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INVINITY ENERGY SYSTEMS PLC
Suite 4.12 Clerkenwell Workshops
27-31 Clerkenwell Close
London
EC1R 0AT
United Kingdom
Telephone +44 (0)204 551 0361
Website invinity.com
Twitter @InvinityEnergy
Jersey registered 92432
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
STRATEGIC REPORT
Chairman’s report
Chief Executive Officer’s report
Chief Financial Officer’s report
Sustainable Investing and ESG
Risk management report
1
2
6
8
10
GOVERNANCE
13
The Board of directors
15
Governance report
19
Report of the Chairman of the Audit & Risk Committee
21
Report of the Chairman of the Nomination Committee
Report of the Chairman of the Remuneration Committee 22
23
Directors’ remuneration report
Directors’ report
33
Statement of Directors’ responsibilities in respect
of the financial statements
Independent auditor’s report to the members
36
of Invinity Energy Systems plc
FINANCIAL STATEMENTS
Consolidated statement of comprehensive loss
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
OTHER INFORMATION
Officers and advisers
37
43
44
45
46
47
96
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Invinity Energy Systems plc
Chairman’s report
The adoption of net zero commitments by the world’s
largest economies, biggest companies and most
influential organisations is leading to the increasingly
rapid roll-out of renewable energy projects. This
provides Invinity with an unprecedented opportunity
to benefit from its strategic focus on stationary energy
storage with its Vanadium Flow Battery (“VFB”) product.
With the UN Climate Change Conference of Parties
(COP26) scheduled for November this year in Glasgow,
I have noted a distinctive uptick in urgency to practically
address climate change, accelerating progress toward
a future increasingly powered by low-carbon energy
sources. Energy storage is the bridge to take power
from clean, low-cost but fundamentally intermittent
solar and wind energy to round-the-clock reliable power.
It is becoming abundantly clear that there is a vast
opportunity for energy storage manufacturers such
as Invinity.
In my report last year, I noted that 2020 would be a
transformational year for the group. I am accordingly
pleased to report that Invinity has had a breakthrough
first year, successfully completing the transatlantic
merger, launching a new product under a new brand, and
building an organisation capable of scaling up to meet
the opportunity in front of us.
These steps were accomplished during the most
challenging year in recent history. Successfully merging
two companies on either side of the Atlantic, whilst
servicing existing customers and launching a new product
in a highly competitive space is a difficult task at the best
of times, let alone during a global pandemic. COVID-19
has understandably had a disruptive effect on the group’s
activities, introducing additional challenges for the Invinity
team, our customers, partners and suppliers.
However, I am delighted to report that despite COVID-19,
the group made tremendous progress. In 2020, Invinity
closed 18.6MWh of sales contracts which more than
doubled the combined sales of redT and Avalon pre-
merger. In addition, we successfully rolled out a new “best
of both” product, the VS3, and ended the year with an
oversubscribed £22.5m placing and open offer, before
expenses. This fund raising is providing expansion capital
to scale up the business in line with growing demand for
our VFBs.
I would like to commend our executives for their leadership
during the period and express my sincere thanks to, and
respect for, the entire Invinity team for its unwavering
dedication and enthusiasm in delivering the progress we
have seen. I would also like to thank my Board colleagues
for their support and contribution. Larry Zulch and Matt
Harper joined the board from Avalon in the roles of
Chief Executive Officer and Chief Commercial Officer,
respectively, and have since been joined by Peter Dixon-
Clarke in the role of Chief Financial Officer. I would also
like to record my thanks to Fraser Welham who steered
us through the merger before stepping down as Chief
Financial Officer and from the Board in August 2020. We
have also seen changes on the Non-Executive front and I
am pleased to welcome Rajat Kohli who joined the Board
in June 2020.
I am also extremely pleased to note the recent
announcement of a Joint Development and
Commercialisation Agreement with Gamesa Electric, a wholly
owned subsidiary of Siemens Gamesa Renewable Energy
(“SGRE”). This partnership with a global leader to develop
a new grid-scale product represents important validation
of our core technology, underscores the importance of our
achievements to date and serves to highlight the magnitude
of the commercial opportunity ahead for VFBs.
In closing, 2020 saw the successful creation of an effective
and cohesive organisation with strong foundations on
which to build a sustainable business. The period saw
Invinity navigate the vast array of challenges presented
by the COVID-19 pandemic and emerge stronger
for doing so. 2021 has seen the business focus on
delivering our projects, converting our growing pipeline
of commercial interest into closed sales and scaling the
business responsibly to generate long term value for our
shareholders.
As the world looks to a sustainable future, Invinity’s
prospects look ever brighter. I look forward to another
successful year in 2021.
Neil O’Brien
Chairman
30 June 2021
1
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Chief Executive Officer’s report
2020 was quite a year. For the group, it was the year that
Invinity was formed with the objective to establish the
commercial viability of vanadium flow batteries (“VFBs”).
I’m pleased to report that the company has made
important progress in that effort as I’ll detail below.
Macro trends are supporting Invinity’s prospects. The
global transition to low-carbon energy sources is
accelerating. Whether sun, wind, or tide, renewable
energy production is fundamentally intermittent. That
intermittency requires large-scale, long-duration, and
durable energy storage to make energy available when
it is needed, to make renewable energy ‘dispatchable.’
That’s where Invinity comes in, with highly advanced
products using proven VFB technology. Invinity’s batteries
have unique characteristics that strongly position our
products within emerging segments of the stationary
energy storage landscape.
Commercial: Growing market share with record-
breaking sales
During 2020, Invinity’s commercial group, led by Chief
Commercial Officer Matt Harper, closed VFB sales
totalling 18.6 MWh with customers in seven countries. In
one year, our team sold VFBs with twice the capacity of
the entire redT and Avalon historical fleets combined.
Not only do these sales demonstrate growing acceptance
of our technology, many of them are also ‘beachhead’
projects with significant opportunities for follow-on sales.
These projects were not confined to a single market
segment. Some were in “grid services” (support of electric
transmission and consumption), others in “renewable
energy smoothing” (taming intermittency) and yet
more in “commercial and industrial” (resilience and self-
consumption of renewable energy).
Projects closed in 2020 include:
5 MWh Energy Superhub Oxford project, UK;
1.8 MWh Flow + Hydrogen + Tidal project, Orkney
Islands, UK;
0.5 MWh California Energy Commission funded project,
California, USA;
8 MWh Yadlamalka Energy solar-plus-storage power
plant, South Australia; and
0.8 MWh Scottish Water treatment plant solar-plus-
storage, Perth, UK.
I will discuss our organisation’s progress towards the
delivery of these projects in the Execution section of this
report.
Our commercial group continues to focus on new
opportunities, which have been abundant, especially in
our core markets in California and the rest of the USA, UK
and Australia. Major factors that are helping accelerate
our commercial progress in 2021 include:
widespread acceptance of the critical nature of energy
storage in the transition to renewable energy-based
economies;
greater understanding of the limitations of lithium-
based battery systems and emerging appreciation
for VFB’s strengths in high cycle and long duration
applications
storage-oriented, and particularly alternative-to-
lithium-focused, competition and grant opportunities in
the UK and USA; and
favourable tax treatment and policy developments for
‘renewables plus energy storage’ projects across the
globe as governments look to stimulate investment as
part of their pandemic recovery strategies.
Our commercial group has observed that the average
project value we encounter has grown more rapidly than
expected, up 44% year-on-year. While this is certainly
positive in general, larger deals take longer to close, and
the pandemic’s influence has also led to delays. Since
we don’t disclose details of deals that are not signed, we
find delays can create frustrating silences despite positive
assurances “behind the scenes.” Ultimately, our disciplined
recognition of projects is healthy and helps build our
credibility. I’m pleased to report that our future sales
prospects are strong.
Further bolstering what we believe is our emerging
reputation for delivering on our promises is the process we
employ for assembling our sales pipeline. All of our sales’
opportunities, as is typical for our industry, move through
a series of stages, sometimes in a few short months, but
often taking well over a year.
2
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION We take a conservative approach to the categorisation
of our sales prospects and do not place a deal in the
‘Pipeline’ category until we are confident that there is a
realistic prospect of us winning it. Deals only move from
the broad “Pipeline” category to “Upside” (relative to our
Base category) when our confidence in its close has grown
considerably, generally when our customers have informed
us that we have won their business. We set all of our internal
planning, including reservation of production slots and
working capital, on deals in our “Base” category, displaying
our high level of confidence that they will close because
we are actively negotiating the sales contract. Despite that
high confidence, some deals in the “Base” category do fall
through; in those rare cases, we usually find we don’t have
to wait long to fill those empty production slots with new
opportunities from the Upside list.
Below are the current numbers in each category, as at
17 May 2021. Since the previous reported figures (17 March
2021) we continued to see strong growth in our overall
pipeline, which has increased 30% overall since 17 March
2021 and 70% since the company released its Admission
Document in March 2020. This has been accompanied by
a notable increase in the Base over the same periods. I
note the reduction in the Upside category reported below
which was primarily due to a delay to the expected close
date of a single large project well into 2022, with that
project now forming part of our Pipeline.
Closed
Base
Upside
Pipeline
17 May 2021
19.1 MWh
4 March 2021 18.6 MWh
10.1 MWh 30.8 MWh 232 MWh
9.1 MWh 50.3 MWh 143.7 MWh
% Change
+3%
+11%
-39%
+61%
Further details on the above, including fundamental
methodology and category definitions, are available in
the company’s recent regulatory filings.
Execution: Delivering on our promises
While our commercial team has been focused on signing
new business, we have three highly capable teams
working toward delivering already closed projects. The
successful delivery and commissioning of our committed
new projects is the Company’s single highest priority.
Execution starts with our Solutions Engineering team
under the leadership of Jean-Louis Cols, our Vice
President Solutions Engineering who is based in Bathgate.
Mr. Cols’ team determines what is needed to ensure
our product capabilities meet our customers’ project
requirements. I mentioned above how the variety of our
projects – they run the gamut from storing tidal power
for efficient operation of a hydrogen electrolyser in the
Scottish islands, to maintaining grid stability in South
Australia with a “solar power plant,” to supporting the
electrification of Oxford – means each one can be
viewed as a beachhead into a broader market. However,
that variety provides unique challenges for the Solutions
Engineering team, often preventing them from realising
the efficiencies achieved by repetition. Fortunately, I’m
confident they are up to the task and that follow-on
projects will benefit from their pioneering work.
Next is our Operations team under the leadership of Neil
Lang, our Chief Operating Officer, based in Vancouver.
Mr. Lang’s team is tasked with assembling a global
supply chain for the components of our battery systems
and arranging for the manufacture and shipping of the
completed product. This far-from-simple task was made
significantly more complex in 2020 (and in 2021) by the
impact of COVID-19. Neil’s team has adapted to industry-
wide challenges in supplier production, congested
shipping, temporary assembly-line shutdowns and more.
While the net result has been the introduction of delays
into some of our manufacturing lead-times, it could
have been much worse had the Operations team not
successfully performed exceptional work to anticipate
and prevent major issues.
Finally, our Customer Operations team, under the
leadership of Sean Ellickson, our Vice President Customer
Operations in Vancouver, is responsible for project
installation and commissioning. Mr. Ellickson’s team’s
other responsibility is ensuring that our customers have a
great experience with our systems once they have been
installed, including the fleet installed by Avalon and redT,
a global task also impacted by the pandemic.
I’ve gone into some detail about the three teams
delivering on projects as they merit more recognition
than they typically get and because I’m very proud to be
working with such talented, hard-working people. Their
capabilities are a major asset of the company.
3
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Integration: Laying the foundations for sustainable growth
Our primary operational focus in our first year was to
successfully integrate redT energy and Avalon Battery into
a single, scalable organisation operating as one company
under a single brand. The progression of Invinity Energy
Systems from a concept to a unified and integrated
company affected every element of the business from
accounting, HR and IT systems to product development
and solution engineering, to supply chain and operations,
to sales, marketing and all other commercial activities.
It would not have been our first choice to conduct this
integration in the teeth of a global pandemic, but our
teams worked remotely across oceans and took on the
challenge with resolve and fortitude.
Notable integration accomplishments in 2020 included
the rapid development of a website and brand,
designing and launching the latest generation of our
VFB, the VS3, using technologies from both companies
and creating a single organisation characterised by
functional rather than geographic divisions. We scaled
up our manufacturing capabilities and met regulatory
and exchange requirements in a timely manner with
information assembled from operations around the world.
Product Direction
Fundamentally, Invinity is a product company. We
build the most advanced VFBs available today as
demonstrated by manufacturing a sophisticated, high-
performance product at scale in a factory, but we are by
no means satisfied.
We must reduce the cost of our battery systems yet
further. In applications where our VFB’s ability to cycle
without degradation is paramount, or the duration
of energy storage is relatively long, we are already
economically competitive. There are applications, however,
where our VFBs are suitable – and may even be the most
economical alternative over the life of the project – but
their higher initial cost prevents them from currently being
considered for deployment. Lowering costs will expand our
ability to access those market applications.
We are aggressively reducing costs in our current VS3
product. It starts with the product development process
under the leadership of Brian Adams, Vice President of
Product Development in Vancouver. Mr. Adams’ team
focuses on cost, performance and reliability, bringing to
the product design process innovations based on their
extensive analysis of our flow batteries in operation in
the field and their vast experience in flow battery design.
The Product Development team’s work incorporates
performance improvements based on the innovative work
in electrochemistry performed by our Technology team
under the direction of Andy Klassen, our Chief Technology
Officer also in Vancouver.
Invinity’s product and technical teams have focused
on product design and manufacturing process
improvements. They have been able to enhance
performance of the VS3 modular product platform and
enable greater factory production rates. Advances
achieved over the period include improved product
modularity to deliver large battery arrays faster,
enhanced battery management systems (BMS) and
updated cell stack component design for manufacture as
well as various other performance improvements. Other
notable R&D achievements included advances in core
technology materials science, improved BMS algorithms
and the granting of 18 additional international patents.
Improvements in product design delivering solutions for
innovative applications closed by our Commercial team
produce a “virtuous circle.” Improved economics from
design-for-manufacturing improvements and higher
volume production result in lower manufacturing costs.
Those reduced costs unlock additional sales opportunities
that increase production volume. The resulting cost
reductions drive even more business.
Meeting energy storage requirements at grid scale,
with project sizes an order of magnitude bigger than
our current largest contracts to date, will require further
development and even lower product costs as measured
primarily by Levelized Cost of Storage (LCOS), a cost
analysis methodology that views the entire project
cost and capabilities over the project life. Large project
developers, such as electric utilities, tend to focus on
LCOS. We are highly confident in our ability to achieve
significant advances in this area as I will detail further in
the “looking to the future” section of my report.
4
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION As a multi-year undertaking, it will require determination
on our part and patience on the part of our shareholders,
but the scale of the opportunity and its potential rewards
are enormous. We will do our utmost to deliver on the
potential for VFBs to become a leading part of the world’s
push towards a sustainable and profitable net-zero future.
In closing, I would like to acknowledge Invinity’s most
important asset: our dedicated and hard-working
staff who meet each new challenge with passion and
enthusiasm. I am extremely proud to be working with
such a fine team. My sincere appreciation also to our
shareholders, both retail and institutional, for their
continued support during a crucial phase for our business.
We will uphold your trust.
Larry Zulch
Chief Executive Officer
30 June 2021
Corporate & Financial
The favourable conditions for energy storage and the
advanced state of our integration led us in 2020 to
analyse the capital requirements needed to best meet
the market opportunity we could see so clearly in front of
us. That led to a highly successful fundraising completed
in December 2020 of £22.5m, before expenses, that
put the group in a position to grow with our current VS3
product and to develop the next generation of VFB
simultaneously.
We have remained vigilant about expenses and have
undertaken a rigorous process regarding additions to
headcount. This has led to the group currently employing
125 people, up from 101 at the end of 2020 and 85 at the
merger. The Group made a loss for the year of £24.3m
as we invested in integration and the future. This, along
with other financial matters, are covered in more detail
by Peter Dixon-Clarke, our CFO, in his report.
Looking to the future
If 2020 was the year for Invinity to set the stage for future
success – merging two companies, integrating our teams,
establishing commercial traction and raising capital –
2021 is the year in which we start to demonstrate our
capabilities on a wider stage.
As we successfully deploy the large projects that are
underway, we will demonstrate with experience across
a broad spectrum of applications what we have known
to be true: our VFBs work well at scale and are the best
option for a large number of energy storage requirements.
As we make improvements to, and lower costs of, our VS3
VFB, we will demonstrate our ongoing commitment to
product evolution through improving performance without
sacrificing reliability.
As we announce new signed deals, we will demonstrate
our ability to succeed commercially and grow our share of
the emerging energy storage market.
We will do all of this while embarking on the product
development process announced on 11 May of this year,
working with Gamesa Electric, the power electronics
subsidiary of Siemens Gamesa Renewable Energy,
to create a next-generation, grid-scale VFB and
jointly commercialise the resulting product. This Joint
Development and Commercialisation Agreement, after
extensive interactions between the parties, represents
tremendous validation of and opportunity for Invinity.
5
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Chief Financial Officer’s report
2020 was an exceptional year, and not just because of
the global pandemic. Each of the three core themes were
‘one-offs’, being: the completion of the group merger;
the refinancing of the merged group; and the first steps
in commercialising the new combined product, the VS3.
Operations
The results and balances of Avalon have been
consolidated into the group’s results from the effective
date of the merger, being 1 April 2020. The results of
Avalon are not included in any comparative financial
information.
The merger between redT energy plc and Avalon Battery
Corporation (Avalon) was completed on 1 April 2020, and
the Avalon results have been incorporated from that
point. Avalon was acquired in an all-share purchase for
£17.3m, which generated goodwill of £18.2m.
The refinancing of the merged group was achieved
by way of two placings and open offers, along with a
convertible loan, which was fully converted into shares
before the year end. The total value raised was £30.8m
and is summarised below. All values are after expenses:
First placing and open offer
Riverfort facility – converted to equity
Second placing and open offer
£m
7.4
1.9
21.5
30.8
The post-merger product, the VS3, was launched in
the year and combines the modular approach of the
Avalon Flow Battery (AFB) with know-how from the redT
product (Gen3). At six-times the output per minimum unit
size of the AFB, the VS3 enjoys the cost benefits of both
standardisation and scale.
The most significant step in commercialising the VS3 was
the closure of sales contracts totalling 18.6MWh during
the year. The contracts represent future revenue of
approximately £11.7m, the majority of which is expected
to be recognised in the second half of 2021. Of this
balance, £2.6m had already been received as deposits
by the year end.
The group made a gross loss of £0.8m (2019: £0.1m) and
a total loss of £26.4m (2019: £7.7m) for the year ended
December 2020.
All £0.4m (2019: £0.2m) of the recognised revenue related
to sales contracts for the pre-merger Avalon AFB product.
The associated cost of these sales was £1.2m (2019: £0.3m)
and, whilst this generated a gross loss, losses only arose
from the first two of the seven sales contracts signed,
with all subsequent sales delivered at a gross profit. In
addition, the company incurred relatively high costs
related to unabsorbed overheads from manufacturing
downtime that is not expected to reoccur post-lockdown.
Increased administrative expenses of £9.6m (2019: £6.6m)
reflects the greater operational and geographic scale of
the combined group. Of the £9.6m, £5.8m relates to staff
costs (including accounting charges for share-based
compensation), £1.1m to research & development (none of
which was capitalised during the year) and approximately
£1.0m related to professional fees (2019: £0.7m).
Other items of operating income and expense of £9.8m
(2019: £0.8m) related primarily to the £6.1m write-off of
historic redT capitalised development costs related to
the legacy Gen 3 machine that was discontinued in
the year and a £2.1m provision for onerous contracts
(of which £1.0m was charged against Inventory
purchased to service those contracts).
The increase in the onerous contract provision reflects the
decision to early adopt the amendment to IAS 37 that
requires inclusion of an estimate of indirect overhead to
service a warranty claim when establishing a provision
together with the number and size of open sales contracts
at the year end. Direct costs were also impacted by a
spike in international shipping rates and increased steel
costs caused by the second global lockdown.
6
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Financing
Net financing costs of £2.3m (2019: net financing income
of £0.1m) were incurred during the year, of which the
majority related to the share-conversion feature included
in the Riverfort convertible loan facility. More than 90% of
financing costs incurred during the year were non-cash
in nature.
Outlook
Delivery of the existing contracts is the operating priority
for 2021. Not least because successfully delivered
contracts act as a catalyst for future VS3 sales, generate
additional cash and will allow the related revenue to be
recognised in the second half of 2021.
At the end of the year, the group had cash on hand of
£22.0m and had no debt, having converted both the
$5.0 million Bushveld facility and the £2.0m Riverfort facility
including accrued interest and charges, to equity during
the year. Cash movements in the year were as follows:
Along with delivery, focus will remain on driving
down the existing product cost base. In addition to
the opportunities from scaling up and increasing
manufacturing efficiencies, will be the anticipated savings
as the global supply chain begins returning to pre-
lockdown pricing, particularly for shipping and steel.
Cash at 1 January 2020
Net operating outflows
Investing outflows
Cash acquired in merger
Refinancing, net (see above)
Cash at 31 December 2020
Peter Dixon-Clarke
Chief Financial Officer
30 June 2021
£m
1.2
(10.9)
(0.4)
1.3
30.8
22.0
Going concern
The group’s cash balances at the end of May 2021
totalled £14.3m. Latest cash flow forecasts indicate
average monthly cash usage is expected to continue at
approximately £1.1m per month over the next 12 months
and indicate that, provided existing contracts are
delivered and new contracts are signed as forecast and
that materials costs start to return to pre-lockdown levels
in 2022, the existing cash will be sufficient to fund the
business for at least the next 12 months
As with many companies at this stage in the development
cycle the company is reliant on timely sales receipts
and should customer receipts from delivering existing
contracts or closing new contracts be delayed by two
months or more or costs do not start to return to pre-
lockdown levels then, assuming the Group maintains
its current operational capacity, it will be necessary to
raise further funding within the next 12 months in order to
continue trading and to deliver on its strategic objectives.
A detailed summary of the factors considered by the
Board in making the going concern assessment in respect
of this Annual Report and Financial Statements together
with a description of the material uncertainty that exists
is included in the Directors’ Report on pages 33-35 and in
Basis of Preparation contained in Note 2 to the Financial
Statements.
7
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Sustainable Investing and ESG
As a company at the forefront of the global energy transition, Invinity is committed to operating responsibly and
sustainably in the pursuit of our corporate mission. We aim to make a meaningful contribution to all of the UN’s
Sustainable Development Goals (SDGs), focussing primarily on supporting UN SDG 7 (Affordable and Clean Energy)
and UN SDG 13 (Climate Action).
Furthermore, Invinity is proud to have been one of the first recipients of the London Stock Exchange’s Green Economy
Mark, which recognises companies that derive 50% or more of their total annual revenues from products and services
that contribute to the global green economy.
Environmental Impact
We are committed to Climate Action. The core activity of our business is concerned with accelerating the global
transition to a low-carbon energy system. Invinity’s Vanadium Flow Batteries (“VFB”) complement renewable energy
generation such as solar PV, wind turbines and tidal power to deliver ‘dispatchable’, on-demand energy. Together,
these resources can displace fossil fuel powered generation and accelerate the phasing out of coal and gas from the
global generation mix while continuing to deliver the reliable, low-cost power that is the cornerstone of our modern
energy system without having a destabilising effect on the grid.
Our VFBs are also highly recyclable, consisting primarily of easily and widely recyclable materials. For instance, the
vanadium which is used in the electrolyte in our VFBs is found in abundance in the earth’s crust and can be reused and
recycled almost indefinitely. Furthermore, our batteries also do not use so-called ‘conflict minerals’, such as Cobalt.
8
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Today, our batteries are installed at numerous sites across the world, playing a key role in renewable energy projects
which deliver significant CO2 savings on an ongoing basis for energy intensive businesses, industry and electricity
networks.
As a fast-growing company that provides solutions which help avoid or remove emissions, we are fully committed to
taking action to reduce our own carbon footprint and in recognition of the United Nation’s Race to Zero Campaign,
we have signed up to The SME Climate Commitment.
Because of the threat that climate change poses to the economy, nature and society-at-large, our Company
commits to take action immediately in order to:
Halve our carbon intensity (on a CO2/revenue basis) before 2030;
Achieve net zero emissions before 2050;
Disclose our progress on a yearly basis.
In doing so, we are proud to be recognised by the United Nation’s Race to Zero campaign, and join governments,
businesses, cities, regions, and universities around the world with the same mission.
Social Impact
We empower our people, partners and customers to change the world. Invinity is committed to fulfilling our social
responsibility to all stakeholders and making a positive social impact within the communities in which we operate.
We are committed to business and development growth that incorporates:
being a great place to work – We treat our people fairly, training and developing them to be the best they can
be and providing a work/life balance;
supporting employee health, safety and wellbeing – We ensure our people leave work as healthy as they arrive,
while constantly striving to provide a safe working environment;
strengthening diversity and inclusion – We value all our people equally and are committed to building a workplace
free from harassment where individuals can flourish;
collaborating with our communities – We are committed to sharing our knowledge with schools, colleges and
universities with particular reference to the STEM agenda; and
giving something back – In addition to working with education establishments, as Invinity grows we will seek
partnerships that advance the interests of social or charitable organisations who serve the communities in
which we operate.
Governance
Invinity is committed to high standards of corporate governance for which the Directors are accountable to
stakeholders and particularly shareholders. The company is quoted on the Alternative Investment Market of the
London Stock Exchange (AIM) and as such is required to apply a recognised corporate governance code. During
2018, the board adopted the Quoted Companies Alliance Corporate Governance Code (the “QCA Code”), which is
designed for small to mid-sized companies and which has been adopted by many AIM companies. Invinity continues
to apply the ten principles of the QCA Code and further information regarding required disclosures and corporate
governance can be found in the Governance section of the Annual Report.
9
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Risk management report
The group’s business exposes it to a broad range of risks. The group’s approach to managing these risks is to create a system
of internal controls. This system looks to manage, rather than eliminate, risk and is the responsibility of the entire board.
Commercial Risk
Detail
Likelihood
Impact
Mitigation
Medium
High
Medium
High
Medium
High
Lithium battery
manufacturers currently
dominate the stationary
battery energy storage
system (BESS) market.
Near-to-medium-term
sales may rely in part on
grant funding support
in customers’ local
jurisdictions, and such
funding may be delayed or
terminated.
Commercialisation of the
VS3 is at an early stage,
and product may fall short
of economic, schedule or
performance obligations.
The group’s position of
delivering longer duration
with a safer and more
durable BESS, with
no supply constraints
and excellent long-
run economics, could
come under threat if the
incumbent providers rapidly
improve their competitive
offerings.
Funding programs are
currently available but
will ultimately be phased
out as flow battery
technology becomes more
established. Such programs
are often irregular in their
availability, competitive and
oversubscribed, and take
longer to conclude than
other sales.
The VS3 is the result of the
combined technologies
of both pre-merger
companies, each of which
has commissioned earlier
generations of battery.
However, no projects using
the VS3 have yet been
commissioned.
Focus on markets where
the group has the largest
advantages, including
ultra-high cycle counts and
safety-critical locations,
and deliver successful
projects to the agreed
specifications.
Continue to develop
expertise in grant
applications, prioritise
projects with a high chance
of qualifying and continue
to drive down costs through
scale and supply chain
management.
VS3 performance
expectations are based
on an existing fleet and
established supply chain.
Clear project ownership
and monitoring along with
strict supplier quality control
procedures and factory
acceptance testing at each
key stage of manufacture.
10
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Operational Risk
Detail
Likelihood
Impact
The supply chain is
International and certain
components are sole
sourced.
The supply chain is, as
yet, unproven at the scale
envisaged.
The costs of key materials
such as steel, copper and
electrolyte, can fluctuate.
The stacks, wherein resides
the group’s ‘know how’,
are manufactured in-house
in Canada and Scotland
with the balance-of-system
manufactured in China.
Final assembly is
in Canada, Scotland or
China, depending on
customer location.
Driving costs down to
the levels envisaged will
require material production
increases in each of the
coming years.
The disruptions caused
by the second COVID
lockdown has caused
increases in the costs
of transport, steel and
vanadium.
High
High
High
High
High
High
Corporate Risk
Detail
Likelihood
Impact
Moving away from sole
sourcing where and
when possible, such
as manufacturing
stacks in both Canada
and Scotland.
A full order book and a
strong balance sheet
will enable the group
to build more equitable
relationships with larger
suppliers.
Strategic relationships or
offtake agreements with
suppliers can reduce short
term price volatility.
The group is the result of
a recent merger, in 2020,
of two businesses operating
in different regions.
Whilst the merger makes
commercial sense and the
initial products have been
combined into a single
product, employees are
separated by geography
and time zone making
collaboration and
coordination harder, a
situation exacerbated by
the current pandemic.
High
Medium
Senior roles have been
allocated on the basis
of function rather than
geography to encourage
a group, rather than
regional, view.
Shareholder concentration.
Just over 50% of the register
is held by five shareholders.
High
Medium
Failure to meet shareholder
expectations.
Competition attracting &
retaining skilled personnel.
The 2020 fundraises have
increased expectations and
poor performance could
deter potential investors
from buying or existing
shareholders from holding.
The sector is seeing rapid
growth and continuing to
attract and retain skilled
personnel will be required to
ensure development of the
group’s business.
Medium
High
Continued shareholder
engagement, particularly
with Institutions able to
make material investments.
Regular news flow
and trading updates,
particularly where closed
sales are concerned.
Medium
Medium
The group has a pro-active
remuneration committee
with access to suitable
advice.
11
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Financial Risk
Detail
Likelihood
Impact
The group does not yet
generate positive cash
flows and therefore is
expected to require
further funding.
Equity finance is raised
in GB£.
All contracts contain
warranties and some
contain extended
warranties.
Having multi-jurisdictional
operations exposes the
group to cross-border tax
risk, particularly transfer
pricing, and tariffs.
The merger with a US
company exposes the
group to US tax inversion
legislation.
The group is in the early
phase of commercialisation
and so is not yet generating
the product margins
required to support all
of its costs.
Whilst sales receipts are in
a range of currencies, the
majority of the materials
costs are settled in US$
and a material element
of payroll is settled in
Canadian $.
A warranty provision for
each sale is provided for in
the balance sheet at the
time revenue is recognised
but may prove insufficient
over the life of the warranty.
The group has
manufacturing operations
in the UK, Canada and
China, along with sales
operations in the US.
In addition to the tax
issues, the US trade
tariffs on Chinese
produce are material.
Avalon Battery Corporation
is a US registered entity and
so may be deemed to be
onshore by the US Internal
Revenue Service for US tax
purposes.
High
Medium
High
Medium
Medium
Medium
High
Low
Medium
Low
Continued sales
growth and product
standardisation will allow
the group to drive down
gross costs and improve
product margin.
The group holds up to
six-months of expected
US$ required and converts
Australian $ receipts into
Canadian $.
Maintain product
performance data,
focus on reducing need
for maintenance, track
O&M (Operations and
Maintenance).
The group seeks specialist
external advice on tax and
tariff related matters. In the
case of the US tariffs on
China, sufficient content is
manufactured in Canada.
The group has taken
specialist advice and
does not believe this to
be the case under current
legislation, though this
could change should
retrospective legislation
be introduced.
12
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
The Board of directors
Neil O’Brien
Chairman 58
Neil’s most recent role was as CEO of AIM listed Alkane
Energy which he joined in 2008. Under his leadership, the
Company achieved rapid output increases through a
combination of organic growth and acquisition activity.
Alkane expanded its UK portfolio of baseload power
generating sites and established a leading position in
the UK back-up power market covering winter peaking,
National Grid “STOR” programme and the capacity market.
Larry Zulch
Chief Executive Officer 63
Larry has over 30 years of experience successfully
commercialising advanced technologies and scaling
the companies that deliver those technologies to market.
He was formerly the CEO of Avalon Battery, Dantz
Development (acquired by EMC), Photometics, PLCD,
Cloud Engines, and Savvius (acquired by LiveAction).
He served as VP and Officer at EMC, and as Executive
Chairman of Freerange Communications (acquired by
Sprint via Handmark).
Appointed to Board: April 2020
Neil started his career at Coopers & Lybrand in 1985,
where he qualified as a Chartered Accountant, before
joining Blue Circle in 1988, holding a number of senior
financial and operational roles in the UK and Europe.
He then spent three years as a Group Management
Accountant at Aggregate Industries.
Neil read Politics, Philosophy and Economics at Oriel
College, Oxford University.
Appointed to Board: September 2016
Committees: Chairman of the Nomination Committee.
Matt Harper
Chief Commercial Officer 44
Matt is an engineer and entrepreneur with over 20 years
of experience developing and commercializing clean
energy technologies, including 14 years in energy storage.
Prior to co-founding Avalon Battery, Matt served as VP
Products and Services at Prudent Energy. Matt holds a
bachelor’s degree from the University of British Columbia,
a master’s degree from the Massachusetts Institute of
Technology, and is named the inventor on six granted
U.S. patents.
Peter Dixon-Clarke
Chief Financial Officer 55
Peter has 30 years’ experience in senior finance roles,
primarily in the energy sector as well as financial services.
His most recent CFO roles were at Kuwait Energy
Company plc, Hotspur Geothermal Ltd and AIM-listed
Rockhopper Exploration plc. Peter qualified at Deloitte
as a chartered accountant and will conduct his global
responsibilities out of London.
Appointed to Board: August 2020
Appointed to Board: April 2020
13
Annual Report and Financial Statements 2020 STRATEGIC REPORT
GOVERNANCE
Jonathan Marren
Senior Independent Director 46
Jonathan served on the Board of Directors as Chief
Financial Officer between July 2012 and March 2016,
having been an advisor to the company since early 2006,
including on its flotation in April 2006.
He has previously held positions as Deputy Head of
Corporate Finance at Singer Capital Markets, prior to
which he was at Peel Hunt between 2000 and 2010
where he was a Director in the Corporate Department
with responsibility for their new energy and clean tech
franchise where he gained considerable experience of
working with companies in this area.
Michael Farrow
Non-Executive Director 67
Michael Farrow is a founder director of Consortia
Partnership Limited, a Jersey licensed trust company.
He currently sits on the Boards of a number of listed
companies. He has also been group company secretary
of Cater Allen Jersey, a banking, trustee and investment
management group.
Michael holds an MSc in Corporate Governance and
is a Fellow of the Chartered Institute of Secretaries &
Administrators and was formerly a regular British Army
Officer.
Jonathan qualified as a Chartered Accountant with Arthur
Andersen in 1999 after obtaining a BSc in Mathematics
from Durham University.
Committees: Remuneration Committee (Chairman),
Audit & Risk and Nomination Committees.
Appointed to Board: March 2006
Appointed to Board: March 2016
Committees: Audit & Risk Committee (Chairman),
Nomination and Remuneration Committees.
Rajat Kohli
Non-Executive Director 58
Raj has many years’ experience in the resources, energy
and infrastructure sectors having began his City career as
a mining and metals analyst before becoming Managing
Director in HSBC’s Resources and Energy Group,
Investment Banking in 2000.
Raj joined ArcelorMittal as Co-Head of Mergers &
Acquisitions in 2007, returning to banking in 2011, joining
Standard Bank as Global Head of Metals and Mining.
Since 2015, Raj has provided strategic consulting services
to the natural resources sector as Principal of Ptolemy
Resource Capital.
Appointed to Board: June 2020
Committees: Audit & Risk, Remuneration and Nomination
Committees.
14
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Governance report
Introduction from the Chairman on the Governance Report
Invinity admitted to trading on the Alternative Investment
Market of the London Stock Exchange (AIM) and as such
is required to apply a recognised corporate governance
code. During 2018, the Board adopted the Quoted
Companies Alliance Corporate Governance Code (the
“QCA Code”), which is designed for small to mid-sized
companies and which has been adopted by many AIM
companies. The Board agreed that the QCA Code
remained the most appropriate corporate governance
code for the Company after the merger between redT
energy plc and Avalon Battery Corporation in April 2020
(the ‘Merger’).
The Board has considered how the company applies
the ten principles of the QCA Code and the Governance
Report includes the required disclosures and explanations
where relevant. Further details of the company’s corporate
governance practices are provided on the company’s
website in the Investors section under Corporate
Governance at https://invinity.com/investors/corporate-
governance/.
Corporate Governance Statement
The Board recognises that good governance helps
to underpin the foundations of a solid and successful
business and delivery of shareholder value. Invinity’s
Board, led by the Chairman, is committed to maintaining
high standards of corporate governance for which
the Directors are accountable to shareholders and
stakeholders and to ensuring that the Company’s values
are communicated and upheld across the group. The
Board recognises that corporate governance practices
will need to be regularly reviewed as the company grows
to ensure that they remain appropriate and effective.
Corporate culture
The company is committed to ensuring that there is a
healthy corporate culture and since the year end has
put in place additional policies and procedures which
are designed to ensure that ethical and transparent
behaviour is recognised and followed across the group.
The policies and procedures currently in place include:
– Code of Conduct
– Whistleblowing Policy
– Equal Opportunities Policy
– Share Dealing Code
– Anti-Bribery and Corruption Policy
– Health and Safety Policy
– Modern Slavery Statement
– Procurement Policy
– Social Impact Policy
– Environmental Impact Policy
– Biodiversity Policy
Board composition
The Board currently consists of a Non-Executive
Chairman, three Executive Directors and three Non-
Executive Directors. The Board had previously determined
that a Senior Independent Director was not required
due to the size and composition of the Board. Since the
year end, the Board composition has been reviewed and
it was agreed that it would be appropriate to appoint
a Senior Independent Director to provide a sounding
board for the Chairman and to act as an intermediary
for Board members. The Senior Independent Director will
also act as a point of contact for shareholders who have
concerns which have not been adequately addressed by
the Chairman or Chief Executive Officer. Jonathan Marren
was appointed as Senior Independent Director with effect
from 1 May 2021.
There were a number of Board changes during the year:
– Neil O’Brien, formerly Executive Chairman, became
Non-Executive Chairman on 2 April 2020
– Lawrence Zulch was appointed as Chief Executive
Officer on 2 April 2020
– Matthew Harper was appointed as Chief
Commercial Officer on 2 April 2020
– Rajat Kohli was appointed as a Non-Executive
Director on 22 June 2020
– Peter Dixon-Clarke was appointed as Chief Financial
Officer in place of Fraser Welham on 10 August 2020.
Other than any shareholdings in the company and the
receipt of fees for acting as Directors, the Chairman
and Non-Executive Directors have no financial interests
in the company or business relationships that would
interfere with their independent judgement. Rajat Kohli
was appointed as a representative of Bushveld Minerals
pursuant to the terms of an investment agreement with
the company but this arrangement has come to an end
since the year end after Bushveld Minerals disposed of its
shareholding in the company.
15
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
Board composition during the year
Name
Role
Length of service as
at 21 June 2021
Date of
appointment
Date of
resignation
Non-Executives
Neil O’Brien
Michael Farrow
Rajat Kohli
Jonathan Marren
Chairman*
Non-Executive Director
Non-Executive Director
Non-Executive Director
4 years, 9 months
15 years, 3 months
1 year, 0 months
5 years, 3 months
09 September 2016
16 March 2006
22 June 2020
1 March 2016
* Executive Chairman until 2 April 2020
Executives
Lawrence Zulch
Matthew Harper
Peter Dixon-Clarke
Former Directors
Fraser Welham
Chief Executive Officer
Chief Commercial Officer
Chief Financial Officer
1 year, 2 months
1 year, 2 months
0 years, 9 months
2 April 2020
2 April 2020
10 August 2020
Chief Financial Officer
N/A
3 April 2018 10 August 2020
—
—
—
—
—
—
—
Independence of Directors
The Board considers that the Chairman and all of the Non-
Executive Directors except Rajat Kohli were independent
for the 2020 financial year notwithstanding circumstances
which could indicate otherwise. Such circumstances could
include Michael Farrow having been a director for 15 years
and Neil O’Brien and Jonathan Marren having previously
held executive positions within the Company.
Board skills and responsibilities
The Directors have a wide range of skills and industry
experience including technical, operational, commercial and
financial both in the UK and internationally. The Chairman
and Non-Executive Directors have held senior management,
Board and advisory positions and bring relevant experience
from their current and previous positions.
The Board has considered the objectivity and
independence of each of these directors and has
determined that each individual demonstrates
independence of character and judgement and that
there are no circumstances which are likely, or could be
perceived to be likely, to affect their judgement.
Subsequent to the year end, the Board has agreed that
Rajat Kohli, who had been the nominated representative
of Bushveld Minerals until the disposal of their
shareholding in the Company, should be invited to remain
on the Board as an independent director.
Role of the Board
The Board is collectively responsible for delivery of the
strategy which is designed to promote the long-term
success of the company and to deliver shareholder value.
The board is responsible for formulation and approval
of the company’s long-term objectives and strategy,
approval of budgets, oversight of operations across
the group, maintenance of internal controls and risk
management systems and approval of group policies.
The Board may delegate specific responsibilities but there
is a schedule of matters specifically reserved for decision
by the Board to ensure that it exercises control over
the key matters which could impact on delivery of the
company’s strategy.
There is a clear division of responsibilities between the
Chairman and Chief Executive Officer which is set out in
writing and has been approved by the Board. A clearly
defined organisational structure exists across the group,
with lines of responsibility and delegation of authority to
executive management.
Board meetings and processes
The Board has around eight scheduled meetings each
year with other meetings held as required. During 2020, the
majority of meetings were held by video conference call
due to the COVID-19 pandemic. Informal meetings also
take place between the Chairman and the Non-Executive
Directors without the Executive Directors present.
At each Board meeting, the Board receives an update
from the CEO on key current activities including HSE and
considers the Commercial and Finance Reports and any
papers relating to specific matters requiring consideration
or approval. In the first quarter of 2020, a number of the
Board meetings related to the Merger and the admission
of the company’s shares to trading on AIM.
Non-Executive Directors undertake on joining the
company that they are able to allocate sufficient time to
discharge effectively their responsibilities and are required
to keep the Board updated of any changes in respect of
their other commitments.
16
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
The letters of appointment of the Non-Executive Directors
detail the expected time commitment which is around six
Board meetings, one General Meeting and two meetings
in respect of each of the Audit and Remuneration
Committees per annum and are required to devote to the
company’s business such additional time as is reasonably
necessary by way of preparation for or follow-up after any
meeting. The Non-Executive Directors may also be asked
to participate in other events such as marketing, social
and client functions with this commitment to a maximum
of approximately six days per annum.
Board meeting attendance
Director
Board meetings
attended
Neil O’Brien – Chairman
Lawrence Zulch (appointed 2 April 2020)
Matthew Harper (appointed 2 April 2020)
Peter Dixon-Clarke (appointed 10 August 2020)
Michael Farrow
Rajat Kohli (appointed 22 June 2020)
Jonathan Marren
Former Director
Fraser Welham (resigned 10 August 2020)
Total meetings during year
9
9
9
5
9
9*
9
5†
9
Note: a number of meetings were held to consider the Merger and AIM
admission and the issue and exercise of warrants. These have not been
included in the number of meetings shown as having been held during
2020 which only shows scheduled Board meetings.
* 3 meetings attended as an invitee
† 1 meeting attended as an invitee
Board performance evaluation
Since the year end an internal performance evaluation
of the Board has been undertaken. Each Board member
completed a questionnaire which focused on strategy,
risks and controls, Board structure and development,
Board processes and the work and composition of the
Board committees. The responses were collated and
summarised by an external company secretary and the
key conclusions tabled at a Board meeting.
Board induction, training and outside advice
There is no formal induction process in place but new
Directors receive an appropriate induction according to
their requirements and the roles they are expected to fulfil
as a director of the company.
The Board supports directors who wish to receive ongoing
training and education relating to their duties.
Independent legal advice is available to directors at
the group’s expense if external advice is considered
necessary and appropriate.
External directorships and interests
Executive Directors are permitted to engage in other
activities and businesses outside the group providing that
there is no risk of conflict with their executive duties and
subject to full Board disclosure.
Non-Executive Directors are required to advise the
Chairman as soon as practicable of any proposed Board
appointments which could give rise to a conflict with
their position as a director of the company. Details are
circulated to other Board members who are invited to
advise the Chairman if they have any concerns about the
proposed appointment.
Conflicts of interest
The Board has in place a procedure for dealing with
the consideration and authorisation of any actual or
potential conflicts of interest. All Directors are aware of
the requirement to advise the Chairman of any situations
which could give rise to a conflict or potential conflict
of interest. If requested by the Chairman, a director
will absent themselves from any Board discussions
and decisions on matters where there is an actual or
perceived conflict of interest.
Company Secretary
The Company Secretary is Oak Secretaries (Jersey)
Limited which is 100% owned by the Oak Group (Jersey)
Ltd (Oak Group), a Jersey-based limited liability company
regulated by the Jersey Financial Services Commission.
Michael Farrow was a director of the Oak Group until May
2019. The Company has also engaged the services of a
qualified Company Secretary to assist with a number of
post-merger integration matters and to provide corporate
governance advice to the Board.
Political and charitable donations
The Group made no charitable or political donations
during the year (2019: £nil).
17
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION
Annual Report The company’s annual report gives a
detailed overview of the company’s
strategy, operations, financial position,
risk profile and remuneration structure
and is available in hard copy and on
the website. This ensures that existing
and potential investors are provided
with the information that they need to
make an assessment of the company’s
performance and prospects.
Investors and any interested parties can
subscribe to receive a regular newsletter
which gives subscribers updates on the
company’s activities.
In addition to the formal AGM business,
the executive team give an operational
and financial update and shareholders
have the opportunity to address
questions to the Board. Whilst it was not
possible to hold a physical meeting in
2020 due to Government restrictions in
relation to the COVID-19 pandemic, a
virtual webcast with a Q&A session was
arranged.
STRATEGIC REPORT
GOVERNANCE
Communication with shareholders
The Company engages with shareholders in a variety of
ways:
Meetings
Website
IR
Executive Directors meet regularly with
major shareholders and the investment
community which allows exposure to
new investors. This process includes
presentations, one-to-one meetings,
analyst briefings and press interviews.
During 2020, a roadshow was undertaken
in connection with the fundraising. The
Chief Executive Officer regularly briefs
the Board on meetings held and relays
the views expressed. Details of analyst
research reports, press reports and share
trading and register analyses are shared
with Directors which ensures that they
are kept up to date with the views of the
investment community.
The company’s website is updated
regularly and includes a dedicated
investor resources section. This includes
external presentations, Q&As with
Directors and other relevant information
which ensures that existing and potential
investors have access to up to date and
relevant information.
The company provides an email
address for investors on the website
which is monitored by the Director of
Communications. This allows investors to
address ad hoc queries to the company.
Newsletter
AGM
Neil O’Brien
Chairman
30 June 2021
Webinars
The company hosts regular interactive
webinars which give shareholders
the chance to address questions to
management.
18
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Report of the Chairman of the Audit & Risk
Committee
I am pleased to present the report of the Audit & Risk
Committee for the year ended 31 December 2020. The
report includes details of the committee’s activities during
the financial year and since the year end.
Role
The core terms of reference of the Audit & Risk Committee
include reviewing and reporting to the board on matters
relating to:
Committee composition
The members of the Audit & Risk Committee are Jonathan
Marren as Chairman and Michael Farrow and Neil O’Brien.
The Board is satisfied that at least one member of the
Audit & Risk Committee, Jonathan Marren, has recent and
relevant financial experience. Subsequent to the year end,
Rajat Kohli was appointed as a member of the Audit and
Risk Committee in place of Neil O’Brien.
the audit plans of the external auditors;
the group’s overall framework for financial reporting and
internal controls;
the group’s overall framework for risk management;
the accounting policies and practices of the group; and
the annual and interim financial reporting carried out by
the group.
Meetings
The Audit & Risk Committee met three times during the
year and informal discussions were also held both with
and without management present. The external auditors
had discussions with the Chairman of the committee
during the year. The external auditors also met the
committee members without management present.
The committee is responsible for notifying the Board of
any significant concerns that the external auditors may
have arising from their audit work, any matters which
may materially affect or impair the independence of
the external auditors, any significant deficiencies or
material weaknesses in the design or operation of the
Group’s internal controls and any serious issues of non-
compliance. No such concerns were identified during the
financial period.
Only members of the committee have the right to attend
the meetings of the committee, however the committee
can invite the Executive Directors, members of senior
management and representatives of the external auditors
to attend its meetings.
Key matters considered by the committee
During the year, the issues considered by the committee
both during and outside formal committee meetings
included:
Details of the meetings attended during the financial year
were as follows:
Director
Audit & Risk Committee
meetings attended
Jonathan Marren – Chairman
Michael Farrow
Neil O’Brien
Lawrence Zulch (appointed 2 April 2020)
Matthew Harper (appointed 2 April 2020)
Rajat Kohli (appointed 22 June 2020)
Peter Dixon-Clarke (appointed 10 August 2020)
Former Director
Fraser Welham (resigned 10 August 2020)
Total meetings during year
† Invitee
3
3
3
2†
2†
1†
2†
3†
3
group financial disclosures and accounting matters
including impairment review and amortisation of
intangible assets, going concern, accounting for
business combination and revenue recognition;
audit plan of the external auditors for the 2019
financial year;
reports of the external auditors concerning its audit
and review of the financial statements of the group;
2019 Annual Report and financial statements and 2020
interim financial statements;
external auditors’ fees; and
non-audit services/auditor independence and
objectivity.
Since the year end, management has developed a risk
matrix which identifies and classifies the key commercial,
operational, corporate and financial risks facing the
Group with associated mitigants. The risk matrix will be
tabled at Board meetings at regular intervals and in the
event of any significant change to the Company’s risk
profile and will be used to develop the group’s systems of
internal controls and risk management.
19
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Going concern
As part of the year end reporting process, management
prepares a detailed report including detailed cashflow
forecasts with a number of potential scenarios and
sensitivity assumptions. The committee reviews and
challenges management’s assumptions and conclusions
in order that it can provide comfort to the Board that
management’s assessment has been challenged and
is supported and that it is appropriate to prepare the
financial statements on a going concern basis. Further
details of the going concern assessment process and
the material uncertainty that exists are contained in
note 2 to the group financial statements on page 47
and in the Directors Report on pages 33-35.
External auditors
The committee recommends to the Board the
appointment of the external auditors, subject to the
approval of the Company’s shareholders at a general
meeting. Shareholders in a general meeting authorise
the Board to fix the remuneration of the external auditors
and the Board has delegated this responsibility to the
committee.
Whistleblowing and anti-bribery
The company is committed to conducting all of its
business dealings in a responsible, honest and ethical
manner. All employees, directors and consultants are
required to act with integrity and to have regard to the
company’s Code of Conduct in their day-to-day business
behaviour. The company also has in place an Anti-Bribery
and Corruption Policy and Procedures and arranges
training for selected employees following a risk analysis.
All employees are made aware of the company’s
whistleblowing policy which includes contact details for
the Company’s internal whistleblowing officer and an
independent whistleblowing charity, Public Concern at
Work.
All employees are required to undertake training on the
Market Abuse Regulation in relation to inside information
and unauthorised trading in the company’s shares.
Jonathan Marren
Chairman of the Audit & Risk Committee
The committee is responsible for the approval of the
provision of all audit services and permitted non-audit
services undertaken by the external auditors
30 June 2021
The Committee actively considers the effectiveness and
quality of the external auditors.
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Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
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Report of the Chairman of the Nomination
Committee
The committee recognises the need for progressive
refreshing of the Board and the benefits of diversity and
the committee will have regard to these when considering
succession planning. When considering new Board
appointments, the committee will be committed to
recruiting on merit measured against objective criteria.
The management of human resources across the group
is a matter for executive management but the Non-
Executive Directors are advised in advance of recruitment
plans in respect of senior appointments.
Neil O’Brien
Chairman of the Nomination Committee
30 June 2021
I am pleased to present the report of the Nomination
Committee for the year ended 31 December 2020.
Committee composition
The committee is chaired by the Chairman of the
Board with Michael Farrow and Jonathan Marren as
its members. The Board considers all members of the
committee to be independent. Subsequent to the year
end, Rajat Kohli has been appointed as a member of
the Nomination Committee.
Meetings
The committee did not meet during 2020 as Board
composition as a consequence of the Merger was
managed by the full Board. Only members of the
committee have the right to attend the meetings of
the committee, however the committee can request
the attendance of the Chief Executive Officer.
Role
The role of the committee is to consider Board member
succession, review the structure and composition of
the Board and its Committees and identify and make
recommendations for any changes to the Board. Any
decisions relating to the appointment of Directors are
made by the entire Board based on the merits of the
candidates and the relevance of their background and
experience, measured against objective criteria, with
care taken to ensure that appointees have enough
time to devote to the job.
Succession planning
The company is committed to appointing, retaining
and developing an experienced team which can
effectively manage the company’s objectives and
deliver its strategy. When considering succession planning,
the committee will evaluate the balance of skills and
experience on the Board and make recommendations
to the Board on the basis of what it considers that the
company needs in order to support delivery of the
agreed strategic objectives.
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Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
Report of the Chairman of the Remuneration
Committee
Annual Statement
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report (‘Report’) for the year
ended 31 December 2020. The Report has been prepared
largely in compliance with the requirements of Schedule
8 of the Large and Medium-sized Companies and Group
Regulations 2013 except where deemed inappropriate
given the size and structure of the Company.
It is a fact that the US and Canada place much emphasis
on share-based incentives at all levels of employment.
This culture encapsulates the entrepreneurial spirit that
Invinity wishes to encourage share options with exercise
prices set at the prevailing market value at the date of
grant have, and will continue to be, offered to valued
employees across the company.
The Committee is satisfied that the outcomes, in respect
of the incentives and remuneration during the financial
year under review, are appropriate. The Committee will
continue to ensure that the Company’s Remuneration
Policy and practices are kept under review to ensure that
they remain appropriate for the company at its stage
of development and that they do not encourage any
unnecessary risk taking by the executive team.
I express my thanks to the members of the Committee for
their support over the year.
Yours sincerely,
Michael Farrow
Chairman of the Remuneration Committee
30 June 2021
The Report is divided into two sections:
– The Policy report which sets out the current
Remuneration Policy
– The Annual Report on Remuneration which sets out
details of the operation of the Remuneration Committee
and details of the Directors’ remuneration packages
for the year ended 31 December 2020. It also sets out
details of the implementation of the Remuneration
Policy for Executive and Non-Executive Directors for the
year ending 31 December 2021.
2020 was a pivotal year in the company’s history
with the merger in April between redT energy plc
and Avalon Battery Corporation (the ‘Merger’) and a
consolidatory open offer at the end of the year. Clearly,
these significant advances in the company’s prospects
required incentivisation and some reward for the newly
formed team. With the company’s global reach and
production over two continents, the remuneration policy
required alignment to cater for employees’ needs and
expectations. The basic pay scales in the US, Canada
and UK were not too dissimilar and so most effort was put
into merging and rationalising the employee share plans.
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Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
Directors’ remuneration report
Remuneration policy
This part of the Report sets out the remuneration policy for the company. The policy for the Executive Directors is
determined by the Committee and the Committee recommends to the Board any adjustments to salary and bonus
awards. The Committee also makes recommendations to the Board in respect of the remuneration packages
of certain members of the senior team based on recommendations from the Chief Executive Officer, subject to
Committee oversight. Authority is delegated to the Executive Directors to manage the remuneration packages of all
other employees. Awards of share options to employees under the ’s Share Option Plan are the responsibility of the
Board which considers recommendations from the Committee and the Chief Executive Officer in respect of employees.
The aim of the Committee is to ensure that the remuneration packages are sufficiently competitive to attract, retain
and motivate individuals of the quality required to contribute towards the strategic objectives of the group and
thereby enhance shareholder value. The Committee also aims to ensure that all employees receive rewards that fairly
reflect their seniority, level of work and contribution to the company.
The company is committed to promoting equal opportunities in employment with all employees and potential
employees receiving equal treatment.
Executive Director Policy
The summary of the remuneration policy for the Executive Directors is set out below. Full details of the remuneration
packages are given in the Report on Remuneration on page 28.
Salary
Purpose and link to strategy
To provide an appropriate salary level to support retention and recruitment of Executive
Directors.
Operation
Executive Directors receive the same annual salary.
Base salaries are reviewed annually on 1 January with regard to the external economic
environment and salary adjustments across the Company.
The salaries of the Chief Executive Officer and Chief Commercial Officer are designated
in sterling but paid in local currencies. The salaries are re-based annually to allow for
differentials arising through foreign exchange.
Opportunity
Salary increases will be awarded taking into account the outcome of the review.
Salary increases will usually be in line with increases awarded to other employees but
the Committee may make additional adjustments where there has been a change in
role or responsibilities or to reflect a gap in market positioning.
Performance metrics
Not applicable for base salaries.
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STRATEGIC REPORT
GOVERNANCE
Pension and Benefits
Purpose and link to strategy
To provide an appropriate range of benefits and pension contributions to assist
in the attracting and retaining the calibre of Executive Directors required for delivery
of corporate and strategic objectives.
Operation
The CEO, based in the US, does not receive any benefits or employer contributions
to a pension plan.
The CFO, based in the UK, has income protection and life assurance cover. Benefits
are administered internally and a review of providers and prices is conducted annually
through a broker to ensure that the level of rates and cover remain competitive.
A matching employer contribution of up to 5% of annual base salary is made to the
Group personal pension plan.
The CCO, based in Canada, has private medical and dental insurance and life
assurance cover. He does not receive any employer pension contributions to a
pension plan.
Opportunity
The benefits and pension packages, which are tailored to the individual Executive
Directors, are set at a level that the Committee considers is appropriate.
The value of benefits will vary each year according to the cost of provision.
Performance metrics
Not applicable for benefits and pension package.
Annual Bonus
Purpose and link to strategy To reward the achievement of corporate targets.
Operation
Objectives are set as early as possible in the financial year.
The bonuses may be paid in cash and/or shares after the end of the financial year to
which they relate.
Opportunity
The annual bonus award is determined as a percentage of base salary based on
performance against pre-agreed objectives. When deciding on the level of bonus
awards, the Committee will have regard to the extent to which achievement of the
objectives has contributed to progress against the Company’s strategic drivers.
The bonus is contractual but is at the discretion of the Committee.
The maximum bonus potential for Executive Directors is 100% of salary.
Performance metrics
The targets for the Executive Directors comprise the corporate, strategic and financial
objectives agreed by the Board.
The Committee uses its judgement to decide the extent to which the objectives have
been achieved and exercises its discretion to decide on the level of bonus awards to
be paid.
The Committee considers whether operations have been completed to acceptable HSE
standards and considers whether there were any HSE incidents when considering the
level of bonus payments.
24
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Share Option Plan (Option Plan)
Purpose and link to strategy
To support alignment with shareholders through the link to the creation of shareholder
value.
Operation
The Option Plan was introduced in 2018 to replace historical long-term incentive
arrangements.
The Committee makes awards of options at an exercise price based on the prevailing
market price of the company’s shares as at the date of grant. The options will vest in
equal tranches after one, two and three years’ further continuous employment subject
to leaver provisions.
Opportunity
Option awards are usually made for a three-year term but the Committee has discretion
over the frequency and quantum of awards.
Performance metrics
None.
Further details on the policy
Performance measurement
Annual bonus – the annual bonus is based on a range of corporate and individual objectives that the Board have
agreed are key to progressing and delivering the company’s strategy. These can be operational, strategic and
financial. Performance targets are designed to be stretching but achievable having regard to the company’s strategic
priorities from time to time.
Option Plan – the Option Plan ensures alignment with shareholders being focussed on share price growth over the
medium to long term. Vesting of equity awards is phased with options vesting in equal tranches in years 1, 2 and 3 after
the date of grant. Options granted in exchange for options in predecessor companies at the time of the Merger vest in
accordance with the terms of the original option grant. The Option Plan for the Executive Directors is the same as that
for all other employees.
Remuneration policy for other employees and consultation
The company’s policy for all employees is to provide remuneration packages that reward them fairly for their
contribution and role within the company.
All employees are entitled to receive the full range of company benefits but with different qualifying periods and levels
of cover depending on seniority. The most senior employees below Board level are eligible to receive an annual bonus
based on performance against corporate targets.
All permanent employees have been granted options under the Option Plan on the same terms as the Executive
Directors but proportionate to their employment contracts and their ability to contribute towards the company’s
strategic objectives. This ensures that an element of remuneration is deliverable through a scheme that aligns
participants with shareholders.
The company does not consult with employees on the effectiveness and appropriateness of the policy but, in
considering individual salary increases, the Committee does have regard to salary increases across the company.
Recruitment
In the case of recruiting a new Executive Director, the Committee can use all the existing components of remuneration
as set out in the policy table.
The salary of a new appointee will be determined by reference to the experience and skills of the individual, market
data, internal relativities and the candidate’s current remuneration. New appointees may be entitled to receive the
full range of Company benefits on joining and, if the Committee considers it appropriate, a matching employer
contribution of up to 5% of annual base salary to the group personal pension plan.
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Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
In relation to any elements of variable pay, the Committee will take the following approach:
Component
Annual Bonus
Approach
The annual bonus would operate as
outlined in the Policy for existing Executive
Directors. The relevant maximum will be
pro-rated to reflect the period of employment
over the year. Consideration will be given to
the appropriate performance targets at
the time of joining
Maximum annual opportunity
100% of base salary in respect
of the current financial year
Option Plan
The Option Plan would operate as outlined in the
policy for existing Directors. An award of options
may be granted on joining subject to the Company
being in an open dealing period.
Committee discretion
Service contracts, exit payments and change of control provisions
The Executive Directors have rolling term service agreements with the company. Details of the Directors’ service
contracts and appointment dates are as follows:
Executive Directors
Appointment date
Contract date
Employing company
Lawrence Zulch
Matthew Harper
2 April 2020
2 April 2020
2 April 2020
2 April 2020
Avalon Battery Corporation
Avalon Battery (Canada) Corporation
Peter Dixon-Clarke
10 August 2020
7 August 2020
Invinity Energy Systems plc
The Directors’ service contracts are available to view at the company’s registered office and prior to each Annual
General Meeting at the venue for the meeting.
The notice period for the Executive Directors is six months’ notice in writing by either party. The Company has the
right to make a payment in lieu of notice of six months’ salary and, in the case of the CEO, a reimbursement of certain
benefits if relevant. The Committee will consider termination payments on a case-by-case basis and will ensure that
there is no “reward for failure”.
The Committee also has discretion to settle any other amounts which it considers are reasonably due to the
Director such as where the parties agree to enter into a settlement agreement and the individual is required to seek
independent legal advice. The Committee can approve new contractual arrangements with a departing Director
covering matters such as confidentiality or restrictive covenants and/or consultancy arrangements where it believes
this is in the best interests of the company.
Treatment of incentives for leavers and following a corporate event
a) Annual bonus
In relation to annual bonuses, a bonus payment will not usually be made if the Director is under notice at the bonus
payment date or has already left.
b) Option Plan
In relation to awards granted under the Option Plan, all unvested options will lapse on cessation of employment.
In good leaver and Intermediate leaver circumstances (as defined in the Option Plan rules), all vested options will be
retained and will be exercisable for a period of six months after the cessation of employment or 12 months in the case
of death. The Committee has discretion to further extend the exercise period for Intermediate leavers and to allow the
vesting of all or part of the unvested portion of an option for good leavers.
In the event of change of control of the company, all vested options will remain exercisable for a period of six months
after the change of control and the Committee has the discretion to allow the vesting of all or part of the unvested
portion of an option. Subject to the agreement of any acquiring company, option holders may be offered the
opportunity to exchange their options for equivalent options over shares in the acquiring company for a period of
up to six months from the change of control taking effect.
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Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
The Option Plan rules include malus and clawback provisions whereby the Committee has discretion to reduce the
number of shares subject to an existing option award in the event that an option has been granted or has vested on
the basis of any incorrect information relevant to the setting of any performance condition or condition of satisfaction
including a material misstatement in the published financial result or in the event of fraud or misconduct by an option
holder including where an option holder has been dismissed for cause. In the case of an option which has been
exercised, the Committee can require the option holder to repay the Company an amount equal to the benefit by way
of a transfer of shares or cash.
The Board can amend the Option Plan rules at any time provided that an option holder’s existing rights cannot be
adversely affected without the option holder’s consent.
Non-Executive Director Policy
The company’s Articles of Association provide that the Board can determine the remuneration of the Directors. The
policy for the Chairman and Non-Executive Directors is as follows:
Fees
Purpose and link to strategy
To provide a competitive level of fee which will attract and retain high calibre directors
with the range of skills and experience required to support the Executive Directors and
assist the company in delivering its objectives
Operation
The fees for the Chairman and Non-Executive Directors are determined by the Board as
a whole with directors absenting from discussions regarding their own remuneration
The Board has regard to level of fees paid to the Non-Executive Directors of other similar
sized companies and the time commitment and responsibilities of the role
Neither the Chairman nor the Non-Executive Directors participate in any of the
company’s share schemes
Opportunity
The current annual fees are:
Chairman: £60,000
Non-Executive Director basic fee: £30,000
Committee Chairman fee: £5,000
No additional fees are payable for acting as Chairman of the Nomination Committee
The fee levels will be reviewed on a periodic basis with reference to the time
commitment of the role and fee levels in comparative companies
No benefits or other remuneration are provided. All board and committee meetings in
the year were held virtually and hence no travel or other expenses were incurred by the
Directors related to their attendance.
Performance metrics
Not applicable to Non-Executive Directors
Recruitment
The Committee will follow the Non-Executive Director remuneration policy as set out above in relation to the
appointment of a new Non-Executive Director.
27
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Terms of appointment
The Non-Executive Directors serve under letters of appointment. Their appointments can be terminated at any time
by either party giving three months’ notice to the other. The appointments can also be terminated by the company
without notice in certain circumstances including incapacity for three months in any 12-month period, serious or
repeated breach of obligations in connection with the appointment or unsatisfactory performance as determined by
the Board.
Details of the Non-Executive Director appointments are set out below:
Director
Appointment date
Original appointment letter
Revised appointment letter
Neil O’Brien
9 September 2016
8 September 2016
14 March 2019 –
in respect of appointment
as Executive Chairman
13 March 2020 –
in respect of appointment
as Non-Executive Chairman
effective 2 April 2020
Michael Farrow
16 March 2006
16 March 2006
Rajat Kohli
22 June 2020
20 June 2020
Jonathan Marren*
1 March 2016
23 February 2016
*J Marren was Chief Financial Officer from 9 July 2012 to 29 February 2016
—
—
—
The Directors’ letters of appointment are available to view at the Company’s registered office and prior to each Annual
General Meeting at the venue for the meeting.
Report on Remuneration
Remuneration Committee membership and meetings
At 31 December 2020, the Committee comprised Michael Farrow as the Committee Chairman, Neil O’Brien and
Jonathan Marren. Subsequent to the year end, Rajat Kohli has been appointed as a committee member in place
of Neil O’Brien.
The Committee met three times during the year. Details of the meeting attendance during the financial year was as
follows:
Remuneration Committee meetings attended
3
3
2
2†
2†
2†
1†
2†
3
Director
Michael Farrow – Chairman
Jonathan Marren
Neil O’Brien
Lawrence Zulch
Matthew Harper
Rajat Kohli
Peter Dixon-Clarke
Former Director
Fraser Welham (resigned 10 August 2020)
Total meetings during year
† Invitee
28
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
During the financial year, the Committee’s main areas of activity included:
Approving bonus awards in respect of the year ended 31 December 2019;
Approving the 2020 KPIs for the executive bonus plan;
Approving amendments to the employee and consultant share option plan following the merger between redT
Energy PLC and Avalon Battery Corporation; and
Approving the grants of the following options:
– new options in substitution and cancellation of options held under the Avalon Battery Corporation 2013 Equity
Incentive Plan
– replacement options for employees of redT Energy PLC
– option awards to group employees under the Option Plan.
No individual is involved in determining his or her own remuneration.
Directors’ remuneration was considered only when all three members of the committee were in attendance. The
consideration of Directors remuneration did not involve any director who was not formally a committee member.
External advice
The Committee obtains external legal advice from Fox Williams in relation to employment matters.
During the period, the Committee also received advice from JD Ghosh, an independent tax consultant, in relation to
the Option Plan and the adjustments as a consequence of the merger.
The Committee considers that the advice it received during the financial period was objective and independent.
Total remuneration paid during the year ended 31 December 2020
The table below reports a single figure for total remuneration for each Executive Director:
Salary
£’000
Salary
£’000
Benefits
£’000
Benefits
£’000(i)
Annual
bonus
£’000
Annual
bonus
£’000
Long-term
incentives
£’000
Long-term
incentives
£’000
Pension
benefits
£’000
Pension
benefits
£’000
Directors as at
31 December 2020
Year
ended
Year
ended
31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 31 Dec 2020(ii) 31 Dec 2019 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019
Year
ended
Year
ended
Year
ended
Year
ended
Year
ended
Year
ended
Year
ended
Year
ended
Total
£’000
Total
£’000
Year
ended
Year
ended
1 Dec 2020 31 Dec 2019
L Zulch
(appointed 2 April 2020)
M Harper
(appointed 2 April 2020)
103.9
N/A
—
N/A
106.6
N/A
1.4(i)
N/A
P Dixon-Clarke
(appointed 10 August 2020)
63.0
N/A
—
N/A
—
—
—
N/A
—
N/A
—
N/A
103.9
N/A
N/A
11.2(iii)
N/A
—
N/A
119.2
N/A
N/A
—
N/A
3.0
N/A
66.0
N/A
Former Directors
S McGregor
(resigned 14 March 2019)
F Welham
(resigned 10 August 2020)
N/A
42.0
N/A
1.0
N/A
—
N/A
—
N/A
2.0
N/A
45.0
88.0
150.0
8.0
13.0
115.0
—
—
—
5.0
8.0
216.0
171.0
(i) Represents employer contribution to private medical and dental insurance cover
(ii) Represents amounts paid in respect of the year ended 31 December 2019
(iii) Represents value of options which vested in the period from the date of the Merger to 31 December 2020 based on mid-market price on the
various vesting dates. The options had not been exercised as at the date of this report.
29
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
The table below reports a single figure for total remuneration for each Non-Executive Director:
Directors as at 31 December 2020
N O’Brien
(Executive Chairman until 2 April 2020 and Non-Executive Chairman thereafter)
M Farrow
R Kohli (appointed 22 June 2020) *
J Marren
Former directors
Fees
£’000
Year ended
31 Dec 2020
Fees
£’000
Year ended
31 Dec 2019
Total Fees
T£’000
Year ended
31 Dec 2020
Total Fees
£’000
Year ended
31 Dec 2019
60.0
55.0
60.0
55.0
30.0
15.0
30.0
30.0
N/A
30.0
30.0
15.0
35.0
30.0
N/A
35.0
J Kenna (resigned 31 December 2019)
N/A
36.0
N/A
36.0
* R Kohli was the nominated director of Bushveld Minerals during 2020 and 50% of his fees were recharged to Bushveld
No fees were paid to Non-Executive Directors for membership of a committee or for attending committee meetings.
Additional information in respect of single figure table of remuneration for the year ended 31 December 2020
Annual bonus
In respect of the financial period, the Committee agreed that the Executive Director annual bonus opportunity would
be up to 100 per cent of base salary. The Committee had agreed objectives for the 2020 financial year relating to:
Value of sales orders closed;
Staff retention;
Staff and contractor expenses;
Timely receipt of cash on key contracts; and
Development of strategic relationships
The Committee agreed that the final bonus calculation for 2020 was 66.7% on the basis of the extent to which the
objectives had been achieved. The Committee had recommended to the Board that cash bonuses be awarded
for the full year to Larry Zulch and Matt Harper and on a pro rata basis to Peter Dixon-Clarke who had joined the
Company later in the year.
All Directors’ bonus payments in respect of the year ended 31 December 2020, where applicable, were paid after the
year-end.
Awards of options during the financial year
The table below summarises the options granted to Executive Directors during the financial year.
Director
Date of grant
Number of options
Exercise price
Vesting date
M Harper
1 April 2020* (revised)
263,034
£0.0434
M Harper
1 April 2020* (revised)
73,065
£0.0434
M Harper
26 August 2020
300,000
£1.13
P Dixon-Clarke 26 August 2020
500,000
£1.13
Options vest on a monthly basis over
a five-year period from 15 July 2014
Options vest on a monthly basis over
a five-year period from 1 July 2016
Options vest in equal instalments at the end
of years 1, 2 and 3 following date of grant
Options vest in equal instalments at the end
of years 1, 2 and 3 following date of grant
* Following the merger between redT Energy PLC and Avalon Battery Corporation, the Company granted new options in substitution for and
cancellation of options held under the Avalon Battery Corporation 2013 Equity Incentive Plan which had original dates of grant of 21 November
2014 and 7 July 2016.
30
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Implementation of Executive Director remuneration policy for 2021
Base salaries
No increases to base salaries were implemented for the Executive Directors for the 2021 financial year.
Annual bonus
For 2021, the Executive Director annual bonus will be determined as a percentage of base salary based on
performance against pre-agreed corporate objectives. The maximum bonus potential is 100% of base salary.
For the financial year ending 31 December 2021, the Committee has agreed objectives with equal weighting relating to
project delivery, signed sales contracts and the development of strategic relationships.
Option Plan
The Committee does not plan to make any awards of share options to Executive Directors under the Option Plan
during the 2021 financial year.
Benefits and pension contributions
The Executive Directors will receive the benefits and pension contributions in line with the policy.
Implementation of Non-Executive Director remuneration policy for 2021
Since the year end, the Board has appointed a Senior Independent Director and has set the fee payable for this
role as £5,000 per annum in addition to the basic fee for a Non-Executive Director. In addition, the fee for acting as
Remuneration Committee Chairman, which had previously been waived, will be reinstated with effect from 1 January
2021. No further adjustments to Non-Executive Director fees are planned for the 2021 financial year.
The current fees are set out in the table below:
Role
Chairman
Type of fee
Total fee
Other Non-Executive Directors
Basic fee
Chairman of Remuneration and Audit & Risk Committees
Senior Independent Director
Statement of directors’ shareholdings
The table below summarises the interests in shares of the Directors in office at the year-end:
£60,000
£30,000
£5,000
£5,000
Ordinary €0.50 shares
at 31 December 2020
Percentage of issued share capital
at 31 December 2020
Neil O’Brien
Lawrence Zulch (appointed 2 April 2020)
Matthew Harper (appointed 2 April 2020)
Peter Dixon-Clarke (appointed 10 August 2020)
Michael Farrow
Rajat Kohli (appointed 22 June 2020)
Jonathan Marren
87,500
2,231,949
1,597,845
—
9,224
—
155,876
0.10
2.57
1.84
—
0.01
—
0.18
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Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Outstanding awards under the Option Plan
Director
Date of grant
Exercise
price
Options
held at date
of Merger
Vested
Lapsed/
Vested
as at date Relinquished since date
of Merger during year of Merger
Options
held at
31 December 2020
Earliest
vesting
date
Matt Harper
1 April 2020* £0.0434 263,034 263,034
—
—
263,034
(revised)
Options fully
vested
Matt Harper
1 April 2020* £0.0434
73,065
54,799
—
9,742
(revised)
73,065 Monthly vesting
commenced
on 1 July 2016
Matt Harper
26 August 2020
Peter Dixon-Clarke 26 August 2020
£1.13
£1.13
N/A
N/A
—
—
—
—
—
—
300,000 26 August 2021
500,000
26 August 2021
* Following the merger between redT Energy PLC and Avalon Battery Corporation, the Company granted new options in substitution and
cancellation of options held under the Avalon Battery Corporation 2013 Equity Incentive Plan which had original dates of grant of 21 November
2014 and 7 July 2016. The options have retained the original vesting dates.
Share price movements during year ended 31 December 2020
The mid-market closing price of the company’s shares as at 31 December 2020 was 230 pence per share. The range
of the trading price of the company’s shares since the merger was between 32.5 pence and 245 pence per share.
Michael Farrow
Chairman of the Remuneration Committee
30 June 2020
32
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Directors’ report
Corporate Governance
The company’s Corporate Governance Statement is set
out on pages 15 to 18 and is deemed to form part of this
report by reference.
Cooperatively manufacture the VFB upon achieving a
jointly validated design; and
Commercialize the VFB through each company’s sales
channels.
Principal activity
The principal activity of the group is the development and
production of vanadium flow batteries.
Results and dividends
The trading results for the year, and the group’s financial
position at the end of the period are shown in the
attached financial statements. The Directors have not
recommended a dividend for the year (year ended
31 December 2019: £nil).
Substantial shareholders
At 31 May 2021, the company had been notified of
the following interests of three percent or more of the
company’s voting rights.
Shareholder/
Fund Manager
Schroders plc
GSR Ventures
Brantingham & Carroll
International
Johnson Chiang
Hong Kong Hao Yuan
Shen Trading
Number
of shares
% of issued
share capital
18,786,859
8,495,506
7,093,026
6,420,074
3,579,276
21.64%
9.78%
8.17%
7.39%
4.12%
Directors
The present members of the Board are as listed in the
Board composition section of the Governance Report.
The interests of the Directors in office at the year-end
in the share capital of the company are shown in the
Directors’ Remuneration Report along with details of
their service contracts and terms of appointment.
Post balance sheet events
On 11 May 2021, the company announced that it had
entered into a Joint Development and Commercialisation
Agreement (“JDCA”) with Gamesa Electric S.A.U. (“Gamesa
Electric”), a wholly owned subsidiary of Siemens Gamesa
Renewable Energy (“SGRE”), to:
Jointly develop a grid-scale vanadium flow battery
(“VFB”) based on the company’s proven technology
and incorporating Gamesa Electric’s advanced power
conversion systems;
The JDCA sets out a detailed development program
for the next-generation VFB that is expected to take
approximately two years to reach commercialisation.
Over this period, Gamesa Electric has agreed to fund an
aggregate US$4.62 million of the Company’s activities
within the joint development program, payable as
development milestones are met. The JDCA may be
terminated by Gamesa Electric should there be a failure to
advance through development stages. In addition to the
joint activities, each company will independently advance
their core technology to support program deliverables.
The company and Gamesa Electric have also entered
into an Option Agreement granting Gamesa Electric or
its nominee within the SGRE group an option for 9.99 per
cent. of the company’s issued share capital as at the date
of this announcement (the “Option”, the “Option Shares”)
at £1.75 per share, the same as the company’s most
recent placing in December 2020. If the option were to
be exercised, Gamesa Electric or its nominee would have
the right to appoint a director to the Company’s board
subject to Gamesa Electric or its nominee maintaining a
minimum 5% shareholding in Invinity. The ability to exercise
the Option is subject to Company shareholders’ approval.
In addition, on 17 May 2021, the company announced that
it had concluded contracting on another project awarded
funds by the California Energy Commission (CEC). This
follows the company’s announcement in Q4 2020 that
it has been selected for a number of projects funded by
the CEC, California’s primary energy policy and planning
agency.
Invinity has entered into a contract with Webcor, a leading
Californian construction firm, to provide a vanadium flow
battery (VFB) for a project developed by Indian Energy
LLC, a 100% Native American-owned utility-scale and
microgrid development and systems integration firm with
approximately 4 GW of solar PV and wind and 6 GWh of
energy storage projects under development.
The 0.5 MWh system is expected to be delivered during
Q4 2021 and to contribute revenue of approximately
£450,000 to the Company, relating to the Invinity VS3
vanadium flow battery, ancillary components and
associated services.
33
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Going concern
These considerations are summarised as follows as
they relate to the 31 December 2020 Annual Report
and Financial Statements:
In the fourth quarter of 2020, prior to the second UK
lockdown, the group raised £21.5 million by way of
a placing and open offer. Whilst the placing was
significantly over-subscribed, the directors chose to
limit the number of new shares issued and hence funds
raised to the authorities then held for the dis-application
of pre-emption rights, as this supported the business
plan at that time.
The purpose of the placing was to provide funds for the
planned scale-up of the business in order to accelerate
the delivery of existing contracts and the closing of new
contracts as well as driving the product cost savings
arising from greater economies of scale. Whilst the group
has been scaling up during the first half of 2021, the
impact of the second lockdown delayed the delivery of
existing contracts and the closing of new contracts and
has also resulted in increased input costs, particularly
related to shipping services and steel.
The group’s cash balances at the end of May 2021
totalled £14.3 million. The group’s latest cash flow
forecasts indicate that, provided existing contracts are
delivered and new contracts are signed as forecast and
that materials costs start to return to pre-lockdown levels
in 2022, the existing cash will be sufficient to fund the
business for at least the next 12 months.
Should customer receipts, from delivering existing
contracts or closing new contracts, be delayed by two
months then, assuming the group maintains its current
operational capacity it will be necessary for it to raise
further funding within the next 12 months in order to
continue trading and delivering on its strategic objectives.
Based on the recent signing of a Joint Development
Commercialisation Agreement (JDCA) with Gamesa
Electric S.A.U. (a wholly owned subsidiary of Siemens
Gamesa Renewable Energy) along with ongoing
discussions with existing and potential customers, grant
providers, investors and debt providers, the directors
are optimistic that the necessary customer receipts
or, if delayed, additional funding will be secured in
the appropriate time scale. It therefore considers it
appropriate to present these financial statements on a
going concern basis.
However, the group’s need to secure customer receipts
or 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 emergent energy
storage market;
commercial viability of the group’s existing product
within this market;
growing sales pipeline of 273MWh against 203MWh
at the March Trading Update; and
validation of the business as provided by the JDCA
with Gamesa Electric.
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 customer receipts or long-term funding
within the coming months.
The financial statements do not include any adjustments
that would be necessary if the group were unable to
continue as a going concern.
Principal risks and uncertainties
Information relating to the principal risks and uncertainties
facing the group is set out in the risk management report.
Share capital
The issued share capital of the company at 1 January
2020 was £8,157k with share premium of £101,035k
comprised of 951,250k ordinary shares of €0.01. There were
no shares held in treasury.
Concurrent with the merger with Avalon, the share capital
was consolidated with every 50 shares of €0.01 each
becoming a single share of €0.50 each (rounded down to
the closest whole share.
A total of 66,875k new ordinary shares of €0.50 each
were issued during the year and principally related to
the merger transaction that completed on 1 April 2020
together with the two placings of shares and associated
and open offers undertaken in April and December 2020,
respectively.
34
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
The issued share capital of the company at 31 December
2020 was £37,870k comprised of 85,900 ordinary shares of
€0.50. and with associated share premium of £124,545k.
There were no shares held in treasury.
Auditor
A resolution for the re-appointment of
PricewaterhouseCoopers LLP as auditor of the company
will be proposed at the forthcoming Annual General
Meeting.
Peter Dixon-Clarke
Chief Financial Officer
30 June 2021
Related party transactions
Related party transactions are disclosed in notes 15 and
31 to the financial statements.
Financial instruments
For the period under review the group held no financial
instruments, outside of cash and receivables. Financial
risk management policies are disclosed in note 30 to the
financial statements.
Political and charitable contributions
The group made no charitable donations (year ended
31 December 2019: £nil) and no political donations (year
ended 31 December 2019: £nil) during the year.
Creditor payment policy
The group does not follow any specific code or standard
on payment practice. However, it is the policy of the group
to ensure that all of its suppliers of goods and services are
paid promptly and in accordance with contractual and
legal obligations. Average creditor days for the year were
37 days (year ended 31 December 2019: 25 days), on the
basis of accounts payable as a percentage of amounts
invoiced during the year.
Directors’ and Officers’ insurance
The group maintained directors’ and officers’ liability
insurance cover throughout the period. The Directors
are also able to obtain independent legal advice at the
expense of the group, as necessary, in their capacity as
Directors.
Employees
The group had 101 employees at the year end, three of
whom are Executive Directors. The Group seeks to employ
people on the basis of merit and ability to perform the
required roles. The Group does not discriminate on any
grounds including race, gender, religion, age, nationality
or sexual orientation.
Relations with shareholders
The company provides shareholders and stakeholders
with relevant information in a timely and balanced
manner. We understand and respect the rights of
shareholders, will convene Annual General Meetings
in full consideration of these rights, and encourage full
participation of both institutional and private investors.
35
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Statement of Directors’ responsibilities in respect
of the financial statements
The directors are responsible for preparing the Annual
Report and the Financial Statements in accordance with
applicable law and regulation.
Directors’ confirmations
In the case of each director in office at the date the
Directors’ report is approved:
so far as the Director is aware, there is no relevant audit
information of which the group’s auditors are unaware;
and
they have taken all the steps that they ought to have
taken as a director in order to make themselves aware
of any relevant audit information and to establish that
the group’s auditors are aware of that information.
The Companies (Jersey) Law, 1991 requires the directors
to prepare financial statements for each financial year.
Under that law the directors have prepared the group
financial statements in accordance with International
Financial Reporting Standards (IFRS) as adopted in the
European Union.
Under The Companies (Jersey) Law, 1991, directors must
not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the group and of the profit or loss of the group
for that period. In preparing the financial statements, the
directors are required to:
select suitable accounting policies and then apply them
consistently;
state whether applicable IFRS as adopted in the
European Union have been followed, subject to any
material departures disclosed and explained in the
financial statements;
make judgements and accounting estimates that are
reasonable and prudent; and
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
group will continue in business.
The directors are also responsible for safeguarding the
assets of the group and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for keeping proper
accounting records that disclose with reasonable
accuracy at any time the financial position of the
company and enable them to ensure that the financial
statements comply with The Companies (Jersey) Law, 1991.
The directors are responsible for the maintenance and
integrity of the group’s website. Legislation in the United
Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions.
36
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
Independent auditors’ report to the members
of Invinity Energy Systems plc
Report on the audit of the financial statements
Opinion
In our opinion, Invinity Energy Systems plc’s group financial statements:
give a true and fair view of the state of the group’s affairs as at 31 December 2020 and of its loss and cash flows for
the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards as adopted in the
European Union; and
have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.
We have audited the financial statements, included within the Annual report and Financial Statements (the “Annual Report”),
which comprise: the Consolidated statement of financial position as at 31 December 2020; the Consolidated statement of
comprehensive loss, the Consolidated statement of changes in equity and the Consolidated statement of cash flows for the
year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
Material uncertainty related to going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure
made in note 2 to the financial statements concerning the group’s ability to continue as a going concern. Whilst the group
has secured £21.5 million additional funding during the year through a placing and open offer, the appropriateness of the
going concern assessment of the group is dependent on existing contracts being delivered as planned, new contracts being
signed as forecast and that materials costs start to return to pre-lockdown levels in 2022. If these conditions are not met,
the group is forecasted to require additional funding in order to continue trading and delivering on its strategic objectives.
These conditions, along with the other matters explained in note 2 to the financial statements, indicate the existence of a
material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern. The financial
statements do not include the adjustments that would result if the group were unable to continue as a going concern.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s ability to continue to adopt the going concern basis of
accounting included:
obtaining future cash flow forecasts for a period of at least 12 months from the date of approval of the financial
statements. We assessed the forecast assumptions used in the base and severe but plausible downside scenarios
and the impact of COVID-19 on these forecasts;
review of the past forecasting accuracy by management;
testing the mathematical accuracy of the model;
corroborating the forecasted budgeted revenue with confirmed sales orders or revenue pipeline of the group;
comparing the assumptions used within the going concern model to the board approved budgets and business plans;
reviewing and evaluating management’s sensitivities and performing additional sensitivity analysis over key
assumptions in the model in order to assess the potential impact of a range of possible outcomes; and
reading the disclosures in the financial statements and checking these were consistent with the group’s plans for
future fundraising and the group’s current funding position.
37
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Our audit approach
Context
Invinity Energy Systems plc is an independent, Jersey incorporated company. Its key subsidiaries are based in the
UK, Canada and United States of America. The principal activities of the company and its subsidiaries relate to the
manufacture and sale of vanadium flow battery systems plus associated installation, warranty and other services.
Its manufacturing and assembly sites are located in the UK and Canada.
Overview
Audit scope
We conducted full scope audits on 4 components and the audit of specified balances and classes of transactions
on 1 component. The scope of work at each component was determined by its contribution to the group’s overall
financial performance and its risk profile.
We engaged our network firm in Canada to perform the audit procedures for components based in the United
States of America and Canada. The work on the other components was performed by us.
The components where audit work was performed accounted for approximately 99% of total assets.
Key audit matters
Material uncertainty related to going concern
Impairment of goodwill with respect to group (Note 8)
Accounting for acquisition and purchase price allocation of Avalon Battery Corporation (Note 7)
COVID-19 risks and uncertainties (Note 2)
Materiality
Overall materiality: £500,000 (2019: £154,000) based on 1% of total assets.
Performance materiality: £375,000.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the
audit of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect
on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
In addition to going concern, described in the Material uncertainty related to going concern section above, we
determined the matters described below to be the key audit matters to be communicated in our report. This is not a
complete list of all risks identified by our audit.
Accounting for acquisition and purchase price allocation of Avalon Battery Corporation is a new key audit matter this
year. Otherwise, the key audit matters below are consistent with last year.
38
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill with respect to group (Note 8)
The group holds intangible assets, including goodwill
(£23,944k), which arose on the acquisition of the remaining
shareholding of redT Energy Holdings (Ireland) Limited and
acquisition of Avalon Battery Corporation.
IAS 36 Impairment of assets requires an annual
impairment assessment to be carried out for all indefinite
life intangibles (goodwill) and whenever there are any
indications of impairment for all other assets.
We focused on this area due to the material nature of the
intangibles balance and given that the group is currently
incurring losses, there is a risk that the value of goodwill
may not be recoverable. In addition, as impairment
assessments are based on key assumptions, which
are inherently subjective, this heightens the risk around
carrying value of intangible assets.
Accounting for acquisition and purchase price allocation
of Avalon Battery Corporation (Note 7)
The group’s acquisition of Avalon Battery Corporation
completed on 1 April 2020. The total purchase
consideration used in accounting for the business
combination and related transactions was £17,258k.
Net liabilities of £948k were taken over in the acquisition
and the resultant goodwill recognised on acquisition
amounted to £18,206k.
The group was required to complete an acquisition
accounting exercise in accordance with IFRS 3. This
comprised determination of acquirer, determining fair
value of the consideration payable and allocation
of consideration across various assets and liabilities
acquired, intangibles assets and resultant goodwill.
There was significant judgement involved in determination
of acquirer as per IFRS 3 and related to the purchase price
allocation exercise. This was an area of focus given the
material values associated with the acquisition and the
inherently judgemental nature of the valuation required by
management.
We tested management’s impairment assessment of
goodwill and intangible assets by performing the work
described below:
– checking the mathematical accuracy of key formulae in
the impairment models;
– corroborating the inputs to the fair value less cost of
disposal assessment of impairment;
– reviewing management’s sensitivities over key
assumptions in the model in order to assess the
potential impact of a range of possible outcomes;
– assessing the inclusion of all appropriate assets and
liabilities in the cash generating unit and agreed that all
relevant balances had been included; and
– verifying the adequacy of relevant disclosures in the
group financial statements.
Based on the work performed, we determined that
the assumptions used, and the approach taken, were
reasonable. The recoverability of the goodwill is interlinked
with the going concern assumption therefore the
recoverability of the asset is at risk should the group not
continue as a going concern.
We performed audit procedures over the accounting
for acquisition and purchase price allocation of Avalon
Battery Corporation by performing the work described
below:
– audit procedures were performed to test material
balances in Avalon Battery Corporation balance sheet
on the date of the acquisition;
– we obtained an understanding of the methodology
applied in allocating the purchase consideration to
assets and liabilities acquired, intangible assets and
resultant goodwill;
– we reviewed the judgements applied by the
management in determining the acquirer in the
business combination;
– we tested the disclosures in the financial statements
and checked for compliance with the requirements of
IFRS 3 ‘Business Combinations.
Based on our work performed, we consider accounting
for acquisition and purchase price allocation of Avalon
Battery Corporation has been performed appropriately.
39
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
Key audit matter
How our audit addressed the key audit matter
COVID-19 risks and uncertainties (Note 2)
In challenging management’s assessment of the impact
of COVID-19 on their business, our procedures included:
The COVID-19 pandemic has caused significant global
disruption and economic uncertainty, including increased
volatility in commodity prices which has impacted the
group’s results and resulted in the delays in execution
of revenue projects. The uncertainty caused by the
pandemic could have a direct impact on the going
concern of the group.
– conducting enquiries with key members of
management outside of the finance function, to
understand the group’s mitigating actions and
contingency plans;
– reviewing board reporting about the business impact of
the matter;
– with respect to work performed on going concern –
refer section “Material uncertainty related to going
concern”; and
– reviewing the related financial statement disclosures for
consistency with the results of our procedures.
Based on the procedures performed and based on
the current facts and circumstances we believe that
management’s disclosures in relation to COVID-19 are
appropriate.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the structure of the group, the accounting processes and controls,
and the industry in which it operates.
The group has one segment and cash generating unit. Following the acquisition of Avalon Battery Corporation, the
group has two manufacturing and assembly locations in the UK and Canada. The accounting and financial reporting
functions are also based in these two regions. The group has 15 components.
Our group scoping was based on total assets within each component. We identified four components (the company,
Invinity Energy (UK) Limited, Invinity Energy Systems (Canada) Corporation and Invinity Energy Systems (US) Corporation)
which comprised a high proportion of total group assets which required an audit of their complete financial
information. One other component was subject to procedures over the intangibles and contract liabilities financial
statement line item level to obtain sufficient coverage.
The audit work was performed by the group engagement team based in the UK and component auditors team
based in Canada. We maintained regular communication and conducted formal interim and year-end conference
calls with component team, as well as reviewing the audit work and reports to us.
Together the above scoping gave appropriate coverage of all material balances at a group level. On a consolidated
basis, these provided coverage of 99% of Total assets.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and
in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall group materiality
£500,000 (2019: £154,000).
How we determined it
1% of total assets
Rationale for benchmark applied
We believe that total assets are an appropriate measure for the group
given the current stage of development of the business and products.
40
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
STRATEGIC REPORT
GOVERNANCE
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group
materiality. The range of materiality allocated across components was £150,000 and £450,000. Certain components
were audited to a local statutory audit materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality
in determining the scope of our audit and the nature and extent of our testing of account balances, classes of
transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall
materiality, amounting to £375,000 for the group financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk
assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end
of our normal range was appropriate.
We agreed with those charged with governance that we would report to them misstatements identified during our
audit above £25,000 (2019: £7,700) as well as misstatements below that amount that, in our view, warranted reporting
for qualitative reasons.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or any form of assurance
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material
inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material
misstatement of the financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report
that fact. We have nothing to report based on these responsibilities.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of directors’ responsibilities in respect of the financial statements, the directors
are responsible for the preparation of the financial statements in accordance with the applicable framework and for
being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with
laws and regulations related to tax legislation and employment regulations, and we considered the extent to which
41
Annual Report and Financial Statements 2020FINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
non-compliance might have a material effect on the financial statements. We evaluated management’s incentives
and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and
determined that the principal risks were related to posting inappropriate journal entries to manipulate financial results
and potential management bias in accounting estimates. The group engagement team shared this risk assessment
with the component auditors so that they could include appropriate audit procedures in response to such risks in their
work. Audit procedures performed by the group engagement team and/or component auditors included:
Evaluation of the design effectiveness of management’s controls designed to prevent and detect irregularities;
Inquiries with the Board of Directors, Chief Financial Officer, Financial Controllers and the HR Managers, including
consideration of known or suspected instances of tax matters, employment regulations and non-compliance with
laws and regulations and fraud;
Review of board minutes;
Challenging assumptions made by management in its significant accounting estimates, in particular in relation to
impairment of intangible assets, provision for warranty, inventory and onerous contracts; and
Identifying and testing the validity of journal entries, in particular any journal entries posted with unusual account
combinations and unusual words.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of
instances of non-compliance with laws and regulations that are not closely related to events and transactions
reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than
the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using
data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than
testing complete populations. We will often seek to target particular items for testing based on their size or risk
characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from
which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in
accordance with Article 113A of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies (Jersey) Law 1991 exception reporting
Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion we have not obtained all the
information and explanations we require for our audit.
We have no exceptions to report arising from this responsibility.
Richard Spilsbury
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants
Edinburgh
30 June 2021
42
Invinity Energy Systems plcFINANCIAL STATEMENTSOTHER INFORMATION
Consolidated statement of comprehensive loss
For the year ended 31 December 2020
Continuing operations
Revenue
Cost of sales
Gross loss
Operating costs
Administrative expenses
Other items of operating income and expense
Loss from operations
Finance income
Finance costs
(Loss)/gain on foreign currency transactions
Net finance costs
Loss before income tax
Income tax expense
Loss from continuing operations
Discontinued operations
Loss from discontinued operations after taxation
Gain on sale of discontinued operations
Loss for the year
Other comprehensive loss
Items that may reclassified subsequently to profit or loss:
Exchange difference on the translation of foreign operations
Total comprehensive loss for the year
Arising from
Continuing operations
Discontinued operations
Basic loss per share in pence
From continuing operations
From continued and discontinued operations
Diluted loss per share in pence
From continuing operations
From continued and discontinued operations
Note
3
5
13
14
18
18
18
19
9
21
21
2020
£’000
406
(1,221)
(815)
(9,593)
(9,822)
(20,230)
1
(2,298)
(1,744)
(4,041)
(24,271)
—
(24,271)
—
—
Restated
2019
£’000
227
(275)
(48)
(6,565)
(832)
(7,445)
1
(28)
92
65
(7,380)
(5)
(7,385)
(35)
578
(24,271)
(6,842)
(2,162)
(26,433)
(845)
(7,687)
(26,433)
—
(26,433)
(41.0)
(41.0)
(8,088)
401
(7,687)
(40.6)
(37.6)
(41.0)
(41.0)
(40.6)
(37.6)
The above consolidated statement of comprehensive loss should be read in conjunction with the accompanying notes.
Prior year loss per share has been restated to give effect to the 50:1 share consolidation that took place on 1 April 2020.
The restatement is made to aid comparability with current year loss per share.
43
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Consolidated statement of financial position
At 31 December 2020
Non-current assets
Property, plant and equipment
Right-of-use assets
Goodwill and other intangible assets
Total non-current assets
Current assets
Inventories
Other current assets
Contract assets
Trade receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Lease liabilities
Borrowings
Provisions
Total current liabilities
Net current assets/ (liabilities)
Non-current liabilities
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
Share capital and share premium
Share based payment reserve
Accumulated losses
Other reserves
Total equity
Note
10
11
8
26
24
4
23
25
27
4
12
28
4
12
2020
£’000
695
1,014
24,127
25,836
905
1,414
5
33
21,953
24,310
50,146
(2,468)
(2,644)
(161)
—
(1,927)
(7,200)
17,110
(595)
(595)
(7,795)
42,351
Restated
2019
£’000
254
71
12,789
13,114
236
726
58
62
1,243
2,325
15,439
(1,523)
(38)
(52)
(1,143)
(95)
(2,851)
(256)
—
—
(2,851)
12,588
29
29
29
29
162,415
3,762
(122,185)
(1,641)
109,192
2,250
(97,914)
(940)
42,351
12,588
The above consolidated statement of comprehensive loss should be read in conjunction with the accompanying notes.
The financial statements on pages 43 to 95 were authorised by the board of directors and authorised for issue on
30 June 2020 and were signed on its behalf by:
Michael Farrow
Director
44
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Consolidated statement of changes in equity
For the year ended 31 December 2020
Share capital
and share
premium
£’000
Share-based
payment
reserve
£’000
Accumulated
losses
£’000
Translation
reserve
£’000
Other
reserves
£’000
Total
£’000
At 1 January 2020
109,192
2,250
(97,914)
482
(1,422) 12,588
Total comprehensive loss for the year
Other comprehensive loss
Foreign currency translation differences
Total comprehensive loss for the year
Transaction with owners in their capacity as owners
Contribution of equity, net of transaction costs
Issue of ordinary shares as consideration for a business
combination, net of transaction costs
Exercise of share options
Fair value realised on note conversion
Share based payments
—
—
—
31,734
21,403
86
—
—
Total contributions by and distributions to owners
53,223
—
(24,271)
—
— (24,271)
—
—
—
—
—
—
1,512
1,512
—
(2,162)
—
(2,162)
(24,271)
(2,162)
(26,433)
—
—
—
—
—
—
—
—
—
—
—
—
— 31,734
— 21,403
—
1,461
—
86
1,461
1,512
1,461 56,196
At 31 December 2020
162,415
3,762
(122,185)
(1,680)
39 42,351
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Share capital
and share
premium
£’000
Share-based
payment
reserve
£’000
Accumulated
losses
£’000
Translation
reserve
£’000
Other
reserves
£’000
Total
£’000
At 1 January 2019
106,250
2,225
(91,072)
1,327
(1,422) 17,308
Total comprehensive loss for the year
Other comprehensive loss
Foreign currency translation differences
Total comprehensive loss for the year
—
—
—
Transaction with owners in their capacity as owners
Contribution of equity, net of transaction costs and taxes
2,942
Share based payments
Total contributions by and distributions to owners
—
2,942
—
—
—
—
25
25
(6,842)
—
—
(6,842)
—
(6,842)
(845)
(845)
—
—
—
—
—
—
—
—
—
—
—
(845)
(7,687)
2,942
25
2,967
At 31 December 2019
109,192
2,250
(97,914)
482
(1,422) 12,588
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
45
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Consolidated statement of cash flows
For the year ended 31 December 2020
Cash flows from operating activities
Cash used in operations
Interest received
Interest paid
Income taxes paid
Net cash outflow from operating activities
Cashflows from investing activities
Acquisition of property plant and equipment
Acquisition of intangible assets
Proceeds from the sale of discontinued operations
Net cash outflows from investing activities
Cashflows from financing activities
Payment of lease liabilities
Proceeds from the issue of share capital, net of transaction costs
Proceeds from the issuance of convertible notes, net of transaction costs
Proceeds from borrowings
Acquisition of cash through business combination
Proceeds from the exercise of share options
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Note
6
10
8
9
28
7
2020
£’000
(10,885)
1
(32)
—
Restated
2019
£’000
(6,660)
1
(3)
(5)
(10,916)
(6,667)
(349)
(9)
—
(358)
(163)
28,915
1,944
—
1,264
37
31,997
20,723
1,243
(13)
(6)
—
628
622
(91)
2,942
—
1,165
—
—
4,016
(2,029)
3,344
(72)
1,243
Cash and cash equivalents at the end of the year
25
21,953
The above consolidated cash flow statement should be read in conjunction with the accompanying notes.
46
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
1 General Information
Invinity Energy Systems plc is a public limited company (plc) incorporated in Jersey under the Companies (Jersey) Law
1991 and limited by shares. The company is domiciled in Jersey with its registered office address at: 3rd floor, Standard
Bank House, 47-49 La Motte Street, St. Helier Jersey, JE2 4SZ. The company is listed on the Alternative Investment
Market of the London Stock Exchange with the ticker symbol IES.L.
The principal activities of the company and its subsidiaries (together ‘the group’) relate to the manufacture and sale of
vanadium flow battery systems plus associated installation, warranty and other services.
2 Summary of significant accounting policies
Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards as adopted by the European Union, the associated interpretations issued by the IFRS Interpretations
Committee (together ‘IFRS’) and in accordance with the Companies (Jersey) Law 1991.
Separate presentation of the parent company financial statements is not required by the Companies (Jersey) Law 1991
and, accordingly, such statements have not been included in this report.
The significant accounting policies applied in preparing these consolidated financial statements are set out below.
These policies have been consistently applied throughout the period and to each subsidiary within the group.
The financial statements have been prepared under the historical cost convention except where stated.
Going concern
In the fourth quarter of 2020, prior to the second UK lockdown, the group raised £21.5 million (after expenses) by way of
a placing and open offer. Whilst the placing was significantly over-subscribed, the directors chose to limit the number
of new shares issued and hence funds raised to the authorities then held for the dis-application of pre-emption rights,
as this supported the business plan at that time.
The purpose of the placing was to provide funds for the planned scale-up of the business in order to accelerate the
delivery of existing contracts and the closing of new contracts as well as driving the product cost savings arising
from greater economies of scale. Whilst the group has been scaling up during the first half of 2021, the impact of the
second lockdown delayed the delivery of existing contracts and the closing of new contracts and has also resulted in
increased input costs, particularly related to shipping services and steel.
The group’s cash balances at the end of May 2021 totalled £14.3 million. The Group’s latest cash flow forecasts indicate
that, provided existing contracts are delivered and new contracts are signed as forecast and that materials costs start to
return to pre-lockdown levels in 2022, the existing cash will be sufficient to fund the business for at least the next 12 months.
Should customer receipts, from delivering existing contracts or closing new contracts, be delayed by two months then,
assuming the group maintains its current operational capacity it will be necessary for it to raise further funding within
the next 12 months in order to continue trading and delivering on its strategic objectives.
Based on the recent signing of a Joint Development Commercialisation Agreement (JDCA) with Gamesa Electric
S.A.U. (a wholly owned subsidiary of Siemens Gamesa Renewable Energy) along with ongoing discussions with existing
and potential customers, grant providers, investors and debt providers, the directors are optimistic that the necessary
customer receipts or, if delayed, additional funding will be secured in the appropriate time scale. It therefore considers
it appropriate to present these financial statements on a going concern basis.
However, the group’s need to secure customer receipts or 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:
47
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
— opportunity presented by the emergent energy storage market;
— commercial viability of the group’s existing product within this market;
— growing sales pipeline of 273MWh against 203MWh at the March Trading Update; and
— validation of the business as provided by the JDCA with Gamesa Electric.
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 customer receipts or long-term funding within the coming months.
The financial statements do not include any adjustments that would be necessary if the group were unable to
continue as a going concern.
Reclassification of prior year figures
In preparing the financial statements for the year ended 31 December 2020, certain changes have been made to the
comparative financial information presented in respect of the year ended 31 December 2019. All of the changes made
relate to the reclassification of transactions or balances to improve the financial statement presentation and better
reflect the underlying nature of transactions and balances in question.
There has been no change to either net assets at 31 December 2019 or to net loss for the year ended 31 December
2019 as previously reported. Accounting standards require that reclassifications are presented as restatements of
previously reported financial information.
Summary of reclassifications made
Revenue and administrative costs, notes 3, 13
Grant income received in the year ended 31 December 2019 and recognised as revenue in that year has been
reclassified where the terms of the grant show that grant funds received relate to contributions in respect of
development or other costs. A total of £436k previously recognised as revenue have been reclassified to administrative
costs to offset the underlying costs the grants were awarded in respect of.
Cost of sales and administrative expenses, notes 5, 13
Overhead and other costs of £60k related to operational staff or facilities that were classified within administrative
costs in 2019 have been reclassified as cost of sales. The revised presentation is considered to better reflect the nature
of the costs.
Administrative and other items of operating income and expense, notes 13, 14
Inventory impairments of £332k that were classified within administrative costs in 2019 have been reclassified as other
items of operating income and expense. The revised presentation is considered to better reflect the nature of the costs.
Trade receivables and accrued income, other current assets, notes 23, 24
In 2019, trade receivables were presented together with accrued income. Amounts receivable related to grant awards
totalling £125k and previously included within trade receivables and accrued income have been reclassified as other
current assets. This presentation is consistent with no longer presenting certain grant income as revenue.
Accrued income and contract related balances, note 4
In 2019, trade receivables and accrued income included £58k related to accrued customer receipts. This amount has
been reclassified as contract related balances in the current period.
Financial risk management, note 30
The reclassifications related to trade receivables, other current assets and contract related balances has caused the
sensitivity analysis presented within the financial risk management footnote to be updated to reflect the adjusted balances.
48
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Foreign currency
Presentation currency – the consolidated financial statements are presented in Great British Pounds (GBP) rounded
to the nearest thousand (£’000), except where otherwise indicated.
Functional currency – items included in the financial information of the individual companies that comprise the
group are measured using the currency of the primary economic environment in which each subsidiary operates
(its functional currency).
Whilst Jersey uses the Jersey Pound as its currency, Jersey is in a currency union with the United Kingdom and hence
the functional currency of the parent company of the group has been determined to be GBP.
Foreign currency transactions – transactions in currencies other than an entity’s functional currency (foreign currencies)
are translated using the exchange rate on the date of the transaction. Foreign exchange gains and losses resulting
from the settlement of transactions denominated in a foreign currency are translated into GBP using the relevant
exchange rate at the date of the transaction.
Foreign currency gains/(losses) realised on the retranslation of subsidiaries as part of the year-end consolidation are
recorded in the translation reserve that forms a part of shareholders’ funds in the consolidated financial statements of
the group.
Consolidation of subsidiaries
Subsidiaries are all entities over which the company has control. The company controls an entity when it is exposed to,
or has rights over, variable returns from its involvement with the entity and can affect those returns through its ability to
exercise control over the entity. Subsidiaries are consolidated in the group financial statements from the date at which
control is transferred to the company.
Subsidiaries are deconsolidated from the date that control ceases, for instance because of the sale of a subsidiary
or other change in the company’s shareholding, voting rights or board representation, such that the company is no
longer able to exercise control over the entity in question.
Foreign operations
Subsidiaries of the company that are based in countries other than the UK or Jersey may have functional currencies
that are different to the company (Euro). In addition, the group financial statements are presented in Pounds Sterling. The
assets and liabilities of foreign subsidiaries consolidated into these financial statements are translated into the group’s
presentational currency using exchange rates prevailing at the end of the reporting period. Income and expense items are
similarly translated using the month-end rate for each month during the year. Where exchange rates fluctuate significantly
within a month the exchange rates on the actual dates of transactions are used. Exchange differences arising on
consolidation are recognised in other comprehensive income and are accumulated as part of shareholder’s equity.
Investments in associates and joint arrangements
Associates are entities where the company can exert significant influence but not control.
Joint arrangements may be incorporated, where an entity exists, or may be unincorporated, where the venture or joint
operation is governed by contract or other arrangement between two or more parties.
The company is not currently party to any unincorporated joint arrangements.
The group accounts for its interests in associates and incorporated joint ventures using the equity method of
accounting where the relevant investment is initially recorded at the cost to acquire the interest. After initial recognition,
the group recognises its share in the post-acquisition income and expenses of the associate in the statement of
comprehensive loss with a corresponding increase (for income) or decrease (for losses) in the carrying value of the
investment in the associate.
Dividends received by the company from an associate are treated as a reduction in the carrying value of the
associate (as the net assets have reduced by it giving the dividend) and income for the group (as its net assets have
increased by receiving the dividend).
49
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
The group assesses the carrying value of associates for impairment at each reporting period end or where there is
an indication that an impairment may exist. Where there is an indication of impairment of an investment, the group
assesses if an actual impairment loss exists by comparing the carrying value of the investment to its recoverable
amount to assess which is the lower of its fair value less cost to sell or its value in use. Fair value less costs to sell is
determined by reference to the proceeds that could be expected to be received should the interest in the associate
be sold less the costs of doing so. Value in use is typically calculated by reference to the value of the discounted
cashflows expected to be received from the associate.
Where there is a deficit of recoverable value as compared to the carrying value of the investment then an impairment
loss is recognised in the income statement of the amount of the deficit. The carrying value of the investment in the
associate is also reduced by a corresponding amount.
Acquisitions
The group allocates the purchase consideration given in respect of the acquisition of a subsidiary to the assets acquired and
liabilities assumed based on an assessment of their individual fair values at the date of acquisition. Any excess of the cost of the
acquisition over the fair value of assets acquired and liabilities assumed in the business combination is recognised as goodwill.
Goodwill is an intangible asset and is reviewed annually to determine if the goodwill can continue to be carried at its
originally calculated value or, if circumstances exist that show that the value of the goodwill may be impaired. Goodwill
is impaired where circumstances show that the recoverable value of the underlying cash generating unit to which the
goodwill that has been allocated can no longer support the carrying value of the goodwill.
The assessment of fair value is made by comparing the discounted value of the future cashflows expected to be generated
from the cash generating unit (CGU) to which the goodwill has been allocated to the net book value of the assets and
liabilities of that CGU including the allocated goodwill. Any deficit of discounted cash flows when compared to the carrying
value of the CGU’s net assets and allocated goodwill is recognised as an impairment charge. A corresponding reduction
is made to the carrying value of goodwill and then to the net assets of the CGU if goodwill is insufficient to absorb the loss.
Goodwill may also be tested for impairment under the fair value less costs to sell method where the recorded value of
goodwill is compared to the market or value of the company calculated by reference to its share price.
Any such impairment loss is recognised in profit and loss in the period in which it is identified. Impairment losses related
to goodwill cannot be reversed in future years.
Merger transaction with Avalon Battery Corporation (Avalon)
On 1 April 2020, the company completed a business combination transaction with Avalon. The comparative financial
information that is presented in these group financial statements consists of the comparative financial information of
the legacy Invinity Energy Systems plc group (Invinity) (formerly redT energy plc) for the year ended 31 December 2020.
The financial information of the Avalon group has been consolidated within these financial statements for the period
from 1 April to 31 December 2020.
Transaction between entities within the group
Transactions and balances between companies forming part of the group together with any unrealised income
and expenses arising from intra-group transactions are eliminated in the preparation of the consolidated financial
statements of the group.
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. Classification as a discontinued
operation occurs on actual disposal or earlier if the operation meets the criteria to be held for sale. When an operation
is classified as a discontinued operation, the comparative income statement is restated as if the operation had been
discontinued from the start of the comparative period.
50
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Disposal of subsidiaries
Transactions that result in the loss of control of a subsidiary are accounted for as disposals. The previously consolidated
assets and liabilities and the carrying amount of any non-controlling interests in the subsidiary are derecognised. Any
retained interest in the former subsidiary is recognised at its fair value at the date when control is lost. A gain or loss on
disposal is recognised as the difference between the fair value of the consideration received together with the fair value
adjustment made in respect of any retained interest in the subsidiary as offset by the carrying value of the assets and
liabilities derecognised. Any gains or losses of the disposed entity that were previously recognised in other comprehensive
income or loss and that require to be recycled to profit or loss also form part of the gain or loss on disposal.
New standards, amendments and interpretations effective and adopted by the group in 2020
No new standards became effective for the preparation of financial statements in accordance with IFRS for the year
ended 31 December 2020.
Amendments to existing standards previously issued by the IASB with effective dates during the year ended
31 December 2020 are summarised below. With the exception of the amendment to IAS 37, there was no effect on
the group’s consolidated financial statements for the year ended 31 December 2020 as a result of the adoption of
these amendments.
Amendment to IAS 37 – Provisions, contingent liabilities and contingent assets
An amendment to IAS 37 was published in May 2020 and requires the provision in respect of an onerous contract to
also include an assessment of the indirect costs, such as production overhead or indirect labour, that are expected to
be incurred in servicing a contract considered to be onerous. The company elected to adopt the amendment as of 1
January 2020.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December
2020 reporting periods and have not been early adopted by the company. These standards are not expected to have
a material impact on the entity in the current or future reporting periods an on foreseeable future transactions
Amendment to IFRS 16 – Leases
IFRS 16 was issued by the IASB in January 2016 with an effective date of 1 January 2019 and introduced a single lease
model requiring the recognition of right-of-use assets for all leases with a term greater than 12 months together with a
corresponding lease liability. There is no longer any distinction between the accounting treatment for lease contracts
that were previously classified as either operating leases or finance leases. IFRS 16 was adopted by the group in its
2019 annual report and financial statements, as required by the standard.
On 28 May 2020, the IASB issued an amendment to the standard related to the treatment of rent concessions given by
lessors in relation to COVID-19. The group did not receive any rent concessions related to COVID-19 that would require
consideration of the amendment to IFRS 16 and, accordingly, the amendment had no impact on the consolidated
financial statements for the year ended 31 December 2020.
Amendments to IFRS 9 – Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement,
and IFRS 7 – Financial Instruments: Disclosures
On 26 September 2019, the IASB issued ‘Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)’ related to
potential effects of the IBOR reform on financial reporting related to hedging instruments. The amendment was effective for
accounting periods starting on or after 1 January 2020. The company does not currently use hedges or other purchased derivative
instruments and therefore there is no impact on the group financial statements for the period ended 31 December 2020.
A second amendment related to the IBOR reform was issued on 27 August 2020 with an effective date of 1 January
2021. This amendment is similarly not expected to have an impact on the financial reporting for the group.
Amendment to IFRS 3 – Business Combinations
On 22 October 2018, the IASB issued ‘Definition of a Business (Amendments to IFRS 3)’ that sought to resolve difficulties
that may arise in determining whether a business or a group of assets has been acquired. The amendment was
effective for accounting periods commencing on or after 1 January 2020 and had no impact on the group or on the
reporting for the business combination completed in the period.
51
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Critical accounting judgements and key sources of estimation uncertainty
The preparation of the financial statements in conformity with generally accepted accounting practice (GAAP) requires
management to make estimates and judgments. Those estimates and judgments can affect the reported values for
assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date.
Management is also required to make estimates and judgments related to the reported amounts of revenues and
expenses and related to the timing of the recognition of those revenues and expenses.
Judgements made and estimates applied are based on historical experience and other factors including
management’s expectations of future events that are considered relevant. Actual results may differ from these
estimates. The estimates, judgements and underlying assumptions made are reviewed on an ongoing basis and
specifically in the preparation of the interim and full-year published financial information.
Revisions to accounting estimates are recognised in the period in which the estimate is revised and applied
consistently in future periods subject to the ongoing reassessment of estimates.
Critical judgments
Going concern
The directors are required to assess whether it is appropriate to prepare the financial statements on a going concern
basis. In making this assessment the directors need to be satisfied that the group can meet its obligations as they
fall due and will remain cash-positive for a period of at least 12 months from the date of approval of the financial
statements. Potential additional funding that is not yet committed at the date of approval of the financial statements
cannot be anticipated in making the assessment of going concern.
The directors make their assessment based on a cashflow model prepared by management and based on their
expectation of cashflows for the 18-month period from the date of approval of the financial statements. The extended
period in the model provides additional comfort that the 12-month solvency requirement can be met when making the
assessment of going concern.
In preparing the cashflow model, assumptions have been made regarding the timing of cash collection from
customers based on the expected cash receipt under contracts that require milestone payments to be made by
customers. The timing of the receipt of milestone payments may not always align with or precede the costs incurred by
the company in performing its obligations under a contract.
Downside sensitivities have been applied to the cashflows primarily related to the delay of customer receipts from
existing or expected sales contracts. Refer to ‘Basis of preparation’ for details of the going concern analysis performed
and the directors’ conclusions regarding going concern.
Notwithstanding the uncertainty articulated in relation to the basis of preparation, the directors expect that the
business will continue to be viable throughout the model period and, accordingly, the financial statements have been
prepared on a going concern basis.
Revenue recognition
Sales contracts are assessed in accordance with the group accounting policy for revenue recognition. The policy
requires the separate performance obligations, or promises, under the contract to be identified. Revenue is recognised
only when a distinct performance obligation under a contact is satisfied.
Some performance obligations are satisfied independently – for instance, the delivery of equipment, other obligations
may be satisfied in conjunction with other contract promises – for instance, where a contract calls for equipment sold
under the contract to be integrated into a larger project before formal acceptance is notified by the customer.
Where the ability of a customer to benefit from a product or service is dependent on the satisfaction of other
performance obligations, more than one promise may need to be bundled together as a combined performance
obligation that must be satisfied before the revenue related to each element can be recognised.
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Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Identifying where equipment or, more likely, services are readily available from other providers is a key determinant
as to whether a contract promise represents a separate performance obligation or if it should be bundled with other
promises that, together, represent a single performance obligation.
The assessment of what constitutes a performance obligation can be complex and requires judgement. Revenue
is only recognised for each performance obligation under a contract when that performance obligation, bundled
or otherwise, is satisfied. The requirement to bundle combinations of goods and/ or services together as a single
performance obligation could delay the timing of revenue recognition where the separate promises comprising the
performance obligation are delivered sequentially.
Capitalisation of development costs
The group undertakes internal projects and test work to advance the core technology used in its battery systems and
the physical design of the battery systems themselves. The group has developed a standard homogenous design
for battery systems, known as the VS3, based on the elements of each of the pre-merger legacy battery designs.
The group continues to refine and enhance that design based on experience gained in constructing the units and
performance data gathered from their use that will inform the design of successive generations of battery systems.
Management must determine when the ongoing process of enhancement represents development work that will
benefit future generations of battery systems and generate economic benefits for the group. Where this determination
can be made objectively, the associated costs will likely meet the criteria for capitalisation.
Capitalised development costs are amortised as the battery systems that have been constructed based on that development
work and using the resultant technologies, techniques or materials and component selections are sold to customers.
Recoverability of internally generated intangible development asset
Following the introduction of the new VS3 battery design, management has reconsidered the carrying value of the
capitalised development costs. Costs that relate to technologies or techniques developed over time but which are not
directly relevant to or used in the VS3 battery design have been amortised in full during the year with a corresponding
charge of £6.1m recognised in the income statement for the period ended 31 December 2020.
Business combination
A number of significant judgments were required to be made by management in relation to the merger with Avalon that
took place in the year. Judgments were required to determine the acquirer for accounting purposes, the fair value of the
consideration given and the fair value of the assets acquired and liabilities assumed. Judgement was also required in determining
the value of goodwill recognised and determining if the carrying value of any goodwill recognised could be supported.
Refer to note 7 and discussion of estimations below.
Key sources of estimation uncertainty
Accounting for business combinations and the assessment of fair value
Business combinations are accounted for at fair value. The assessment of fair value for assets acquired and liabilities
assumed is subjective and will depend on a number of assumptions.
These assumptions include assessment of appropriate discount rates, taxation rules in different jurisdictions, and the
amount and timing of future cash flows related to assets and liabilities. In addition, the selection of specific valuation
methods for individual assets and liabilities requires judgment and will be driven by the nature of the specific asset or
liability being assessed.
The consideration given to a seller for the purchase of a business or a company is accounted for at its fair value and
may contain multiple elements that are required to be assessed separately.
In accounting for a business combination, fair value may need to be calculated for items that would not be included
in the financial statements under the historic cost convention. These items may include certain contingent liabilities,
contracts that have terms that are more, or less beneficial than current market practice or contracted future sales.
Where these items represent a benefit that will be realised in the future they are recorded as assets. Items that are
expected to result in cash outflow are recorded as liabilities.
53
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Goodwill is recognised where the fair value of the purchase consideration given to the seller is greater than the fair
value of the assets acquired and liabilities assumed. Determining what goodwill relates to requires judgement. Where
the value of goodwill cannot be supported the goodwill is not recognised and a corresponding charge equal to the
value of the unsupportable goodwill is recorded as an impairment loss in the income statement.
The company was party to a business combination in the period through which it acquired 100% of the issued share capital of
Avalon in return for new shares to be issued in the combined group, see note 7 to the consolidated financial statements.
Warranty provision
The company provides time-limited standard warranties in its contracts for sale of battery systems. In addition,
customers may elect to purchase separate, standalone extended warranties. Extended warranties are for periods
greater than the standard warranties provided with the purchase of battery systems.
Estimating the costs that may be incurred by the company in servicing warranty agreements requires judgment to
be exercised in respect of the estimation of the number of expected warranty claims in relation to the total number
of battery systems sold. In addition, an estimate of costs that the company could expect to incur to remedy each
warranty claim should be made to determine the amount of the total provision that should be recorded for warranties.
Provisions made in respect of expected warranty obligations are reassessed and remeasured where actual experience
indicates the claim rate may be higher or lower than expected or where costs to remedy warranty claims differ from the
assumptions used in calculating the provision. The release of an over-provision of warranty costs results in income being
recognised in the period whereas an additional provision for warranties results in a charge being recognised.
If the number of actual warranty claims were 10% higher (or lower) than estimated by management in determining the
level of the provision, then the estimated warranty expense would increase (or decrease) by approximately £85k.
Refer to note 4, contract related balances.
Provision for onerous contracts
A contract is onerous when the unavoidable costs of meeting the company’s obligations under the contract are
expected to be greater than the revenue earned under that contract. The assessment of the unavoidable costs under
a contract previously only required direct costs such as parts and labour to be considered.
An amendment to IAS 37 – Provisions, contingent liabilities and contingent assets, was published in May 2020 and
requires the provision in respect of an onerous contract to also include an assessment of the indirect costs, such as
production overhead or indirect labour, that are expected to be incurred in servicing a warranty claim. The company
elected to adopt the amendment as of 1 January 2020.
The assessment of future costs is inherently subjective and requires the exercise of judgment in determining the
appropriate amount of provision that may be required.
Onerous contracts provisions are first used to write-down the value of associated contract inventory with any
remaining balance held as a provision on the balance sheet. The total value of the onerous provision in the balance
sheet may therefore be presented at a value lower than the initial calculation where contract inventory is held.
Substantially all of the high value and variable costs expected to be incurred in respect of servicing contracts
determined to be onerous at 31 December 2020 have been locked-in by way of advance purchases for vanadium,
steel and third-party manufactured components. However, if overall costs were to be 10% higher (or lower) than
estimated by management in determining the level of the provision, then the estimated warranty expense would
increase (or decrease) by approximately £110k.
Refer to note 4, contract related balances.
54
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Share based payments, warrants and employee options
The company determines the fair value of share-based payments and employee options using a Black-Scholes
methodology. Black-Scholes uses certain assumptions to determine fair value including measures of share price
volatility, expected conversion or exercise rates and levels of employee retention, among others.
Operating segments
The group is organised internally to report to the group’s executive directors as a group. The executive directors comprise
the chief executive officer, the chief commercial officer and the chief financial officer. The group’s executive directors as a
group have been determined, collectively, to prosecute the role of chief operating decision maker of the group.
The chief operating decision maker is ultimately responsible for entity-wide resource allocation decisions,
the evaluation of the financial, operating and ESG performance of the group.
The group’s activities have been determined to represent a single operating segment being the provision of vanadium
flow batteries and ancillary services, principally comprising installation and integration services, and the provision of
extended warranties for battery units.
Accounting policies
Revenue
The group measures revenue based on the consideration specified in the contracts for sale with customers. Revenue
is recognised when a performance obligation is satisfied by transferring control over a good or service to a customer.
Revenue excludes any taxes such as sales taxes, value added tax or other levies that are invoiced and collected on
behalf of third parties such as governmental tax collection authorities.
The group generates revenue from the sale of battery storage systems and related hardware and services. The main
portion of sales is derived from contractual arrangements with customers that have multiple elements (or performance
obligations), that principally comprise the sale of battery systems, system related options, installation, and extended
warranties. The sales agreements do not include a general right of return.
For agreements that contain multiple elements or promises, the group accounts for individual goods and services separately
if they are distinct. A product or service is distinct if it is separately identifiable from other items in the agreement and where a
customer can benefit from the good or service on its own or together with other resources that are readily available.
The consideration paid for each performance obligation is typically fixed. A significant portion of the aggregate
payment due under a contract for sale is normally due before shipment or completion of the service. The total
consideration under the contract is allocated between the distinct performance obligations contained in the contract
based on their stand-alone selling prices. The stand-alone selling price is estimated using an adjusted market
assessment approach that looks to industry benchmarks or pricing surveys for certain standalone products or services.
In addition, under the terms of its contracts for sale, the group may be responsible for shipping battery systems to
its customers. When this is the case, the group will invoice the relevant customer for, and will recognise as revenue,
any charges incurred for shipping products to customers together with any associated handling costs. The related
costs incurred by the group for shipping and handling services are recognised as cost of sales concurrent with the
recognition of the associated revenue.
Grant income
Government and other grants received are recognised in the income statement in the period that the related
expenditure is incurred. Grant income received in respect of costs incurred are presented net within the associated
cost category. Capital grants are similarly netted against the relevant asset acquired or constructed.
Grant income received in advance of the associated expenditure is presented as deferred income within contract
liabilities and released to profit and loss as the associated expenditure is incurred. Grant income receivable is
presented as accrued income within contract assets and until such time as it can be claimed or is received.
55
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Finance income and costs
Finance income comprises interest on cash deposits, foreign currency gains and the unwind of discount on any assets
that are carried at amortised cost. Interest income is recognised as it accrues using the effective interest rate method.
Finance cost comprises interest expense on borrowings including movements in fair value of certain embedded
derivatives and other financial instruments granted to lenders under arrangements for borrowing. Finance costs also
include foreign currency losses and the unwind of the discount on any liabilities held at amortised cost, such as lease
liabilities arising from lease contracts.
Employee benefits
Short-term benefits
Benefits given to employees that are short-term in nature are recognised as expenses in the statement of comprehensive
loss as the related service is provided. The principal short-term benefits given to employees are salaries, associated
holiday pay and other periodic benefits such as healthcare and pension contributions made by the company for the
benefit of the employee. A liability is recognised for the amount expected to be paid under short-term cash bonus plans if
there is either a present legal or constructive obligation to pay the amount and the amount can be reliably estimated.
Share based payments
The group operates certain equity-settled share-based compensation plans, under which it compensates employees
for services rendered through the issue of equity instruments, deferred share awards or options to subscribe for
ordinary shares of the company. The fair value of the employee services received in exchange for the grant of the
equity instruments, shares or options is recognised as an expense. The total amount to be expensed is determined by
reference to the fair value of the options granted:
– including any market conditions (for example, the company’s share price);
– excluding the impact of any service and non-market performance vesting conditions (for example, profitability,
sales growth targets, and remaining an employee of the group over a specified period); and
– including the impact of any non-vesting conditions (for example, the requirement for an employee to save).
Non-market performance and service conditions are included in the assumptions regarding the number of options
that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all
the specified vesting conditions are to be satisfied.
In some circumstances, employees may provide services in advance of the grant date and therefore the grant date
fair value is estimated for the purposes of recognising the expense during the period between service commencement
and the grant date.
At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest
based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the
income statement, with a corresponding adjustment to equity.
Any social security contributions payable in connection with the grant of the share options is considered an integral
part of the grant itself, and the charge will be treated as a cash-settled transaction.
Taxes
The total tax charge or credit recognised in the statement of comprehensive loss comprises both current and deferred taxes.
Taxation is recognised in the income statement except to the extent that it relates to a business combination or items
recognised directly in equity or other comprehensive income.
Current tax
The current tax charge is based on the taxable profit for the year. Taxable profit or loss is different to the profit or loss
reported in the statement of comprehensive loss as it excludes items of income and/or expense that are taxable or
deductible in other years and it further excludes items that are never taxable nor deductible.
56
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Deferred tax
Deferred tax is the tax that is expected to be payable or recoverable on differences between the carrying value of
assets and liabilities in the financial statements and the corresponding value of those assets and liabilities used to
calculate taxable profit or loss.
Deferred tax assets are recognised as deductible temporary differences only where it is probable that taxable profits
will be generated against which the carrying value of the deferred tax asset can be recovered. Deductible temporary
differences exist where there is a difference in the timing of an item of income or expense between the statement of
comprehensive loss and the calculation of taxable profit or loss.
Deferred tax assets and liabilities are recognised using the liability method, for all taxable temporary differences
except in respect of taxable temporary differences associated with investments in subsidiaries, associates and
interests in joint operations. Where the timing of the reversal of temporary difference arising from such investment
related assets and liabilities can be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future then the group does not recognise deferred tax liabilities on these items.
A deferred tax asset or liability is not recognised if a temporary difference arises on initial recognition of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss.
Current and deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at
the balance sheet date.
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 result 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.
Intangible assets
Goodwill
The group allocates the fair value of the purchase consideration on the acquisition of a subsidiary to the assets
acquired and liabilities assumed based on an assessment of fair value at the acquisition date. Any excess of purchase
consideration is recognised as goodwill. Where goodwill is recognised, it is allocated to the cash generating units
(CGUs) in a systematic manner reflective of how the group expects to recover the value of the goodwill.
Any goodwill arising is recognised as an intangible asset in the balance sheet and is subject to annual review for
impairment. Goodwill is written off where circumstances indicate that the recoverable amount of the underlying CGU
may no longer support the carrying value of the goodwill. Any such impairment is recognised in the statement of
comprehensive loss for the period in which it is determined the goodwill is no longer recoverable. Impairment losses
related to goodwill cannot be reversed in future periods.
In testing for impairment, goodwill arising on business combinations at the date of acquisition is allocated to the group
of CGUs representing the lowest level at which it will be monitored. Because the group has been determined to consist
of a single business unit, the carrying value of goodwill is tested for impairment based on the recoverable value of the
group as a whole.
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Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
The recoverable amount of a CGU or a group of CGUs is based on the higher of its assessed fair value less costs of
disposal or its value in use. Value in use is calculated by reference to the expected future cashflows from the CGU after
discounting to take account of the time value of money. Fair value less costs to sell can be based on a similar cash flow
measure adjusted for disposal costs or can be estimated by reference to similar comparable reference transactions.
Because the company is listed, fair value can also be assessed by reference to the company’s market capitalisation.
Where cash flows are used, they are risk weighted to reflect an assessment of future commercial success.
The key assumptions in assessing cash flows relate to the ability of the company to develop existing markets and
applications and to establish new markets and applications for the sale and use of its battery systems. Prospective
cash flows are also sensitive to the company’s ability to realise economies of scale as market penetration grows.
Internally generated intangible assets – research and development costs
Research
Expenditure on research activities is recognised as an expense in the period in which it is incurred. Research activities
are aimed at creating new knowledge or the use of existing knowledge in new or creative ways to generate new
concepts. Research activity does not typically have a defined commercial objective at the outset.
Development
Where projects evolve toward commerciality or are related to a specific commercial objective they are assessed to
determine if the activity constitutes development that is associated with a commercial objective or practical application.
The associated costs represent development costs and can be capitalised if, and only if, the following conditions can
be demonstrated:
– the technical feasibility of completing the intangible asset so that it can be made available for use or sale;
– the intention to complete the intangible asset for use or sale;
– the availability of adequate technical, financial and other resources to complete the development and
to use or sell it;
– an asset is created that can be separately identified for use or sale;
– it is probable that the asset created will generate future economic benefits; and
– the development cost of the asset can be measured reliably.
Development work undertaken by the group typically relates to the refinement of design, materials selection, construction
techniques, firmware and control systems to enhance battery system performance over successive generations. Where
development costs are capitalised, they are amortised over the expected period to the introduction of the next generation of
battery system. Depreciation is recorded over that period on a straight-line basis with the corresponding depreciation charge
recognised in the statement of comprehensive loss as a component of administrative expenses.
Four years has historically been the typical cycle time between successive generations of battery system design.
Other intangible assets
Intangible assets other than goodwill that are acquired by the group are stated at their historical cost of acquisition
less accumulated amortisation and any impairment losses.
Software and purchased domain names
Third-party software is initially capitalised at its cost of purchase. Amortisation is charged to administrative expenses
over the expected useful life of the software which has been assessed as three years from the date of acquisition.
Acquired domain names are initially capitalised at cost of purchase. Amortisation is charged to administrative
expenses over the expected useful life of the domain name which has been assessed as ten years from the date
of acquisition.
Patents and certifications
Patent rights and certifications are initially capitalised at the cost of applying for relevant patent rights and other
protections, and certifications. Amortisation is charged to administrative expenses over the expected useful life of
the patents and certifications which has been assessed as five years from the date of acquisition.
58
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
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 only included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, when it is probable that future economic benefits associated with that item will flow to the group.
Costs that do not enhance the value of an asset such as repair and maintenance costs are charged to the statement
of comprehensive loss in the period in which they are incurred.
Depreciation is charged to write off the cost of assets over their estimated useful lives on a straight-line basis.
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:
Category
Period (years)
Recognition in statement of comprehensive loss
Computer and office equipment
Leasehold improvements
Vehicles
3-5
Shorter of lease term or useful life
3
Administrative expenses
Administrative expenses/Cost of sales
Administrative expenses
Manufacturing equipment and tooling
R&D Equipment
3-20
5-10
Cost of sales
Administrative expenses
Depreciation methods, useful lives and residual values of assets are reviewed, and adjusted prospectively as
appropriate, at each reporting date.
Where an asset is disposed of, the corresponding gain or loss on disposal is determined by comparing the sales
proceeds received with the carrying amount of that asset at the date of disposal. Gains or losses on disposal of fixed
assets are included within other items of operating income and expense in the statement of comprehensive loss.
Impairment of tangible and intangible assets
The group reviews the carrying values of its tangible and intangible assets, other than goodwill, at each balance sheet date
to determine if any indicators exist that could mean those assets are impaired. Where an indicator of impairment exists the
recoverable amount of the relevant asset (or CGU) is estimated to determine the quantum of any impairment loss.
Recoverable amounts are determined using a discounted cashflow model related to each asset or CGU being
assessed. The discount rate applied to the cash flows in the model is a pre-tax discount rate that reflects market
assessment of the time value of money and risks specific to the company or the groups of assets being considered.
If the recoverable value estimated in the cash flow model for a specific asset (or CGU) is lower than the carrying
valve, then the carrying value of the asset is reduced to its estimated recoverable value with a corresponding charge
immediately recognised in the statement of comprehensive loss.
Where the condition giving rise to an impairment loss reverses in a subsequent period, the impairment loss is similarly
reversed and the carrying value of the asset increased to the revised estimate of its recoverable value. The carrying
value of an asset immediately following the reversal of an impairment cannot exceed the carrying value that the asset
would have had if the original impairment had not been made and the asset was depreciated as normal.
A reversal of an impairment loss is recognised immediately in profit or loss.
The value of any impairment (or reversal of impairment) of an asset is recorded in the same financial statement line
item that depreciation or amortisation of the asset would normally be included in.
Where it is impractical to meaningfully assess recoverable amount using a discounted cashflow model, for instance
where near term cashflows are low or negative, an assessment of the fair value adjusted for the costs that would be
incurred in the disposal of an asset or operation is used.
59
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
This is typically the case for development stage assets, operations or associated intangible assets (including goodwill)
where the underlying products or technologies have not yet been commercialised.
Provisions
Provisions are established when the group has a present legal or constructive obligation because of past events, it is
probable that an outflow of resources will be required to settle the obligation and the amount of that outflow can be
reliably estimated.
Provisions are measured at the present value of the expenditures that are expected to be incurred in settling the
obligation using a pre-tax discount rate that reflects current market assessment of the time value of money and the
risks related to the obligation. The initial recognition of a provision results in a corresponding charge to profit or loss.
The increase in a provision as the discount rate unwinds due to the passage of time, is recognised in the income
statement as other items of operating income and expense.
Leases
Group entities only participate in lease contracts as the lessee. Lease contracts typically relate to vehicles and facilities.
On inception of a contract, the group assesses whether it contains a lease. A contract is, or contains, a lease if it
conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right
to control the use of an identified asset is determined based on whether the group has the right to obtain substantially
all the economic benefits from the use of the asset throughout the period of use, and if the group has the right to
direct the use of the asset.
Obligations under a lease are recognised as a liability with a corresponding right-of-use asset, these are recognised
at the commencement date of the lease.
The lease liability is initially measured at the present value of the lease payments that have not yet been paid at the
inception of the lease, discounted using the interest rate implicit in the lease contract. Where the interest rate implicit in
the lease contract cannot be readily determined, the group’s incremental borrowing rate is used.
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 rate method.
The lease liability is subsequently 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;
– there is a change in the group’s estimate of the amount expected to be payable under a residual value
guarantee; or
– the group changes its assessment of whether it will exercise a purchase, extension or termination option.
When a lease liability is remeasured under one of these scenarios, a corresponding adjustment is made to the carrying
value of the right-of-use asset or in profit and loss when the carrying amount of the asset has already been reduced
to zero.
The corresponding right-of-use asset is initially measured at cost, which comprises the initial amount of the lease
liability plus any lease payments made at or before the commencement date, any initial direct costs incurred and an
estimate of the costs required to remove or restore the underlying asset, less any lease incentives received. The right-
of-use asset is amortised over the shorter of the asset’s useful life and the lease term on a straight-line basis.
The group has elected not to recognise right-of-use assets and corresponding lease liabilities for short-term leases
that have a lease term of 12 months or less, those existing leases with a remaining lease term of less than 12 months
at 1 January 2020 and leases related to low value assets with an annual lease cost of £3,500 or less.
The group recognises these lease payments as an expense on a straight-line basis over the lease term.
60
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where
applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their
current location and condition. Cost is calculated using the first-in, first-out method.
Net realisable value is calculated as the estimated selling price for an item of inventory less estimated costs of
completion and the costs that would be incurred in the marketing, selling and distribution of an item of inventory.
Financial instruments
Financial assets and liabilities are recognised by the group and recorded in the statement of financial position
when the group is contractually bound to the terms of the financial instrument. Financial assets and liabilities are
derecognised when the group is no longer bound by the terms of the financial instrument through settlement or expiry.
Financial assets
The classification of financial assets that the group is party to is determined based on the nature of the underlying
financial instrument and the characteristics of the contractual cashflows expected to be received under the terms of
instrument.
Financial assets are not reclassified after their initial recognition unless there is a contractual change in the nature of
the cashflows under the instrument or the business purpose of the instrument has changed.
A financial asset is recorded at amortised cost where it expected to be held to maturity and the objective of the group
is to collect the contractual cashflows under the financial instrument based on specified contractual terms, including
the timing of receipt of cashflows.
Financial assets that the group is party to are classified and measured as follows:
Financial asset
Trade receivables and accrued income
Other current assets
Contract assets
Cash and cash equivalents
Measurement basis
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
On initial recognition, the group measure amortised cost for financial assets based on the fair value of each financial
asset together with any transaction costs that are directly attributable to the financial asset.
After initial recognition, amortised cost is measured for each financial asset held using the effective interest rate
method less any impairment loss identified. Interest income is recognised for all financial assets, other than those that
are classified as short-term, by applying the effective interest rate for the instrument. Interest income on short-term
financial assets is not considered to be material. Short-term financial instruments are determined as those that have
contractual terms of 12 months or less at inception.
Interest income, foreign exchange gains and losses, impairment, and any gain or loss on derecognition are recognised
in profit or loss.
Impairment of financial assets
A loss allowance for financial assets is determined based on the lifetime expected credit losses for financial assets.
Lifetime expected credit losses are estimated based on factors including the group’s experience of collection, the
number and value of delayed payments past the average credit periods across the group’s financial assets. The
group will also consider factors such as changes in national or local economic conditions that correlate with default
on receivables and financial difficulties being experienced by the counterparty.
61
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Financial assets are impaired in full with a corresponding charge to profit or loss where there is no reasonable
expectation of recovery.
Financial liabilities
The classification of financial liabilities is determined at initial recognition. Financial liabilities are classified and
measured as follows:
Financial liability
Trade and other payables
Borrowings
Lease liabilities
Measurement basis
Amortised cost
Amortised cost
Amortised cost
Amortised cost
At initial recognition, the group measures financial liabilities at amortised cost using the fair value of the underlying
instrument less transaction costs directly attributable to the acquisition of the financial liability.
Derecognition of financial liabilities
The group derecognises financial liabilities when the groups obligations under the relevant instrument are discharged,
expire or are cancelled.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held with financial institutions that can be called on
demand together with other short-term, highly liquid investments with maturities of three months or less and are readily
convertible to known amounts of cash.
3 Revenue from contracts with customers and income from government grants
Segment information
The group derives revenue from a single business segment, being the manufacture and sale of vanadium flow battery
systems and related hardware together with the provision of services directly related to battery systems sold to customers.
The group is organised internally to report on its financial and operational performance to its chief operating decision
maker, which has been identified as the three executive directors as a group.
All revenues in 2020 were derived from continuing operations.
Revenue from contracts with customers
Battery systems and associated control systems
Integration, commissioning and other services
Other services
Total revenue in the consolidated statement of comprehensive loss
Analysed as:
Revenue recognised at a point in time
Revenue recognised over time
Total revenue in the consolidated statement of comprehensive loss
2020
£’000
369
34
3
406
369
37
406
Restated
2019
£’000
222
—
5
227
222
5
227
62
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Geographic analysis of revenue
The group’s revenue from contracts with customers was derived from the following geographic regions:
United Kingdom
Asia
United States of America
Other
Total revenue in the consolidated statement of comprehensive loss
2020
£’000
15
206
167
18
406
Restated
2019
£’000
199
—
—
28
227
The group maintains its principal production and assembly facilities in Bathgate, Scotland, and Vancouver, Canada.
These facilities include office space for design, sales and administrative teams. The group also has offices, operations
and management based in London, England, and Oakland, California.
The group does not consider that the locations of its operations constitute geographic segments as they are
managed centrally by the executive management team. The location of the manufacturing plants and business
development activity is a function of time-zone when servicing customers both pre-sale and during product
delivery. The geographic location of offices, facilities and management is not related to distinct markets or customer
characteristics at the present time.
Significant customers and concentration of revenue
Revenue from contracts with customers was derived from four (2019: one) customers who each accounted for more
than 10% of total revenue as follows:
Customer A
Customer B
Customer C
Customer D
2020
£’000
127
82
81
44
2019
£’000
199
—
—
—
Grant income other than revenue
The group receives grant income to help fund certain projects that are eligible for support, typically in the form of
innovation grants. The group also received grant income related to operating costs under government subsidy programmes
as part of national COVID response efforts. The total grant income that was received in the year was as follows:
Grant income received
Business support grants against cost of sales – COVID-19
Business support grants against employee costs – COVID-19
Grants for research and development
Economic and social development
Total government grants
2020
£’000
17
240
203
35
495
2019
£’000
—
—
366
70
436
63
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
4 Contract related balances
The group has recognised the following assets and liabilities related to revenue from contracts with customers that are
in progress:
Amounts due from contract customers included in trade receivables
Contract assets (accrued income for work done not yet invoiced)
Contract liabilities (deferred revenue related to contract advances)
Net position of sales contracts
2020
£’000
33
5
(2,644)
(2,606)
Restated
2019
£’000
62
58
(38)
82
No revenue was recognised in the current period (2019: £119,242) that was recorded as a contract liability at the end of
the previous period.
The aggregate contract position included in the statement of financial position will change according to the number
and size of contracts in progress at a given year-end as well as the status of payment milestones made by customers
toward servicing those contracts. The group structures payment milestones in contracts to cover upfront expenditure
for parts and materials and other working capital requirements associated with the delivery of promises under sales
contracts in order to better manage group cashflow.
The timing of revenue recognition is based on the satisfaction of individual performance obligations within a contract
and is not based on the timing of advances received. Customer advances are recognised as contract liabilities in
the statement of financial position and are released to income progressively as individual performance obligations
are met. The difference in timing between the receipt of contract advances and the timing of the satisfaction of
performance obligations for revenue recognition can cause values to remain in deferred income. The quantum of such
deferrals is related to both the overall size of the underlying contract and the planned pace of delivery in the related
project work schedule. This is more likely to occur where satisfaction of performance obligations is evidenced by
customer acceptance of the good or service that is the subject of the performance obligation.
Provisions related to contracts with customers
Warranty
provision
£’000
Provision for
contract losses
£’000
—
95
95
1,011
340
(51)
(571)
824
—
—
—
39
1,084
—
(20)
1,103
Total
Total
£’000
—
95
95
1,050
1,424
(51)
(591)
1,927
At 1 January 2018
Charges to profit or loss:
Provision created in the year
At 31 December 2019
Acquisition of subsidiaries
Charges to profit or loss:
Provision created in the year
Unused amounts reversed
Amounts used in the year
At 31 December 2020
64
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Warranty provision
The warranty provision represents management’s best estimate of the costs anticipated to be incurred related
to known warranty claims from customers in respect of products sold that remain in their warranty period. It also
includes a best estimate of the costs expected to be incurred in respect of claims that may arise in the future related
to products already sold to customers. The estimate of future warranty costs is updated periodically based on the
company’s actual experience of warranty claims from customers.
The element of the provision that is related to potential future claims is based on management’s experience and is
judgemental in nature. As for any product warranty, there is an inherent uncertainty around the likelihood and timing of
a fault occurring that would cause further work to be undertaken or the replacement of equipment parts.
A standard warranty of up to two years from the date of commissioning is provided to all customers on products sold
and is included in the original cost of the product. Customers are also able to purchase extended warranties that
extend the warranty period for up to a total of ten years.
Provision for contract losses
A provision is established for contract losses when it becomes known that a commercial contract has become
onerous. A contract is onerous when the unavoidable costs of fulfilling the company’s obligations under a contract are
greater than the revenue that will be earned from the contract.
The unavoidable costs of fulfilling contract obligations will include both direct and indirect costs. Any provision made
for contract losses will similarly include provision for both direct and indirect costs to fulfil the company’s remaining
obligations under a contract.
The creation of an additional provision is recognised immediately in profit and loss. The provision is used to offset costs
that are incurred as the contract moves to completion.
5 Cost of sales
Movement in inventories of finished battery systems
Production costs
Depreciation of production facilities, equipment and intangibles
Movement in provisions for warranty costs
Total cost of sales
2020
£’000
436
374
107
304
1,221
Restated
2019
£’000
263
45
15
(48)
275
65
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
6 Cashflows from operating activities
Loss after income tax
Adjustments for:
Depreciation and amortisation
Impairment of property, plant and equipment
Accelerated amortisation of intangible asset
Loss on disposal of property plant and equipment
Impairment of inventory
Gain on disposal of scrap inventory
Gain on sale of discontinued operations
Taxation
Equity settled share-based payment expenses
Equity issued in lieu of service
Equity settled transaction costs on acquisition of subsidiary
Equity settled interest and transaction costs on convertible notes
Fair value adjustment on convertible notes and warrants
Net finance costs/(income)
Net foreign exchange differences
Change in operating assets and liabilities
(Increase)/decrease in inventories
Decrease in contract assets
(Increase)/decrease in trade receivables and other receivables
Decrease in other current assets
Increase/(decrease) in trade and other payables
Increase/(decrease) in warranty provision
Increase in onerous contract provision
Increase/(decrease) in contract liabilities
2020
£’000
2019
£’000
(24,271)
(6,842)
577
56
6,138
(6)
1,027
27
—
—
707
68
(456)
(592)
300
2,297
(1,220)
380
—
—
—
—
—
578
5
11
—
—
—
—
(65)
—
(15,348)
(7,089)
(1,359)
53
115
(750)
3,348
(380)
1,060
2,376
(402)
290
—
40
—
174
95
—
(170)
429
Cash used in operations
(10,885)
(6,660)
7 Business combination
On 1 April 2020, the merger between the company and Avalon completed with the company acquiring 100% of the
issued share capital and voting equity of Avalon in exchange for 1,735,397,545 €0.01 ordinary shares in the company
(prior to the 50:1 share consolidation).
Prior to, and in contemplation of, the completion of the merger, a loan in the amount of US$5.0 million had been
advanced to Avalon by Bushveld Minerals Limited (Bushveld). The loan was used to fund expenses expected related
to the merger and to provide additional pre-merger working capital to the company and Avalon Battery Corporation.
Half of the total amount advanced by Bushveld and amounting to US$2.5 million was loaned to the company by
Avalon prior to the merger between the companies.
On 1 April 2020, and concurrent with the completion of the merger, the Bushveld loan was discharged by the company
issuing 302,978,063 €0.01 ordinary shares (prior to the share consolidation) to Bushveld.
The market price of the company’s shares on 1 April 2020 was 1.05p per ordinary share (equivalent to 52.5p per share
post-consolidation using the 50:1 consolidation ratio). The fair value of the total number of shares issued to effect the
merger and to discharge the Bushveld loan was £21,402,944.
In addition to issuing ordinary shares related to the transaction, outstanding share options held by Avalon employees
at the date of the merger were cancelled and replaced by the company with new options to subscribe for shares in
the combined group.
66
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
The fair value of the replacement share options was assessed at the transaction date using a Black-Scholes
methodology. The portion of the fair value of the replacement share options that was determined to relate to pre-
merger service of legacy Avalon employees was assessed as £854,000 and was allocated to the equity purchase
price as it represented value contributed by Avalon employees prior to the transaction date.
Details of the total purchase consideration used in accounting for the business combination and related transactions
are as follows:
Fair value of shares issued and options granted related to the transactions
Consideration shares
Bushveld loan discharge
Replacement options issued to Avalon employees
£’000
18,222
3,181
854
22,257
In purchase accounting, the consideration given is allocated to the fair value of assets acquired and liabilities assumed
or discharged based on their assessed fair values. The fair value of the total consideration shares issued and options
granted were allocated as follows:
Fair value of transaction
Discharge of Bushveld loan held by Avalon, at fair value
Fair value the Avalon assets acquired and liabilities assumed
£’000
4,999
17,258
22,257
Determining the acquirer for accounting purposes
Prior to the merger the assessed fair value of Avalon was higher than the assessed value for the company. The share
exchange ratio that was used to give effect the transaction was determined based on the assessed relative fair
values of the two businesses prior to the combination. Notwithstanding the relatively higher fair value of Avalon, as part
of the combination and in addition to the Bushveld loan, new convertible loan funds were advanced by a new private
investor to provide additional funds to meet transaction costs and provide additional working capital.
The company also entered a further convertible loan note arrangement, the Riverfort Facility, that provided up to an
additional £3.0 million of working capital funding.
The conversion features in these instruments at the date of the combination had the effect that, if the debt holders
chose to convert the outstanding debt to new ordinary shares of the company, then the shareholders of Avalon
immediately prior to the combination would hold less than 50% of the share capital of the combined group and
therefore control of the combined group would not have transferred to the former Avalon shareholders.
The composition of the board can also be a determinant of whether control has passed. The former directors of Avalon
represented two of the seven post-combination board seats with former directors of redT occupying four of those
seats and a newly appointed, independent, director making up the balance of the board. In addition, due to the
conversion of certain merger-related financing arrangements that resulted in the issue of new shares to third parties,
the overall control of the combined group did not pass to the former Avalon shareholders on conclusion of the merger.
Based on the composition of the board of directors and the relative shareholdings in the combined group held by
legacy shareholders, redT has been identified as the accounting acquirer for the purposes of accounting for the
combination transaction.
The fair value of the merger consideration of £17.3 million is therefore allocated to the assets and liabilities of Avalon
that, for purchase accounting purposes, were acquired or assumed by the company as follows:
67
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Assets acquired and liabilities assumed At 1 April 2020
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Current assets
Inventories
Other current assets
Trade receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Contract liabilities
Lease liabilities
Provisions
Non-current liabilities
Lease liabilities
Net identifiable liabilities acquired
Goodwill
Consideration for acquisition of Avalon
Fair value
£’000
472
1,160
205
364
370
86
1,264
(2,596)
(268)
(150)
(1,153)
(702)
(948)
18,206
17,258
The assets acquired and liabilities assumed in the purchase price allocation that was included in the interim financial
statements at 30 June 2020 were based on book values. The purchase price allocation has been revised to reflect the
assessed fair value of certain assets and liabilities.
Fair value adjustments made
The book values of current assets and current liabilities were determined to be equivalent to their fair value due to
the short-term nature of the balances and the expectation that they would be settled or received at their book value
within 12 months of the date of the business combination.
The principal component of property, plant and equipment relates to the stack-line at the group’s Vancouver premises
used to assemble vanadium flow batteries. The fair value of the line was assessed by reference to third-party quotes
for the construction of a new stack-line in Vancouver.
Right-of-use assets principally relate to the group’s production and development premises in Vancouver. The fair value
of the right-of-use asset has been assessed by reference to quotes obtained for the rental of similar sized properties
with similar amenities, square footage and in a similar location to the existing facility.
The fair value of patent rights and certifications has been assessed by reference to the original cost of applying for
relevant patent rights and other protections.
Goodwill recognised in the merger
Goodwill has been determined to relate to the greater opportunities afforded to the combined group from shared
technologies and know-how and greater presence and potential penetration in key markets.
The carrying value of goodwill has been assessed using a fair value less costs to sell methodology and primarily based
on the quoted market capitalisation of the combined group using the 31 December 2020 share prices of 230 pence
per share. No impairment was identified at 31 December 2022 or in the period to the publication of the annual report
and financial statements.
Revenue and profit contribution
Avalon contributed revenues of £401,308 and a net loss of £3,780,538 to the group for the period from 1 April 2020 to
31 December 2020.
68
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
If the merger had taken place on 1 January 2020, consolidated pro-forma revenue and net loss for the year ended
31 December 2020 would have been £586,072 and £8,171,977 respectively.
These amounts have been calculated using Avalon’s results and adjusting them for the additional depreciation and
amortisation that would have been charged assuming the fair value adjustments to property plant and equipment
and intangible assets had been applied from 1 January 2020, together with the consequential tax effects.
8 Goodwill and intangible assets
At 1 January 2019
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2019
Opening net book amount
Effect of movement in foreign exchange
Closing net book amount
At 31 December 2019
Cost
Accumulated amortisation
Net book amount
At 1 January 2020
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2020
Opening net book amount
Effect of movement in foreign exchange
Acquisition of subsidiaries
Additions
Amortisation charge
Accelerated amortisation
Closing net book amount
At 31 December 2020
Cost
Accumulated amortisation and impairment
Net book amount
Goodwill
£’000
Development
costs
£’000
Patents and
certifications
£’000
Software
and
domain names
£’000
6,129
—
6,129
6,129
(311)
5,818
5,818
—
5,818
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Development
costs
£’000
Patents and
certifications
£’000
Software and
domain names
£’000
5,818
—
5,818
5,818
320
—
—
—
(6,138)
—
—
—
—
—
—
—
—
—
203
—
(30)
—
173
203
(30)
173
7,362
—
7,362
7,362
(391)
6,971
6,971
—
6,971
Goodwill
£’000
6,971
—
6,971
6,971
(1,233)
18,206
—
—
—
23,944
23,944
—
23,944
Total
£’000
13,491
—
13,491
13,491
(702)
12,789
12,789
—
12,789
Total
£’000
12,789
—
12,789
12,789
(912)
18,411
9
(32)
(6,138)
—
—
—
—
1
2
9
(2)
—
10
24,127
29
(19)
10
24,176
(49)
24,127
Acquisition of subsidiaries
Goodwill and intangible assets acquired in 2020 relate to the business combination transaction with Avalon that
completed on 1 April 2020 (note 7).
69
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Goodwill
The opening goodwill balance on 1 January 2020 represents goodwill recognised in the year ended 31 December 2015
on the completion of the step acquisition by the company of Renewable Energy Dynamics Holdings Limited (REDH),
the holding company for the redT energy storage business. All goodwill is tested annually for potential impairment.
At 31 December 2020, goodwill was tested for impairment using a fair value less costs of disposal methodology by
reference to the company’s quoted market capitalisation using the price of 230 pence per share at that date. No
impairment loss was identified in relation to goodwill.
Patents and certifications
Patents and certification acquired in merger transaction with Avalon were stated at their assessed fair value in the
purchase price allocation used for consolidation accounting. There have been no events or circumstances since the
merger that would indicate that the carrying value of patents and certifications may be impaired at 31 December 2020.
Development Costs
The development costs at 31 December 2019 represent costs associated with the redT Gen 3 vanadium flow battery
that has been superseded by the Invinity VS3 battery system and, accordingly, the intangible asset has been impaired
in full by recording an accelerated amortisation charge in the period.
9 Discontinued operations
There were no discontinued operations in year ended 31 December 2020.
Discontinued operations – prior period
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’). The business provided project development and asset management
services to biogas projects in the United States.
CIG was sold to Jim Wiest, the then managing director of CIG, and the transaction constituted a related party
transaction under the AIM Rules for Companies. The directors consulted with Investec Bank plc, its then Nominated
Adviser in relation to the application of the AIM Rules to the sale of Camco and specifically in respect to the fairness
of the terms of sale. Based on that consultation, the directors concluded that the sale of the business was fair and
reasonable insofar as the company’s shareholders were concerned.
Cash receipts from the sale consist of a distribution of US$1.0m (£0.8 million) received by the UK Group funded by a
loan into CIG from a third party plus US$0.5m (£0.4 million) 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 £0.55 million, giving rise to a profit on disposal of £0.6 million.
The sale of Camco represents a discontinued operation in 2019. The financial result of Camco to the date of disposal is
as follows:
Result of discontinued operation
Revenue
Expenses
Operating loss for the year
Income tax credit
Loss for the year
Decrease in trade and other receivables
Increase in trade and other payables
Net cash generated from operating activities
Exchange differences on translation of foreign operations
There were no discontinued operations in the year to 31 December 2020.
70
2020
£’000
—
—
—
—
—
—
—
—
—
2019
£’000
638
(669)
(31)
(4)
(35)
47
44
56
142
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
10 Property, plant and equipment
At 1 January 2019
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 31 December 2019
Opening net book amount
Additions and transfers
Depreciation charge
Closing net book amount
At 31 December 2019
Cost
Accumulated depreciation and impairment
Net book amount
At 1 January 2020
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 31 December 2020
Opening net book amount
Effect of movement in foreign exchange
Acquisition of subsidiaries
Additions
Disposals
Depreciation charge
Impairment
Closing net book amount
At 31 December 2020
Cost
Accumulated depreciation and impairment
Net book amount
Computer
and office
equipment
£’000
Leasehold
improvements
£’000
Vehicles and
equipment
£’000
771
(427)
344
344
(2)
(190)
152
747
(595)
152
302
(171)
131
131
—
(71)
60
302
(242)
60
90
(27)
63
63
8
(29)
42
105
(63)
42
Computer
and office
equipment
£’000
Leasehold
improvements
£’000
Vehicles and
equipment
£’000
747
(595)
152
152
2
22
20
(6)
(136)
—
54
748
(694)
54
302
(242)
60
60
(1)
86
90
—
(79)
—
156
513
(357)
156
105
(63)
42
42
(1)
364
239
—
(103)
(56)
485
753
(268)
485
Total
£’000
1,163
(625)
538
538
6
(290)
254
1,154
(900)
254
Total
£’000
1,154
(900)
254
254
—
472
349
(6)
(318)
(56)
695
2,014
(1,319)
695
The group has no assets pledged as security. No amounts of interest have been capitalised within property, plant and
equipment at 31 December 2020 (2019: £nil).
The impairment loss relates to assets that were taken out of service when new versions of the same assets came into
service. The impairment loss was recognised as other items of operating income and expense in profit or loss.
Acquisition of subsidiaries
Assets acquired in 2020 relate to the combination transaction with Avalon that completed on 1 April 2020 (note 7).
71
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Geographic analysis of assets
The group’s property, plant and equipment are located in the following geographic regions:
Net book value
United Kingdom
Canada
United States of America
Other
Total property plant and equipment
11 Right-of-use assets
At 1 January 2019
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2019
Opening net book amount
Additions
Depreciation charge
Closing net book amount
At 31 December 2019
Cost
Accumulated depreciation
Net book amount
At 1 January 2020
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2020
Opening net book amount
Effect of movement in foreign exchange
Acquisition of subsidiaries
Additions
Depreciation charge
Closing net book amount
At 31 December 2020
Cost
Accumulated depreciation
Net book amount
2020
£’000
113
542
39
1
695
Offices
and facilities
£’000
Vehicles and
equipment
£’000
109
—
109
109
52
(90)
71
161
(90)
71
—
—
—
—
—
—
—
—
—
—
Offices
and facilities
£’000
Vehicles and
equipment
£’000
161
(90)
71
71
(21)
1,135
34
(223)
996
1,572
(576)
996
—
—
—
—
(2)
24
—
(4)
18
28
(10)
18
2019
£’000
251
—
—
3
254
Total
£’000
109
—
109
109
52
(90)
71
161
(90)
71
Total
£’000
161
(90)
71
71
(24)
1,160
34
(227)
1,014
1,600
(586)
1,014
Right-of-use assets relate to buildings, vehicles and equipment held under leases with third-party lessors. A right-of-
use asset represents the company’s right to use a leased asset over the term of the lease. The company’s rights to use
specific buildings, items of equipment or specific vehicles under lease arrangements represent assets to the group.
72
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Acquisition of subsidiaries
Assets acquired in 2020 relate to the combination transaction with Avalon that completed on 1 April 2020 (note 7).
Geographic analysis of right-of-use assets
The group’s right-of-use assets are located in the following geographic regions:
Net book value
United Kingdom
Canada
United States of America
South Africa
Total right-of-use assets
12 Lease liabilities
The group’s obligations under lease contracts are presented as follows:
At 31 December
Current – due within 12 months
Non-current – due after 12 months
Total lease liabilities
Payments of lease principal and interest in the period to 31 December were:
At 31 December
Payments of lease principal
Payments of interest
Total payments under leases
2020
£’000
—
777
206
31
1,014
2020
£’000
161
595
756
2020
£’000
163
26
189
2019
£’000
55
—
—
16
71
2019
£’000
52
—
52
2019
£’000
91
6
97
The expense related to variable lease payments that were not included in the measurement of lease liabilities was
£26,984 (2019: nil). These payments principally relate to the variable element of lease payments in a period that are
incurred for operating costs related to the asset under lease.
The expense related to short-term leases was £165,279 (2019: £200,454). The expense related to low-value assets held
under lease contracts was £826 (2019: £3,885).
The contractual undiscounted cashflows for lease obligations at each period end were:
At 31 December
Less than one year
One to five years
More than five years
Total lease liabilities
2020
£’000
190
493
155
838
2019
£’000
54
—
—
54
Lease liabilities represent the present value of the minimum lease payments the group is obligated to make to lessors
under contracts for the lease of assets that are presented as right-of-use assets.
73
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
13 Administrative expenses
Staff costs
Research and non-capitalised development costs
Professional fees
Sales and marketing costs
Facilities and office costs
Other administrative costs
Total administrative expenses
14 Other items of operating income and expense
The following items are Included in other comprehensive loss:
Income
Gain on disposal of scrap inventory and equipment
Expense
Merger transaction costs
Provision for onerous contracts, net of amounts used
Impairment of inventory to net realisable value
Accelerated amortisation of development costs
Impairment of plant, property and equipment
Impairment of obsolete inventory and disposal of scrap inventory
Abnormal unabsorbed production overhead costs
Total other operating income and expenses (net)
2020
£’000
5,811
1,099
960
96
787
840
9,593
2020
£’000
27
(1,412)
(1,064)
(1,019)
(6,138)
(56)
(8)
(152)
(9,822)
Restated
2019
£’000
3,266
846
716
71
859
807
6,565
2019
£’000
—
(500)
(332)
—
—
—
—
—
(832)
Merger transaction costs include tax advisory, audit related assurance services, reporting accounting services and
legal and advisory costs.
Abnormal unabsorbed production overhead includes temporary reduction in production hours due to COVID-19 and
materials quality.
15 Staff costs and headcount
Staff costs
Wages and salaries
Employer payroll taxes
Other benefits
Share-based payments
Total staff costs
Average headcount
United Kingdom
Canada
United States of America
Other
Total
74
2020
£’000
5,053
365
225
854
6,497
2020
£’000
52
33
6
2
93
2019
£’000
3,174
358
159
11
3,702
2019
£’000
62
—
—
2
64
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
The increase in staff costs and headcount is mainly because of the merger with Avalon that completed on 1 April 2020.
Key management compensation
Short-term employee benefits
Post-employment benefits
Termination benefits
Total key management compensation
2020
£’000
1,410
14
75
1,499
2019
£’000
523
18
211
752
As of 1 April 2020, the key management of the group has been determined to comprise the members of the executive
management committee. For the year ended 2019 key management was comprised of the Board of Directors and the
then CEO.
16 Share based payments
Since its incorporation, the company has operated various share-based incentive plans. The purpose of each of the
schemes has been to incentivise directors and employees related to improving company performance and building
shareholder value.
Set out below is a summary of the option awards currently in issue at 31 December 2020. The comparative figures for
both number of awards outstanding at the end of 2019 and their respective exercise prices have been adjusted to
reflect the 50:1 share consolidation that took place on 1 April 2020 (as rounded down to the nearest whole share).
Standard
redT 2015 plan
redT 2015 plan
redT 2015 plan
redT 2018 plan
redT 2018 plan
redT 2018 plan
redT 2018 plan
Invinity 2020 plan
Invinity 2020 plan
Invinity 2020 plan
Invinity 2020 plan
Grant date
Expiry date
Exercise price
2020
2019
7 Dec 2015
7 Dec 2015
13 Mar 2017
18 May 2018
18 May 2018
29 Nov 2018
29 Nov 2018
1 Apr 2020
1 Apr 2020
1 Apr 2020
26 Aug 2020
7 Dec 2020
7 Dec 2020
13 Mar 2022
18 May 2023
18 May 2023
29 Nov 2023
29 Nov 2023
1 Apr 2025
1 Apr 2025
1 Apr 2025
26 Aug 2025
206,911
58.95 €.c.
—
p
—
p
60,000
p
—
p
—
p
40,000
p
870,000
p
1,278,635
p
p
784,229
p 2,637,000
280.00
400.00
295.00
352.50
297.50
350.00
82.50
4.34
6.84
113.00
277,962
13,896
14,500
184,467
118,857
59,438
94,777
—
—
—
—
5,876,775
763,897
Non-standard
Grant date
Expiry date
Exercise price
2020
2019
Long-term Incentive plan
Camco 2006 Executive Share Plan
redT 2018 Plan
30 Jun 2009
30 Jul 2013
13 Mar 2017
Closed
27 Jul 2022
13 Mar 2022
50.00
50.00
50.00
p
p
p
15,000
68,127
70,000
153,127
15,000
68,127
70,000
153,127
Total
6,029,902
917,024
Weighted average remaining contractual life of options outstanding at the end of period (years)
9.32
6.78
A total of 71,058 options were exercised during the year with a weighted average exercise price of €0.5895 per shares. All
the options exercised were part of the 7 December 2015 tranche of options issues that were reissued under the 2018 plan.
75
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
The grant-date fair value of share options issued is calculated using a Black-Scholes methodology at the date of
grant. Key inputs to the model include the share price at the date of grant, the option exercise price, the term of the
award, share price volatility, the risk-free interest rate (by reference to government bond yields) and the expected
dividend yield rate, which has historically been zero, reflective of the development-stage nature of the company.
The Long-term Incentive Plan, Camco 2006 Executive Share Plan and the redT 2015 Plan are now closed. No further
options option awards will be made under either of these plans.
The aggregate number of options granted, vested, exercised and forfeited during the year under the plans are
summarised and analysed between unvested and vested awards as follows:
Unvested
At 1 January 2020
Granted
Paralleled
Forfeited
Vested
Awards yet to vest at 31 December 2020
Vested
At 1 January 2020
Vested
Paralleled
Granted
Forfeited
Exercised
Vested and exercisable at 31 December 2020
Total
Average
exercise price (p)
No.
500,172
4,363,757
(124,815)
(382,696)
(345,945)
284.81p
86.31p
330.21p
138.59p
82.68p
4,010,473
98.84p
Average
exercise price (p)
No.
416,852
345,945
(30,259)
1,431,214
(73,272)
(71,051)
143.79p
82.68p
342.46p
4.77p
318.56p
52.32p
2,019,429
29.09p
6,029,902
Plans with non-standard performance conditions
Long term incentive plan (LTIP)
The LTIP for directors and employees was approved by the board in 2008 and entitled directors and employees
to receive equity settled payments annually based on the achievement of certain market and non-market
performance conditions.
The LTIP is now closed. At both the beginning and the end of the year, there were 15,000 options vested and
exercisable at €0.5 per share under the LTIP.
CAMCO 2006 executive share plan (the plan)
The plan was established in 2017 to make awards of shares up to an aggregate of 10% of the share capital of the
company over a period of 10 years.
The plan is now closed. At the beginning and the end of the year there were 68,127 options that had vested and were
exercisable at €0.50 per share.
76
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
2018 plan
Options with non-standard performance conditions were also issued under the 2018 plan. At the beginning and end of
the period 70,000 options under the 2018 plan have vested and are exercisable at 400p per share.
Plans with standard performance conditions
The primary share plan that remains outstanding at 31 December 2020 is the 2018 plan.
The 2018 plan was adopted by the board on 14 May 2018 and introduced HMRC scheme rules related to certain non-
taxable option grants. The plan contains provision to issue options as CSOP, EMI or unapproved awards.
In the year ended 31 December 2020 the board approved the expansion of awards to be made under the 2018 plan
with grants expected to be made more frequently going forward and to a potentially wider group of employees. The
intention of the increase in frequency and quantum of employee share options granted was to incentivise and to
better align employee compensation with shareholder return.
Options issued to legacy Avalon employees at the merger date
Following the merger transaction 1,432,000 options were granted to legacy Avalon employees to replace options held
by them in the former Avalon employee share plan. A total of 457,538 options are vested and exercisable under the
2018 plan at 31 December 2020 with a further 5,669,864 unvested share options outstanding.
Parallel options issued
In addition, certain legacy redT options were reissued as they were considered by the board to be sufficiently out-of-
the-money such that they no longer provided a performance incentive to the holders of the options. As a mechanism
to adjust the terms of the unfavourable options, new parallel options were issued on a one-for-one basis with the
same terms as the original awards excepting that they were issued with a lower exercise price.
Both the original and parallel option remain in existence. However, the exercise by an employee of a single option from
either pool (original or parallel) allocated to them will cause the other pool to be forfeited. Accordingly, the number of
options disclosed above have been adjusted to remove the number of options that is equivalent to the number of
parallel options issued.
Other share-based payments in the period
Convertible investment agreement and warrant deed
On 13 March 2020, the company entered a loan arrangement under an investment agreement with Riverfort Global
Opportunities PCC Limited (Riverfort) and YA II PN, Ltd (Yorkville) under which Riverfort and Yorkville agreed to provide a
working capital facility to the group of up to £3.0 million. The facility was convertible into new ordinary shares of
the company.
The company drew a total of £2.0 million under the facility, all of which was converted to equity at the option of
Riverfort and Yorkville. All the shares received by each of Riverfort and Yorkville under the conversion feature have been
sold and neither counterparty remains a shareholder of the group related to the conversion shares. The aggregate
gain recognised by Riverfort and Yorkville on the exercise of the conversion feature and the sale of the resultant shares
that were issued to them has been recognised as a financing cost in the statement of comprehensive loss for the year
ended 31 December 2021.
In addition to the convertible loan, a warrant instrument was issued to Riverfort and Yorkville under which warrants
to subscribe for an aggregate of 1,818,181 new ordinary shares were issued to Riverfort and Yorkville in lieu of loan
arrangement fees due from the company in respect of the investment agreement. In total, 909,091 warrants were
issued to Riverfort with the remaining 909,090 issued to Yorkville. All of the warrants issued to Yorkville have been
exercised. The warrants issued to Riverfort remain outstanding,
The fair value of the warrant instruments issued to Riverfort and Yorkville was calculated using a Black-Scholes
methodology with inputs to the valuation including the company’s share price, historic volatility and the exercise price
of the warrants among other assumptions.
77
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
The subscription price under the warrant instrument was 107.25p for each €0.50 ordinary share subject to the
agreement. Similar to the fair value of the shares received under the conversion feature, the fair value at inception
of the warrants granted to Riverfort and Yorkville has been recognised as a financing cost in the statement of
comprehensive loss for the year ended 31 December 2021.
Warrants issued for services
On 1 April 2020, a total of 340,000 warrants to subscribe for new ordinary shares of the company were issued to VSA
Capital Limited as part compensation for services rendered in relation to the April 2020 merger and concurrent equity
fundraise.
The subscription price under the agreement was 82.50p for each €0.50 share to be issued under the arrangement. The
fair value of the warrant instruments issued to VSA was calculated using a Black-Scholes methodology with inputs to
the valuation including the company’s share price, historic volatility and the exercise price of the warrants among other
assumptions. As of the date of this report, none of the warrants issued to VSA Capital Limited have been exercised.
On 20 May 2020 1,020,438 ordinary shares of €0.50 each were issued to Latham and Watkins in respect of legal and
corporate finance services rendered in connection with the April 2020 merger transaction.
17 Auditors Remuneration
Fees payable to the company’s auditor and its associates
for the audit of the parent company and consolidated financial statements
Audit of financial statements of subsidiaries pursuant to legislation
Fees payable to the company’s auditor for other services:
Tax compliance services
Other taxation services
Other assurance related services – including Reporting Accountant services
associated with readmission to AIM
Total auditors’ remuneration
2020
£’000
213
20
8
—
597
838
2019
£’000
62
11
—
83
113
269
The group has a policy in place related to commissioning non-audit service from its auditors where all such work
requires pre-approval by the audit committee before the commencement of any non-audit work.
Audit fees are discussed with and approved by the Audit Committee.
78
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
18 Net finance income and costs
Finance income
Interest on bank deposits and money market funds
Finance costs
Interest on borrowings
Fair value adjustment on convertible notes
Finance charges for loan financing
Finance charges for lease liabilities held at fair value
Finance charges for liabilities held at amortised cost
(Losses)/gains on foreign currency transactions
Net finance (costs)/income
19 Income tax expense
Current tax
Current tax on profits for the year
Total current tax expense
Income tax expense is attributable to:
Loss from continuing operations
Profit from discontinued operations
Reconciliation of income tax expense calculated using statutory tax rate
Loss before tax
Tax at the Jersey tax rate of nil%
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Non-taxable gains and expenses not deductible for tax
Differences in overseas tax rates
Unrelieved tax losses carried forward
Origination and reversal of timing differences not recognised
Total income tax expense
2020
£’000
1
(422)
(1,162)
(682)
(27)
(5)
(1,744)
(4,041)
2019
£’000
1
(19)
—
—
(6)
(3)
92
65
2020
£’000
2019
£’000
—
—
—
—
5
5
5
—
2020
£’000
2019
£’000
(24,271)
(7,380)
—
—
(12)
(2,775)
2,684
103
—
(64)
(1,033)
1,059
43
5
79
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
20 Deferred tax balances
Deferred tax assets
Timing differences and tax losses on which deferred tax is not recognised
Accelerated capital losses
Share options
Accrued liabilities
Reserves and other
Tax losses
Total deferred tax assets
2020
£’000
2019
£’000
221
3,704
462
600
56,225
61,212
(95)
21
—
—
32,186
32,112
Tax losses
The Company’s subsidiaries carry on business in other tax regimes where the corporation tax rate is not zero. At
31 December 2020, the Group had the following tax losses carried forward available for use in future periods:
United Kingdom
Canada
United States of America
Ireland
Total potential tax benefit
2020
£’000
34,699
11,067
7,657
2,802
56,225
2019
£’000
29,535
—
—
2,651
32,186
Under current tax legislation tax losses in the United Kingdom and Ireland can be carried forward indefinitely and be
offset against future profits arising from the same activities at the tax rate prevailing at that time. There is a portion of the
tax losses in the United States of America that will begin to expire in 2035, whereas the majority can be carried forward
indefinitely. The tax losses in Canada can be carried forward 20 years. Tax losses in Canada will expire in 2025.
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 offsetting tax losses on which no deferred tax
has been recognised.
21 Loss per share
Loss per share attributable to the equity holders of the company is calculated as follows:
Basic loss per share
From continuing operations
From continuing and discontinued operations
Diluted loss per share
From continuing operations
From continuing and discontinued operations
Loss used in calculation of basic and diluted loss per share
From continuing operations
From continuing and discontinued operations
All operations in the year ended 31 December 2020 are continuing operations.
80
2020
pence
(41.0)
(41.0)
2020
pence
(41.0)
(41.0)
Restated
2019
pence
(40.6)
(37.6)
2019
pence
(40.6)
(37.6)
2020
2019
(24,271)
(24,271)
(7,385)
(6,842)
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Earnings per share in respect of the year ended 31 December 2019 have been restated to give effect to the 50:1 share
consolidation that took place in 2020 and to aid comparability.
Weighted average number of shares used in calculation
Basic
Diluted
2020
number
Restated
2019
number
59,205,798
59,636,887
18,174,431
18,174,431
The number of shares used to calculate earnings per share for the year ended 31 December 2019 have been adjusted
to reflect the 50:1 share consolidation that took place in 2020. The restatement of the number of shares provides better
comparability of EPS over the periods presented.
Additional potential shares used in the calculation of diluted earnings per share primarily relate to potential shares that
may be issued in satisfaction of in-the-money employee share options. In addition, potentially dilutive shares also relate to
warrants to subscribe for ordinary shares in the company that were issued for services or related to financing transactions
that have an exercise price lower than the quoted share price and remain outstanding at 31 December 2020.
Where additional potential shares have an anti-dilutive impact on the calculation of loss per share calculation,
such potential shares are excluded from the weighted average number of shares used in the calculation.
Additional potential shares are anti-dilutive where their inclusion in the calculation of loss per share results in a lower
loss per share. The weighted average number of shares not included in the diluted loss per share calculation because
they had an anti-dilutive effect on the calculation was 5,475,305 (2019: 887,235 – restated for 50:1 share consolidation).
Weighted average number of shares used in loss per share calculation – basic and diluted
In issue at 1 January 2020
Shares issued in the year – weighted average
Weighted average shares in issue 31 December
Effect of employee share options and other warrants not exercised
Weighted average number of diluted shares at 31 December
2020
number
Restated
2019
number
19,025,799
40,180,789
15,824,383
2,350,048
59,206,588
431,089
18,174,431
—
59,637,677
18,174,431
22 Financial assets and liabilities
Financial assets – 31 December 2020
Assets at amortised cost
Trade receivables
Other current assets
Cash and cash equivalents
Total financial assets
Financial assets – 31 December 2019
Assets at amortised cost
Trade receivables
Other current assets
Cash and cash equivalents
Total financial assets
Total
£’000
33
45
21,953
22,031
Total
£’000
62
208
1,243
1,513
All financial assets are held at amortised cost. There were no financial assets measured at fair value through other
comprehensive income nor through profit and loss in either period presented.
The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of
financial asset presented above. The carrying value of the financial assets approximate their fair values due to the
short-term maturities of these instruments.
81
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Financial liabilities – 31 December 2020
Liabilities at amortised cost
Trade and other payables
Total financial liabilities
Financial liabilities – 31 December 2019
Liabilities at amortised cost
Trade and other payables
Borrowings
Total financial liabilities
Total
£’000
2,468
2,468
Total
£’000
1,523
1,143
2,666
The group does not currently use derivative instruments for managing financial risk. All financial liabilities are held at
amortised cost.
Recognised fair value measurements
The group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading
securities) is based on quoted market prices at the end of the reporting period.
The battery systems manufactured by the company use vanadium metal as a key component in the
electrolyte. Vanadium is an actively traded commodity for which quoted market prices are available.
The company does not currently hold inventories of vanadium. Vanadium purchased from third parties is solely
for the use in electrolyte and open purchase contracts are not accounted for as derivatives.
In April 2020, the company entered an Investment Agreement with Riverfort and Yorkville to provide additional
working capital funding to the group. The Investment agreement was convertible into €0.50 ordinary shares of
the company and, due to variability in the exercise price, the conversion feature was determined to represent
an embedded derivative. In addition, a warrant deed to subscribe for €0.50 ordinary shares in the company
was entered with the same counterparties concurrent with the investment agreement. The exercise feature of
the warrant deed was similarly determined to be an embedded derivative.
Both embedded derivatives were recorded at their assessed fair values using a Black-Scholes methodology.
Key inputs to the valuation of the embedded derivatives included the company’s share price and historic price
volatility with a corresponding derivative and financing loss recorded in the income statement
Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter
derivatives) is determined using valuation techniques that maximise the use of observable market data and
rely as little as possible on entity-specific estimates. If all significant inputs required to fair value instrument are
observable, the instrument is included in Level 2. The group did not hold any financial assets or liabilities that
were required to be valued using level 2 inputs (2019: none)
Level 3: If one or more of the significant inputs is not based on observable market data the instrument is included in Level 3.
At 31 December 2019, the company was party to a loan agreement with Avalon. The loan was carried at amortised
cost using the interest rate for the instrument and was effectively settled by the merger transaction when the
loan became an intercompany item and is therefore not presented in these consolidated financial statements.
Amortised cost was calculated using the interest rate in the loan agreement that was fixed at 12% annually.
At 31 December 2020, the warrant deed remained outstanding. No other financial instruments were
outstanding at the period end that required to be valued using a methodology that uses Level 1, 2 or 3 inputs.
82
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
23 Trade and other receivables
Trade receivables from contracts with customers
Provision for doubtful receivables
2020
£’000
33
—
33
2019
£’000
62
—
62
No provision for doubtful receivables was held at 31 December 2020 (2019: £Nil)
Trade receivables are amounts due from customers for sales of vanadium flow battery systems in the ordinary course
of business. Trade receivables do not bear interest and generally have 30-day payment terms and are all therefore
classified as current.
The actual credit loss over 2020 was determined to be 0% of total sales (2019: 0%). No allowance has been recognised
in either period presented.
24 Other current assets
Prepayments and deposits
Government grants receivable
Tax credits – recoverable
Due from joint venture
Other receivables
Due from Avalon (recharge of merger transaction costs)
Total other current assets
25 Cash and cash equivalents
Cash at bank and in hand
Short-term investments
Total cash and cash equivalents
2020
£’000
1,108
—
127
168
11
—
1,414
2020
£’000
21,760
193
21,953
Short term investments
Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of
acquisition and are repayable with 24 hours’ notice with no loss of interest.
26 Inventories
Raw materials and consumables
Work in progress
Finished goods
Total inventories
2020
£’000
698
207
—
905
2019
£’000
127
125
80
—
—
394
726
2019
£’000
1,243
—
1,243
2019
£’000
93
—
143
236
Inventories recognised as an expense during the current year amounted to £436,461 (2019: £332,000). These were
included in cost of sales.
Write-downs of inventories to net realisable value amounted to £1,045,232 (2019: £nil). These were recognised as an
expense and included in other items of operating income and expense.
83
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
27 Trade and other payables
Trade payables
Accrued liabilities
Accrued employee compensation
Government remittances payable
Total trade and other payables
2020
£’000
498
653
1,010
307
2019
£’000
246
1,261
16
—
2,468
1,523
Trade payables are unsecured and are usually paid within 30 days.
The carrying amounts of trade and other payables are considered to be the same as their fair values due to the short-
term nature of the underlying obligation representing the liability to pay.
28 Borrowings
Borrowings
Total borrowings
2020
£’000
—
—
2019
£’000
1,143
1,143
Bushveld 12% fixed rate convertible loan notes
On 1 November 2019, Avalon entered a convertible loan note instrument with Bushveld Vametco Limited under which
Avalon issued 50 convertible loan notes of US$100,000 each to Bushveld. The loan notes bore interest at 12% annually
and, through a separate agreement with the company, were convertible into ordinary shares of the company,
contingent on the successful completion of the merger between the company and Avalon. Conversion to equity was
at the noteholder’s option and, if not exercised by the noteholder, the company would have been required to settle
any outstanding balance at the repayment date in cash. On completion of the merger, the agreement also provided
that Bushveld became entitled to a 20% commitment fee in relation to amounts advanced under the facility.
The loan was given by Bushveld as a bridge facility to fund the costs incurred by the company and Avalon in respect
of the merger transaction and to provide funds for general working capital purposes in the period to the completion
of the merger. The agreement between Bushveld and Avalon contemplated that 50% of the proceeds received by
Avalon under the loan notes would, in turn, be advanced by Avalon to the company.
On completion of the merger on 1 April 2020, the loan notes together with accrued interest and commitment fees were
converted into 302,978,063 ordinary shares in the company that were issued to Bushveld, discharging the company’s
obligations to Bushveld in full.
12% working capital facility with Avalon
On 1 November 2019, the company entered a loan agreement with Avalon under which US$2.5 million was made available
to the company using proceeds received by Avalon related to the convertible loan notes issued by it to Bushveld.
Consistent with the loan instrument entered by Avalon with Bushveld, the purpose of the loan facility advanced to the
company by Avalon was to provide funds to satisfy expenses expected to be incurred related to the combination
transaction and for general working capital purposes.
The facility bore interest at 12% annually and was secured against the ordinary shares of the company’s subsidiaries. At
31 December 2019, the company had drawn US$1,500,000 (GBP£1,142,677) under the facility with the facility fully drawn
by the merger date.
On 1 April 2020, the merger between the company and Avalon completed and the loan advanced by Avalon became
an intercompany facility as of that date. Accordingly, no balance in respect of the loan facility from Avalon is presented
in these consolidated financial statements.
84
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Riverfort Capital/Yorkville Advisors Investment Agreement
On 13 March 2020, the company entered an investment agreement with Riverfort Global Opportunities PCC Limited
(Riverfort) and YA II PN Ltd (Yorkville). The investment agreement was amended by deed of variation on 1 July 2020.
Under the investment agreement, three funding tranches of £1,000,000 each were made available to the company to
provide additional working capital funding over the merger integration period. The facility carried an implementation
fee of £225,000 and bore interest at 12% annually.
The agreement provided that interest would not accrue on advances for a given month if the average daily traded
value of the company’s shares over the 20-trading day period preceding the month was greater than £100,000.
Amounts drawn under the facility, together with any accrued interest, were convertible at the noteholder’s option into
ordinary shares in the company. The conversion price was calculated as the lower of (i) 90% of the lowest daily volume-
weighted average price for the company’s shares measured over the 10-day period prior to the issuance of the
conversion notice and, (ii) 130% of the average daily volume weighted average price for the five days immediately before
the advance date of the relevant tranche.
In total the company drew two tranches of £1,000,000 each under the investment agreement. Both tranches and
associated accrued interest have been converted to equity by the noteholders in the year to 31 December 2020. The
implementation fee was settled through the issue of 210,575 €0.50 ordinary shares at £1.0685 per share and based on
the subscription price for shares in the April 2020 fundraise.
Had the two tranches drawn under the facility not been converted to equity by the noteholders then the company
had two options to settle amounts drawn under the facility.
Each tranche together with any accrued interest would have become repayable in cash 24 months after the date of
the initial drawdown and calculated separately for each tranche drawn. The company also had the option to prepay
each tranche drawn at any time provided that certain conditions related to VWAP were satisfied. The prepayment
option was on a tranche-by-tranche basis with any prepaid tranche being repaid in full including accrued interest and
subject to a 10% prepayment fee.
Neither of these options were exercised by the company.
In addition, the company issued warrants to Riverfort and Yorkville for a total of 1,818,818 ordinary shares in the
company at a subscription price of £1.0725 per €0.50 ordinary share. The warrants were issued under a warrant deed
that is separate to the investment agreement that allowed each of Riverfort or Yorkville to exercise warrants granted to
them over a period not exceeding 48 months from the date of grant.
In total, 909,091 warrants were issued to Riverfort with the remaining 909,090 issued to Yorkville. All of the warrants
issued to Yorkville have been exercised. The warrants issued to Riverfort remain outstanding.
85
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
29 Issued share capital and reserves
Restated
Authorised, at 31 December 2019
Ordinary shares of €0.50
Issued and fully paid
At 1 January 2019
Issued in the year
Transaction costs on issue of shares
At 31 December 2019
Authorised, at 31 December 2020
Ordinary shares of €0.50
Issued and fully paid
At 1 January 2020
Issued in the year
Transaction costs on issue of shares
At 31 December 2020
Number
‘000
Share capital
£’000
Share premium
£’000
1,250,000
—
—
791,219
160,031
—
6,777
1,380
—
99,473
1,822
(260)
951,250
8,157
101,035
Number
‘000
Share capital
£’000
Share premium
£’000
25,000
—
—
19,025
66,875
—
8,157
29,713
—
101,035
25,157
(1,647)
85,900
37,870
124,545
On 1 April 2020 the Company consolidated each ordinary share of €0.01 nominal value on a 50 to 1 basis, such that
every 50 ordinary shares consolidated into one ordinary share of €0.50. The closing balance of shares at 31 December
2020 equated to 19,025,008 consolidated shares. The number shares outstanding and issued during the year ended
31 December 2019 have been restated to give effect to the April 2020 share consolidation.
The holders of ordinary shares are entitled to receive dividends as may be declared from time to time and are entitled
to one vote per share at meetings of the company.
Subsequent to the year-end Yorkville Advisors exercised 909,090 warrants to subscribe for ordinary shares in the
company. A total of 909,090 new ordinary shares were issued to Yorkville Advisors in return for total subscription
proceeds of £972,726.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one
vote per share at meetings of the Company.
Share-based payment reserve
The share-based payment reserve comprises the equity component of the Company’s share-based payments
charges.
Translation reserve
The translation reserve comprises foreign currency differences arising from the translation of the financial statements of
foreign operations.
Other reserve
Other reserve comprises the portion of the consideration paid for redT energy Holdings (Ireland) Ltd’s minority interests
over the fair value of the shares purchased.
86
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
30 Financial risk management
This note explains the group’s exposure to financial risks and how these risks could affect the group’s future financial
performance. Current year profit and loss information has been included where relevant to add further context
Risk
Exposure arising from
Measurement
Management
Market risk –
foreign exchange
Future commercial transactions Cash flow forecasting.
Recognised financial assets
and liabilities not denominated
in pounds sterling.
Sensitivity analysis.
Market risk –
commodity price risk
Purchases of vanadium to be
used in the construction
of batteries.
Quoted market prices
for vanadium.
Credit risk
Aging analysis.
Cash and cash equivalents,
trade receivables and contract Credit ratings.
assets.
Liquidity risk
Borrowings and other liabilities.
Rolling cashflow forecasts
Cash is held in sterling
and remitted to
subsidiaries based on
short term cashflow
analysis of needs.
Forward purchases
made on closing of
customer orders.
Strategic supply
arrangement.
Monitoring accumulation
of bank balances.
Credit risk assessment
for customers.
Access to capital markets
for equity or debt funding.
Market risk – foreign exchange risk
The group is primarily exposed to foreign exchange risk related to bank deposits, receivables or payables balances
and other monetary working capital items that are denominated in a currency other than the company’s functional
currency which has been determined to be pounds sterling.
The group operates a policy of not speculating on foreign exchange and aims to mitigate its overall foreign exchange
risk by holding currency in line with regional operating expenses, providing and element of natural hedge against
adverse foreign exchange movement.
87
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
The group’s exposure to foreign exchange risk at the end of the reporting period, expressed in pounds sterling was as follows:
Euro
£’000
Canadian dollar
£’000
US dollar
£’000
(6)
18,875
Chinese Yuan
£’000
South African ZAR
£’000
Australian dollar
£’000
Sterling
£’000
19,536
4
10
(933)
—
18,617
82
—
—
—
—
82
Sterling
£’000
662
28
47
(1,178)
—
(36)
(477)
136
—
63
(208)
—
(9)
1,122
—
9
(424)
(548)
159
140
—
—
(146)
—
8
—
5
(7)
(30)
(24)
Euro
£’000
Canadian dollar
£’000
17
—
—
(150)
—
—
(133)
—
—
—
—
—
—
—
Chinese Yuan South African ZAR
£’000
£’000
Australian dollar
£’000
55
—
—
—
—
—
55
28
—
5
(7)
—
(16)
10
8
35
—
(2)
—
—
41
929
29
26
(750)
(178)
56
Total
£’000
21,953
33
113
(2,468)
(756)
US dollar
£’000
473
156
(186)
(1,143)
—
(700)
Total
£’000
1,243
63
208
(1,523)
(1,143)
(52)
(1,204)
31 December 2020
Cash and cash equivalents
Trade receivables
Other current assets
Trade and other payables
Lease liabilities
Net exposure
31 December 2020 (cont.)
Cash and cash equivalents
Trade receivables
Other current assets
Trade and other payables
Lease liabilities
Net exposure
31 December 2019
Cash and cash equivalents
Trade receivables
Other current assets
Trade and other payables
Borrowings
Lease liabilities
Net exposure
31 December 2019
Cash and cash equivalents
Trade receivables
Other current assets
Trade and other payables
Borrowings
Lease liabilities
Net exposure
88
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Sensitivity – exchange rates
The sensitivity of profit or loss to changes in quoted exchange rates for currencies that the group is exposed to is as
follows, based on each relevant exchange rate strengthening (or weakening) by 5%.
There is no impact on other components of equity as the group is not party to any derivative financial instruments,
such as hedging instruments, where currency gains and losses would be recognised in other comprehensive loss.
At 31 December; +/- 5%
Euro
Canadian dollar
US dollar
Chinese Yuan
South African ZAR
Australian dollar
2020
£’000
Restated
2019
£’000
4
(8)
(3)
(4)
2
—
(9)
7
—
23
(3)
—
(2)
25
Market risk – commodity price risk
The group’s batteries use vanadium as the key component of their electrolyte. Vanadium is an elemental metal and is
used primarily to toughen steel, particularly for the construction industry. Whilst it is not a market traded commodity,
such that one can buy forward or derivative contracts, market prices for vanadium pentoxide (V2O5) at 98% purity are
quoted in US dollars per pound.
Vanadium forms about two-thirds of the value of the electrolyte, which in turn forms about a quarter of the cost of
a battery, and so a fluctuation in the price of vanadium will impact the profitability of battery sales An increase or
decrease in the market price of vanadium of 5% would cause the value of the electrolyte component of a battery to
increase or decrease by approximately 3%.
The group has granted a right of first refusal (ROFR) to Bushveld Minerals for the supply of vanadium until November 2021.
Credit risk – cash held on deposit with banks
Credit risk arises from cash and cash equivalents and deposits with banks and other financial institutions.
Credit risk related to holdings with financial institutions is managed by only maintaining bank accounts with reputable
financial institutions. The group aims only to place funds on deposit with institutions with a minimum credit rating of B2
Moody’s.
The group’s cash at bank and short-term deposits are held with institutions with credit ratings as follows:
At 31 December
Aa2
A2
Ba2
B2
Total cash and short-term deposits
2020
£’000
1,531
20,221
8
193
21,953
2019
£’000
—
1,243
—
—
1,243
89
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
Credit risk – trade and other receivables
Past due but not impaired
The group’s credit risk from receivables encompasses the default risk of its customers and other counterparties.
Its exposure to credit risk is influenced mainly by the individual characteristics of each customer or counterparty.
The creditworthiness of potential and existing customers is assessed prior to entering each new transaction. A credit
analysis is performed, and appropriate payment terms implemented that may include increased level of upfront
deposits for the purchase of battery units.
Notwithstanding the above, the group’s standard terms of trade provide that up to 90% of the sales price of a battery
unit is paid prior to shipping.
Receivables are considered for impairment on a case-by-case basis when they are past due or where there is
objective evidence that the customer or counter party may be a default risk. The group takes into consideration the
customer or counter party payment history, its credit worthiness together with the prevailing economic environment in
which it operates to assess the potential impairment of receivables.
On an ongoing basis, receivable balances attributable to each customer or other counterparty are monitored and
appropriate action is taken when the relevant balance becomes or is considered likely to become overdue. The
maximum exposure to loss arising from receivables is equal to invoiced value.
The ageing of trade receivable balances was:
At 31 December
Current
Past due – less than 30 days
Past due – more than 30 days
Total trade and other receivables
2020
£’000
—
—
33
33
2019
£’000
—
—
62
62
Of the past due amounts at 31 December 2020, £nil was considered to be impaired and related to three customers
(2019: £nil, five customers).
Liquidity risk
Liquidity risk relates to the group’s ability to meet its obligations as they fall due.
The group generates cash from its operations that are principally related to the manufacture and installation of
vanadium flow batteries. The market for reliable and flexible storage solutions for energy generated from renewable
sources is growing and the technology continues to develop.
The development of new and enhanced storage technologies can be capital intensive and the group has funded development
and early-stage commercial activity primarily from equity investment but also using cash from operations and loan funding.
The group forecasts cash generation using a comprehensive company financial model and monitors the timing and
quantum of its payment obligations.
The following table shows the group’s financial liabilities by relevant maturity grouping based on contractual maturities.
The amounts included in the analysis are contractual, undiscounted cashflows.
90
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
31 December 2020
Trade and other payables
Lease liabilities
Total financial liabilities
31 December 2019
Trade and other payables
Lease liabilities
Borrowings
Total financial liabilities
Less than 1
1 year
£’000
2,468
190
2,658
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
—
179
179
—
314
314
Less than 1
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
1,523
52
1,177
1,575
—
—
—
—
—
—
—
—
Over
5 Years
£’000
—
155
155
Over
5 Years
£’000
—
—
—
—
Total
contracted
cash flows
£’000
2,468
838
3,306
Total
contracted
cash flows
£’000
1,523
52
1,177
2,754
Carrying
amount
£’000
2,468
756
3,224
Carrying
amount
£’000
1,523
52
1,143
2,718
Capital management
The group currently has no debt and is currently funded by proceeds raised through equity fundraises during 2020 and
proceeds from the conversion of warrants in 2021.
Given the development stage nature of the group’s activities it has historically used a combination of equity and
convertible debt funding and is expected to continue to do so whilst it remains a development stage company.
The board regularly reviews the group’s cash requirements and future projections to monitor cash usage and assess
the need for additional funding. At 31 May 2020, the group had £14.3 million of cash on hand.
31 Related parties
The only related parties of the company are the key management of the group. Key management has been
determined as the CEO and his direct reports.
The Oak Group provides company secretarial services to the company. Until 31 May 2019, Michael Farrow was a Director of
the Oak Group. In 2019, the company incurred administrative charges of £8k related to services provided by the Oak Group.
The Oak Group has not been considered to be a related party since 31 May 2019.
Key management compensation is disclosed in note 15, staff costs and headcount.
Related party transactions – 2019
On 5 April 2019, Camco International Group Inc. (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 – See note 9.
91
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
Notes
(forming part of the consolidated historical financial information)
32 Events occurring after the report period
Joint Development and Commercialisation Agreement with Gamesa Electric S.A.U.
On 11 May 2021, the company announced it had entered a Joint Development and Commercialisation Agreement
(JDCA) with Gamesa Electric S.A.U. (Gamesa Electric), a wholly owned subsidiary of Siemens Gamesa Renewable
Energy (SGRE).
The objective of the agreement is threefold:
– to jointly develop a grid-scale vanadium flow battery (VFB) using Invinity’s proven technology and incorporating
advanced power conversion systems developed by Gamesa Electric;
– to cooperate in the manufacture of the grid-scale VFB following completion of the development phase that will
culminate in a jointly validated design for the VFB; and
– to use the established sales and marketing channels of both the group and Gamesa Electric to jointly market and
commercialise the VFB.
The detailed development programme for the next generation VFB is expected to take approximately two years to
reach commercialisation. Gamesa Electric has agreed to fund an aggregate of up to US$4.62 million of the company’s
activities within the joint development programme and based on milestones achieved. The JDCA may be terminated
by Gamesa Electric if predetermined development activities and milestones are not achieved.
Concurrent with the JDCA, Invinity and Gamesa Electric entered an option agreement under which Gamesa Electric
was granted an option to acquire new shares in Invinity in an amount equivalent to it having held a 9.99% interest
in the ordinary share capital of the company at 11 May 2021. The subscription price for new shares under the option
agreement is £1.75 per ordinary share and is set at the same price achieved by the company in the December 2020
placing and open offer.
Should the option be exercised, Gamesa Electric, or its nominee, would have the right to appoint a director to the
company’s board of directors, subject to minimum 5% shareholding in the Company being held by Gamesa Electric or
its nominee. Notwithstanding, the exercise of the option is subject to shareholder approval.
0.5 MWh sale in California, United States
On 17 May 2021, the company announced that it had concluded contracting on another project awarded funds by the
California Energy Commission (CEC). This follows the company's announcement in Q4 2020 that it has been selected
for a number of projects funded by the CEC, California's primary energy policy and planning agency.
Invinity has entered into a contract with Webcor, a leading Californian construction firm, to provide a vanadium flow
battery (VFB) for a project developed by Indian Energy LLC, a 100% Native American-owned utility-scale and microgrid
development and systems integration firm with approximately 4 GW of solar PV and wind and 6 GWh of energy
storage projects under development.
The project, located on a US Marine Corps base in Southern California, will couple three of Invinity's VS3 vanadium
flow batteries with solar PV to provide resilience and energy security in the case of Public Safety Power Shutoff (PSPS)
events, wildfires or other outages. The Invinity system will apply recent technological advancements developed
by Invinity's team to extend battery storage duration to up to ten hours with an option to operate in either grid-
connected or off-grid modes. This ensures round-the-clock energy resiliency for the site while reducing overall energy
costs through demand shaving and Time of Use (TOU) energy shifting.
The 0.5 MWh system is expected to be delivered during Q4 2021 and to contribute revenue of approximately £450,000
to the Company, relating to the Invinity VS3 vanadium flow battery, ancillary components and associated services.
92
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
33 Group entities
Direct subsidiary
undertakings
Country of
incorporation
Registered office
Camco Holdings UK Limited England
Camco Services (UK) Limited England
Camco (Mauritius) Limited
Mauritius
Invinity Energy Systems (US)
Corporation
Invinity Energy Nexus
Limited
United
States of
America
England
Unit 4.12
Clerkenwell Workshops
27-31 Clerkenwell Close
London EC1R 0AT
United Kingdom
Unit 4.12
Clerkenwell Workshops
27-31 Clerkenwell Close
London EC1R 0AT
United Kingdom
24 Dr Joseph Rivière Street
1st Floor, Felix House
Port Lewis,
Mauritius
1201 Orange St. #600
Wilmington, DE
USA
19899
Unit 4.12 Clerkenwell
Workshops
27-31 Clerkenwell Close
London EC1R 0AT
United Kingdom
Principal activity
Holding
company
Ownership %
2020
Ownership %
2019
100%
100%
Support
services
100%
100%
Holding
company
100%
100%
Energy
storage
Energy
storage
100%
—
100%
100%
93
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Indirect subsidiary
undertakings
redT Energy Holdings (UK)
Limited
Country of
incorporation
England
Re-Fuel Technology Limited England
Invinity Energy (UK) Limited
England
redT Energy Holdings
(Ireland) Limited
Ireland
Invinity Energy Systems
(Ireland) Limited
Ireland
redT energy (Australia) (Pty)
Ltd
Australia
Vanadium Electrolyte Rental
Limited
England
Registered office
Unit 4.12 Clerkenwell
Workshops
27-31 Clerkenwell Close
London EC1R 0AT
United Kingdom
Unit 4.12 Clerkenwell
Workshops
27-31 Clerkenwell Close
London EC1R 0AT
United Kingdom
Unit 4.12 Clerkenwell
Workshops
27-31 Clerkenwell Close
London EC1R 0AT
United Kingdom
22 Northumberland Road
Ballsbridge,
Dublin 4
22 Northumberland Road
Ballsbridge,
Dublin 4
RSK Advisory,
Level 2, Suite 7
66 Victoria Crescent
Narre Warren, Victoria 3805
Australia
Unit 4.12 Clerkenwell
Workshops
27-31 Clerkenwell Close
London EC1R 0AT
United Kingdom
Ownership %
2020
Ownership %
2019
100%
100%
Principal activity
Research
and
consultancy
Energy
storage
99%
99%
Energy
storage
99%
99%
Energy
storage
Energy
storage
Energy
storage
99%
99%
99%
99%
99%
99%
Vanadium
procurement
50%
—
Invinity Energy (South Africa)
(Pty) Ltd
South Africa 1st Floor, Kiepersol House
Stonemill Office Park
300 Acacia Road
Darrenwood
Randburg 2194
Business
Services
100%
100%
94
Invinity Energy Systems plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION Notes
(forming part of the consolidated historical financial information)
Indirect subsidiary
undertakings – continued
Country of
incorporation
Registered office
Camco International
Carbon Asset Information
Consulting (Beijing) Co.
Limited
The People’s
Republic of
China
Invinity Energy Systems
(Canada) Corporation
Canada
Room 1408, Tower A,
Lucky Tower
No.3 North Road
East Third Ring
Chaoyang District
PRC, Beijing
2900-550 Burrard Street
Vancouver, BC
Canada
V6C 0A3
Principal activity
Business
Services
Ownership %
2020
Ownership %
2019
100%
100%
Energy
storage
100%
—
—
Suzhou Avalon Battery
Company Limited
The
People’s
Republic of
China
1809 Building 4 no.11888 East
Taihu Avenue,
Songling Town, Wujiang
District, Suzhou City
Business
Services
100%
The following entities which were subsidiary undertakings at 1 January 2019 were either sold or wound up during 2019:
Direct subsidiary
undertakings
Country of
incorporation
Registered office
Camco International Group,
Inc.
USA
CI (Cyprus) Limited
Cyprus
2421 Tangley Street
Houston,
Texas 77005
USA
Gr. Xenopoulou 17
3106 Lemesos,
Cyprus
Principal activity
Business
services
Consultancy
95
Annual Report and Financial Statements 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Officers and advisers
Officers
Neil O’Brien
Larry Zulch
Matt Harper
Peter Dixon-Clarke
Jonathan Marren
Rajat Kholi
Michael Farrow
Advisers
Registered address
Chairman
Chief Executive Officer
Chief Commercial Officer
Chief Financial Officer
Non-Executive Director
Non-Executive Director
Non-Executive Director
3rd floor
Standard Bank House
47-49 La Motte Street
St. Helier
Jersey
JE2 4SZ
Jersey company number
92432
Cannacord Genuity Limited
88 Wood Street
London
EC2V 7QR
VSA Capital
New Liverpool House
15-17 Eldon Street
London
EC2M 7LD
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St. Helier
Jersey
JE1 1ES
Hudson Sandler
25 Charterhouse Square
London
EC1M 6AE
Oak Securities (Jersey) Limited
3rd floor
Standard Bank House
47-49 La Motte Street
St. Helier
Jersey
JE2 4SZ
Nominated adviser
and joint broker
Joint broker
Registrar
Financial PR
Company secretary
96
Invinity Energy Systems plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
STRATEGIC REPORT
Chairman’s report
Chief Executive Officer’s report
Chief Financial Officer’s report
Sustainable Investing and ESG
Risk management report
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2
6
8
10
GOVERNANCE
13
The Board of directors
15
Governance report
19
Report of the Chairman of the Audit & Risk Committee
21
Report of the Chairman of the Nomination Committee
Report of the Chairman of the Remuneration Committee 22
23
Directors’ remuneration report
Directors’ report
33
Statement of Directors’ responsibilities in respect
of the financial statements
Independent auditor’s report to the members
36
of Invinity Energy Systems plc
FINANCIAL STATEMENTS
Consolidated statement of comprehensive loss
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
OTHER INFORMATION
Officers and advisers
37
43
44
45
46
47
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Invinity Energy Systems plc
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INVINITY ENERGY SYSTEMS PLC
Suite 4.12 Clerkenwell Workshops
27-31 Clerkenwell Close
London
EC1R 0AT
United Kingdom
Telephone +44 (0)204 551 0361
Website invinity.com
Twitter @InvinityEnergy
Jersey registered 92432