Windar Photo Regulatory News (WPHO)

22 December 2020

Windar Photonics plc

("Windar" or the "Company")

Further Issue of Equity

Windar Photonics plc (AIM: WPHO), the technology group that has developed a cost efficient and innovative LiDAR wind sensor for use on electricity generating wind turbines, announces that, further to the announcement on 21 December 2020, it has raised a further £50,000 (before expenses) (the "Subscription") through the issue of 444,444 ordinary shares of 1 pence each in the Company ("Subscription Shares") to an existing shareholder at 11.25 pence per share (the "Issue Price") to satisfy additional, late demand, taking the total amount raised to £545,000 (before expenses).

The Issue Price represents the mid-market closing price of 11.25 pence on 18 December 2020. The Subscription is not being underwritten and is conditional only on admission of the Subscription Shares to trading on AIM. 

Application has been made to the London Stock Exchange for the Subscription Shares to be admitted to trading on AIM and it is expected that such Admission will occur at 8.00 a.m. on Tuesday, 29 December 2020. The Subscription Shares will be issued and credited as fully paid and will rank pari passu in all respects with the existing ordinary shares of 1 pence each of the Company ("Ordinary Shares").

Following Admission, the Company will therefore have 54,595,524 Ordinary Shares in issue, none of which will be held in treasury. This number may be used by shareholders in Windar as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of Windar under the FCA's Disclosure Guidance and Transparency Rules.

For further information, please contact:

Notes to Editors:

Windar Photonics is a technology group that develops cost-efficient and innovative Light Detection and Ranging ("LiDAR") optimisation systems for use on electricity generating wind turbines. LiDAR wind sensors in general are designed to remotely measure wind speed and direction.

http://investor.windarphotonics.com  

Chairman's Statement

As outlined in the June trading update, 2019 was a difficult year for Windar and the Company generated revenue of €1.2 million, a reduction of 66% compared to 2018 (€3.5 million). This decline is mostly attributable to operations in the retro-fit market whilst, more positively, sales in the OEM market were relatively flat year-on-year. In particular, revenues were impacted in 2019 as a result of delays and postponements of projects into 2020, leading to an increased EBITDA loss of €2.8 million (2018: loss of €0.4 million).

However, the management team is confident that the order book, whilst delayed in delivery, will support the business going forward and there are encouraging signs that the OEM market is now starting to adopt integration of Lidar systems for control purposes, illustrated with the recently obtained OEM orders received in 2020 and ongoing test projects.

The retro-fit market operations were expected to develop through 2019 with the end user projects in the Asian region and the growth outside this region as a result of our distribution agreement with Vestas. Unfortunately, delays and postponements within the Asian region impacted our development and this has been compounded by a slower than anticipated build up in activity through the Vestas distribution agreement.

The Company continues to focus on becoming the world's leading LiDAR group for wind optimisation. Part of this strategy is a continued effort to optimise the product suite, whilst continuing our efforts to maintain cost leadership within the industry. In 2019 we were able to reduce our average production costs by around 15% and we expect to see a continued cost reduction in 2020.

In addition to the continued cost optimisation programme, the Company did enter two major development projects, partly funded by Eurostar, the Energy Technology Development and Demonstration Program. The two projects are focused on further enhancing our WindVision products for which OEMs form the target market. Alongside the involvement of Windar and the Danish Technical University, these projects include several of the major European and Asian wind turbine manufactures.

Whilst we continue to believe that our WindVision™ product offering to the OEM market will contribute substantial growth in the coming years, the Company has evaluated the product offerings to the retro-fit markets with the view of establishing a more streamlined future growth path within these markets. Based on these evaluations, the Company has decided to launch a new service offering - Lidar as a Service ("LaaS") - to the retro-fit markets generating more predictable recurring revenues rather than one-off sales. This will be a cloud-based pay per use service, sold by distributors such as larger wind turbine service companies. For this new business, Windar has developed a new self-contained Lidar unit connected to our central analysing control centre in Copenhagen. The LaaS business unit is expected to generate first revenue in 2020 and initial indications of interest provide the board with confidence that this could provide a step change in Windar's financial performance.

Financial Overview

Revenue during the year declined 66% to €1.2 million (2018: €3.5 million). Gross profit was down 47% (2018: 50%) to €0.5 million (2018: €1.8 million).

Net loss for the year before taxes increased to €3.3 million from €0.9 million, which included depreciation, amortisation and warrant costs of €0.3 million (2018: €0.3 million). Among other reasons, but also due to the Covid-19 situation, the Company has experienced problems collecting outstanding receivables in Asia and due to the ongoing uncertainties, the board has decided that it is prudent to make a 100% provision for these outstanding receivables at the end of 2019 of €0.8 million. However, the board considers this an absolutely worst-case outcome and do expect to recover at least some of these receivables.

The Group held cash balances at the end of the year of €0.8 million (2018: €1.7 million) excluding restricted cash balances of €Nil (2018: €0.5 million).

Trade receivables were €0.1 million (2018: €0.6 million), reflecting the impact of the abovementioned provision.

The Group has capitalised its continued cost of investment in technology during the year. This amounts to €0.5 million in 2019 (2018: €0.4 million) before grants of €0.1 million (2018: €0.1 million).

During the year, the Group raised €1.6 million before expenses through the issue of share capital.

Outlook

After many years of test projects, it has been encouraging that, for the first year ever in our history, in 2020 the OEM market segment has now overtaken orders and revenue streams from the retro-fit market in both units and value. However, following the disappointing results in 2019, the Company has proactively changed the distribution network set-up in Asia in 2020, putting agreements in place that we believe could bring significant additional growth to the future orders and revenue streams.

Despite these encouraging developments, 2020 has also seen continued disruptions and delivery postponements, primarily due to the ongoing Covid-19 situation and the Company has also had difficulties in collecting certain outstanding receivables in Asia. Due to various quarantine rules and traveling restrictions, our installation process for products in the field has been particularly affected. As a consequence, parts of order intakes initially planned for delivery in 2020 are now expected to be delivered in 2021. Despite these challenges we still expect to see revenue in 2020 marginally increase compared to the disappointing result in 2019.

The factors outlined above have meant that the Company's cash flow situation has been negatively impacted and cash management is a critical consideration for the management team and is under active review. The Company was able to continue the production and the assembly line in Copenhagen throughout most of the first half of 2020, notwithstanding the impact of Covid-19. This has resulted in the Company being well positioned to satisfy the revised order delivery schedules but has also resulted in the cash flow position being under stress until payment for these deliveries is received. However, management believe that there are a number of actions available to them in order to manage the cash position even considering the current Covid-19 situation.

The Board is actively considering the alternative financing arrangements available to the Company, both to address the short-term working capital issues as a result of the various factors outlined above and to provide the longer-term liquidity required to allow the Company to adjust to longer order and delivery cycles. To this end, I am pleased to confirm that the company has agreed for a Covid-19 loan of €0.4 million from, Vækstfonden, the Danish Growth Fund and the postponement of repayments totalling €0.15 million due in 2021 in respect of the existing Growth Fund loan until the second part of 2025.

Despite the various challenges the Company is facing, our R&D activities remain an important part of our business and the next generation of both the WindVision™ and WindEye™ products are expected to be released at the end of 2020. Besides many new advanced functionalities, an important feature is to drive the unit costs down by approximately 25% compared to current systems.

Overall, our business strategy for the remainder of 2020 and 2021 is based on additional and substantial cost reduction of our products, reduction of staff and the development of the LaaS business model, which we expect will pave the way for a substantially improved financial performance. We believe that the implementation of this strategy will position the Company to take advantage of opportunities arising in the future. In particular, the establishment of the LaaS recurring revenue model will provide further stability to the financial performance of the business going forward and position the Company to take advantage of opportunities available in the market.

Positively, the total order inflow in 2020 has been encouraging at €2.9 million contractually for delivery in 2020. However, due to the ongoing Covid-19 pandemic, the Board expects only to convert approximately €1.3 million of these orders into realised revenue in 2020 with the remaining €1.6 million of the order back-log to be carried into 2021. The Board believe that this order book and outstanding project and customer pipeline stands the Company in a good position moving forward.

In these challenging times I would like to take the opportunity to thank the management and staff for their efforts in 2019.

BY ORDER OF THE BOARD ON November 13, 2020

Johan Blach Petersen

Chairman

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019

COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019

COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019

CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

1. General information

The Company is a public limited company domiciled in the United Kingdom and incorporated under registered number 09024532 in England and Wales. The Company's registered office is 3 More London Riverside, London, SE1 2AQ.

The Group was formed when the Company acquired on 29 August 2014 the entire share capital of Windar Photonics A/S, a company registered in Denmark though the issue of Ordinary Shares.

The financial information set out below does not constitute the company's statutory accounts for 2019 or 2018. Statutory accounts for the years ended 31 December 2019 and 31 December 2018 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for the years ended 31 December 2019 and 31 December 2018 were unqualified, drew attention to a material uncertainty related to going concern by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2019 will be delivered to the Registrar in due course.

2. Going Concern

The consolidated financial statements have been prepared assuming the Group will continue as a going concern. Under the going concern assumption, an entity is anticipated to continue in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations.

Based on the Group's latest trading expectations and associated cash flow forecasts, the directors have considered the cash requirements of the Group. The directors are confident that based on the Group's forecasts and projections, taking account of possible changes in trading performance, the €0.4m Covid loan approved post year end and the post year end share placing which is in progress. it is appropriate to continue to adopt the going concern basis of accounting in preparing these financial statements.

However, Management has noticed non-payments of customer receivables in 2020 primarily from customers in the Asian region due to what Management expect also to be related to the Covid-19 situation and project delays at our customer's end-user level. Combined with the general consequences described above such eventual non-payments illustrates the current uncertainties when projecting a 12 months outlook.

The current cash flow estimate for the coming 12 months does include the following important assumptions:

No cash in-flow from any of receivables written off in the 2019 accounts

Only revenue and payments from customers based upon confirmed written contracts and agreements

Unchanged operation cost base

However, Management highlight the risk that the non-payment by customers can have a severely negative impact both long term but also short term.

In the event, for the reasons stated above the timing of the forecast revenue and customer payments were not to be achieved in the periods expected, the Group may need to seek additional funding to cover those periods where there might be a potential shortfall.

Management has to highlight the very high levels of uncertainties given the various circumstances, which indicates the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. 

Post year end, Management has actively sought alternative financing arrangements due primarily to the Covid pandemic situation, both to address the potential short-term working capital issues and to provide the longer-term liquidity required to allow the Company to adjust to longer order and delivery cycles. Consequently, the Company has been approved for a Covid-19 loan from the Danish Growth Fund for the amount of €0.4 million and postponements of repayments on the existing Growth Fund loan in 2021 of €0.15 million where repayments will now commence from January 2022. Management has further initiated a process of undertaking a share placing of £0.4m (before expenses) which is subject to shareholder approval and certain events or conditions.

3. Basis of preparation

The consolidated financial statements comprise the consolidated financial information of the Group as at 31 December 2019 and are prepared under the historic cost convention, except for the following:

· share based payments and share option and warrant costs

The principal accounting policies adopted in the preparation of the financial information are set out below.

The financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively "IFRSs") issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs").

The acquisition of the subsidiary in 2014 was deemed to be a business combination under common control as the ultimate control before and after the acquisition was the same. As a result, the transaction is outside the scope of IFRS 3 and has been included under the principles of merger accounting by reference to UK GAAP.

4. Revenue

Disaggregation of revenue

The disaggregation of revenue from contracts with customers is as follows:

Deferred revenue of €69,954 (2018: €83,169) relates to performance obligation under contracts that have not yet been completed and are expected to be met in 2020.

5.Segment information

Operation segments are reported as reported to the chief operation decision maker.

The Group has one reportable segment being the sale of LiDAR Wind Measurement and therefore segmental results and assets are disclosed in the consolidated income statement and consolidated statement of financial position.

In 2019, three customers accounted for more than 10 per cent of the revenue each (2018: two customers). The total amount of revenue from these customers amounted to €1,028,380, 88 per cent of the total revenue (2018: €3,145,168 or 90 per cent of the revenue)

Revenue by geographical location of customer:

Geographical information

The parent company is based in the United Kingdom. The information for the geographical area of non-current assets is presented for the most significant area where the Group has operations being Denmark.

Non-current assets for this purpose consist of property, plant and equipment and intangible assets.

6. Finance income and expense

7. Income tax

The tax credit is recognised as 22 per cent. (2018: 22 per cent) of the company's deficit that relates to research and development costs. Companies in Denmark, who conduct research and development and accordingly experience deficits can apply to the Danish tax authorities for a payment equal to 22 per cent. (2018; 22 per cent) of deficits relating to research and development costs up to DKK 25 million.

(c) Deferred tax - Group

In view of the tax losses carried forward and other timing differences there is a deferred tax asset of approximately €2,549,025 (2018: €2,100,238) which has not been recognised in these Financial Statements, given uncertainty around timing and availability of sufficient taxable profits in the relevant Company.

(d) Deferred tax - Company

In view of the tax losses carried forward and other differences there is a deferred tax asset of approximately €281,199 (2018: €205,968) which has not been recognised in these Financial Statements, given uncertainty around timing and availability of future profit against which the losses will be able to be used.

All taxes recognized in the statement of Comprehensive income are denominated in DKK.

8. Loss per share

The loss and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:

There is no dilutive effect of the warrants (note 18) as the dilution would reduce the loss per share.

9. Dividends

No dividends were proposed by the Group during the period under review (2018: €Nil).

10. Intangible assets

The Group has received Research and Development Grants from Energiteknologisk Udvikling og Demonstration Projekt of €81,216 (2018: €108,779) in respect of the capitalised research and development. At the end of the year a new EUDP project was granted in the amount of €508,722 which can be claimed in the coming three years (2018: €Nil).

The company's development projects relate to the development of improved performance and functionality, improved components etc. in the company's products.

Measurement of the development projects are based on realization of the company's business plan and budgets, particularly realization of expected growth in revenue.

11. Property, plant & equipment

12. Inventory

The cost of inventory sold and recognised as an expense during the year was €639,555 (2018: €1,268,040).

13. Trade and other receivables

At the end of 2019 the group had debtors, primarily in China, where in 2020 there were non-payments from these customers. It has not been possible to obtain clarification of the possibility of collection of these receivables before approving the annual report.

Due to the general uncertainties, Management have made the judgement to take a worst case approach and made a full provision with the hope that at least part of the provision can be recovered in the future.

The carrying value of trade and other receivables classified at amortised cost approximates fair value.

Gross carrying amount 0 0 127,320 127,320

Loss provision - - (93,694) (93,694)

Net carrying amount 0 0 33,326 33,326

Trade and other receivables represent financial assets and are considered for impairment on an expected credit loss model. These assets have historically had immaterial levels of bad debt and are with credit worthy customers, and as the Group trades with a concentrated number of customers and utilises export credit facilities the Group has reviewed trade receivables on an individual basis. Additionally, the Group continues to trade with the same customers and therefore the future expected credit losses have been considered in line with the past performance of the customers in the recovery of their receivables. The implementation of IFRS 9 has therefore not resulted in a change to the impairment provision in the current or prior year.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. The expected loss rates are based on the Group's historical credit losses experienced over the three year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on factors affecting the Group's customers including the area of operations of those debtors and the advancing market for wind power and the Group's products. The assessment of the expected credit risk for the year has not increased, when looking at the factors affecting the risk noted above.

There is no material difference between the net book value and the fair values of trade and other receivables due to their short-term nature.

Other classes of financial assets included within trade and other receivables do not contain impaired assets.

Of the net trade receivables €49,750 (2018: €13,096) was pledged as security for the invoice discounting facility. The Group is committed to underwrite any of the debts transferred and therefore continues to recognise the debts sold within trade receivables until the debtors repay or default. Since the trade receivables continue to be recognised, the business model of the Group is not affected. The proceeds from transferring the debts of are included in other financial liabilities until the debts are collected or the Group makes good any losses incurred by the service provider.

14. Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise the following balances with original maturity less than 90 days:

The Group has restricted cash balances of €360,000 (2018: € 518,138) but a provision of the full amount is made at the end of the year due to no payment from the customer in 2020. The restricted cash balances relate to transactions entered into between the Group and external financial parties. When EKF has credit approved a customer EKF, issues a non-recourse payment guarantee to an external financial party typically of 80% to 90% of the face value of the transaction. Upon shipment of the products the Group then sells the invoice to the external financial party at face value subject to depositing and pledging a cash amount equal to the difference between the face value of the invoice and the EKF guarantee. When the customer pays typically one year later, the full invoice amount to the financial party, the deposit is paid in full to the Group.

15. Notes supporting statement of cash flows

16. Trade and other payables

The invoice discounting arrangement is secured upon the trade debtors to which the arrangement relates.

There is no material difference between the net book value and the fair values of current trade and other payables due to their short-term nature.

17. Borrowings

The carrying value and fair value of the Group's borrowings are as follows:

The Growth Fund borrowing from the Danish public institution, Vækstfonden, initially bore interest at a fixed annual rate of 12 per cent with a full bullet repayment in June 2020. As announced on June 29, 2020 terms for the borrowing was renewed whereafter the interest rate was reduced to 7 percent p.a. and the loan to be repaid in equal quarterly instalments over the period from 1 July, 2021 until 1 July, 2025. The terms have been further amended in October 2020, whereby the instalments in the second half of 2021 have been extended to the second half of 2025 whereafter the quarterly instalments are due on 1 January 2022 until 1 January 2026.

The loan from Nordea Ejendomme is in respect of amounts included in the fitting out of the offices in Denmark. The loan is repayable over the 6 years and matures in November 2021 and carries a fixed interest rate of 6 per cent.

Both loans are denominated in Danish Kroner.

The Company had no borrowings.

18. Share capital

On December 12 2019 the company issued 4,076,348 ordinary shares of 1 pence each for a cash consideration at £0.275 per share. On 12 July 2018 the Company issued 2,700,000 ordinary shares of 1 pence each for cash consideration at £0.82 per share.

On 3 January and 8 January in 2020 the company completed the 12 December, 2019 capital raise by issuing an additional 1,166,363 ordinary shares of 1 pence each for a cash consideration at £0.275 per share.

At 31 December 2019 the share capital comprises 49,626,080 shares of 1 pence each.

Warrants and share options

Warrants and share options are granted to Directors and employees.

195,000 new share options or warrants were granted in 2019. The options were issued at a strike price of £1 a third vesting on each anniversary for the first three years. The options have a 10-year life. The price of the share at the time of issue was £0.24. The risk-free rate was 1.15%. The expected volatility is based on historical volatility of the AIM market over the last two years and is estimated to be 40%.

The share options issued in 2017 are valued using the Black-Scholes pricing model and no performance conditions are included in the fair value calculations. The options were issued at a strike price of £1 a third vesting on each anniversary for the first three years whereafter, the options have a 10-year life. The price of the share at the time of issue was £0.88. The risk-free rate was 1.15%. The expected volatility is based on historical volatility of the AIM market over the last two years and is estimated to be 40%.

The average share price during the year was 50.00 pence (2018: 88.25 pence). At the year end the Company had the following warrants and options outstanding:

The number of options and warrants exercisable at 31 December 2019 is warrants 1,520,956 (2018: 1,520,956) and options 241,666 (2018: 120,833).

19. Operating Leases

The total future value of the minimum lease payment is due as follows:

All leasing commitments are in respect of property and cars leased by the Group. The terms of property leases vary from country to country, although they all tend to be tenant repairing with rent reviews every 2 to 5 years. The Company has not entered any leases in 2020 with maturity longer than 6 months.

20. Warranty provision

The Group typically provides a two-year warranty period to customers on products sold. Warranty expenses/(income) charged to the Statement of Comprehensive Income amounted to €(9,995) (2018: €9,439) corresponding to a warranty cost percentage of (0.4)% (2018: 0.2%) relative to the prior two years revenue. However, due to the early business stage of the Group and the uncertainty following this the Group has adopted a policy to accrue a 4% provision based on the prior two years deliveries calculated with the cost of goods sold at the end of the period.

21. Related Party Transactions

Jørgen Korsgaard Jensen and Johan Blach Petersen are directors and shareholders of Wavetouch Denmark A/S (Wavetouch) and OPDI Technologies A/S (OPDI). Wavetouch has during the year rented office space from Windar Photonics A/S, the amount payable during the year to Windar was €32,145 (2018: €32,196). There were amounts outstanding at the year end to Wavetouch €167,527 (2018: €72,853). At the end of the year there were amounts outstanding to OPDI of € Nil (2018: € 31,426).

Intercompany transactions