Annual Report 2018 - Cover Pages hires copy.pdf 1 7/16/2018 7:54:40 PM
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VIVOPOWER INTERNATIONAL PLC
Annual Report and Accounts
FOR THE YEAR ENDED 31 MARCH 2018
VivoPower International PLC
International solar power company that develops, owns and
operates solar projects in a capital efficient manner.
Provides critical energy infrastructure solutions to commercial and
industrial customers throughout Australia.
Partners with long-term investors, suppliers and developers to
accelerate growth.
Nasdaq: VVPR
Contents
The Reports
Highlights
Chairman’s Statement
Chief Executive’s Review
Strategic Report
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
Independent Auditor’s Report to the Members of VivoPower International PLC
Group Financial Statements and Notes
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flow
Consolidated Statement of Changes in Equity
Notes to the Financial Statements
Parent Company Financial Statements and Notes
Company Statement of Financial Position
Company Statement of Cash Flow
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Other Information
Company Information
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27
34
38
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76
Highlights
Accomplishments
Top-tier US solar developer with 1.8GW in development
941 MW of projects progressed to advanced and construction stage
Transition to new management team
$3.4 million annual reduction in overhead run-rate
Outperformance of Aevitas unit in Australia
Strategic review initiated on 1.8 GW US solar portfolio
Achieved full certification as a B Corporation
(USD in thousands, except per share data)
2018
2017 *
Revenue
Gross profit
Operating (loss)/profit
Adjusted EBITDA**
Basic earnings per share
Diluted earnings per share
33,647
32,250
5,123
27,273
(7,595)
17,027
(3,201)
18,643
(2.06)
0.81
(2.06)
0.81
* Comparative results are for the 14-month period ended 31 March 2017.
** Adjusted EBITDA is a non-IFRS financial measure. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and
amortisation, impairment of assets, impairment of goodwill, and one-off non-recurring costs, including restructuring expenses, non-recurring
remuneration and consulting fees. We believe that Adjusted EBITDA and Adjusted earnings per share provides investors and other users of
our financial information consistency and comparability with our past financial performance, facilitates period-to-period comparisons of
operations and facilitates comparisons with our peer companies, many of which use a similar non-IFRS or generally accepted accounting
principles in the United States (“GAAP”) financial measure to supplement their IFRS or GAAP results, as applicable.
Page | 1
Chairman’s Statement
The fiscal year ended 31 March 2018 has proven to be a difficult one for VivoPower International PLC
(“VivoPower” or the “Company”), due to a combination of external and internal factors. The key developments
during FY2018 were as follows:
•
•
•
•
•
•
Consummated a joint venture with Innovative Solar Systems (ISS) for a qualified pipeline of solar projects
totalling 1.8GW (DC) which made VivoPower one of the top-tier solar developers in the United States;
Consummated an Alliance Agreement with ReNu Energy Limited in Australia for the sale of solar assets
below 5MW in size in Australia and closing the first deal under this agreement, being the sale of Amaroo
School solar;
Change of senior leadership team, with the termination of Dr. Philip Comberg in October 2017, with Carl
Weatherly White (formerly CFO) replacing him as CEO and the appointment of Art Russell as CFO in
November 2017;
Initiation of legal action against former CEO, Dr Philip Comberg seeking US$27m of damages incurred
during his period of leadership, following the discovery of a range of issues;
Failure to achieve FY2018 financial budget due to external and internal factors and despite a strong above
budget performance from Aevitas Group Limited (“Aevitas”), the Australian power services subsidiary of
VivoPower; and
Appointment of Cohn Resnick as corporate adviser to undertake a strategic review in December 2017,
following various approaches in relation to the 1.8GW ISS portfolio.
The key external factor that adversely affected VivoPower in FY2018 was President Donald Trump’s proposed
introduction of tariffs on imported solar panels into the US. This was first flagged by Trump in early May 2017
but a recommendation was not made until late November 2017 and not sanctioned until January 2018. This
effectively put a halt on the utility scale solar development industry in the United States for the FY2018 year as
it created too much uncertainty and also triggered a sharp short-term increase in solar panel prices, hence
increased development costs.
VivoPower made the difficult decision to focus on the long term and sacrifice short term financial budget targets,
as rushing to develop in FY2018 would have adversely impacted project profitability whereas waiting for solar
panel prices to resume their decline would yield greater profitability per project in the medium to long run. There
is precedent for this occurring in the past, with President Obama’s solar panel tariffs of 2014 creating a similar
short-term spike in solar panel prices. This lasted for less than 12 months and solar panel prices resumed their
long-term decline shortly thereafter and the solar development industry flourished. We are already seeing the
decline in solar panel prices resuming, aided by the recent announcement by China to stop subsidies for the
domestic Chinese solar market. This is widely expected to see a glut of panels that will be released on to the
market driving prices significantly lower over the next 12 – 24 months.
The key internal factor that had an adverse impact on VivoPower was leadership issues, that necessitated a
change in CEO be made in October 2017. The Company’s new leadership team has had to spend a lot of time
since then fixing a range of resultant operational issues across finance, accounting, IT, pipeline development
and human resources, which has somewhat diluted the ability to focus on business development and growth
opportunities. In addition, the Company has had to incur write-downs totalling $26 million due to legacy issues.
Reflecting back over the last 18 months since VivoPower was listed on NASDAQ, it does look like the company
has experienced highs and lows that most companies would go through over a 10 to 20 year period. Following
on from a profitable scaling up in FY2017, the last 12 months has necessitated a strategic pivot due to Trump
policies, a change of leadership and a “clearing of the decks” with respect to non-core geographies, non-core
assets as well as general overhead reduction, resulting in restructuring and impairment charges and an overall
financial loss.
Page | 2
Chairman’s Statement (continued)
VivoPower’s primary focus for the year ahead is to crystallise value from the 1.8GW US portfolio, which has
attracted significant interest from a range of parties. The range of potential outcomes include co-development
financing to outright portfolio sale. At the time of writing this, we have a range of qualified groups in due diligence.
Furthermore, there will be a heightened focus on ensuring Aevitas fully realises the strong growth potential it has
as a result of the New South Wales infrastructure boom as well as the solar boom in Australia. Aevitas has an
all-time record forward order book of US$15 million, including a range of solar related opportunities.
Last but not least, it was pleasing that VivoPower was able to secure B Corporation status in May 2018. In order
to achieve this, VivoPower had to pass a strict and detailed assessment of its governance processes, systems
and people.
On behalf of the rest of the Board of Directors, I would like to take this opportunity to thank all of the VivoPower
team, our partners, financiers, customers, suppliers and shareholders for their support and engagement during
the period. Rest assured, the VivoPower team and board is committed to overcoming challenges and realizing
value across the business units.
Kevin Chin
Chairman
18 July 2018
Page | 3
Chief Executive’s Review
Over the past 12 months, the global solar power generation industry has continued its evolution, and now
delivers the lowest cost of power in most global markets. Fueled by manufacturing efficiencies, technological
innovation, and significant capital inflows, solar power has become accepted as a reliable, low-cost source of
power by the world’s largest and most sophisticated utilities and industrial users of electricity. With the advent
of commercially viable battery storage in the very near future, the adoption of solar power will continue to
dominate new sources of power generation. According to Bloomberg New Energy Finance, over 6,000 GW of
solar PV will be built globally through 2050 – almost half of all new electricity generation capacity in that period.
These powerful trends do not mean that increased deployment of solar power generation will be smooth. Solar
power is disruptive to the business models of well capitalised incumbents, who have significant investments in
potentially uneconomic assets. Some of these market participants are resistant to the changes posed by
increased adoption of solar power. Political and regulatory support lags industry requirements, and in certain
instances has created setbacks. In the context of the U.S. market, this includes the Section 201 solar tariff that
was introduced by the Trump administration in January. In addition, the expectation for lower power prices has
created a significant decline in the price at which new solar projects can sell power under long term contracts.
Whether bilateral discussions or responding to open request for proposals, the market for selling power is highly
competitive. Developers must focus on building the lowest cost projects to be successful.
In the face of these challenges, we strongly believe that opportunities to profit from the continued deployment
of solar power offers unparalleled opportunities for companies that embrace resilience, tenacity and adaptability.
With these attributes in mind, VivoPower has made a number of significant changes this year, both from a
strategic and operational perspective.
Over the last six months, VivoPower has executed a strategic shift to prioritise solar development in the United
States and Australia and to cease initiatives in Latin America, Europe and Asia. Importantly, the Company has
determined that our previous strategy of acquiring developed solar projects from third-party developers for the
sale to long term owners (the “build, transfer, operate” or “BTO” model) was no longer appropriate due to market
changes as a result of the Trump tariff cuts and increasing competition for solar projects in the advanced stage
of development. As a result, we have decided to focus resources on identified development opportunities, where
we can progress projects to an advanced stage, with a view to capturing a greater share of development profit.
Page | 4
Chief Executive’s Review (continued)
We also successfully transitioned our senior management and formed a lean and cohesive team that is focused
on operational execution and delivery in the context of our new sharpened strategy. We developed key objectives,
with precise and measurable priorities, and are determined to execute against our plan.
There are several key outcomes of our strategy that warrant highlighting below:
•
Streamlined focus on two key geographies for solar development:
-
USA: finance and deliver on the first projects from our development joint venture with Innovative Solar
Systems (“ISS Joint Venture”);
Australia: drive revenue growth and margin expansion; capture opportunities in the booming solar
power and battery storage market;
-
•
Eliminated $3.4 million in annualized recurring overhead costs through rationalisation of resources and
exiting non-productive regional markets;
• Realised non-core investments to release capital:
– $11.6 million sale of non-strategic minority interests in North Carolina projects; and
– $2.0 million in project sales in Australia
The sale of our non-controlling minority interests in two North Carolina projects, were executed at a 12.7x EBITDA
multiple. This sale also allowed us to eliminate $0.6 million in annual overhead related to managing the projects.
We incurred a non-cash charge in the carrying value of the assets, reflecting heightened uncertainty in the
projected future value of the sale of electricity in the wholesale North Carolina market after the current power
sale contracts expire in 2027. Predicting the future value of wholesale power so far in the future is difficult, and
results in a wide range of possible asset values for asset-in-use valuations. It also reflects changes in the interest
rate environment.
We also restructured our solar development team in Australia, with a change of leadership there also and the
introduction of a more disciplined approach to development pipeline origination and qualification. This
restructure however has resulted in a one-time impairment charge of $10.5 million as a result of a review of the
historical development pipeline.
We have made strong progress during the year across our development portfolio in the United States, which has
been conducted in a joint venture with our early stage development partner Innovative Solar Systems since April
2017. All of the projects have achieved significant development milestones and over half of the projects are now
considered advanced stage. Depending on the outcome of several near term PPA discussions with potential
counterparties, we are looking forward to beginning construction on projects later this year. Our development
portfolio has also attracted significant inbound interest from potential development financing partners as well
as from groups seeking to purchase all or part of the portfolio. This is in part due to the increasing pools of capital
entering the solar development and asset ownership space – we are seeing new players enter the market each
month. As a result, we engaged Cohn Resnick to run a strategic review process in relation to the portfolio so as
to ascertain how we could best maximise value for shareholders. This is a priority focus for the VivoPower team
in FY2019.
The other key priority is ensuring that Aevitas, our power services business in Australia that provides critical
energy infrastructure solutions fully capitalizes on the NSW infrastructure boom in Australia as well as the solar
installation boom. This involves continuing to drive growth in solar electrical services and commencing solar EPC
(engineering, procurement and construction) work and introducing battery storage solutions.
We have also delivered on several qualitative achievements as part of our commitment to corporate social
responsibility. We are proud that we have achieved B Corporation status. This achievement was the result of
teamwork across the globe and is a strong testament to our culture and focus on achieving sustainable business
practices. We have also delivered on our commitment to environmental responsibility, as evidenced by our
project to re-deploy surplus equipment and lightly damaged solar panels, that would otherwise be bound for
landfill, to offset 100% of the electricity costs for 100 low-income homeowners in South Carolina, USA.
Page | 5
Chief Executive’s Review (continued)
To reorganize a business is not a simple task and is disruptive to our team and clients. We have had to
aggressively re-architect our cost structure, and our team has made sacrifices and has demonstrated discipline
and focus – for that I am grateful. Moving into fiscal 2019, I am confident that we can deliver on our operational
and financial goals, anchored in our two strong markets. I would like to thank the team for their commitment to
our priorities.
Carl Weatherley-White
Chief Executive Officer
18 July 2018
Page | 6
Strategic Report
Principal Activities
VivoPower is an international solar power producer and energy storage company that develops, owns and
operates photovoltaic (PV) solar projects in a capital efficient manner. VivoPower partners with long-term
investors, suppliers and developers to accelerate the growth of its portfolio of solar projects. In addition, the
Company provides critical energy infrastructure solutions to commercial and industrial customers throughout
Australia through our power services business. VivoPower pursues business in two operating segments: (i) solar
development activities focused on opportunities in the United States and Australia; and, (ii) power services via
our wholly-owned subsidiary, Aevitas Group Limited, in Australia.
Solar Development – United States and Australia
We believe that a unique market opportunity exists in solar development as a result of three powerful trends: (i)
an accelerating demand for solar power generation by energy users, fueled by continued declines in the Levelised
Cost of Energy (“LCOE”), as well as the increasing Corporate Social Responsibility (“CSR”) requirements; (ii)
continued reduction in the cost of developing, designing and constructing solar electrical generation facilities as
well as commercial viability of new technologies such as battery storage; and, (iii) increased availability and
reduced cost of institutional and corporate capital for solar projects.
Successful solar development requires an experienced team that can manage many work streams on a parallel
path, from initially identifying attractive locations to completing on time and budget. This process involves
achieving key milestones such as site control, permitting, interconnection and transmission, design and
engineering, power marketing, equipment procurement and financing. We have the ability to identify attractive
projects and the capacity to create value by controlling development and construction to ensure that projects
are not only built on time and on budget but are also able to generate attractive returns to institutional investors.
Since long-term investors typically value projects on the basis of long term rates of return (IRR), the development
profit that may be created by a developer is the difference between the cost to develop projects and the fair
market value of such projects. We believe that successful project development results in a significantly lower
cost basis than buying projects that are already developed.
With this approach, we believe that we can achieve attractive risk-adjusted returns in the current market, and
we target a multiple of invested capital (“MOIC”) of approximately 1.75x - 2.00x. To achieve this return, we focus
on managing capital in a disciplined manner during the early development stages and monetizing projects with
lower cost capital once projects achieve an advanced stage.
Page | 7
Strategic Report (continued)
Solar Development - Key Milestones
Early Stage
Early stage development is primarily focused on securing site control, data collection, community engagement,
preliminary permitting, and offtake analysis. We consider site control to be achieved once we have obtained
purchase or lease options, easements or other written rights of access to the land necessary for the construction
and operation of the solar project. This stage requires very little capital deployment, and we seek to have a broad
set of development projects that have different characteristics to minimise project concentration risks.
Mid-Stage
During the mid-stage development period, we pursue the following stringent set of development criteria:
•
•
•
Transmission Interconnection Study. Identification of a point of interconnection to the transmission or
distribution system, obtained a queue position with the relevant electric system operator and commenced
or completed a system impact study (or equivalent). A system impact study and its approval by the relevant
transmission or distribution system operator is a prerequisite to the design and construction of the facilities
that will interconnect the solar project with the transmission or distribution system.
Solar Insolation Estimate (PVsyst). Obtained a PVsyst solar report, the solar industry standard software
report, which gathers solar insolation information and incorporates the characteristics and design of the
proposed solar project to create an expected energy output for the project.
Environmental Impact Study and Permitting. Completion of an environmental impact study (or equivalent)
as a prerequisite to obtaining the key permits necessary for the construction and operation of our project.
Depending on the size and location of the project, we generally initiate the studies needed for an
environmental impact study approximately 18 months prior to the anticipated construction start date and
receive the material permits shortly before financing close and start of construction. To consider this
milestone completed, we will have either finished an environmental impact study or received the material
permits for the construction and operation of our solar project.
Advanced Stage
Once achieving mid-stage development criteria, a project is considered to be at an advanced stage, which
indicates a high degree of confidence for successful completion. The most important goal of this stage is to
obtain a revenue contract to sell power to a credit worthy counterparty, usually through a Power Purchase
Agreement (PPA), which supports third-party financing. Long-term PPAs range from 10-25 years with creditworthy
off takers, typically obtained by responding to requests for proposals or conducting bilateral negotiations with
Page | 8
Strategic Report (continued)
utility, commercial, industrial, municipal, or financial enterprises. In certain markets with liquid electricity trading,
it is possible to enter into financial hedges to support a minimum price of power sold into such markets.
Construction Stage
After achieving advanced stage criteria, the definitive contracts between the project company, financing parties
and the engineering, procurement, and construction (“EPC”) firm who will build the project may be executed, and
the construction phase of the project may commence. During this stage, and once the definitive agreements
have been executed, the construction of the project is carried out, so that the project can be commissioned and
interconnected to the grid, achieving its commercial operations date (“COD”) under the PPA.
Operations Stage
Once achieving COD, the operational stage begins, and the project generates electricity and sells power. During
this phase, VivoPower may provide ongoing services encompassing operations, maintenance and optimisation
of these solar plants pursuant to long-term contracts. In addition, if a minority equity stake is retained, VivoPower
may realise revenues from the sale of power.
Solar Development - Capital Planning
From a capital perspective, each phase of development requires a different level of capital commitment, which
we manage carefully to minimise our risks and to maximise our returns, as follows:
Early stage development generally requires deployment of capital in an amount up to 2% of the eventual
cost of building the project, and is typically funded by VivoPower’s corporate working capital;
Advanced stage development, which can be partly funded by co-development capital partners of VivoPower,
generally requires deployment of capital in an amount up to 10% of the eventual cost of building the project;
Construction Stage development requires funding for 100% of the cost of building the project, which
funding may be arranged and/or obtained by VivoPower from a variety of capital sources, including
construction loans, tax equity investments, as well as construction equity investments, in an amount that
depends on debt capacity of the project among other factors; and,
The Operations Stage requires no additional funding, although the construction stage financing may be
refinanced with lower cost and longer-term debt, depending on market conditions.
Solar Development - United States
During the year ended 31 March 2017, the Company developed its first two major solar projects, both located
in North Carolina, United States, known as NC-31 and NC-47 (together the “NC Projects”). VivoPower acquired
100% of these projects in mid-2016 and completed the development and construction of both projects by May
2017. Pursuant to our capital management strategy, we sold a majority stake in the projects to a third-party
investor during the construction stage and completed a 100% sale to the investor subsequent to March 31,
2018.
In April 2017, we re-invested the development profit related to the NC Projects in the acquisition of a 50% interest
in the ISS Joint Venture with an early-stage solar development company, Innovative Solar Systems, LLC, for a
diversified portfolio of 38 utility-scale solar projects in 9 different states, representing a total electricity
generating capacity of approximately 1.8 gigawatts DC. Under the terms of the ISS Joint Venture, when each of
the 38 projects achieve advanced stage, the Company has a right of first offer to purchase the project from the
joint venture at a fixed price. VivoPower anticipates that this joint venture will provide the opportunity to generate
significant revenues and profits for several years as the individual projects in the portfolio mature.
Over the last year, we completed many important development milestones, and the majority of the projects have
reached an advanced stage. On June 12, 2018, we announce the first project to have reached construction
stage, a 28 MW project in South Carolina. We expect the majority of projects to reach construction stage during
FY 2019.
Page | 9
Strategic Report (continued)
The following chart sets forth our solar projects in development and indicates the key development criteria that
have been met.
US Solar Portfolio Development Milestones
Project
State
Capacity (MW)
Land Control
PVSyst
Environmental
Impact Study
System Impact
Study
Interconnection
Executed
PPA Executed
FY2019 Solar Projects
IS 211
IS 137
IS 75
IS 165
Subtotal
FY2020 Solar Projects
IS 145
IS 330
IS 320
IS 168
IS 144
IS 78
IS 86
IS 341
IS 83
IS 207
IS 239
IS 305
IS 339
IS 111
IS 244
IS 107
IS 177
IS 90
IS 267
IS 195
IS 229
IS 84
Subtotal
FY2021 Solar Projects
IS 88
IS 112
IS 307
IS 76
IS 291
IS 371
IS 129
IS 269
IS 132
IS 276
IS 370
Subtotal
WA
TX
TX
TX
TX
FL
CO
FL
TX
FL
GA
TX
GA
TX
CO
TX
OK
GA
KS
TX
TX
GA
OK
TX
KS
SC
NM
GA
TX
SC
KS
CO
SC
CO
SC
TX
WA
54
27
55
62
198
62
41
41
43
82
75
27
27
27
83
55
41
69
27
34
87
34
27
41
41
69
30
1,066
87
20
50
21
34
86
26
55
26
50
74
528
Total US Pipeline
1,793
Solar Development - Australia
In addition to the U.S. solar assets, VivoPower has developed and acquired a diverse portfolio of operating solar
projects in Australia totaling 2,738 kilowatts across 81 sites in every Australian state and the Australian Capital
Territory. VivoPower’s Australia projects are fully-contracted with high-quality commercial, municipal and non-
profit customers under long-term power purchase agreements.
In May 2017, we entered into an alliance agreement with ReNu Energy Limited (ASX: RNE) of Australia, pursuant
to which ReNu Energy has a right of first offer to acquire solar projects originated by VivoPower in Australia below
5 megawatts in size, in addition to which ReNu Energy will pay an annual alliance fee and up-front origination
fees to us.
In February 2018, we completed the sale of the 600-kilowatt Amaroo Solar PV Project, the largest rooftop solar
project in the Australian Capital Territory, to ReNu Energy for a total purchase price of $1.9 million. In December
2017, we announced a signed term sheet for the sale of an additional portfolio of five solar PV projects totaling
approximately 340 kilowatts for a total purchase price of approximately $0.4 million.
VivoPower continues to opportunistically pursue attractive monetisation opportunities for its operating Australian
assets, through both third-party sales as well as potential alternative methods, such as asset securitisation.
Page | 10
Strategic Report (continued)
Importantly, we continue to develop and finance new solar projects throughout Australia, both individually and
with experienced partners. In January 2018, VivoPower, in partnership with leading Australian solar installer
Autonomous Energy, was appointed as a preferred supplier for solar power purchase agreements for the New
South Wales state and local government, enabling government councils and other organisations to acquire solar
goods and services from VivoPower. In February 2018, VivoPower signed a term sheet for the development of a
portfolio of utility-scale solar projects in New South Wales, to total 50 megawatts or more, with an established
Australian engineering partner. VivoPower is involved in discussions with numerous large corporate and
municipal electricity off takers throughout Australia for the development of medium-to-large scale behind-the-
meter and utility-scale solar PV projects to help those customers meet their renewable energy procurement
goals. In many cases, VivoPower is working with Aevitas for the design, engineering and construction of these
new solar PV projects. Our relationship with Aevitas positions us favourably against competing solar developers
in Australia who must contract with independent EPC firms for the construction of their solar projects.
Power Services
Through our wholly-owned Australian subsidiary, Aevitas Group Limited (“Aevitas”), we provide critical energy
infrastructure generation and distribution solutions including the design, supply, installation and maintenance
of power and control systems, with an increasing focus on solar, renewable energy, and energy efficiency. Aevitas
has a large and diverse customer base in excess of 650 active commercial and industrial customers and is
considered a trusted power adviser. Aevitas is located in the Hunter Valley and Newcastle region, which is the
most densely populated industrial belt in Australia, and which has amongst the most expensive power prices in
the country.
Aevitas was formed in 2013 through the acquisitions of J.A. Martin Pty Limited (“J.A. Martin”) and Kenshaw
Electrical Pty Limited (“Kenshaw”) and was acquired by VivoPower in December 2016. Structural and cyclical
factors have created a strong operating environment for Aevitas, particularly the strong growth in infrastructure
investing and a recovery in the mining sector. VivoPower is seeing the benefits of the acquisition of Aevitas in
terms of leveraging its longstanding relationships with an extensive base of commercial and industrial customers
to originate behind-the-meter solar projects and convert these opportunities into development revenues.
The Australian solar generation market is demonstrating a strong growth profile; SERA Analytics predicts that
investment in large-scale solar will increase to $2.0 billion in 2018. In addition, there is significant growth of
behind the meter ground mount and roof-top solar installations as commercial, industrial and government
entities respond to concerns about energy security and costs by embracing cheaper solar power solutions.
Aevitas has recently completed the provision of electrical installation and services for two new solar farms (4.8
megawatts and 9.7 megawatts). It is now Clean Energy Council (CEC) approved to be able to complete the entire
EPC process, not just the electrical component, and is very well positioned competitively to leverage the strong
growth outlook for Australian solar.
A key market for Aevitas is the data centre sector and we are benefiting from this growth through our long-term
relationship with one of Australia’s leading data centre companies, Canberra Data Centre (CDC). Kenshaw has
been engaged by CDC since 2012 to install and maintain generators, a capability that we are leveraging with
other data centres.
While maintaining and growing its core competency in power generation, Aevitas is working to extend its strategy
to include battery storage solutions. Battery storage is rapidly becoming commercially viable and will shortly
become a standard feature in both solar and other commercial applications.
Industry Overview
From an industry perspective, solar power is the world’s largest potential energy source and is the fastest-growing
form of renewable energy. Between 2003 and 2017, cumulative installed solar capacity increased at an average
annual growth rate of 43%, according to the International Energy Agency (“IEA”) [2018 Snapshot of Global
Photovoltaic Markets] and the European Photovoltaic Industry Association (“EPIA”) [Global Market Outlook for
Photovoltaics 2014-2018]. Yet, solar energy’s contribution to global energy generation remains insignificant,
contributing less than 2% globally, even as panel costs have dropped more than 92% over the same period,
according to BNEF [Q12018 Global PV Market Outlook].
Page | 11
Strategic Report (continued)
As noted above, battery storage is rapidly becoming commercially viable and will shortly become a standard
feature of our solar projects. VivoPower has incorporated battery storage options in many of our solar projects
and as the cost curve continues to decline, this technology will become more prevalent. We believe that battery
storage will help lower grid-wide peaks, smooth intraday variations and accelerate the reduction of fossil-fueled
generation and replace it with cleaner emission-free renewable energy.
Our Current Markets
United States
The U.S. utility-scale electric fleet generated 4,014,804 thousand megawatt hours (“MWh”) of electricity in 2017
according to IEA data. Approximately 30.1% of this was generated from coal-fired power stations, with gas-fired
power stations contributing approximately 31.7% of generation. FERC data for utility-scale generation plants of
1 megawatt or greater capacity shows that the U.S. had 1,186 gigawatts of installed generating capacity at the
end of November 2017. Of this installed capacity, solar represented just 2.5%. However, FERC data shows that
solar is the fastest growing utility-scale generation type, with the installed base of utility scale-solar plants of 1
megawatt or greater expanding at a compound average annual growth rate of 60% from 2010 to 2017.
U.S. Policy Initiatives to Encourage Solar
The U.S. has in place many incentives to encourage installation of renewable energy. The principal federal
incentives as they relate to solar include:
•
Federal Investment Tax Credit (“ITC”): The ITC confers a tax credit of 30% of the eligible solar energy property
basis at the time the solar generating facility is placed in service for tax purposes. The 30% ITC rate reduces
in 2020 to 26%, 22% for 2021 and 10% for 2022 and years thereafter.
• Modified Accelerated Cost Recovery System Depreciation (“MACRS”): MACRS allow an acceleration of
eligible expenditure on solar energy property basis over a period of five years, notwithstanding that the
economic life of a solar PV generation facility may be well over twenty-five years.
The principal state based solar incentives include:
• Renewable Portfolio Standards (“RPS”): RPS are state based programs typically mandating electricity
providers to produce or purchase a minimum level of renewable energy as part of their electricity sales mix.
A total of 29 states and the District of Columbia presently have binding RPS in place.
Page | 12
Strategic Report (continued)
•
•
A feature of many state based RPS programs is the use of Renewable Energy Credits (“RECs”) to provide a
price signal to incentivise solar capacity installation. RECs enable an electricity provider who has insufficient
renewable generation to meet their RPS obligation by buying credits.
Feed-in-Tariffs (“FIT”): Currently 6 states have FITs in place. Feed in tariffs typically apply to DG solar
facilities connected to the distribution grid. They allow a solar facility owner to sell excess electricity
produced back to the distribution grid. Solar FIT rates can vary depending on the time of day.
• Net Metering: Net metering typically applies to DG solar facilities connected to the distribution grid. Net
Metering allows a customer to net surplus production from their solar systems against their consumption
of electricity from the grid.
Australia
Australia possesses some of the highest solar insolation in the world. According to the Australian Department of
Industry, Innovation and Science, solar PV has been the most rapidly expanding renewable energy source in the
country over the last ten years, growing by 59% per year on average. However, this was from a low base and
solar remains a relatively small contributor to Australia’s energy mix. According to BNEF, in 2016 about 10.1
terawatt-hours of electricity was generated from solar PV technologies representing only 4.2% of Australia’s total
electricity generation; Australia is still highly reliant on heavily polluting coal generation, contributing 154
terawatt-hours or 63% of total electricity generation in 2016 [BNEF Australia County Profile].
According to BNEF, Australia installed 1.2 gigawatts of solar PV in 2017 and reached a cumulative installed
capacity of 7.1 gigawatts, the vast majority of which has historically come in the form of small-scale residential
and commercial roof-top systems. BNEF projects solar capacity additions in 2018 and 2019 of 1.2 gigawatts
and 2.7 gigawatts, respectively [BENF 2018 Australia Energy Market Outlook]. Unlike in the past, a significant
proportion of this growth is expected to come from large, utility-scale solar PV installations, with 3.6 gigawatts of
utility-scale capacity expected to be added between 2018 and 2019 compared to 2.4 gigawatts of small-scale
projects over the same period.
Financial Results
During the year ended 31 March 2018, the Company and its subsidiaries (the “Group”) generated statutory
revenue of $33.6 million, gross profit of $5.1 million, operating loss of $7.6 million, and net loss of $27.9 million.
For the year ended 31 March 2017, the Group generated revenue of $32.3 million, gross profit of $27.2 million,
operating profit of $17.3 million and net profit of $5.6 million.
Adjusted EBITDA for the year ended 31 March 2018 was a loss of $3.2 million, compared to a profit of $18.6
million in the previous period. Adjusted EBITDA is a non-IFRS financial measure. We define Adjusted EBITDA as
earnings before interest, taxes, depreciation and amortisation, impairment of assets, impairment of goodwill,
and one-off non-recurring costs, including restructuring expenses, non-recurring remuneration and consulting
fees.
The results of operations for the year ended 31 March 2018 were significantly influenced by a change in the mix
of operations. In the prior year ended 31 March 2017, our operations were dominated by the completion of the
Group’s first solar project, NC-31, and near completion of a second project, NC-47, both located in North Carolina,
United States (together, the “NC Projects”). These NC Projects contributed $24.6 million to revenue and gross
profit in fiscal year 2017. In addition, a $1.6 million preferred supplier agreement was recognised in revenue
and gross profit during that year. Aevitas Group Limited (“Aevitas”) had been acquired only three months prior
to 31 March 2017, and accordingly contributed a lesser amount of $5.6 million to revenue and $0.7 million to
gross profit.
This is in contrast to the current year ended 31 March 2018, wherein $0.8 million was contributed to revenue
and gross profit from the completion of the NC Projects and a full year of operation of Aevitas contributed $31.8
million of revenue and $4.3 million of gross profit. None of the 38 solar projects in the ISS Joint Venture achieved
a construction stage of development during the year and accordingly did not contribute to profitability in the year
ended 31 March 2018.
Page | 13
Strategic Report (continued)
The results of operations for the year ended 31 March 2018, reflect higher general and administrative costs,
which included $2.4 million annualized effect of the Aevitas and VivoPower Australia acquisitions in the prior
year (only three months of operations were included in the year ended 31 March 2017) and $3.1 million non-
recurring remuneration costs and consulting fees. As a result of the strategic restructuring of our business, a
number of employees and contractors were transitioned from the business and accordingly $1.5 million of
remuneration expense in the year ended 31 March 2018 will be non-recurring. In addition, Arowana International
Limited, VivoPower’s ultimate controlling party, re-charged $1.6 million of third-party consulting fees to the
Company related to our solar development business. These services included international solar procurement
consulting, project evaluations, engineering review and technical validation related to the EPC contract for NC-
31, a solar project in North Carolina which was substantially completed on 27 March 2017. These costs by their
nature were one-time and are not expected to recur in the future.
The results of operations for the year ended 31 March 2018, also reflects $1.9 million of one-time restructuring
costs required to re-align our solar development activities to focus on successful delivery of existing U.S. and
Australian investments and legal fees related to the restructuring, as further described in note 7 to the financial
statements.
The impairment of assets relates to the sale, subsequent to the year-end, of the Company’s 14.5% and 10.0%
equity interests, respectively, in the NC-31 and NC-47 projects, the $11.4 million balance of which has been
reflected as assets held for sale within current assets at March 31, 2018, as further described in note 8 to the
financial statements. This non-cash charge in the carrying value of the assets, reflecting uncertainty in the
projected future value of the sale of electricity in the wholesale North Carolina market after the current power
sale contracts expire in 2027. Predicting the future value of wholesale power so far in the future is difficult, and
results in a wide range of possible asset values for asset-in-use valuations. It also reflects changes in the interest
rate environment.
The impairment of goodwill relates to goodwill acquired in the acquisition of VivoPower Australia as part of the
Business Combination ($10.5 million) and the first-time consolidation of three Philippine-based controlled
entities ($0.6 million), all as further discussed in note 13 to the financial statements.
Management analyses our business in three reportable segments: Solar Development, Power Services, and
Corporate Office. Solar Development is the development, construction, financing and operation of solar power
generating plants. Power Services is represented by Aevitas operating in Australia and its focus on the design,
supply, installation and maintenance of power and control systems. Corporate Office is the Company’s corporate
functions, including costs to maintain Nasdaq public company listing, comply with applicable reporting
requirements of the U.S. Securities and Exchange Commission (“SEC”), and related investor relations and is
located in the United Kingdom. The following are the results of operations for the years ended 31 March by
reportable segment:
2018
(US dollars in thousands)
Revenue
Costs of sales
Gross profit
General and administrative expenses
Gain on sale of assets
Depreciation and amortisation
Operating (loss)/profit
Restructuring costs
Impairment of assets
Impairment of goodwill
Transaction costs
Finance expense – net
(Loss)/profit before taxation
Income tax expense
(Loss)/profit for the year
Page | 14
Solar
Development
1,840
(1,042)
798
(6,468)
1,143
(19)
(4,546)
(964)
(10,191)
(11,092)
-
(400)
(27,193)
6,291
(20,902)
Power
Services
31,807
(27,482)
4,325
(2,173)
213
(1,233)
1,132
(335)
-
-
-
(1,283)
(486)
(85)
(571)
Corporate
Office
-
-
-
(4,173)
-
(8)
(4,181)
(574)
-
-
-
(1,703)
(6,458)
52
(6,406)
Total
33,647
(28,524)
5,123
(12,814)
1,356
(1,260)
(7,595)
(1,873)
(10,191)
(11,092)
-
(3,386)
(34,137)
6,258
(27,879)
Strategic Report (continued)
2017
(US dollars in thousands)
Revenue
Costs of sales
Gross profit
General and administrative expenses
Gain on sale of assets
Depreciation and amortisation
Operating profit
Restructuring costs
Impairment of assets
Impairment of goodwill
Transaction costs
Finance expense - net
Profit/(loss) before taxation
Income tax expense
Profit/(loss) for the year
Solar
Development
Power
Services
26,636
(29)
26,607
(4,544)
-
(4)
22,059
-
-
-
-
(174)
21,885
(6,078)
15,807
5,614
(4,948)
666
(598)
-
(646)
(578)
-
-
-
-
(363)
(941)
294
(647)
Corporate
Office
(4,453)
-
(1)
Total
- 32,250
-
(4,977)
- 27,273
(9,595)
-
(651)
(4,454) 17,027
-
-
-
(5,800)
(589)
10,638
(5,338)
5,300
(5,800)
(52)
(10,306)
446
(9,860)
-
-
-
While overall revenue rose $1.4 million year-over-year from 2017 to 2018, the revenue in the current year was
largely generated from a full twelve months of operation within the Power Services segment (Aevitas), which had
a lower gross profit margin of 13.6% (2017: 11.9%) than Solar Development activities.
As discussed above, general and administrative expenses were higher by $2.4 million due to the annualized
effect of the Aeviias and VivoPower Australia acquisition in the prior year (only three months of expense in the
prior year) and $3.1 million of non-recurring remuneration costs and consulting fees.
Amortisation expense was higher in the Power Services business year-over-year due to a full year amortisation
of intangible assets acquired as part of the Aevitas and VivoPower Australia acquisitions on 29 December 2016.
A gain on the sale of solar assets arose in the current year in the Australian business as the Amaroo solar project
was sold to ReNu Energy under the terms of the Alliance Agreement and, as noted above and discussed in more
detail below, while our results of operations were negatively impacted by a $1.9 million of one-time restructuring
costs, $10.2 million impairment of assets and $11.1 million impairment of goodwill.
Financing costs increased year-over-year predominately due to the full year impact of the convertible loan notes
and preferred share financing in Power Services (Aevitas) and the $19.0 million Arowana related party loan
advanced in the prior year. In addition, $0.4 million of borrowing costs was incurred in the current year related
to a $2.0 million short-term loan (“DEPCOM Loan”) provided by SolarTide, LLC, an affiliate of DEPCOM Power, an
engineering, procurement, and construction firm that was involved in the development of the NC Projects.
As of 31 March 2018, the Group had net assets of $37.0 (2017: $64.6) million, with intangible assets, including
goodwill of $36.4 (2017: $46.3) million and investments of $14.1 (2017: $18.1) million.
As of 31 March 2018, the Group’s current assets were $21.3 (2017: $30.8) million, which was comprised of
$1.9 (2017: $11.0) million of cash and cash equivalents, $7.9 (2017: $19.8) million of trade and other
receivables, and $11.4 (2017: nil) million of assets held for sale related to the NC Projects. Current liabilities
were $20.6 (2017: $12.2) million, which resulted in a current asset-to-liability ratio of 1.03:1 (2017: 2.53:1) at
year-end.
Cash used for the year was $9.0 (2017: cash generated $11.0) million, arising from cash generated by operating
activities of $8.9 (2017: $6.3) million, cash used in investing activities of $16.6 (2017: $26.7) million, and cash
used in financing activities of $1.3 (2017: cash generated $31.4) million. At 31 March 2018, the Group had
cash reserves of $1.9 (2017: $11.0) million and debt of $22.3 (2017: $20.3) million, giving a net debt position
of $20.4 (2017: $9.3) million.
Page | 15
Strategic Report (continued)
Investing activities in the current year were comprised of a $14.1 million investment in the ISS Joint Venture,
$3.6 million investment in the NC Projects, purchase of $0.6 million of operating assets in Power Services
(Aevitas) businesses, $0.6 million investment in a solar project in Australia, offset by $2.3 million proceeds on
sale of assets, principally the sale of the Amaroo solar project. Of the total $14.1 million investment in the ISS
Joint Venture, only $12.8 million was funded during the year ended March 31, 2018, with the remaining $1.3
million commitment recorded as a current liability in trade and other payables.
Financing activities included finance lease borrowings of $0.3 million, net of repayments, on motor vehicle assets
in Power Services (Aevitas) businesses, $2.0 million proceeds of the DEPCOM Loan, and a $0.8 million short-
term loan from Arowana, offset by finance expense of $3.4 million and repayment of bank loan on the sale of
the Amaroo solar project.
Principal Risks and Uncertainties
VivoPower is exposed to a number of risks and uncertainties which could have a material impact on the Group’s
long-term performance and could cause actual results to differ materially from historical and expected results.
Market risk
The Group’s financial performance is tied very closely to the business activity within both the renewable energy
and the investment management sectors. Capital and project availability are identified as being key market risks.
Operational risk
VivoPower operates within local, and national, laws and regulations which from time to time may change.
Competitive risk
Having the ability to pay developers down-payments to secure pipeline is advantageous, but there is competition
from parties pursuing similar transactions. VivoPower expects greater competition from other parties entering
the sector with this capability.
People risk
Attraction and retention of key staff is essential to the continued success of the business. The Board recognises
that the future success of the Group will depend to a substantial extent not only on the ability and experience of
its senior management, but also on individuals and teams that support the projects. Staff are remunerated
appropriately and employees are encouraged to develop their skills.
International risk
As the Group operates internationally, it is subject to the tax laws and regulations of several countries. In addition,
conducting business on different continents presents logistical and management challenges whether related to
local standards, business cultures or compliance. The Group takes careful steps to comply with all applicable
tax and other laws, rules and regulations.
Financial risk
It is the Group’s policy to manage identifiable financial risks. The Group operates internationally and so has
exposure to movements in exchange rates, in particular between the US Dollar, GB Pound and Australian Dollar.
The Group ensures that it holds sufficient cash amounts to meet all working capital requirements.
For further discussion on financial risk refer to note 28 to the financial statements.
Employees
People are central to our business and the contribution of talented and motivated employees is vital to the
continued success of the Group. The Group has a policy of keeping employees informed of, and engaged in, its
business strategy through regular briefings and team meetings. Employee involvement at all levels is
encouraged.
Page | 16
Strategic Report (continued)
It is a policy of the Group to recruit, develop and promote people on merit and to treat everyone equally regardless
of their race, ethnic origin or nationality, age, gender, sexual orientation, disability, religion or belief.
The Group gives every consideration to applications for employment from disabled persons where the
requirements of the position may be adequately covered by the abilities of the applicant concerned. In the event
of members of staff becoming disabled, ways are examined to ensure that their employment with the Group
continues and that the appropriate training is arranged. It is the policy of the Group to ensure that the training,
career development and promotion of disabled employees should, as far as possible, be the same as that of
other employees.
The table shows, as per required quoted company regulations, the number of staff of each sex employed at the
Company and their level of seniority.
Directors
Senior Manager
Employees
Total
The Environment
Female
1
5
16
22
Male
4
21
143
168
Total
5
26
159
190
The Group recognises the importance of environmental responsibility and believes that its direct activities have
a positive impact on the environment as the Company facilitates greater use of renewable energy. Surplus
equipment and lightly damaged solar panels used in projects, that would otherwise be bound for landfill, are
being used to complete smaller projects to offset 100% of the electricity costs for 100 low-income homeowners
in South Carolina, USA.
Communities
VivoPower has maintained an active program of community involvement and philanthropy, including programs
with low income homeowners, military veterans, church organisations and schools. During the building of the 91
MW in North Carolina, VivoPower contributed funds to rebuild a local church and towards relief related to a major
hurricane. Approximately 50% of our construction workers were military veterans, and we worked with the
University of North Carolina (Pembroke) to assist job training and student tours.
In addition, we created an initiative for a low-income community solar farm, comprising 2 MW located on 10
acres of distressed urban brown field in Spartanburg, South Carolina. The project will use slightly damaged
modules from our projects, along with donations from other solar projects in the region. These modules otherwise
would have been sent to local landfills, but instead will produce solar power to feed into the utility grid. Electricity
revenues will be used to make the project self-sustaining on an ongoing basis, and to offset 100% of the
electricity needs for 100 very low-income homeowners through our partnership with Habitat for Humanity. This
program was accepted into the 18-month US Department of Energy Sunshot program for low income solar.
The Strategic Report comprising pages 7 to 17 was approved by the Board and signed on its behalf by:
Kevin Chin
Chairman
18 July 2018
Page | 17
Directors’ Report
The Directors are pleased to present their report and the audited financial statements of VivoPower International
PLC (“the Company”) and its subsidiary undertakings (together “the Group”) for the year ended 31 March 2018.
Directors
The Directors who held office during the period and up until the date of this report:
Appointed
Resigned
Non-executive Directors
Kevin Chin
Gary Hui
Edward Hyams
Peter Sermol
Shimi Shah
Executive Directors
Phillip Comberg, CEO
Carl Weatherley-White, CEO
27 April 2016
21 December 2016
02 November 2016
21 December 2016
28 December 2017
01 May 2016
04 October 2017
04 October 2017
28 December 2017
Pursuant to Articles of the Company, the Directors are divided into three classes, as nearly equal in number as
possible and designated as Class A, Class B and Class C. The initial term of Class A Director, Gary Hui, expired
at the Company’s first annual general meeting in September 2017; he was re-elected for a further three-year
term. The initial term of Class B Directors, consisting of Peter Sermol and Edward Hyams, will expire at the 2018
annual general meeting; and the initial term of the Class C Directors, consisting of Kevin Chin and Shimi Shah,
will expire at the 2019 annual general meeting. At each annual general meeting thereafter, successors to the
class of Directors whose term expires at that annual general meeting are elected for a term to expire at the third
annual meeting following such election.
Accordingly, Peter Sermol and Edward Hyams retire by rotation of Class B Directors at the next Annual General
Meeting; both have offered themselves for re-election to a further three-year term. Peter and Edward’s
biographies are set out below. They both have a Non-Executive Directors Appointment Letter as described in the
Director’s Remuneration Report on page 29. A resolution to reappoint Peter Sermol and Edward Hyams will be
proposed at the forthcoming Annual General Meeting.
The Company maintains insurance cover for all Directors and officers of Group companies against liabilities
which may be incurred by them while acting as Directors or officers of Group companies.
Details of Directors’ total remuneration are contained in the Directors’ Remuneration Report on page 29.
Details of the current Board of Directors and their relevant experience is provided below.
Kevin Chin
Kevin has extensive experience in “hands on” strategic and operational management having served as CEO, CFO
and COO of various companies across a range of industries, including solar energy, software, traffic
management, education, funds management and vocational education. He also has significant international
experience in private equity, buyouts of public companies, mergers and acquisitions and capital raisings as well
as funds management, accounting, litigation support and valuations.
Kevin is the founder of Arowana & Co. (Arowana), a diversified investment group with operations across Australia,
New Zealand and Southeast Asia. Arowana has listed companies on the Australian Stock Exchange and NASDAQ
as well as unlisted companies. Arowana International Limited, listed on the Australian Stock Exchange is the
largest shareholder in VivoPower. Kevin is primarily responsible for delivering annualised returns in excess of
30% to investors across Arowana’s investments since its formation in 2007.
Page | 18
Directors’ Report (continued)
Over his twenty-five year career, Kevin has held a number of strategic and operational leadership roles and was
also previously with Lowy Family Group, J.P. Morgan, Ord Minnett, PwC and Deloitte. Kevin holds a Bachelor of
Commerce degree from the University of New South Wales where he was one of the inaugural University Co-Op
Scholars with the School of Banking and Finance. He is also a qualified Chartered Accountant and a Fellow of
FINSIA, where he was a lecturer in the Masters of Applied Finance programme.
Gary Hui
Gary has over twenty years of investment experience in the Asia Pacific region. He currently serves as the Chief
Investment Officer for Arowana International Limited and the Arowana Australasian Value Opportunities Fund
Limited.
Prior to this, he was with Indus Capital, a hedge fund founded by former Soros Fund Management Partners,
where he was Managing Director and Chief Representative of Indus’ Singapore office. Prior to becoming a
principal investor, Gary was an investment banker at J.P. Morgan in Australia and Hong Kong, where he advised
clients across a broad range of industries.
Gary qualified as a Chartered Accountant and completed the Securities Institute of Australia (now FINSIA)
program where he placed first nationally in Mergers & Acquisitions. He holds a Bachelor of Commerce degree
from the University of New South Wales.
Edward Hyams
Edward has over forty years of experience in Power Engineering, Renewables and in Energy Efficiency as an
Executive, Private Equity Partner and as a Non-Executive Director.
As a Partner at Englefield Capital, he co-led the Renewable Energy Fund, investing in Solar, Wind and Biomass
developments in Europe. He joined Englefield having led the management team which Englefield and another
PE firm backed to invest in Zephyr, the first structured financing of a portfolio of renewables assets in the UK.
Prior to Englefield, Edward held senior executive roles as CEO of BizzEnergy, Managing Director of Eastern Group
PLC and Director of Engineering at Southern Electric Plc. Edward was a non-executive Director of the UK Energy
Saving Trust following the electricity and gas privatisations in the early 1990’s. He re-joined the Trust as Non-
Executive Chairman in 2005.
Edward is a Chartered Engineer, graduating with a degree in Electrical Engineering from Imperial College, London
and holds a Diploma in Accounting and Finance from the Association of Certified Chartered Accountants. He has
completed executive programs in finance at Harvard Business School and in strategy and organisation at
Stanford.
Peter Sermol
Peter has over thirty years of experience in institutional finance. Peter is the co-founder of North Star Solar Ltd,
a company focused on installing UK rooftop solar PV and battery storage which developed a model to install
renewable technologies with energy savings repaying capex.
Prior to this, with his proven track record in trading distressed debt, Peter ran the Toronto office of Amstel
Securities, a Dutch regulated brokerage firm for eight years. During this period Peter expanded the office to focus
on uncovering and seeding uncorrelated investment opportunities. Taking a sector agnostic view, investments
ranged from Latin American NPL’s, financing Canadian property developers, Australian non-conforming loans,
US viatical life insurance policies, US non-prime auto loans. During this period, he also served as CEO of an online
media distribution company.
Previously, Peter worked with specialist brokerage and advisory firms including Anca Capital Partners and Amstel
as well as co-founding his own brokerage firm, Global Markets Ltd trading Asian Convertible Bonds and GDRs.
Peter studied marine electronics at the Merchant Naval College, Greenhithe.
Page | 19
Directors’ Report (continued)
Shimi Shah
Shimi has been actively involved in investing and venture capital for over 20 years. Shimi is the Chairperson of
Carousel Solutions, a technology and business advisory group, focusing on assisting companies navigate
expansion into and out of the Middle East and Europe, build diversified businesses, appoint boards, and provide
efficient technology solutions to mitigate security risk and increase productivity.
Shimi is also an active independent director and advisory board member. She is a board director of Bboxx, a $25
million revenue distributed energy business, chairs the leading kid’s club design company called Worldwide Kids
Club, is part of the advisory committee for the Green Gateway Fund, a $250 million clean technology and
sustainability fund and is on the advisory board of the North East Fund, a $200 million regional development
fund. She also sits on the board of the Pay It Forward Foundation based in the US.
Prior to this, she was CEO at FORSA LLC, Managing Partner at Partnerships UK (PUK), Chief Investment Officer
at Hanson Capital, and has worked at 3i and Citigroup. Shimi holds Masters in Management from Queens’
College Cambridge and Bachelor of Science degree from King’s College, London, in Management and Economics.
She is an active member of the Young President’s Organisation (YPO) in Europe and Africa.
Legal Proceedings
From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business.
Although we believe that the outcome of any such matters will not have a material adverse effect on our business,
such outcomes are not ascertainable in advance and litigation can have an adverse impact on us because of
defense and settlement costs, diversion of management resources, damages or penalties and other factors.
On 26 February 2018, Philip Comberg, former Chief Executive Officer and former director of VivoPower, filed a
claim in the High Court of Justice Queen’s Bench Division in the United Kingdom against VivoPower and a
subsidiary, VivoPower International Services Limited (“VISL”). Subsequently, filed claim particulars stated that
the claim is for declarations in respect of payments alleged to be due to Mr. Comberg, damages, restitution in
relation to services allegedly rendered by Mr. Comberg, interest and costs. In particular, Mr. Comberg claims VISL
committed a repudiatory breach of Mr. Comberg’s service agreement with VISL in connection with the
termination of Mr. Comberg’s employment, and claims as damages amounts including £615,600 in unpaid
amounts allegedly relating to the notice period under the service agreement, £540,000 relating to shares of
stock in PLC that Mr. Comberg alleges were not delivered to him but were due, and, inter alia, amounts relating
to bonuses alleged to be due, fees relating to services Mr. Comberg claims he provided, as well as interest and
costs (collectively, the “Comberg Claims”).
On 9 April 2018, VivoPower and VISL filed a defense and counterclaims against Mr. Comberg. In the defense,
VivoPower and VISL denied that a repudiatory breach was committed by VISL and denied the other Comberg
Claims, and asserted that Mr. Comberg was terminated for cause and/or by the acceptance on the part of VISL
of Mr. Comberg’s own repudiatory breach of Mr. Comberg’s service agreement. VivoPower and VISL also filed
counterclaims against Mr. Comberg for damages in an amount of approximately $27 million plus certain
amounts to be quantified. VivoPower and VISL alleged in the counterclaims that, inter alia, Mr. Comberg (i) failed
properly to oversee financial accounting and reporting and to ensure that these functions were properly staffed
for a NASDAQ listed company; (ii) misrepresented the cash resources of VivoPower and its subsidiaries to the
VivoPower Board; (iii) failed adequately to manage investor communications and relationships; (iv) failed properly
to manage the operations and functions of VivoPower’s Investment Committee; (v) mismanaged employment
and personnel related matters and relations with the Board; (vi) failed to invest half of his 2017 bonus in shares
of VivoPower despite agreeing with the Company he would do so (which agreement was a condition to receiving
his bonus); (vii) breached the Group’s expenses policy; (viii) worked for another company while CEO of VivoPower,
in breach of his services agreement; (ix) provided misleading and exaggerated information to VivoPower about
his experience and past roles; and (x) failed to report his own wrongdoing in breach of his services agreement
and fiduciary duties to VivoPower and VISL. VivoPower and VISL strongly believe in the merits of their litigation
against Mr. Comberg and intend to continue a strong defense and pursuit of the foregoing counterclaims against
Mr. Comberg.
Page | 20
Directors’ Report (continued)
Dividends
The Company has never declared or paid any dividends on our ordinary shares, and we currently do not plan to
declare dividends on our ordinary shares in the foreseeable future. Any determination to pay dividends to holders
of our ordinary shares will be at the discretion of our board of directors and will depend upon many factors,
including our financial condition, results of operations, projections, liquidity, earnings, legal requirements,
restrictions in our debt arrangements and other factors that our board of directors deem relevant.
Subsequent Events
On 25 May 2018, the Company sold its minority equity interests in two solar power projects in North Carolina,
United States. Of the $11.4 million net expected proceeds on sale, $4.0 million was received as an advance
payment, with the balance due upon final closing of the transaction, which occurred on 3 July 2018.
Going Concern
The financial statements have been prepared on a going concern basis, as directors believe the Company will
be able to meet its liabilities as they fall due.
In the year ended 31 March 2018, $9.4 million of cash was generated from operations, principally due to
collection of development fees receivable which were earned in the prior year. This cash flow was invested in
new solar development projects ($18.0 million) none of which matured in the current year. The net result was a
decrease in cash during the year of $9.0 million, leaving cash reserves of $1.9 million at 31 March 2018.
The subsequent event described above in this Directors’ Report was executed by the Company in order to provide
additional liquidity to support both the solvency and growth of the business.
In addition, in the coming year the Company will continue the development of the 38 solar projects within the
ISS Joint Venture portfolio in the United States, develop and sell solar projects in Australia, and continue to grow
the increasingly profitable and cash generative power services businesses in Australia.
The directors have examined going concern against a detailed profit, working capital, and cash flow forecast to
June 2019, which reflects the matters discussed in the foregoing paragraphs but does not reflect any additional
share issuance, new debt facilities other than disclosed above, nor sale of assets other than in the ordinary
course of business. Having reviewed the future plans and projections for the Company’s business and its current
financial position, the directors are satisfied that the Company has adequate financial resources to continue to
manage the business risks successfully and to remain in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the report and accounts.
Share Capital
As at 31 March 2018, there are 13,557,376 ordinary shares in issue. There were no new shares issued or
repurchased during the year. At the Company’s Annual General Meeting in 2017, the directors were given
authority to allot shares up to an aggregate nominal amount of $1,560.00.
On 30 March 2017, the Company repurchased 129,805 shares at a price of $4.50 per share for a total of
$591,915.80, including commission. The shares are being held as treasury shares and are included in the total
number of shares outstanding at 31 March 2018.
There are no specific restrictions on the transfer of shares in the Company, which is governed by the Articles of
Association and prevailing legislation, nor is the Company aware of any agreements between holders of securities
that may result in restrictions on the transfer of shares or that may result in restrictions on voting rights.
Page | 21
Directors’ Report (continued)
Articles of Association
The Company’s Articles of Association may only be amended by special resolution at a general meeting of
shareholders.
Substantial Interests
As at 13 July 2018, the last practicable date before publication of this report, the Company has been notified of
the following interests of 3% or more of its issued capital of 13,557,376 ordinary shares.
Arowana International Limited (1)
The Panaga Group Trust
Number of Shares
Percentage of Issued Capital
8,176,804
1,241,531
60.30%
9.2%
(1) Includes Arowana International Limited and its controlled entities including, Arowana Australasian Special Situations Fund 1 Pty Limited,
Arowana Australasian VCMP 2, LP, Arowana Australasian Special Situations Partnership 1, LP, Arowana Energy Holdings Pty Ltd.
Statement of Directors Responsibilities
The directors are responsible for preparing the Annual Report and Accounts for the Group and parent company
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and parent company financial statements for the financial
period. Under that law they have elected to prepare the Group financial statements in accordance with
International Financial Reporting Standards and applicable law and have elected to prepare the financial
statements for Company under the same methodology.
Under company law the 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 parent company and of their profit or loss for
that period. In preparing each of the Group and parent company financial statements, the directors are required
to:
Select suitable accounting policies and then apply them consistently;
Make judgements and estimates that are reasonable and prudent;
For the Group financial statements, state whether they have been prepared in accordance with IFRS; and,
For the parent company financial statements, state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of
the parent company and enable them to ensure that its financial statements comply with the Companies Act
2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect fraud and other irregularities.
This annual report and financial statements together with the Notice of Annual General Meeting and other
information regarding the Group may be viewed on the Company’s website at www.vivopower.com.
Page | 22
Directors’ Report (continued)
Auditors
PKF-Littlejohn LLP has indicated its willingness to continue as auditor. In accordance with s489 of the Companies
Act 2006, a resolution to re-appoint them as auditors for the ensuing year will be put to the members at the
forthcoming Annual General Meeting.
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are
each aware, there is no relevant audit information of which the Company’s auditors are unaware; and each
director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant
audit information and to establish that the Company’s auditors are aware of that information. This confirmation
is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
The Directors' Report comprising pages 18 to 23 was approved by the Board and signed on its behalf by:
Kevin Chin
Chairman
18 July 2018
Page | 23
Corporate Governance
The Company’s shares have been listed on NASDAQ since 29 December 2016. The Board is accountable to the
Company’s shareholders for good governance and this statement describes principles of corporate governance
that have been applied by the Company.
The Directors believe that good corporate governance, involving risk appraisal and management, prudent
decision-making, open communication and business efficiency, is important for the long-term benefit of the
stakeholders in the Group.
Board of Directors
The Board is collectively responsible for providing leadership of the Group within a framework of prudent and
effective controls and constructively challenges and helps to develop and communicate the Group’s strategic
aims.
The Board is currently comprised of five non-executive directors. The Board has determined that Edward Hyams,
Peter Sermol, and Shimi Shah are independent in accordance with the listing rules of NASDAQ. All directors are
given regular access to the Company’s operations and personnel as and when required. Their biographies on
pages 18 to 20 illustrate their relevant corporate and industry experience to bring judgement on issues of
strategy, performance, resources and standards of conduct which are vital to the success of the Group.
The Board considers the overall strategic direction, development and control of the Group and reviews trading
performance, investment opportunities and other matters of significance to the Group. Various decisions require
Board approval, including but not limited to the approval of the annual budget, larger capital expenditure
proposals, acquisitions and disposals. Board papers, which are distributed to all directors in advance of each
meeting, follow a set agenda although further subjects are added for discussion as the need arises.
The Board is scheduled to meet normally no less than six times per year to enable the Board to discharge its
duties effectively and to consider those matters which specifically require Board review and decision. In addition,
meetings are also convened on an adhoc basis when there is urgent or delegated business which cannot wait
until the next scheduled meeting.
The following table sets out the number of meetings of the Board, excluding ad hoc meetings, and its committees
during the year ended 31 March 2018 and the attendance of the members at those meetings (attended/eligible
to attend):
Kevin Chin
Gary Hui
Edward Hyams
Peter Sermol
Shimi Shah
Carl Weatherly-White
Philip Comberg
Board
9 / 11 *
7 / 11
11 / 11
11 / 11
4 / 4
1 / 1
5 / 5
Audit
Committee
Remuneration
Committee
Nomination
Committee
8/8
N/A
10/10
10/10
2/ 2
N/A
N/A
5/5
N/A
5/5
5/5
N/A
N/A
N/A
1/1
N/A
1/1
1/1
N/A
N/A
N/A
* Kevin Chin was recused from one board meeting and could not attend the other due to a medical emergency.
Audit Committee
The Audit Committee is comprised of the three independent directors, with Shimi Shah serving as Chairman, and
meets at least three times a year. Prior to 28 December 2017, Kevin Chin was a member of the Audit Committee,
serving as Chairman, along with Edward Hyams and Peter Sermol. The Chief Executive Officer and Chief Financial
Officer are generally in attendance in a non-voting capacity to provide detailed reports and deal with any queries
which arise.
Page | 24
Corporate Governance (continued)
An invitation is also extended to the auditors to attend meetings of the Audit Committee in order to discuss issues
relating to the audit and financial control of the Group. The auditors also have direct access, should they so
require, to the Audit Committee. The Audit Committee has responsibility within the terms of reference for, among
other things, the planning and review of the Group’s annual and interim financial statements, the supervision of
its auditors in the review of such financial statements and the review and monitoring of their independence.
The Audit Committee focuses particularly on the Group’s compliance with legal requirements and accounting
standards, and on ensuring that effective systems for internal financial control are maintained. The ultimate
responsibility for reviewing and approving the report and interim statements
Remuneration Committee
The Remuneration Committee comprises three independent directors, with Edward Hyams serving as Chairman.
Prior to 28 December 2017, Kevin Chin was a member of the Remuneration Committee, serving as Chairman,
along with Edward Hyams and Peter Sermol. Board members are invited to join but only Remuneration
Committee members may vote. The Remuneration Committee meets at least twice a year and has the
responsibility for determining, within the agreed terms of reference, the Group’s policy on the remuneration of
senior executives.
Nominations Committee
The Nominations Committee consists of three independent board members with Peter Sermol serving as
Chairman. Prior to 28 December 2017, Kevin Chin was a member of the Nominations Committee, serving as
Chairman, along with Edward Hyams and Peter Sermol. The Nominations Committee identifies, evaluates and
selects candidates for Board positions, ensures appropriate succession planning and reviews annually the
composition and the size of the Board. In considering the appointment of a new director, the Nominations
Committee considers and defines the characteristics, qualities, skills and experience that it considers would
complement the overall balance and composition of the Board.
Internal Control
The Board oversees management’s activities in relation to the systems of internal control. Management has
responsibility for maintaining the Group’s system of internal control and for reviewing its effectiveness. The
system of internal control is designed to manage rather than eliminate the risk of failure to achieve the Group’s
strategic business objectives and can only provide reasonable assurance against material misstatement or loss.
The key elements of the system of internal control are:
Control environment
There is sufficient segregation of duties and authorisation controls on approval of customer and supplier
contracts, recruitment of staff, approval of purchases and payment of suppliers.
Financial reporting
The Senior management has regular meetings to discuss all aspects of the business and review financial
performance against budget and provides a monthly summary report to the Board. The Group has a sustainable
system of financial reporting and forecasting covering profits, assets, liabilities, cash flow and capital
expenditure. The systems include regular monitoring of cash, monthly reporting of financial results. Budgets and
business plans are prepared annually and reviewed by the Board.
Capital investment
For any significant investment, a detailed proposal is first approved by the Company’s Investment Committee.
then by the board of directors of VivoPower International Services Limited (“Services Board”). Any major
investment is always approved by the Board or the Services Board. The Company’s Investment Committee
process contains five stages to ensure the Company has an explicit understanding of a portfolio’s purpose,
objective and a clear definition of success in determining whether the portfolio achieves that purpose and meets
that objective. The five stages include:
Page | 25
Corporate Governance (continued)
(i)
(ii)
(iii)
(iv)
Completion of a Lead Qualification Form to provide a project overview, indicative returns, capital
required, risks, timeline and areas to consider in future diligence;
First Investment Committee Meeting (‘IC1’) to provide a comprehensive summary of the project
including detailed legal, technical, financial information and risks;
Second Investment Committee Meeting (‘IC2’) which includes everything in IC1 plus summary of
transaction documentation and update on diligence;
Board approval to fund the project, and formally recommend that project executes transaction
documentation; and,
(v)
Board approval to execute the transaction documentation.
Communications with Shareholders
The Company encourages two-way communications with shareholders. The Board endeavors to maintain good
relationships with its institutional shareholders by holding regular meetings after results are published with
further dialogue as requested.
The Company’s Annual General Meeting will be held on 20 August 2018 at the Company’s registered office. The
notice of the meeting is sent to shareholders at least 21 days before the Annual General Meeting. The directors
are available for questions both formally during the meeting and informally afterwards.
This annual report and financial statements together with the Notice of Annual General Meeting and other
information regarding the Group may be viewed on the Company’s website at www.vivopower.com.
Page | 26
Directors’ Remuneration Report
This report has been prepared in accordance with the provisions of the United Kingdom Companies Act 2006
and Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008 (as amended in 2013).
Statement by the Chairman of the Remuneration Committee
On behalf of the Remuneration Committee (the "Committee"), I am pleased to present the Remuneration Report
for the year ended 31 March 2018.
The Committee is comprised of Shimi Shah, Edward Hyams, and Peter Sermol, each of whom the Board has
determined is independent. Shimi Shah joined the Committee on 28 December 2017; prior to that, Kevin Chin
was a member of the Committee.
The Committee has a written charter, a form of which is available free of charge on VivoPower’s website at
www.vivopower.com. The remuneration committee’s duties, which are specified in our Remuneration Committee
Charter, include, but are not limited to:
•
Setting the remuneration policy for all executive directors and executive officers, including pension rights
and any compensation payments;
• Reviewing the appropriateness and relevance of the remuneration policy;
• Determining total individual compensation packages;
• Reviewing and designing share incentive and share option plans, determining awards thereunder and
administering such plans;
• Approving design of and targets for performance-related pay schemes;
• Determining pension arrangements;
• Appointing compensation consultants;
• Approving contractual appointment terms for directors and senior executives; and,
• Related duties.
The Company’s objective with respect to remuneration of directors is to attract and retain high-calibre individuals
who are able to bring an appropriately senior level of experience and judgement to bear on issues of strategy,
performance, resources and standard of conduct.
No changes are proposed to the Directors Remuneration Policy for Executive and Non-Executive Directors as
approved by shareholders on 5 September 2017.
The Company's Annual Report on Remuneration, disclosing the compensation paid to directors in respect of the
year ended 31 March 2018, is provided on pages 28-33 of this Annual Report.
Edward Hyams
Chair of the Remuneration Committee
18 July 2018
Page | 27
Directors’ Remuneration Report (continued)
Annual Report on Remuneration
Executive Directors
The amount earned by each of the Executive Directors for the period ended 31 March 2018 is set out in the
table below:
Salary
Benefits
Bonus
LTIP
Pension
Total
2018
2017
2018
2017 2018
2017 2018 2017
2018
2017
2018
2017
£275,491 £315,000 £11,020 £12,600
NIL
£630,000
NIL
NIL
£27,549 £31,500 £314,060 £989,100
£68,673
N/A
£1,477
N/A
NIL
N/A
NIL
N/A
NIL
N/A
£70,151
N/A
Phillip Comberg
Carl Weatherley-
White
Phillip Comberg, former Chief Executive Officer, was appointed as a Director 1 May 2016 and served until his
resignation on 4 October 2017. The terms of his compensation were as disclosed in the Annual Report and
Accounts for the year ended 31 March 2017. He was not entitled to any bonus or termination of services
payments as a result of his resignation. See Legal Proceedings in the Directors Report on page 20 for further
details.
Carl Weatherley-White, Chief Executive Officer, was appointed to the Board on 04 October 2017 and resigned
as a director on 28 December 2017, remaining as Chief Executive Officer. The information presented reflects
his compensation for only the period of time he served as a Director.
Details of amounts included in the single total figure for the year ended 31 March 2018
Benefits
The following benefits were available to the Executive Directors during the year ended 31 March 2018:
Private Medical
Participation in a directors' and officers' indemnification insurance policy
Annual bonus and long‐term incentive awards
No Annual Bonus was payable or long-term incentive awards vested during the year ending 31 March 2018.
Retirement benefits
As more fully described below, during the year ending 31 March 2018 in lieu of retirement benefits the Company
paid £27,549 to Philip Comberg for payment into his personal pension plan.
Total pension entitlements
Under the terms of the Service Agreement entered into with Philip Comberg, in lieu of pension contributions, the
Company paid to Philip Comberg an amount equal to 10% of his annual salary in monthly instalments. This
amount was then paid by Philip Comberg into his personal pension.
Scheme interests awarded in the year ended 31 March 2018
No equity interests were granted to the Executive Directors in the year ended 31 March 2018.
Page | 28
Directors’ Remuneration Report (continued)
Non-Executive Directors
The amount earned by each Director for the year ended 31 March 2018 and 14 months ended 31 March 2017
is set out in the table below:
Kevin Chin
Gary Hui
Edward Hyams
Peter Sermol
Shimi Shah
Salary and fees
Bonuses
Benefits
£195,000
£126,636
£53,000
£113,000
£15,000
-
-
-
-
-
-
-
-
-
-
2018
Total
2017
Total
£195,000
£200,000
£126,636
£53,000
£113,000
£15,000
£72,992
£27,667
£19,477
-
Kevin Chin receives £165,000 per annum for being Chairman of the Board plus a further £30,000 for being
Chairman of each of the Audit, Nomination and Remuneration Committees for the portion of the year he served
in this capacity. Kevin Chin was officially appointed as a Non-Executive Director on 1 August 2016 and prior to
this date he acted for the benefit of the Company through his role as the Executive Chairman and CEO of Arowana
International from the date of incorporation (i.e. 1 February 2016). The amount presented in the table above for
2017 reflects the amount earned by Kevin Chin over the period 1 February 2016 to 31 March 2017.
Gary Hui was appointed as a Non-Executive Director on 1 August 2016. Prior to this date he acted for the benefit
of the Company through his role as the CIO of Arowana International from the 1 July 2016. Gary Hui receives
£48,000 per annum for being a Non-Executive Director. In addition to director fees, Gary Hui is also paid an
annual salary of US$360,000, of which $260,000 is recharged to Arowana International Limited. The retained
cost of £78,636 (US$100,000) is paid in compensation for additional work undertaken on behalf of the
Company, including his role on the investment committee.
Edward Hyams was appointed as a Non-Executive Director on 29 July 2016 and commenced that role from 2
November 2016. Edward Hyams receives £48,000 per annum for being a Non-Executive Director and an
additional £5,000 per annum for being a member of the Nomination, Audit and Remuneration Committees.
Peter Sermol was appointed as a Non-Executive Director on 1 August 2016 and commenced that role from 21
December 2016. Peter Sermol receives £48,000 per annum for being a Non-Executive Director and an additional
£5,000 per annum for being a member of the Nomination, Audit and Remuneration Committees. In accordance
with the Directors Remuneration Policy, Peter Sermol was also paid a one-time fee of £60,000 in the year ended
31 March 2018 as additional compensation for foregone opportunities at the time he joined the Board.
Shimi Shah was appointed as a Non-Executive Director on 28 December 2017 and commenced that role on the
same date. Shimi Shah receives £48,000 per annum for being a Non-Executive Director and an additional
£4,000 per annum per committee for being a member of the Nomination, Audit and Remuneration Committees.
Other payments to Directors in the year ended 31 March 2018
Payments to past Directors for loss of office
No payments were made to any past director during the year, or in connection with a director's loss of office
during the year.
Page | 29
Directors’ Remuneration Report (continued)
Director’s Interests
The Directors beneficial interest in the 13,557,376 issued ordinary shares of the Company as at 31 March 2018
are detailed below.
Outstanding scheme interests, at 31 March 2018
Unvested
scheme
interests (not
subject to
performance
measures)
-
-
-
-
-
-
-
Number of
Shares
Beneficially
Owned
1,266,531
325,045
-
-
-
-
13,610
Vested but
unexercised
scheme
interests
-
-
-
-
-
-
-
Total shares
subject to
outstanding
scheme
interests
-
-
-
-
-
-
-
Total of all share
interests and
outstanding
scheme
interests, at 31
March 2018
1,266,531
325,045
-
-
-
-
13,610
Percentage of
Outstanding
Shares
9.3%
2.4%
-
-
-
-
0.0%
Kevin Chin (1) (2)
Gary Hui (3)
Edward Hyams
Peter Sermol
Shimi Shah
Philip Comberg
Carl Weatherley-White
(1)
Represents shares held by Borneo Capital Pty Limited and The Panaga Group Trust, of which Mr. Chin is a beneficiary and one of the
directors of the corporate trustee of such fund.
(2) Does not include shares held by Arowana International Limited, of which Mr. Chin is a director.
(3) Shares are held by Beira Corp., of which Mr. Hui is a director.
Minimum shareholding requirements
The Company currently does not have any applicable shareholding guidelines. The Remuneration Committee
reserves the right to implement shareholding guidelines. If shareholding guidelines are implemented, these will
be disclosed in the relevant Annual Report on Remuneration.
Comparison to Company Performance
Performance graph and table and comparison to CEO pay
The following graph shows total shareholder return for the Company for the period from its listing on 29
December 2016 to 31 March 2018, relative to the Nasdaq Composite Index. The Nasdaq Composite Index is
considered an appropriate comparator for VivoPower:
VivoPower and Nasdaq TSR
140
120
100
80
60
40
20
0
Page | 30
29‐Dec‐16
31‐Mar‐17
31‐Mar‐18
NASDAQ
VVPR
Directors’ Remuneration Report (continued)
The following table shows details of the compensation paid to the individual(s) in the role of CEO:
Phillip Comberg
Carl Weatherley-White
Single figure of
remuneration
Bonus as % of maximum
LTIP as % of maximum
2018
2017
2018
£314,060
£989,100
£146,904
N/A
0%
0%
2017
64%
N/A
2018
2017
0%
0%
0%
N/A
Phillip Comberg resigned as Chief Executive Officer and a Director on 4 October 2017. The information presented
reflects his compensation for the period from 1 April 2017 to 4 October 2017.
Carl Weatherley-White was appointed as Chief Executive Officer and a Director on 04 October 2017 and resigned
as a Director on 28 December 2017, remaining as Chief Executive Officer. The information presented reflects
his compensation for the period of his tenure as CEO, from 04 October 2017 to 31 March 2018.
Relative importance of pay
The table below shows the total pay for all of the Group's employees compared to other key financial
indicators.
Year ending 31 March
2018
Period ending 31 March
2017
14,929,000
NIL
7,072,309
NIL
Employee remuneration (USD)
Distributions to shareholders (USD)
Implementation of Remuneration Policy
Executive Directors
Base Salary
The Committee will set an Executive Director’s base salary in line with the remuneration policy approved by the
shareholders on 5 September 2017. The Committee intends to keep any base salary under review and will
consider whether the amount and terms on which base salary is payable is appropriate given the Company's
economic position and wider market conditions. Any changes to base salary will be compliant with the
remuneration policy outlined above and will be disclosed in the Remuneration Report for the relevant financial
year.
Benefits
The Committee will provide an Executive Director with benefits in line with the remuneration policy approved by
the shareholders on 5 September 2017. The Committee intends to keep benefits under review and will consider
whether the amount and terms on which benefits are payable are appropriate given the Company's economic
position and wider market conditions. Any changes to benefits will be compliant with the remuneration policy
and will be disclosed in the Remuneration Report for the relevant financial year.
Annual bonus
The annual bonus for an Executive Director will include a mixture of financial and personal metrics. The
performance criteria attaching to bonuses will be disclosed retrospectively provided that commercial sensitivity
is no longer an issue. It is expected that retrospective disclosure will be made in the notes to the single total
figure table of the 2019 Annual Report on Remuneration. The maximum level of award that may be received by
an Executive Director under his annual bonus for the year ending 31 March 2019 has been set at 150% of base
salary.
Page | 31
Directors’ Remuneration Report (continued)
Equity incentive plan
The performance-based elements of the equity incentive plan award made to an Executive Director will include
a mixture of financial metrics. The performance criteria attaching to the award will be disclosed retrospectively
provided that commercial sensitivity is no longer an issue. It is expected that retrospective disclosure of
performance criteria for any awards granted under the equity incentive plan in the year ending 31 March 2019
will be made in the notes to the single total figure table of the 2022 Annual Report on Remuneration.
The maximum level of award that may be received by an Executive Director under the Equity Incentive Plan is
currently expected to be 100% of base salary as outlined in the remuneration policy approved by shareholders
on 5 September 2017.
Retirement benefits
The Committee will provide retirement benefits in line with the remuneration policy approved by shareholders on
5 September 2017. The Committee intends to keep the value of retirement benefits under review and will
consider whether the amount and terms on which the sum is payable are payable are appropriate given the
Company's economic position and wider market conditions. Any changes to the sum will be compliant with the
remuneration policy outlined above and will be disclosed in the Remuneration Report for the relevant financial
year.
Non-Executive Directors
Cash Compensation
The Committee will pay annual retainers to non-executive directors in line with the remuneration policy approved
by shareholders on 5 September 2017. The Committee intends to keep the value of annual retainers under
review and will consider from time to time whether the amount and terms on which retainers are payable are
appropriate given the Company's economic position and wider market conditions. Any changes to retainers will
be compliant with the remuneration policy and will be disclosed in the Remuneration Report for the relevant
financial year.
Directors receive an annual retainer for service on the Board, with supplementary retainers payable for
additional Board responsibilities, as follows:
Annual retainer for Board membership
Annual retainer for the Chairman of the Board
£ 48,000
£165,000
Additional annual retainer for the committee members
Agreed Individually
The fee levels are reviewed on an annual basis, and may be increased by the Company taking into account
factors such as the time commitment of the role and market levels in companies of comparable size and
complexity. Fees may be amended before any annual review to reflect any changes to the Director’s role or Board
committee memberships which occur during the period or when making a new appointment.
New Directors may also be eligible for a one-time fee of £6,000 or such higher amounts as the Company
determines, based on market conditions, the proposed New Directors’ skills and experience and the Company's
circumstances.
Equity Compensation
There is currently no equity plan in place for Non-Executive Directors. The Committee may determine to
implement a plan for Non-Executive Directors, which plan would be subject to any applicable approval
requirements. Details of such a plan would be disclosed in the Remuneration Report for the relevant financial
year.
Page | 32
Directors’ Remuneration Report (continued)
Benefits
The Committee will provide benefits to Non-Executive directors in line with the remuneration policy approved by
shareholders on 5 September 2017. The Committee intends to keep the value of benefits under review and will
consider whether the amount and terms on which benefits are provided are appropriate given the Company's
economic position and wider market conditions. Any changes to benefits will be compliant with the remuneration
policy outlined above and will be disclosed in the Remuneration Report for the relevant financial year.
Consideration of Matters Relating to Directors’ Remuneration
Remuneration Committee
The members of the Committee during the period and their attendance at meetings of the Committee, are set
out below:
Kevin Chin
Edward Hyams
Peter Sermol
Shimi Shah
Attendance
5/5
5/5
5/5
0/0
No Non-Executive Directors are involved in deciding their own remuneration.
The Committee retained Pearl Meyer to advise the Committee on various matters, including the Equity Incentive
Plan. Pearl Meyer is a signatory to the Remuneration Consultants' Code of Conduct. The Committee has reviewed
the operating processes in place at Pearl Meyer and is satisfied that the advice it receives is independent and
objective.
Herbert Smith Freehills LLP and Winston & Strawn LLP provide the Company with legal advice. Advice from
Herbert Smith Freehills LLP and Winston & Strawn LLP is made available to the Remuneration Committee, where
it relates to matters within its remit.
Statement of voting at general meeting
The Directors' Remuneration Policy for the year ended 31 March 2017 was approved by shareholders at the
Annual General Meeting held on 5 September 2017. The resolution to approve the remuneration policy was
approved by 99.0% of voting shareholders, with 0.8% voting against the resolution and 0.2% of votes not cast.
The Annual Report on Remuneration for the year ended 31 March 2017 was approved by shareholders at the
Annual General Meeting held on 5 September 2017. The resolution to approve the report was approved by 95.4%
of voting shareholders, with 0.0% voting against the resolution and 4.6% of votes not cast.
The Remuneration Report was approved by a duly authorised Committee of the Board of Directors on 18 July
2018 and signed on its behalf by:
Edward Hyams
Chair of the Remuneration Committee
18 July 2018
Page | 33
Independent Auditor’s Report to the Members of
VivoPower International PLC
Opinion
We have audited the financial statements of VivoPower International PLC (the parent company) and its
subsidiaries (the group) for the year ended 31 March 2018 which comprise the Group and Parent Company
Statements of Financial Position, the Group Statement of Comprehensive Income, the Group Statements of Cash
Flows, the Group and Parent Company Statements of Changes in Equity, Statement of Cash Flow, and notes to
the financial statements, including a summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
In our opinion:
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s
affairs as at 31 March 2018 and of the Group’s and the parent company’s loss for the period then ended;
the group’s and parent company’s financial statements have been properly prepared in accordance with
IFRSs as adopted by the European Union and, for the parent company, as applied in accordance with the
provisions of the Companies Act 2006; and,
the financial statements have been prepared in accordance with the requirements of the Companies Act
2006; and, as regards the group financial statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the financial statements section of our report. We are independent of the group and parent company in
accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions related to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to
report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is
not appropriate; or,
the directors have not disclosed in the financial statements any identified material uncertainties that may
cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months from the date when the financial
statements are authorised for issue.
Our application of 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 on the financial statements as
a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole to be
$1.4 million. This was calculated by allocating a percentage factor to various financial measures, including
revenue (1%), gross assets (2%), net assets (5%) and profit before tax (5%).
We agreed with the Audit Committee that we would report to them misstatements identified during our audit
above $1.05 million as well as misstatements that, in our view, warranted reporting for qualitative reasons.
Page | 34
Independent Auditor’s Report to the Members of
VivoPower International PLC
On overview of the scope of our audit
As part of designing our audit, we determined materiality, as above, and assessed the risk of material
misstatement in the financial statements. In particular, we looked at where the directors made subjective
judgements, for example in respect of significant accounting estimates. We also addressed the risk of
management override of internal controls, including evaluating whether there was evidence of bias by the
directors that represented a risk of material misstatement due to fraud.
The accounting records of all US and Australian undertakings were audited by Component auditors, under the
oversight of us as Parent Company auditors in accordance with International Standard on Auditing 600, based
upon Component materiality and risk to the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our 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) we identified, 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 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.
Key Audit Matter
Carrying value of intangible assets
The Group carries a material amount of
goodwill and separately identifiable intangible
assets following the acquisitions of VivoPower
Pty Limited, and Aevitas O Holdings Limited in
the period ended 31 March 2017. These fall
under IFRS 3 “Business Combinations” and as
such a Purchase Price Allocation (“PPA”)
exercise was performed in 2018 during the
year to identify the separately identifiable
intangible assets acquired. As a result the
following risks may arise:
Intangible assets including goodwill arising
on acquisition may not have been
identified, valued or disclosed correctly.
of
impairment.
Goodwill must be tested for impairment on
at least an annual basis whilst other
for
intangible assets are assessed
indicators
The
determination of recoverable amount,
being the higher of value in use and fair
requires
value
judgement by Management in identifying
and then valuing the cash generating units.
Recoverable amounts are based on
key
Management’s
assessment
variables and
the most appropriate
discount rate.
less disposal costs,
of
How the scope of our audit responded to the key audit matter
We corroborated accounting entries in respect of acquired
and revalued assets and liabilities to PPA work performed
by independent and competent experts. We also assessed
the independence and competence of these experts.
We reviewed the key PPA assumptions and estimates
applied.
We reviewed the Group’s forecast cash flows for each
acquisition made in the prior year and Management’s
associated
We assessed the
appropriateness of the forecasts having regard to post
year end management information and our understanding
of each business.
impairment reviews.
We performed testing of the mathematical accuracy of the
cash flow models and ensured each of the key
assumptions were appropriately reflected.
We critically assessed
in
management’s value
to
determine the recoverable amounts of goodwill and
separately identifiable intangible assets.
the key assumptions
in use calculations used
We performed sensitivity analysis on the headroom to
changes in key assumptions.
We
reviewed
the appropriateness of
the
related
disclosures in note 13 of the financial statements
An impairment of $10.5m was recognised in respect of
Goodwill that had arisen on the acquisition of VivoPower
Pty Limited.
Page | 35
Independent Auditor’s Report to the Members of
VivoPower International PLC
Other information
The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion
on the group and parent company financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion 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 such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in 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 in this regard.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in
accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements financial statements; and,
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal
requirements
Matters on which we are required to report by exception
In light of the knowledge and understanding of the group and the parent company and their environment
obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the
Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
•
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit
have not been received from branches not visited by us; or
the parent company financial statements and the part of the directors’ remuneration report to be audited
are not in agreement with the accounting records and returns; or
•
certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the
preparation of the group and parent company financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors 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 group and parent company financial statements, the directors are responsible for assessing the
group’s and the parent company’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 the parent company or to cease operations, or have no realistic alternative but to do so.
Page | 36
Independent Auditor’s Report to the Members of
VivoPower International PLC
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 auditor’s 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.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the
company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Alistair Roberts (Senior Statutory Auditor)
For and on behalf of PKF Littlejohn LLP
Statutory auditor
18 July 2018
1 Westferry Circus
Canary Wharf
London, UK, E14 4HD
Page | 37
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2018
(USD in thousands, except per share amounts)
Revenue
Cost of sales
Gross profit
General and administrative expenses
Gain on sale of assets
Depreciation of property, plant and equipment
Amortisation of intangible assets
Operating (loss)/profit
Restructuring costs
Impairment of assets
Impairment of goodwill
Transaction costs
Finance income
Finance expense
(Loss)/profit before income tax
Income tax expense
(Loss)/profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Currency translation differences recognised directly in equity
Total comprehensive (loss)/income for the year
Note
4
5
12
13
6
7
8
13
10
10
11
2018
2017*
33,647
(28,524)
5,123
(12,814)
1,356
(420)
(840)
(7,595)
(1,873)
(10,191)
(11,092)
-
9
(3,395)
(34,137)
6,258
(27,879)
32,250
(4,977)
27,273
(9,595)
-
(103)
(548)
17,027
-
-
-
(5,800)
13
(602)
10,638
(5,338)
5,300
222
(27,657)
599
5,899
Earnings per share
Basic
Diluted
24
24
(2.06)
(2.06)
0.81
0.81
* Comparative results are for the 14-month period ended 31 March 2017.
Page | 38
Consolidated Statement of Financial Position
for the year ended 31 March 2018
(USD in thousands, except per share amounts)
Note
2018
2017
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other receivables
Investments
Total non-current assets
Current assets
Cash and cash equivalents
Trade and other receivables
Assets held for sale
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables
Finance lease payable
Provision for income tax
Provisions – current
Loans and borrowings
Total current liabilities
Non-current liabilities
Loans and borrowings
Provisions
Deferred tax liabilities
Finance lease payable
Total non-current liabilities
Total Liabilities
Equity
Share capital
Share premium
Cumulative translation reserve
Other reserves
Retained earnings/(accumulated deficit)
Total Equity
TOTAL EQUITY AND LIABILITIES
12
13
11
15
16
17
8
18
19
11
20
21
21
20
11
19
22
23
1,915
36,402
2,570
-
14,147
55,034
1,939
7,903
11,436
21,278
76,312
14,082
285
103
2,470
3,670
20,610
18,092
288
26
293
18,699
39,309
163
40,215
821
18,383
(22,579)
37,003
76,312
2,163
46,320
2,312
1,167
18,060
70,022
10,970
19,844
-
30,814
100,836
8,262
145
2,361
1,339
90
12,197
19,925
237
3,776
95
24,033
36,230
163
40,215
599
18,329
5,300
64,606
100,836
These financial statements were approved by the Board of Directors on 18 July 2018 and were signed on its
behalf by Kevin Chin.
Page | 39
Consolidated Statement of Cash Flow
for the year ended 31 March 2018
(USD in thousands, except per share amounts)
Note
2018
2017*
Cash flows from operating activities
(Loss)/profit for the year
Income tax expense
Finance income
Finance expense
Transaction costs
Impairment of goodwill
Impairment of assets
Depreciation of property, plant and equipment
Amortisation of intangible assets
Gain on sale of assets
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
Increase in provisions
Net cash (used in)/from operating activities
Cash flows from investing activities
Interest received
Proceeds on sale of property plant and equipment
Purchase of property plant and equipment
Investment in capital projects
Cash acquired received from acquisitions
Acquisitions
Net cash (used in)/from investing activities
Cash flows from financing activities
Finance lease borrowings
Finance lease repayments
Financing agreements
Loans from related parties
Repayment of bank loan
Finance expense
Funds received from issuing shares
Costs from listing
Funds received from listing
Net cash from/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
5
12
15
19
19
21
21
21
16
16
* Comparative results are for the 14-month period ended 31 March 2017.
Page | 40
(27,879)
(6,258)
(9)
3,395
11,092
10,191
420
840
(1,356)
11,457
5,822
1,182
8,897
9
2,297
(1,101)
(17,823)
-
-
(16,618)
519
(181)
2,000
770
(1,023)
(3,395)
-
-
-
(1,310)
(9,031)
10,970
1,939
5,300
5,338
-
600
5,800
-
-
103
548
-
(21,007)
8,260
1,339
6,281
13
-
(97)
(18,060)
1,485
(10,080)
(26,739)
-
-
330
19,944
-
-
167
(11,469)
22,456
31,428
10,970
-
10,970
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Notes to the Financial Statements
for the year ended 31 March 2018
1.
Reporting entity
VivoPower International PLC (“VivoPower” or the “Company”) is a public company limited by shares and
incorporated under the laws of England and Wales and domiciled in the United Kingdom. The address
of the Company’s registered office is 91 Wimpole Street, Marylebone, London, W1G 0EF United
Kingdom. The consolidated financial statements of the Company as at and for the year ended 31 March
2018 comprise the financial statements of the Company and its subsidiaries (together referred to as
the ‘Group’ and individually as ‘Group entities’. The ultimate parent company into which these results
are consolidated is Arowana International Limited.
2.
Significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out
below. These policies have been consistently applied to all years presented, unless otherwise stated.
2.1
Basis of preparation
VivoPower International PLC consolidated financial statements were prepared in accordance with
International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards
Board (IASB), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting
under IFRS. The consolidated financial statements have been prepared under the historical cost
convention.
The preparation of financial statements with adopted IFRS requires the use of critical accounting
estimates. It also requires the management to exercise judgement in the process of applying the
Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas
where the assumptions and estimates are significant to the consolidated financial statements are
disclosed in note 3.
The financial statements have been prepared on a going concern basis, as the directors believe the
Company will be able to meet its liabilities as they fall due.
During the year ended 31 March 2018, the Company undertook a strategic restructuring of its business
which aimed at a $3.4 million annual reduction in general and administrative expenses going forward.
In addition, subsequent to year-end the Company raised $11.4 million of cash by sale of its minority
equity investments in the North Carolina projects, as disclosed in note 8, $2.0 million of which was used
to repay the current financing agreement disclosed in note 21. The Company’s power services business
represented by the Aevitas Group produced $2.4 million EBITDA for the year ended 31 March 2018 and
is expected to continue to perform at or above this level. The Company is also engaged in a financing
initiative within the Aevitas Group which is expected to provide an additional $2.3 million of working
capital. These actions provide sufficient cash to support business operations and meet obligations as
they become due through July 2019.
In order to develop the portfolio of solar projects within Innovative Solar Ventures I, LLC joint venture,
as disclosed in note 15, the Company will have to seek project specific financing which would be secured
and supported by the development assets within the joint venture. This is a normal part of the solar
development business and the Company is confident that there are investors and capital available in
the market to accomplish planned development.
To ensure success of the business, the directors have prepared and reviewed additional plans to
mitigate any cash flow risk that may arise during the next twelve months. These actions include the
implementation of further operational cost reductions, renegotiation of the terms of repayment of the
related party loan of $19.0 million disclosed in note 21, and a further sale of assets as required.
Page | 42
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
Based on the foregoing, the directors believe that the Company is well placed to manage its business
risk successfully, despite some current economic and political uncertainty. The directors therefore have
a reasonable expectation that the Company has adequate resources to continue in operational
existence for the foreseeable future. Thus, they have continued to adopt the going concern basis in
preparing these financial statements.
Comparative results presented are for the 14-month period from formation to 31 March 2017. All
financial information presented in US dollars has been rounded to the nearest thousand.
2.2
Basis of consolidation
The consolidated financial statements include those of VivoPower International PLC and all of its
subsidiary undertakings.
Subsidiary undertakings are those entities controlled directly or indirectly by the Company. The results
of the subsidiaries acquired are included in the consolidated Statement of Comprehensive Income from
the date of acquisition using the same accounting policies of those of the Group. All business
combinations are accounted for using the purchase method.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies in line with those used by other members of the Group.
All intra-group balances and transactions, including any unrealised income and expense arising from
intra-group transactions, are eliminated in full in preparing the consolidated financial statements.
Unrealised gains arising from transactions with equity invested investees are eliminated against the
investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the
same way as unrealised gains, but only to the extent that there is no evidence of impairment.
2.3
Intangible assets
All intangible assets, except goodwill, are stated at fair value less accumulated amortisation and any
accumulated impairment losses. Goodwill is not amortised and is stated at cost less any accumulated
impairment losses.
Goodwill
Goodwill arose on the effective acquisition of VivoPower Pty Limited and the Aevitas Group Limited
(“Aevitas”). Goodwill is reviewed annually to test for impairment.
Other intangible assets
Intangible assets acquired through a business combination are initially measured at fair value and then
amortised over their useful economic lives.
In the prior year, the Group took advantage of the provisions of IFRS 3 in accounting for the business
combinations arising from the acquisitions of Aevitas O Holdings Pty Limited and VivoPower Pty Limited
whereby the financial statements recognised the Directors' best estimate of the individual allocation of
goodwill and other separately identifiable assets acquired. The purchase price allocation exercise was
completed in the current year and revaluations reflected as disclosed in Note 13.
Amortisation is calculated on a straight-line basis to write down the assets over their useful economic
lives at the following rates:
Customer relationships – 7 years
Trade names – 14 years
Favourable supply contracts – 5 years
Databases – 5 years
Page | 43
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
2.4
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated
impairment losses. The cost of an item of property, plant and equipment comprises its purchase price
and the costs directly attributable to bringing the asset into use.
When parts of an item of property, plant and equipment have different useful lives, they are accounted
as separate items (major components) of property, plant and equipment.
Depreciation is calculated on a straight-line basis so as to write down the assets to their estimated
residual value over their useful economic lives at the following rates:
Computer equipment - 3 years
Fixtures and fittings - 3 years
Motor vehicles – 5 years
Plant & equipment – 3.5 to 10 years
Leasehold improvements – 20 to 40 years
2.5
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The
consideration transferred in a business combination is the fair value at the acquisition date of the assets
transferred and the liabilities incurred by the Group and includes the fair value of any contingent
consideration arrangement. Acquisition-related costs are recognised in the income statement as
incurred.
2.6
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognised as property, plant and equipment at an amount
equal to the fair value of the leased assets or, if lower, the present value of the minimum lease payments
at the inception of the lease, and then depreciated over their useful economic lives.
Lease payments are apportioned between the repayment of capital and interest. The capital element of
future lease payments is included in the Statement of Financial Position as a liability. Interest is charged
to the Statement of Comprehensive Income so as to achieve a constant rate of interest on the remaining
balance of the liability.
Rentals payable under operating leases are charged to the Statement of Comprehensive Income on a
straight-line basis over the lease term. Operating leases incentives are recognised as a reduction in the
rental expense over the lease term.
2.7
Impairment of non-financial assets
Goodwill is allocated to cash-generating units for the purposes of impairment testing. The recoverable
amount of the cash-generating unit (‘CGU’) to which the goodwill relates is tested annually for
impairment or when events or changes to circumstances indicate that it might be impaired.
The carrying values of property, plant and equipment, investments and intangible assets other than
goodwill are reviewed for impairment only when events indicate the carrying value may be impaired.
Page | 44
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
In an impairment test the recoverable amount of the cash-generating unit or asset is estimated in order
to determine the existence or extent of any impairment loss. The recoverable amount is the higher of
fair value less costs to sell and the value in use to the Group. An impairment loss is recognised to the
extent that the carrying value exceeds the recoverable amount. In determining a cash-generating unit’s
or asset’s value in use, estimated future cash flows are discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time-value of money and risks specific
to the cash-generating unit or asset that have not already been included in the estimate of future cash
flows. All impairment losses are recognised in the Statement of Comprehensive Income.
An impairment loss in respect of goodwill is not reversed. In the case of other assets, impairment losses
recognised in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. These impairment losses are reversed if there has been any change in
the estimates used to determine the recoverable amount. An impairment loss is reversed only to the
extent so that the asset’s carrying amount does not exceed the carrying value that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
2.8
Financial instruments
Financial assets and liabilities are recognised in the Group’s Statement of Financial Position when the
Group becomes a party to the contracted provision of the instrument. The following policies for financial
instruments have been applied in the preparation of the consolidated financial statements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is
based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
in the principal market for the asset or liability; or
in the absence of a principal market, in the most advantageous market for the asset or
liability.
The principal or the most advantageous market must be accessible by the Group. The fair value of an
asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorised within the fair value hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1 — quoted (unadjusted) market prices in active markets for identical assets or
liabilities;
Level 2 — valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable; and
Level 3 — valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable.
Cash and cash equivalents
For the purpose of preparation of the Statement of Cash Flow, cash and cash equivalents includes cash
at bank and in hand.
Bank borrowings
Interest-bearing bank loans are recorded at the proceeds received. Direct issue costs paid on the
establishment of loan facilities are recognised over the term of the loan on a straight-line basis. The
initial payment is taken to the Statement of Financial Position and then amortised over the full-length
of the facility.
Page | 45
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
Trade and other receivables
Trade and other receivables are stated at amounts receivable less any allowance for the expected future
issue of credit notes and for non-recoverability due to credit risk.
Trade payables
Trade payables are non-interest bearing and are stated at their amortised cost.
Share Capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary
shares are recognised as a deduction from equity, net of any tax effects.
Repurchase of share capital (treasury shares)
When share capital recognised as equity is repurchased as equity by the Company the amount of the
consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a
deduction from equity, and excluded from the number of shares in issue when calculating earnings per
share.
2.9
Taxation
Income tax expense comprises current and deferred tax.
Current tax is recognised based on the amounts expected to be paid or recovered under the tax rates
and laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is provided on temporary timing differences that arise between the carrying amounts of
assets and liabilities for financial reporting purposes and their corresponding tax values. Liabilities are
recorded on all temporary differences except in respect of initial recognition of goodwill and in respect
of investments in subsidiaries where the timing of the reversal of the temporary difference is controlled
by the Group and it is probable that it will not reverse in the foreseeable future. Deferred tax assets are
recognised to the extent that it is probable that future taxable profits will be available against which the
asset can be offset. Deferred tax is measured on an undiscounted basis using the tax rates and laws
that have been enacted or substantively enacted by the end of the accounting period.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
assets and liabilities, they relate to income taxes levied by the same tax authority and the Group intends
to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised
simultaneously.
Current and deferred tax are recognised in the Statement of Comprehensive Income, except when the
tax relates to items charged or credited directly to equity, in which case it is dealt with directly in equity.
2.10
Provisions
Provisions are recognised when the Group has a present obligation because of a past event, it is
probable that the Group will be required to settle that obligation, and it can be measured reliably.
Provisions are measured at the directors’ best estimate of the expenditure required to settle the
obligation at the date of Statement of Financial Position.
Where the time value of money is material, provisions are measured at the present value of expenditures
expected to be paid in settlement.
Page | 46
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
2.11
Earnings per share
The Group presents basic and diluted earnings per share [EPS] data for 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, excluding the shares held as treasury shares. Currently
there are no diluting effects on EPS for ordinary shares, therefore, diluted EPS is the same as basic EPS.
2.12
Foreign currencies
The Company’s functional and presentational currency is the US dollar. Items included in the separate
financial statements of each Group entity are measured in the functional currency of that entity.
Transactions denominated in foreign currencies are translated into the functional currency of the entity
at the rates of exchange prevailing at the dates of the individual transactions. Foreign currency monetary
assets and liabilities are translated at the rates of exchange prevailing at the end of the reporting period.
Exchange gains and losses arising are charged to the Statement of Comprehensive Income within
finance income or expenses. The Statement of Comprehensive and Statement of Financial Position of
foreign entities are translated into US dollars on consolidation at the average rates for the period and
the rates prevailing at the end of the reporting period respectively. Exchange gains and losses arising
on the translation of the Group’s net investment foreign entities are recognised as a separate
component of shareholders’ equity.
Foreign currency denominated share capital and related share premium and reserve accounts are
recorded at the historical exchange rate at the time the shares were issued or the equity created.
2.13
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of services in
the ordinary course of the Group’s activities. Revenue is shown net of discounts, value-added tax, other
sales related taxes, and after the elimination of sales within the Group.
Revenue comprises development revenues, electrical
maintenance and generator sales.
installations, electrical servicing and
The Company adopted IFRS 15 “Revenue from Contracts with Customers” with effect from the date of
incorporation.
The Group has a number of different revenue streams and the key components in determining the
correct recognition are as follows:
Development revenue, which is revenue generated from development services relating to the building
and construction of solar projects, is recognised on a percentage completion basis as the value is
accrued by the end user over the life of the contract. The periodic recognition is calculated through
weekly project progress reports.
Aevitas revenue for small jobs and those completed in a limited timeframe are recognised when the job
is complete. On longer term projects revenue is recognised on a percentage completion basis. The
projects have defined milestones which determines the timing of the billing to the customers. The
achievement of the milestones then also provides an accurate indication of how much of the project is
complete.
Page | 47
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
2.14
Employee benefits
Pension
The employer pension contributions are associated with defined contribution schemes. The costs are
therefore recognised in the month in which the contribution is incurred, which is consistent with
recognition of payroll expenses.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided.
A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing
plans if the Group has a present legal or constructive obligation to pay this amount because of past
service provided by the employee and the obligation can be reliably measured.
Short-term compensated absences
A liability for short-term compensated absences, such as holiday, is recognised for the amount the Group
may be required to pay because of the unused entitlement that has accumulated at the end of the
reporting period.
2.15
Restructuring costs
Restructuring costs are by nature one-time incurrences and do not represent the normal trading
activities of the business and accordingly are disclosed separately on the consolidated statement of
comprehensive income in accordance with IAS 1 in order to draw them to the attention of the reader of
the financial statements. Restructuring costs are defined in accordance with IAS 37 as being related to
sale or termination of a line of business, closure of business locations, changes in management
structure, or fundamental reorganisations.
2.16
New standards, amendments and interpretations not yet adopted
During the current year, the Group adopted all of the new and revised Standards and Interpretations
issued by the International Accounting Standards Board (“IASB”) and the IFRS Interpretations
Committee of the IASB that are relevant to its operations and effective for accounting periods beginning
on 1 April 2017. The Group is assessing the impact on the financial statements of these adoptions.
The IASB and IFRIC have issued the following standards and with an effective date after the date of
the financial statements and have not been applied in preparing these consolidated financial
statements:
• IFRS 2 ‘Amendments: Classification and Measurement of Share-based payment transactions’
– effective for annual periods on or after 1 January 2018;
• IFRS 9: ‘Financial Instruments’ – effective for annual periods on or after 1 January 2018;
• IFRS 16: ‘Leases’ – effective for annual periods on or after 1 January 2019;
• IFRIC 22: ‘Foreign Currency Transactions and Advance Consideration’ – effective for annual periods
on or after 1 January 2018; and,
• IFRIC 23: ‘Uncertainty over Income Tax Treatments’ – effective for annual periods on or after 1
January 2019.
There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have
a material impact on the Group.
Page | 48
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
3.
Critical accounting judgements and estimates
In preparing the consolidated financial statements, the directors are required to make judgements in
applying the Group’s accounting policies and in making estimates and making assumptions about the
future. These estimates could have a significant risk of causing a material adjustment to the carrying
value of assets and liabilities in the future financial periods. The critical judgements that have been
made in arriving at the amounts recognised in the consolidated financial statements are discussed
below.
3.1
IFRS 10 – Consolidated Financial Statements
The objective of the standard is to establish principles for the presentation and preparation of
consolidated financial statements when an entity controls one or more other entities. The Group has
assessed whether it controls project companies in which the Group has an interest.
The Group assessed control by reviewing, first, whether the Group had power over the entity, secondly,
had exposure, or rights, to variable returns from its involvement with the project, and finally, whether it
had the ability to use its power over the investee to affect the amount of the project’s returns.
On assessing the three criteria, all of which must exist, the Group concluded that it did not in fact have
control and elected not to consolidate the project companies into the consolidated financial statements
of the Group.
3.2
Impairment of non-financial assets
The carrying values of property, plant and equipment, investments and intangible assets other than
goodwill are reviewed for impairment only when events indicate the carrying value may be impaired.
Goodwill is tested annually for impairment or when events or changes to circumstances indicate that it
might be impaired.
As further disclosed in note 8, subsequent to year-end, two investments were sold for less than carrying
values at 31 March 2018, indicating an impairment. Accordingly, an impairment was recorded at 31
March 2018 to reflect to the net realisable value based on the sale proceeds.
During the year ended 31 March 2018, two impairments of goodwill were recorded. To assess
impairment, estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time-value of money and risks specific to the
related cash-generating unit. Judgement was applied in making estimates and assumptions about the
future cash flows, including the appropriateness of discounts rates applied, as further disclosed in note
13.
3.3
Operating profit/(loss)
In preparing the consolidated financial statements of the Group, judgement was applied with respect to
those items which are presented on consolidated statement of comprehensive income as included
within operating profit/(loss). Those revenues and expenses which are determined to be specifically
related to the on-going operating activities of the business are included within operating profit. Expenses
or charges to earnings which are not related to operating activities, are one-time costs determined to be
not representative of the normal trading activities of the business, or that arise from revaluation of
assets, are reported below operating profit/(loss).
Page | 49
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
3.4
Transaction related costs
The transaction related costs were incurred by the business in preparation for the entry onto Nasdaq.
The costs incurred were recharged costs from Arowana International Limited including legal, accounting
and professional fees in relation to our operations in the United States. The costs by nature are one-off,
and therefore, have no bearing on the financial performance of the business. To enable comparability
in future periods the costs are disclosed separately on the face on the Statement of Comprehensive
Income.
3.5
Income taxes
In recognising income tax assets and liabilities, management makes estimates of the likely outcome of
decisions by tax authorities on transactions and events whose treatment for tax purposes is uncertain.
Where the outcome of such matters is different, or expected to be different, from previous assessments
made by management, a change to the carrying value of the income tax assets and liabilities will be
recorded in the period in which such determination is made. The carrying values of income tax assets
and liabilities are disclosed separately in the consolidated Statement of Financial Position.
3.6
Share option reserve
As part of the Initial Public Offering Listing, VivoPower issued an amended and restated unit purchase
option (UPO) replacing the options issued by Arowana Inc. The options are viewed as a share-based
award granted to Early Bird Capital. The cost of the award is recognised directly in equity and is applied
against capital raising costs. As the option holder has the right to receive shares in VivoPower
international PLC the share-based payment transaction would be equity settled. The fair value of the
options was determined at the grant date, using the Black Scholes Model, and not remeasured
subsequently. As the options have no vesting conditions the related expense is recognised immediately.
3.7
Convertible preference shares and loan notes
As part of the IPO listing process VivoPower International PLC acquired Aevitas. The instruments
previously issued by Aevitas were restructured to become convertible into VivoPower International PLC
shares. The company considered IAS 32 paragraph 16 in determining the accounting treatment. The
Company has determined the instruments to be treated as equity under the “fixed-for-fixed” rule
meaning that both the amount of consideration received/receivable and the number of equity
instruments to be issued must be fixed for the instrument to be classified as equity. Both elements are
satisfied within the instruments.
4
Revenue and segmental information
The Group determines and presents operating segments based on the information that is provided
internally to the Board of Directors, which is the Group’s chief operating decision maker.
The Group considers that it has three reportable segments: Solar Development, Power Services, and
Corporate Office. Solar Development is the development, construction, financing and operation of solar
power generating plants in the U.S. and Australia. Power Services is represented by Aevitas operating in
Australia and operations focus on the design, supply, installation and maintenance of power and control
systems. Corporate Office is all United Kingdom based corporate functions.
An operating segment is a component of the Group that engages in business activities from which it
may earn revenues and incur expenses, including any revenues and expenses that relate to the
transactions with any of the Group’s other components. Operating segments results are reviewed
regularly by the Board of Directors to assess its performance and make decisions about resources to
be allocated to the segment, and for which discrete financial information is available.
Page | 50
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
Segment results that are reported to the Board of Directors include items directly attributable to a
segment as well as those that can be allocated to a segment on a reasonable basis.
4.1
Revenue
Revenue by geographic location is follows:
(US dollars in thousands)
United States
Australia
United Kingdom
Total revenue
Revenue by product and service is follows:
(US dollars in thousands)
Development fees
Electrical products and related services
Other revenue
Total revenue
2018
1,622
31,985
-
33,647
2018
828
31,631
1,188
33,647
2017
24,945
5,705
1,600
32,250
2017
24,555
5,615
2.080
32,250
No more than 10% of the revenue relates to one customer (2017: 40.3%).
4.2
Operating segments
a) Segment results of operations
Results of operations for the year ended 31 March by reportable segment are as follows:
2018
(US dollars in thousands)
Revenue
Costs of sales
Gross profit
General and administrative expenses
Gain on sale of assets
Depreciation and amortisation
Operating profit
Restructuring costs
Impairment of assets
Impairment of goodwill
Transaction costs
Finance expense - net
(Loss)/profit before taxation
Income tax expense
(Loss)/profit for the year
Solar
Development
Power
Services
Corporate
Office
1,840
(1,042)
798
(6,468)
1,143
(19)
(4,546)
(964)
(10,191 )
(11,092 )
-
(400)
(27,193)
6,291
(20,902)
31,807
(27,482)
4,325
(2,173)
213
(1,233)
1,132
(335)
-
-
-
(1,283)
(486)
(85)
(571)
-
-
-
(4,173)
-
(8)
(4,181)
(574)
-
-
-
(1,703)
(6,458)
52
(6,406)
Total
33,647
(28,524)
5,123
(12,814)
1,356
(1,260)
(7,595)
(1,873)
(10,191 )
(11,092 )
-
(3,386)
(34,137)
6,258
(27,879)
Page | 51
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
2017
(US dollars in thousands)
Revenue
Costs of sales
Gross profit
General and administrative expenses
Gain on sale of assets
Depreciation and amortisation
Operating profit
Restructuring costs
Impairment of assets
Impairment of goodwill
Transaction costs
Finance expense - net
Profit/(loss) before taxation
Income tax expense
Profit/(loss) for the year
b) Segment net assets
Solar
Development
Power
Services
Corporate
Office
26,636
(29)
26,607
(4,544)
-
(4)
22,059
-
-
-
-
(174)
21,885
(6,078)
15,807
5,614
(4,948 )
666
(598)
-
(646)
(578 )
-
-
-
-
(363)
(941 )
294
(647 )
Total
32,250
-
-
(4,977 )
- 27,273
(9,595)
-
(651)
(4,454 ) 17,027
(4,453)
-
(1)
-
-
-
-
-
-
(5,800)
(52)
(10,306 )
446
(9,860 )
(5,800)
(589)
10,638
(5,338 )
5,300
Net assets as at March 31 by reportable segment are as follows:
2018
(US dollars in thousands)
Assets
Liabilities
Net assets
2017
(US dollars in thousands)
Assets
Liabilities
Net assets
5. Gain on sale of assets
Solar
Development
Power
Services
Corporate
Office
41,270
(11,101 )
34,421
(6,473)
621
(21,735)
Total
76,312
(39,309)
30,169 27,948
(21,114) 37,003
Solar
Development
Power
Services
Corporate
Office
34,333 100,836
42,235 24,268
(27,858)
(36,230)
(3,752 )
(4,620)
14,377 19,648 30,581 64,606
Total
The gain on sale of assets for the year-ended 31 March 2018 totalling $1.3 million arose on the sale of
the Amaroo solar project in Australia ($1.1 million gain) and sale of disposal of property & equipment
assets by the Aevitas business ($0.2 million gain).
The proceeds on sale of the Amaroo solar project purchase price was $2.0 million for plant and
equipment assets with a net book value $0.9 million. The proceeds of sale were applied to repay a
related bank loan from ANZ Bank with an outstanding balance of principal and interest on the
transaction date of $1.0 million.
The Aevitas gain on sale of assets of $0.2 million is comprised of numerous small sales of surplus
vehicles as part of on-going fleet upgrade and renewal and sale of scrap materials.
Page | 52
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
6. Operating Profit
Operating profit is stated after charging:
(US dollars in thousands)
Amortisation of intangible assets
Depreciation of property, plant and equipment
Operating lease costs – land and buildings
Gain/(loss) on foreign exchange
Auditors’ remuneration – audit fees
Auditors’ remuneration – audit related services
Auditors’ remuneration – tax services
Directors emoluments
Gain/(loss) on disposal of assets
2018
840
420
304
59
414
-
13
1,131
1,356
2017
548
103
174
-
246
57
-
1,705
-
Auditors’ remuneration – audit related services for the year ended 31 March 2017 represents costs
incurred for the review of the Company’s registration statement by Marcum LLP.
7. Restructuring costs
(US dollars in thousands)
Corporate restructuring – workforce reduction
Corporate restructuring – professional fees
Corporate restructuring – terminated projects
Total
2018
734
566
573
1,873
2017
-
-
-
-
Restructuring costs by nature are one-time incurrences, and therefore, do not represent normal trading
activities of the business. These costs are disclosed separately in order to draw them to the attention
of the reader of the financial information and enable comparability in future periods.
During the year, the Board undertook a strategic restructuring of our business to align operations,
personnel, and business development activities to focus on a fewer number of areas of activity.
Associated with this restructuring was the departure of a number of employees and contractors from
the business. The workforce reduction cost represents the total salary, benefit, severance, and contract
costs paid in the year or accruing to these individuals in the future for which no services will be rendered
to the Company. Professional fees represent legal fees incurred to resolve certain disputes related to
some of these separations. Terminated projects are the costs incurred for business development of
specific solar development projects in South America and Australia for which the decision was made not
to proceed for economic reasons.
8. Impairment of assets and assets held for sale
Subsequent to 31 March 2018, the Company entered into an agreement to sell the 14.5% and 10%
equity interests in two North Carolina solar project investments to the majority investor at the fair market
value of these projects. The proceeds of sale, net of transaction costs, are $11.4 million. At 31 March
2018, the Company’s investment in these investments totalled $21.6 million and accordingly, an
impairment of $10.2 million was recorded and the remaining net realisable value of $11.4 million
reclassified to current assets as an asset held for sale. These investments were previously recorded as
investments, as more fully disclosed in note 15.
Page | 53
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
9. Staff numbers and costs
The average number of employees (including directors) during the year was:
Sales and Business Development
Central Services & Management
Production
Total
Their aggregate remuneration costs comprised:
(US dollars in thousands)
Salaries, wages and incentives
Social security costs
Pension contributions
Short-term compensated absences
Total
2018
9
37
148
194
2018
11,857
2,457
278
337
14,929
2017
4
11
23
38
2017
5,707
398
196
403
6,704
Directors’ emoluments were $1130,570 (2017: $1,704,809) of which the highest paid director
received $407,682 (2017: $1,297,504). Director emoluments include employer social security costs.
Key Management Personnel:
(US dollars in thousands)
Salaries, wages and incentives
Social security costs
Pension contributions
Short-term compensated absences
Total
2018
2,281
217
64
13
2,575
2017
3,014
194
39
101
3,348
Key management personnel are those below the Board level that have a significant impact on the
operations of the business. The number of key management personnel, including directors for the year
ended 31 March 2018 was 11 (2017: 11).
10. Finance income and expense
(US dollars in thousands)
Finance income
Interest received
Foreign exchange gains
Total
Finance expense
Related party loan interest payable
Convertible loan notes and preference shares interest payable
Financing agreement finance cost payable
Finance lease interest payable
Bank interest payable
Foreign exchange losses
Other finance costs
Total
Page | 54
2018
2017
9
-
9
1,636
1,220
217
55
17
93
157
3,395
-
13
13
171
358
-
-
37
-
36
602
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
11. Income tax expenses
The tax charge comprises:
(US dollars in thousands)
Current tax
UK corporation tax
Foreign tax
Total current tax
Deferred tax
Current year
UK corporation tax
Foreign tax
Total deferred tax
2018
2017
(29)
2,279
2,250
-
(2,361 )
(2,361 )
(370)
4,378
4,008
451
(3,428 )
(2,977 )
Total tax recovery/(charge) on profit on ordinary activities
6,258
(5,338 )
The difference between the total tax charge and the amount calculated by applying the weighted
average corporation tax rate applicable to each of the tax jurisdictions in which the Group operates to
the profit before tax is shown below.
(US dollars in thousands)
(Loss)/profit on ordinary activities before tax
Tax on group (loss)/profit on ordinary activities at the weighted
average corporation tax rate of 23% (2017: UK standard
corporation tax rate of 20%)
Effects of:
Expenses that are not deductible in determining taxable profits
Release of prior year current tax provision
Tax rates of subsidiaries operating in other jurisdictions
Change in tax rates
Total tax recovery/(charge) for the year recognised in the
Consolidated Statement of Comprehensive Income
11.1 Deferred tax
(US dollars in thousands)
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset/(liability)
2018
(34,137)
2017
10,638
7,772
(2,131)
(3,872)
2,358
-
-
(73)
-
(3,108)
(26)
6,258
(5,338)
2018
2,570
(26)
2,544
2017
2,312
(3,776)
(1,464)
These assets and liabilities are analysed as follows:
Deferred tax assets
1 April 2017
Credit/(charged) to comprehensive income
31 March 2018
Other
timing
differences
Total
-
985
985
2,312
258
2,570
Tax losses
2,312
(727 )
1,585
Page | 55
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
Deferred tax liabilities
1 April 2017
Credit/(charged) to comprehensive income
31 March 2018
Accelerated
allowances
Other
timing
differences
Total
(13 )
5
(8 )
(3,763)
3,745
(18)
(3,776)
3,750
(26)
Deferred tax has been recognised in the current period using the tax rates applicable to each of the tax
jurisdictions in which the Group operates. Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against current tax liabilities.
12. Property, plant and equipment
(US dollars in
thousands)
Cost
At 1 April 2017
Foreign exchange
Additions
Disposals
At 31 March 2018
Depreciation
At 1 April 2017
Foreign exchange
Charge for the year
Disposals
At 31 March 2018
Net book value
At 1 April 2017
At 31 March 2018
Computer
Equipment
Motor
Vehicles
Plant &
Equipment
Leasehold
improvement
Fixtures
and
Fittings
Total
525
3
121
(7)
642
327
2
97
(4)
422
1,632
10
437
(82)
1,997
1,027
6
203
(63)
1,173
1,892
12
537
(921)
1,520
650
4
107
-
761
156
1
4
-
161
41
-
12
-
53
11
-
2
-
13
4,216
26
1,101
(1,010)
4,333
8
-
1
-
9
2,053
12
420
(67)
2,418
198
220
605
824
1,242
759
115
108
3
4
2,163
1,915
The Group has $0.6 (2017: $0.3) million of assets held under finance lease. Details of the liabilities are
shown in note 19.
13. Intangible Assets
(US dollars in thousands)
Goodwill
Other intangible assets
Carrying value at 31 March
2018
2017
24,482
11,920
36,402
30,393
15,927
46,320
Page | 56
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
(a) Goodwill
Goodwill arose on the purchase of Aevitas O Holdings Limited and VivoPower Pty Limited on 29
December 2016.
(US dollars in thousands)
As at 1 April
Revaluations
Goodwill previously not recognised
Impairment
Reclassifications
Additions
Foreign exchange
Carrying value at 31 March
2018
30,393
3,597
627
(11,092)
138
-
819
24,482
2017
-
-
-
30,024
369
30,393
The carrying amounts of goodwill by Cash Generating Unit (“CGU”) are as follows:
(US dollars in thousands)
Aevitas O Holdings Limited
VivoPower Pty Limited
Total
2018
13,949
10,533
24,482
2017
9,800
20,593
30,393
In the prior year, the Group took advantage of the provisions of IFRS 3 in accounting for the business
combinations arising from the acquisitions of Aevitas O Holdings Pty Limited and VivoPower Pty Limited
whereby the financial statements recognised the Directors' best estimate of the individual allocation of
goodwill and other separately identifiable assets acquired. The purchase price allocation exercise was
completed in the current year and gave rise to a $3.6 million revaluation of goodwill and corresponding
decrease intangible assets as noted below.
The Group conducts impairment tests on the carrying value of goodwill annually, or more frequently if
there are any indications that goodwill might be impaired. The recoverable amount of the Cash
Generating Unit (“CGU”) to which goodwill has been allocated are determined from value in use
calculations. The key assumptions in the calculations are the discount rates applied, expected operating
margin levels and long-term growth rates. Management estimates discount rates that reflect the current
market assessments while margins and growth rates are based upon approved budgets and related
projections.
The Group prepares cash flow forecasts using the approved budgets for the coming financial year and
management projections for the following two years. Cash flows are also projected for subsequent years
as management believe that the investment is held for the long term. These budgets and projections
reflect management’s view of the expected market conditions and the position of the CGU’s products
and services within those markets.
As a result of the impairment review as at 31 March 2018, an impairment charge of $10.5 million was
recorded against the goodwill that arose on the acquisition of VivoPower Pty Limited in the previous
year. The recoverable amount was determined based on the present value of estimated future cash
flows discounted at 12.1% for cash flows budgeted for the year ended 31 March 2019 and 15.1% for
forecast cash flows thereafter. The Group’s strategic shift in Australia to the development of medium-
to-large scale behind-the-meter and utility-scale solar PV projects, away from our previous strategy of
acquiring small developed roof-mounted solar projects from third-party developers to sell to long term
owners, while expected to be more profitable in the longer-term, presents a higher degree of execution
risk in the short-term as suitable opportunities need to be identified, secured and developed. In addition,
the Company’s cost of capital and expected return from such projects has increased as limited capital
is prioritized to the best opportunities.
Page | 57
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
In addition, an impairment charge of $0.6 million was recorded on the first-time consolidation of three
Philippine-based controlled entities. VivoPower Singapore Pte Ltd, a wholly-owned subsidiary, has
control over three Philippines-based subsidiaries, V.V.P. Holdings Inc., VivoPower Philippines Inc., and
VivoPower RE Solutions Inc. These entities have not been previously consolidated on the basis of
materiality. As the activity within these entities has continued to increase, it was deemed appropriate to
consolidate them with effect from 1 April 2018. Upon initial consolidation, the Group recognized
negative net assets of $0.6 million which resulted in a corresponding amount of goodwill on acquisition.
This goodwill was immediately deemed impaired and the impact of the provision is included in the
Consolidated Statement of Comprehensive Income for the year ended 31 March 2018.
The CGU represented by Aevitas was assessed to have a value in excess of its respective carrying value
and hence no additional adjustments to goodwill were considered necessary. Key assumptions used in
the assessment of the Aevitas were:
●
the discount rate was based on the weighted average cost of capital of 9.2% (2017: 8.3%); and,
● no sensitivity analysis is provided as the Company expects no foreseeable changes in the
assumptions that would result in impairment of the goodwill.
(b) Other Intangible assets
(US dollars in
thousands)
Cost
At 1 April 2017
Foreign exchange
Revaluation
Additions
At 31 March 2018
Amortisation
At 1 April 2017
Amortisation
At 31 March 2018
Net book value
At 1 April 2017
At 31 March 2018
Customer
Relationships
Trade
Names
Favourable
Supply Contracts
Databases Other
Total
9.953 2,488
63
129
-
2,680
139
(4,293 )
-
5,799
2,488
126
1,963
-
4,577
734
4
(584)
-
154
812 16,475
332
-
(3,597)
(812)
98
98
98 13,308
347
330
677
43
194
237
122
284
406
36
32
68
-
-
-
548
840
1,388
9,606 2,445
2,443
5,122
2,366
4,171
698
86
812 15,927
98 11,920
Page | 58
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
14. Investment in subsidiaries
The principal operating undertakings in which the Group’s interest at the year-end is more than 20% are
as follows:
Subsidiary undertakings
Percentage of
ordinary
shares held
Registered address
VivoPower International Services Limited
100%
VivoPower International Holdings Limited
VivoPower USA LLC
VivoRex LLC
VivoPower US-NC-31, LLC
VivoPower US-NC-47, LLC
VivoPower (USA) Development, LLC
VivoPower Pty Limited
Aevitas O Holdings Pty Limited
Aevitas Group Limited
Aevitas Holdings Pty Limited
Electrical Engineering Group Pty Limited
JA Martin Electrical Limited
Kenshaw Electrical Pty Limited
VivoPower WA Pty Limited
VVP Project 1 Pty Limited
VVP Project 2 Pty Limited
Amaroo Solar Tco Pty Limited
Amaroo Solar Hco Pty Limited
Amaroo Solar Fco Pty Limited
Amaroo Solar Pty Limited
SC Tco Pty Limited
SC Hco Pty Limited
SC Fco Pty Limited
SC Oco Pty Limited
ACN 613885224 Pty Limited
Juice Capital Fund 1 Pty Limited
VivoPower Singapore Pte Limited
V.V.P. Holdings Inc.
VivoPower Philippines Inc.
VivoPower RE Solutions Inc.
Innovative Solar Ventures I, LLC
100%
100%
100%
100%
100%
100%
100%
100%
99.9%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
40%
64%
64%
50%
3rd Floor 37 Esplanade, St Helier, Jersey, JE2
3QA
91 Wimpole Street, London, England, UK W1G
0EF
251 Little Falls Drive, Wilmington, DE, USA
19808
153 Walker St, North Sydney NSW, Australia
2060
153 Walker St, North Sydney NSW, Australia
2060
36, UOB Plaza 1, 80 Raffles Place, Singapore
048624
Unit 10A, Net Lima Building, 5th Avenue cor.
26th Street, E-Square Zone, Crescent Park
West, Bonifacio Global City, Taguig, Metro
Manila
251 Little Falls Drive, Wilmington, DE, USA
19808
The Philippine entities above, listed as Associates, are under the control of VivoPower Singapore Pte
Limited, and therefore are consolidated into the consolidated financials of VivoPower International PLC.
This is in line with IFRS 10 [7] where it satisfies all three criteria to determine whether control exists.
Page | 59
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
15. Investments
(US dollars in thousands)
Innovative Solar Ventures I, LLC
US-NC-31 Sponsor Partner, LLC
US-NC-47 Sponsor Partner, LLC
Total
% Owned
50%
14.45%
10%
2018
14,147
-
-
14,147
2017
-
10,529
7,531
18,060
In April 2017, the Company entered into a 50% joint venture with an early-stage solar development
company, Innovative Solar Systems, LLC, to develop a diversified portfolio of 38 utility-scale solar
projects in 9 different states, representing a total electricity generating capacity of approximately 1.8
gigawatts, through an investment entity called Innovative Solar Ventures I, LLC (the “ISS Joint Venture”).
This investment is accounted for under the equity method.
Under the terms of the agreement, the Company committed to invest $14.9 million, which was recorded
in full at the outset and offset by a corresponding current obligation payable. The investment balance
at 31 March 2018, has been reduced by a $0.7 million commission credit described below.
Under the terms of the ISS Joint Venture agreement the Company committed to invest $14.9 million for
a 50% equity interest in the portfolio of 38 projects, an amount which included $0.8 million in potential
brokerage commissions that have not been required and which have been credited towards the
Company’s commitment. In addition, an initial capital contribution of $0.5 million was made by a top-
tier U.S.-based EPC firm, in consideration for a right to provide certain engineering services related to
the ISS Joint Venture portfolio projects. The $14.9 million investment is allocated to each of the 38
projects based on monthly capital contributions determined with reference to completion of specific
project development milestones under an approved development budget for the ISS Joint Venture. The
Company contributed to the ISS Joint Venture an additional $12.4 million of the $14.9 million
commitment over the course of the year ended 31 March 2018, which after giving effect to the payment
by the EPC firm and a proportionate amount of the commission credit, left a remaining capital
commitment at 31 March 2018, of $1.3 million, which is recorded in trade and other payables.
The table below provides summarised financial information for the ISS Joint Venture. The information
disclosed reflects the amounts presented in the financial statements of ISS Joint Venture, amended to
reflect adjustments made by the Company when using the equity method, including fair value
adjustments and modifications for differences in accounting policy. The summarised financial
information for the ISS Joint Venture does not represent the Company’s share of those amounts.
(US dollars in thousands)
Current assets
Non-current assets
Net assets
2018
1,373
26,921
28,294
2017
-
-
-
No summarised statement of comprehensive income has been presented as there were no movements
in comprehensive income in the year (2017: nil).
Page | 60
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
Reconciliation to carrying amounts:
(US dollars in thousands)
Opening net assets
Initial investment
Commission credit
Net assets
VivoPower share in %
VivoPower share in $ (US dollars in thousands)
2018
-
29,808
(1,514)
28,294
50%
14,147
2017
-
-
-
-
-
During the year ended 31 March 2017, the Company developed its first two major solar projects, located
in North Carolina, United States, known as NC-31 and NC-47 (together the “NC Projects”). The Company
acquired these projects on 14 June 2016 and 29 August 2016, respectively. On 29 July 2016 and 25
October 2016, and prior to commencement of construction, third-party investors acquired the majority
of these projects, with the Company retaining a 14.5% and 10.0% non-controlling equity interest in NC-
31 and NC-47, respectively (“Residual Interests”). The Company invested $18.1 million in the year
ended 31 March 2017, and an additional $3.5 million in the year ended 31 March 2018, for a total cost
of $21.6 million related to the Residual Interests. Subsequent to 31 March 2018, the Company sold the
Residual Interests to the majority investor and accordingly have reclassified the investment to current
assets as asset held for sale, as more fully disclosed in note 8.
16. Cash and cash equivalents
(US dollars in thousands)
Cash at bank and in hand
2018
2017
1,939
10,970
The credit ratings of the counterparties with which cash was held are detailed in the table below.
(US dollars in thousands)
A-1+
A-1
A-2
Total
17. Trade and other receivables
(US dollars in thousands)
Current receivables
Trade receivables
Accrued income
Prepayments
Other receivables
Related party receivable
Total
Non-current receivables
Loan due from associate
Other receivables
Total
Page | 61
2018
830
969
140
1,939
2017
2,341
8,161
468
10,970
2018
2017
5,333
120
391
2,059
-
7,903
5,248
13,183
563
722
128
19,844
-
-
-
549
618
1,167
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
Analysis of trade receivables:
(US dollars in thousands)
Trade and other receivables
Less: credit note provision
Total
2018
5,335
(2)
5,333
The maximum exposure to credit risk for trade receivables by geographic region was:
(US dollars in thousands)
USA
United Kingdom
Australia
Total
The aging of the trade receivables, net of provisions is:
(US dollars in thousands)
0-90 days
Greater than 90 days
Total
18. Trade and other payables
(US dollars in thousands)
Trade payables
Accruals
Related party payable
Treasury shares (see note 25 for further details)
Payroll liabilities
Sales tax payable
Deferred income
Other creditors
Total
2018
129
12
5,192
5,333
2018
5,326
7
5,333
2018
5,644
3,008
-
-
504
310
1,544
3,072
14,082
2017
5,250
(2)
5,248
2017
1,600
3,648
5,248
2017
5,092
156
5,248
2017
2,158
1,297
1,445
592
1,972
412
305
81
8,262
19. Obligations under finance leases
(US dollars in thousands)
Amounts payable under finance leases:
Less than one year
Later than one year but not more than five
Future finance charges
Total obligations under finance lease
Minimum lease
payments:
Present value of
minimum lease
payments
2018
2017
2018
2017
291
327
618
(40)
578
165
107
272
(32)
240
285
293
578
-
-
145
95
240
-
-
Page | 62
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
20. Provisions
(US dollars in thousands)
Current provisions
Employee and contractor termination
Onerous contract
Employee entitlements
Non-current provisions
Employee entitlements
Total
2018
2017
616
380
1,474
-
-
1,339
288
2,758
237
1,576
The employee and contractor termination provision represents severance and contract termination
costs associated with employees and contractors who departed the business as a result of the
restructuring more fully disclosed in note 7.
The onerous contract provision recognizes the loss associated with a contract to sell Solar Renewable
Energy Certificates purchased from the NC-47 project at a loss until April 21, 2022.
Employee entitlements include long term leave and vacation provisions.
(US dollars in thousands)
At 1 April 2016
Acquired through business
combinations
At 31 March 2017
Charged/(credited) to profit
or loss
Additional provisions recognised
At 31 March 2018
Employee
Entitlements
-
1,576
Employee
Termination
-
-
Contractor
Termination
-
-
Onerous
Contract
-
-
Total
-
1,576
1,576
186
1,762
--
32
32
-
-
1,576
584
584
380
380
1,182
2,758
21. Loans and borrowings
(US dollars in thousands)
Current liabilities
Financing agreement
Related party loan
Bank loan
Non-current liabilities
Bank loan
Related party loan
Total
2018
2017
2,000
1,670
-
-
18,092
21,762
-
-
90
933
18,992
20,015
The financing agreement represents a short-term loan from SolarTide, LLC, an affiliate of DEPCOM
Power, which was made in January 2018, subject to a loan fee of $0.3m, interest at 12%, and was
repaid in May 2018.
The related party loans in current liabilities are with Arowana International Limited. A $0.8 million was
made in March 2018, bears interest at 8.5%, and was repaid in April 2018. The remaining $0.9 million
is the current portion of the non-current related party loan described below.
Page | 63
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
The bank loan was due to ANZ Bank and was repaid in February 2018 on sale of the related Amaroo
solar project. The loan was repayable over an 11.5-year period at a monthly repayment amount of
approximately $7,500 per month for 138 months.
The non-current related party loan of $18.1 million loan is the non-current portion of a $19 million loan
from Arowana International Limited, which bears interest at 8.5% paid monthly in arrears, and is
repayable in twelve equal monthly instalments of $75,000 beginning April 2018, with the remainder
repayable in 36 equal monthly instalments thereafter.
22. Called up share capital
Allotted, called up and fully paid
Ordinary shares of $0.012 each as at 31 March
Number allotted
Ordinary shares of $0.012 each
2018
2017
$
162,689 $
162,689
13,557,376 13,557,376
At 1 April 2017
Issue of new shares
At 31 March 2018
23. Other reserves
(US dollars in thousands)
Equity instruments
Share option reserve
Capital raising costs
Treasury shares (see note 25)
Foreign exchange
Total
No. of
shares
13,557,376
-
13,557,376
2018
2017
25.072
3,713
(9,722)
(592)
(88)
18,383
25,072
3,713
(9,722)
(592)
(142)
18,329
Equity instruments are convertible preference shares and convertible loan notes in Aevitas Group
Limited (“Aevitas Group”) which must convert to shares of VivoPower at $10.20 per share no later than
30 June 2021. The Company has classified these instruments as equity under the “fixed-for-fixed” rule
meaning that both the amount of consideration received/receivable and the number of equity
instruments to be issued is fixed.
There are 2,473,367 convertible preference shares outstanding with a face value of AU$3.00 per share
and mature on June 30, 2021. The value held in reserves of AU$9,956,149 represents their face value
plus the dividends accrued to 29 December 2016, the date at which they became convertible to
VivoPower shares. Convertible preference shares are subordinated to all creditors of Aevitas Group, rank
equally amongst themselves, and rank in priority to ordinary shares of Aevitas Group.
There are 2,473,367 convertible loan notes outstanding with a face value of AU$7.00 per share and
mature on June 30, 2021. The value held in reserves of AU$22,489,140 represents their face value
plus the dividends accrued to 29 December 2016, the date at which they became convertible to
VivoPower shares. The convertible loan notes rank equally with the unsecured creditors of Aevitas
Group.
Page | 64
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
Dividends or interest is payable quarterly in arrears at a rate of 7% on the capitalised value to 29
December 2016. At maturity, or if a trigger event such as a change of control event, listing event or a
disposal of substantially all of Aevitas Group has occurred, the Company can choose to redeem the
instruments or convert them into VivoPower ordinary shares at a price of US$10.20 per share.
In connection with the acquisition of Aevitas Group, the Company entered into a guarantee of the
obligations of Aevitas Group under the terms of the preference shares and loan notes.
The share option reserve represents 828,000 share options granted to Early Bird Capital as part of the
initial public share offering. The options entitle the holder to buy VivoPower ordinary shares at US$8.70
at any time before 30 April 2020. The options were accounted for as a share-based award and
accordingly, the cost of the award was recognised directly in equity and was applied against capital
raising costs. The fair value of the options was determined at the grant date, using the Black Scholes
Model, and not remeasured subsequently.
24. Earnings per share
The earnings and weighted average numbers of ordinary shares used in the calculation of earnings per
share are as follows:
(US dollars in thousands)
Profit/(loss) for the year
2018
(27,879)
2017
5,300
Weighted average number of shares in issue (‘000s)
13,557
6,548
Basic earnings/(loss) per share (dollars)
Diluted earnings/(loss) per share (dollars)
(2.06)
(2.06)
0.81
0.81
25. Treasury shares
On 30 March 2017, the Company repurchased 129,805 shares at a price of $4.50 for a total sum of
$591,916, including commission. The shares are being held as treasury shares.
26. Contingencies
(a) Litigation
On February 26, 2018, the Company’s former Chief Executive Officer, Phillip Comberg, filed a legal claim
alleging the Company committed a repudiatory breach of his service agreement in connection with the
termination of his employment on October 4, 2017. Mr. Comberg is claiming damages of £615,600
related to the notice period in his service agreement, £540,000 related to shares in the Company he
alleges were due to him, and other unquantified amounts related to bonuses and past services fees
alleged to be due.
On April 9, 2018, the Company filed a defence and counterclaim, denying the claims asserted by Mr.
Comberg and claiming damages in an amount of approximately $27 million plus certain other amounts
to be quantified. The Company believes strongly in the merits of its litigation against Mr. Comberg and
intends to continue a strong defence and counterclaim.
As the outcome of the litigation is uncertain, very much dependent upon uncertain future determinations
by third parties, and the amount of any possible recovery or liability cannot be reliably measured, no
provision has been made in these financial statements in respect of this matter.
Page | 65
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
(b) Bank guarantees
The Group has issued bank guarantees totalling $1.0 million to customers to secure performance
obligations under power services contracts. These obligations are secured by first charge over the assets
of JA Martin PTY Limited.
27. Operating lease commitments
(US dollars in thousands)
Commitments under non-cancellable operating leases expiring:
Within one year
Later than one year and less than five years
2018
Property
2017
Property
144
160
15
159
The Group leases several buildings and office facilities. The terms of the leases vary from location to
location. The main leases are in New South Wales, Australia and run for a period for a period of 5 years
and 1 year. The leases are due to expire in 2019.
28. Pensions
The Group’s principal pension plan comprises the compulsory Superannuation scheme in Australia,
where the Group contributes 9.5%. The pension charge for the year represents contributions payable by
the Group which amounted to $900,483 (2017: $196,005) in respect of the Australian scheme. New
schemes will be completed for the UK and US during the forthcoming year.
29. Financial instruments
(US dollars in thousands)
Financial assets
Trade and other receivables
Cash and cash equivalents
Total
Financial Liabilities
Loans and borrowings
Trade and other payables
Finance leases payable
Total
2018
2017
7,512
1,939
9,451
21,762
13,268
578
35,608
20,448
10,970
31,418
20,015
5,878
240
26,133
The amounts disclosed in the above table for trade and other receivables and payables do not agree to
the amount reported in the Company’s consolidated statement of financial position as they exclude
prepaid expenses, payroll and sale tax payables which are not considered to be financial assets or
liabilities.
(a) Financial risk management
The Group’s principal financial instruments are bank balances, cash and medium-term loans. The main
purpose of these financial instruments is to manage the Group’s funding and liquidity requirements.
The Group also has other financial instruments such as trade receivables and trade payables which
arise directly from its operations.
The Group is exposed through its operations to the following financial risks:
● Liquidity risk
● Credit risk
Page | 66
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
●
Interest rate risk
● Foreign currency risk
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk
management framework. Policy for managing risks is set by the Chief Financial Officer and is
implemented by the Group’s finance department. All risks are managed centrally with a tight control of
all financial matters.
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group considers that it has no significant liquidity risk. The Group held cash resources of $1.9
(2017: $10.9) million with related party loan of $19.0 (2017: $19.0) million. The ratio of current assets
to current liabilities is 1.03 (2017: 2.53:1). The Group manages its liquidity as a whole and ensures that
there are sufficient available cash resources for each Group company to operate effectively.
(c) Credit risk
The primary risk arises from the Group’s receivables from customers. The majority of the Group’s
customers are long standing and have been a customer of the Group for many years. Losses have
occurred infrequently. The Group is mainly exposed to credit risks from credit sales but the Group has
no significant concentrations of credit risk and keeps the credit status of customers under review. Credit
risks of customers of new customers are reviewed before entering into contracts. The debtor exposure
is monitored by Group finance and the local entities review and report their exposure on a monthly basis.
The Group does not consider the exposure to the above risks to be significant and has therefore not
presented a sensitivity analysis on the identified risks.
The credit quality of debtors neither past due nor impaired is good. Refer to note 17 for further analysis
on trade receivables.
(d) Foreign currency risk
The Group operates internationally and is exposed to foreign exchange risk on sales and purchases that
are denominated in currencies other than the respective functional currencies of the Group entities to
which they relate, primarily with respect to GBP and USD, but also between USD and AUD.
The Group’s investments in overseas subsidiaries are not hedged as those currency positions are either
USD denominated and/or considered to be long-term in nature.
The Group is exposed to foreign exchange risk on $7.4 million of trade and other receivables
denominated in AUD. In addition, the Group is exposed to foreign exchange risk on $6.1 million or trade
and other payables, of which $4.9 million is denominated in AUD and $1.2 million in GBP.
The related party loans are denominated in USD, and therefore, foreign currency risk is eliminated.
(e) Interest rate risk
As a result of the related party loan agreement the Group is exposed to interest rate volatility. However,
the interest rate is fixed for the medium term, therefore, the risk is largely mitigated for the near future.
The Group will continue to monitor the movements in the wider global economy.
Page | 67
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
30. Related party transactions
Arowana International Limited is the ultimate controlling party by virtue of its 60.3% shareholding in
VivoPower. Kevin Chin, Chairman of VivoPower, is also Chief Executive of Arowana International Limited.
During the year, a number of services were provided to the Group from Arowana and its subsidiaries
(“Arowana”); the extent of the transactions between the two groups is listed below.
VivoPower is indebted to Arowana via a related party loan on normal commercial terms with interest
charged at 8.5% per annum, which was repaid, together with interest, in April 2018. At 31 March 2018
the principal balance due to Arowana by VivoPower under this loan was $770,000 (2017: nil).
VivoPower is indebted to Arowana via a related party loan on normal commercial terms with interest at
8.5% per annum payable monthly in arrears and principal repayable in equal monthly instalments of
$75,000 beginning April 2018, with the remainder repayable in 36 equal monthly instalments
thereafter. At 31 March 2018 the principal balance due to Arowana by VivoPower under this loan was
$18,992,263 (2017: $18,992,263).
Directors fees for Kevin Chin in the amount of $21,094 per month are charged by Arowana Partners
Group Pty Limited. At 31 March 2018 the Company had an account payable to Arowana Partners Group
Pty Limited of $42,188 (2017: nil) in respect of these services.
Art Russell, Chief Financial Officer, is employed by Arowana International UK Limited, a subsidiary of
Arowana, and seconded to VivoPower; $26,352 per month is charged to the Company for these services.
At 31 March 2018 the Company had an account payable of $80,036 (2017: nil) in respect of these
services.
Gary Hui, Director, is paid an annual salary of $360,000 by VivoPower, $260,000 of which is recharged
to Arowana on a monthly basis, together with related expenses. At 31 March 2018 VivoPower had an
account receivable from Arowana of $242,915 (2017: $121,046) in respect of these recharges.
From time to time, costs incurred by Arowana on behalf of VivoPower are recharged to the Company.
During the year ended 31 March 2018, Arowana recharged $1.6 million of third-party fees to VivoPower
related to international solar procurement consulting, project evaluations, engineering review and
technical validation related to the EPC contract for NC-31, a solar project in North Carolina which was
substantially completed on 27 March 2017; the expense has been included in general and
administrative expenses. In addition, $202,003 was recharged to the Company related to an abandoned
business development project and included in restructuring costs as disclosed in note 7. At 31 March
2018 the Company has a payable to Arowana for both amounts, totalling $1,802,003 (2017: nil).
Kevin Chin or entities controlled by Kevin Chin are investors in ReNu Energy, with whom the Group
entered into an alliance agreement and sold the Amaroo solar project for $2.0 million during the year.
Aevitas is indebted to the following subsidiaries of Arowana via their holdings in Aevitas convertible loan
notes, which are accounted for as equity instruments within other reserves, as more fully described in
note 23, and for which they earned $758,766 of interest during the year ended 31 March 2018. The
outstanding amount represents the face value plus interest accrued to 29 December 2016:
● Arowana Australasian Special Situations 1A Pty Ltd : 666,666 Aevitas notes held with an outstanding amount of $4,655,366;
● Arowana Australasian Special Situations 1B Pty Ltd : 666,666 Aevitas notes held with an outstanding amount of $4,655,366; and,
● Arowana Australasian Special Situations 1C Pty Ltd : 666,667 Aevitas notes held with an outstanding amount of $4,655,366.
Page | 68
Notes to the Financial Statements (continued)
for the year ended 31 March 2018
Subsidiaries of Arowana hold the following convertible preferred shares of Aevitas, which are accounted
for as equity instruments within other reserves, and for which they earned $325,185 of dividends during
the year ended 31 March 2018. The outstanding amount represents the face value plus dividends
accrued to 29 December 2016:
● Arowana Australasian Special Situations 1A Pty Ltd : 388,889 Aevitas preferred shares held with an outstanding amount of $1,163,843;
● Arowana Australasian Special Situations 1B Pty Ltd : 388,889 Aevitas preferred shares held with an outstanding amount of $1,163,843;
● Arowana Australasian Special Situations 1C Pty Ltd : 388,889 Aevitas preferred shares held with an outstanding amount of $1,163,843; and,
● Arowana Australasian Special Situations Fund 1 Pty Limited : 833,333 Aevitas preferred shares held with an outstanding amount of
$2,493,948.
Aevitas is indebted to the following entities via their holdings in Aevitas convertible loan notes:
● The Panaga Group Trust, of which Mr. Kevin Chin is a beneficiary and one of the directors of the
corporate trustee of such trust, holds 4,500 notes with an outstanding amount of $31,425
representing face value plus interest accrued to December 31, 2016, and earned interest of $1,707
for the year ended March 31, 2018; and,
● Sd & K Investments Pty Ltd an entity controlled by Mr Dudley Hoskin holds
43,249 notes with an outstanding amount of $302,010, representing face value plus interest
accrued to December 31, 2016, and earned interest of $16,408 for the year ended March 31, 2018.
Aevitas is indebted to the following entities via their holdings in Aevitas convertible preferred shares:
●
The Panaga Group Trust, of which Mr. Kevin Chin is a beneficiary and one of the directors of the
corporate trustee of such trust, holds 4,500 shares with an outstanding amount of $13,467
representing face value plus dividends accrued to December 31, 2016, and earned dividends of
$732 for the year ended March 31, 2018; and,
● Sd & K Investments Pty Ltd an entity controlled by Mr Dudley Hoskin holds
43,249 shares with an outstanding amount of $129,433 representing face value plus dividends
accrued to December 31, 2016, and earned dividends of $7,032 for the year ended March 31,
2018
31. Key management personnel compensation
Key management personnel, which are those roles that have a group management aspect to them are
included in note 9 to the consolidated financial statements.
32. Ultimate controlling party
The ultimate controlling party and the results into which these financials are consolidated is Arowana
International Limited.
Page | 69
Company Statement of Financial Position
as at 31 March 2018
(US dollars in thousands)
ASSETS
Non-current assets
Investments
Intercompany loan receivable
Total non-current assets
Current assets
Cash and cash equivalents
Other receivables
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Current liabilities
Trade payables
Accrued expenses and other payables
Total current liabilities
Equity
Share capital
Share premium
Other reserves
Retained deficit
Total Equity
TOTAL EQUITY AND LIABILITIES
Registered number 09978410
Note
2018
2017
3
4
5
6
7
7,388
25,258
33,646
20
17,257
17,277
49,923
17,853
25,072
42,925
439
15,526
15,965
58,890
630
600
245
870
1,230
1,115
163
40,215
18,657
(10,342)
48,693
49,923
163
40,215
18,471
(1,074 )
57,775
58,890
As allowed by S408 Companies Act 2006, no profit and loss account is presented in respect of the parent
company. The loss for Company after taxation was $9,260,663 (2017: $1,074,396).
These financials were approved by the Board on 18 July 2018 and signed on its behalf by:
Kevin Chin
Chairman
Page | 70
Company Cash Flow Statement
for the year ended 31 March 2018
(US dollars in thousands)
Note
2018
2017*
Cash flows from operating activities
Loss for the year
Income tax expense
Finance income
Finance expense
Impairment of investment
Increase in trade and other receivables
Increase in trade and other payables
Net cash (used in)/from operating activities
Cash flows from investing activities
Interest received
Investment in subsidiary
Intercompany loan funding
Net cash (used in)/from investing activities
Cash flows from financing activities
Other reserves
Finance expense
Funds received from issuing shares
Costs from listing
Issuance treasury shares
3
3
4
Net cash from/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
* Comparative results are for the 14-month period ended 31 March 2017.
(9,261)
29
(2)
33
10,465
277
86
1,627
2
-
(2,008)
(2,006)
(7)
(33)
-
-
-
(40)
(419)
439
20
(1,074)
-
-
-
(399)
(399)
1,115
(358)
-
(17,853)
(15,127)
(32,980)
-
-
40,378
(6,009)
(592)
33,777
439
-
439
Page | 71
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Notes to the Company Financial Statements
for the period ended 31 March 2018
1. Basis of preparation
VivoPower International PLC company financial statements were prepared in accordance with International
Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to
companies reporting under IFRS. The financial statements have been prepared under the historical cost
convention.
As allowed by S408 Companies Act 2006, no profit and loss account is presented in respect of the parent
company.
2. Accounting policies
(a) Foreign exchange
The Company’s functional and presentational currency is the US dollar. Transactions denominated in foreign
currencies are translated into the functional currency of the entity at the rates prevailing at the dates of the
individual transactions. Foreign currency monetary assets and liabilities are translated at the rates prevailing
at the balance sheet date. Exchange gains and losses arising are charged or credited to the profit and loss
account.
(b) Taxation
Deferred taxation is provided in full for material timing differences except where recoverability of a deferred
tax is considered to be remote in the foreseeable future. Deferred tax balances are not discounted unless
the effects are considered to be material the Company’s results.
(c) Investments
Investments held as non-current assets are shown at cost less provision for impairment.
(d) Related party transactions
Details of the related party transactions can be found in note 30 within the consolidated financial
statements.
3. Investments
(US dollars in thousands)
Shares in group undertakings
Investment in VivoPower International Services Limited
Total
2018
2017
7,388
7,388
17,853
17,853
The details of the principal undertakings in which the Group’s interest at the period-end was more than 20%,
all of which are referred to in note 14 in the consolidated financial statements.
As at 31 March 2018, VivoPower International Services Limited (“VISL”) recorded an impairment charge of
$10.5 million against goodwill that arose on the acquisition of VivoPower Pty Limited in the previous year,
as disclosed in note 13 in the consolidated financial statements. Accordingly, this impairment has been
reflected in the Company’s investment in VISL.
Page | 73
Notes to the Company Financial Statements (continued)
for the period ended 31 March 2018
4. Other receivables
(US dollars in thousands)
Amounts owed by group undertakings
Prepaid expenses
Total
5. Accrued expenses and other payables
(US dollars in thousands)
Accrued expenses
Treasury shares
Payroll tax liabilities
Other creditors
Total
6. Share capital
(US dollars in thousands)
Allotted, called up and fully paid
Ordinary shares of $0.012 each as at 31 March
Number allotted
Ordinary shares of $0.012 each
1 April 2017
Issue of new shares
At 31 March 2018
2018
17,145
122
2017
15,127
399
17,257
15,526
2018
566
-
6
29
600
2017
267
592
4
7
870
2018
2017
$162,689
$162,689
13,557,376
13,557,376
No. of shares
13,557,376
-
13,557,376
The Company issued 13,557,376 ordinary shares at a nominal value of $0.012 during the period ended
31 March 2017.
On 30 March 2017, the Company repurchased 129,805 shares at a price of $4.50 for a total sum of
$591,916, including commission. The shares are being held as treasury shares.
7. Other reserves
(US dollars in thousands)
Equity instruments
Capital raising costs
Share option reserve
Treasury shares (see note 6)
Foreign exchange
Total
Page | 74
2018
25,072
(9,722)
3,713
(592)
186
18,657
2017
25,072
(9,722)
3,713
(592)
-
18,471
Notes to the Company Financial Statements (continued)
for the period ended 31 March 2018
Equity instruments relate to convertible preference shares and convertible loan notes that are exchangeable
for shares in VivoPower International PLC. There are 2,473,367 convertible preference shares at an issue
price of $3.00 per share. There are 2,473,367 convertible loan notes at an issue price of $7.00 per share.
The value held in reserves represents their face value plus the accrued interest to 31 December 2016.
Interest is payable quarterly in arrears at a rate of 7% on both instruments.
Share option reserve relates to share options whereby the holder can buy VivoPower International PLC
shares at US$8.70 at any time before 30 April 2020. As at 31 March 2018, there were 828,000 options
outstanding.
8. Employees and directors
The company employed no members of staff during the course of the period. Contractual agreements are
in place for five non-executive directors to serve on the board of VivoPower International PLC.
See the Directors’ Report in the consolidated financial statements for full details of the directors.
Page | 75
Company Information
ADVISORS
Company Registrars
Computershare Inc.,
250 Royall Street,
Canton, MA, USA 02021
Correspondence address:
Computershare Inc.,
P.O. Box 505000,
Louisville, KY, USA 40233
Legal Advisers
Herbert Smith Freehills LLP,
Exchange House,
Primrose Street,
London, UK EC2A 2EG
Principal Bankers
Barclays Bank PLC,
Level 16, 1 Churchill Place,
Canary Wharf,
London, UK E14 5HP
Independent auditors
Company Secretary
PKF Littlejohn LLP,
1 Westferry Circus,
Canary Wharf,
London, UK E14 4HD
First Names Secretaries (GB) Limited,
4th Floor, 45 Monmouth Street,
London, UK WC2H 9DG
SHAREHOLDER INFORMATION
Country of Incorporation and main
countries of operation
Number of Securities in Issue
International PLC is incorporated in
England & Wales. The Company operates in the
United Kingdom, United States with a nominal value of $0.012 each.
and Australia The Company has 129,805 treasury shares.
As of 18 July 2018, the Company’s VivoPower
issued share capital consists of
13,557,376 ordinary shares
Company Registration
Registered office: 91 Wimpole Street, London, UK W1G 0EF
Registered in England & Wales
Company number: 09978410
FINANCIAL CALENDAR
Annual General Meeting (“AGM”)
The Company’s AGM will be held at 15:00 on 20 August 2018, at the Company’s headquarters, located at 91
Wimpole Street, Marylebone, London, United Kingdom W1G 0EF.
Page | 76
Annual Report 2018 - Cover Pages hires copy.pdf 2 7/16/2018 7:54:40 PM
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