") to selected Directors and employees.

The purpose of the 2015 Plan was to incentivise Directors and employees to meet market (share price) and non-market (operational) performance targets over the vesting period.

On 14 May 2018, the Board adopted the 2018 Plan, which introduced HMRC scheme rules and includes a CSOP, EMI and unapproved part, and the redT energy 2018 Consultant Share Option Plan. The 2018 Plan replaces the 2015 Plan with a share option plan which is able to benefit from tax incentives offered by the UK Government relating to employee share incentives. Where appropriate, options previously granted under the 2015 Plan have been surrendered and reissued on exactly the same commercial terms as they were originally granted under the 2015 Plan.

· On 7 December 2015 the Company awarded several employees (no Directors at the time) the option to acquire an allotted number of ordinary shares of €0.01 in the capital of the Company at exercise prices of 5.60p per share (11,535,321 shares) and 1.179 € cents (1.006p at 31 December 2019 closing £/€ rate) per share (13,898,307 shares). 6,949,153 of the 5.60p options were forfeited in 2016, 416,886 in 2017, 2,779,661 in 2018 and 694,811 in 2019 leaving 694,810 of the 5.60p options and 13,898,307 of the 1.179 € cent options outstanding at 31 December 2019.

· On 13 March 2017 the Company awarded to several employees, including Directors, the option to acquire an allotted number of ordinary shares of €0.01 in the capital of the Company at an exercise price of 8.00p per share (20,225,000 shares). 9,500,000 of these options were forfeited in 2018 and 6,500,000 in 2019, leaving 4,225,000 outstanding at 31 December 2019.

· On 18 May 2018 the Company awarded several employees, including Directors, the option to acquire an allotted number of ordinary shares of €0.01 in the capital of the Company at exercise prices of 5.90p per share (13,521,283 shares) and 7.05p per share (12,399,552 shares). 1,223,407 of the 5.90p options and 3,829,245 of the 7.05p options were forfeited in 2018, 3,074,469 of the 5.90p options and 2,626,499 of the 7.05p options were forfeited in 2019, leaving 9,223,407 of the 5.90p options and 5,943,808 of the 7.05p options outstanding at 31 December 2019.

· On 29 November 2018 the Company awarded several employees (including Directors) the option to acquire an allotted number of ordinary shares of €0.01 in the capital of the Company at exercise prices of 5.95p per share (6,436,113 shares) and 7.00p per share (6,461,109 shares). 100,000 of the 5.95p options were forfeited in 2018, 3,086,111 of the 5.95p options and 1,722,221 of the 7.00p options were forfeited in 2019, leaving 3,250,002 of the 5.95p options and 4,738,888 of the 7.00p options outstanding at 31 December 2019.

Exercise criteria for 2018 Plan (including reissued 2015 Plan) awards

Awards without performance criteria 

24,828,635 unvested options at 31 December 2019: 25% of options vest on the 2nd anniversary of the commencement of employment, a further 25% on the 3rd anniversary of the date of grant, a further 25% on the 4th anniversary of the date of grant and the remainder on the 5th anniversary of the date of grant. The option period will survive after the vesting conditions are satisfied for up to 36 months if the Company remains quoted. The fair value of the options at the date of grant were:

The fair value of these options is measured at the grant date using the Black-Scholes option pricing model taking into account the terms and conditions upon which the instruments were granted combined with management's best estimate of the extent to which options will be forfeited in the future.

Awards with performance criteria 

There were no unvested options with performance criteria remaining at 31 December 2019.

In respect of all the awards above, the fair value at the grant date is recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

The expense charged in respect of these plans is set out below.

The 2019 expense comprises a charge of £421k (including £51k to cover potential employer national insurance contributions) offset by a £410k (including £65k for employer national insurance contributions) reversal of prior year charges due to options forfeited in 2019.

The movements in outstanding unvested and vested options is set out below.

9. Loss per share

Loss per share attributable to equity holders of the Company is calculated as follows:

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the period.

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential shares. Where the inclusion of potentially issuable shares decreases the loss per share (anti-dilutive), the potentially issuable shares have not been included. This was the situation for both the 2019 and 2018 calculations. The weighted average number of shares not included in the diluted share calculation because they were anti-dilutive was 58,551,775 (FY 2018: 44,361,763).

10. Property, plant and equipment

The Group has no property, plant & equipment pledged as security.

The Group's property, plant & equipment are in the following geographical regions:

11. Right-of-use assets

The following table presents right-of-use assets, all of which are premises, for the Group:

*In the previous year, these assets were not recognised as they were assets in relation to leases classified as 'operating leases' under IAS17 Leases. For adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to note 22.

Geographical analysis

The group's right of use assets are in the following geographical regions:

12. Intangible assets and goodwill

Amortisation

Amortisation of the intangible assets will begin once revenue is recognised in the statement of comprehensive income for the sale of a commercially viable energy storage system. Whilst an energy storage system sale was recognised in the year ended 31 December 2019, this related to the sale of the first redT Gen 3 machine which was not manufactured on a commercial basis. The criterion for commencing amortisation has therefore not yet been achieved. A review will be undertaken in 2020 to confirm the amortisation status of the intangible asset, as well as to determine the effective useful life.

Goodwill is not amortised but tested annually for impairment.

Impairment testing

The Group has conducted a formal review to determine whether the carrying value of intangible assets and goodwill can be supported.

As mentioned in the Chairman's Report, on 1 April 2020 the Group merged with Avalon. The justification for the merger relies on closely integrating the two businesses drawing on the specific strengths of each organisation to create an enlarged entity better equipped to address the large and rapidly growing market for energy storage more effectively. Due to the nature of the integrations it is not possible to identify separate CGUs for former redT and Avalon businesses going forward so the goodwill and intangible assets of the merged business will be allocated to a single combined CGU. Therefore, the appropriate approach to determine the recoverable amount of goodwill and intangible assets at 31 December 2019 is fair value less costs of disposal, which is a change from the value in use approach used at 31 December 2018.

Management have concluded that the recoverable amount attributable to intangible assets and goodwill exceeded their carrying amount at 31 December 2019. The key assumption underlying this conclusion is a share price of 1.65p for each o0.01 ordinary share, a level 3 input under IFRS13 - fair value measurement. This is the value attributed to redT that was used to determine the number of shares that were issued to acquire the share capital and debt of Avalon on 1 April 2020.

13. Inventories

The cost of inventory written down during the year was £332k (2018: £592k) and is included in administrative expenses.

14. Other assets

(a) Cash and cash equivalents