Interim Results
Invinity Energy Systems plc (AIM:IES), leading global manufacturer of vanadium flow batteries, is pleased to announce its unaudited consolidated results for the six months ended 30 June 2021 (the "Period").
Invinity's management team will host a virtual results presentation and interactive Q&A for shareholders on Thursday 30 September at 5 pm (UK Time). To register to join the session, please do so via the registration page. Please note the deadline for registration is 23:59 (UK Time) on Wednesday 29 September.
HIGHLIGHTS
Financial
•§Operating loss of £8.8m (H1 2020 £5.0m)
•§Inventory build-up of £8.6m (H1 2020 £0.1m)
•§Cash at 30 June 2021 £10.9m (H1 2020 £4.5m)
•§Loans and borrowings £nil (H1 2020 £0.9m)
Operational
The Period saw successful deployment of capital raised in December 2020 to scale up Invinity's manufacturing and organisational capabilities and progress with the delivery of key strategic projects. Highlights include:
•§Expansion of Invinity's global manufacturing capabilities leading to a 100% increase in capacity.
•§Despite ongoing global supply chain disruption, significant progress toward the delivery of more than 16MWh of key projects including:
o 5MWh Energy Superhub Oxford project - currently in commissioning phase and scheduled for completion in Q4 2021. First stage of commissioning expected to complete within weeks.
o 0.8MWh Scottish Water project - currently in delivery phase, shipping expected to commence in early Q4 2021.
o 1.8MWh Flow + Hydrogen + Tidal project, Orkney Islands - manufacturing phase nearing completion, delivery scheduled to commence during Q4 2021.
o 8MWh Yadlamalka Energy solar-plus-storage power plant, South Australia - manufacturing nearing completion, shipping to site scheduled to commence later in Q4 2021. Delivery remains contingent on the customer's receipt of local construction approvals, which management have recently learned may require more time. Due to this delay, Invinity anticipates that the site may not be ready to receive delivery of product until early 2022. Further updates in respect of this project's timeline will be provided in due course.
o Various other projects for delivery across the USA and Asia totalling 1.5MWh are in the final stages of manufacturing with delivery expected to take place during Q4 2021 and early 2022.
Commercial
Further to figures presented in the Group's 2020 Annual Report, the Group's latest commercial opportunity pipeline as at 14 September 2021 is summarised below.
Base Upside Pipeline
14 September 2021 18.8 MWh 38.4 MWh 262.6 MWh
17 May 2021 (FY2020) 10.1 MWh 30.8 MWh 232.0 MWh
23 September 2020 (HY2020) 13.7 MWh 36.4 MWh 68.9 MWh
Year-on-Year Change +37% +5% +281%
Movements in the commercial opportunity pipeline primarily reflect a significant increase in both the number and average size of prospective projects that have been qualified by Invinity's Commercial team over the course of 2021, driven in large part by significantly increased inbound interest in the Group's products and solutions. The number of opportunities categorised as either "Upside" or "Base" has increased 40% since May 2021, whilst early stage "pipeline" interest has continued to grow steadily, up 13% over the same period.
Invinity remains encouraged by the volume of opportunities that have progressed from "Pipeline", representing opportunities that have met certain qualification thresholds, to the "Upside" (expected to enter contracting in the near term) and "Base" (in contracting) categorisations which include deals with significant commercial traction and a high degree of certainty of near-term close.
Key contracts closed during the Period included the 0.5 MWh sale in California to Indian Energy LLC for a project supported by the California Energy Commission announced on 17 May 2021. Cash receipts for milestone payments during the Period totalled £3.2m.
Further information is provided in the commercial update section below.
Outlook
The global need for large-scale energy storage has become clearer and more compelling since Invinity's last report, while concerns about lithium-based systems are increasing, creating a large market opportunity for a utility-grade alternative to lithium storage. The Group is focused on establishing its position as the leading provider of that alternative by developing and delivering the Invinity VS3, our factory-built flow battery product. Overcoming obstacles and delays, the Group has doubled its manufacturing capacity, increased its product and project delivery capabilities, instituted quality systems and scalable processes, and advanced toward completion of signed projects.
Perhaps most significantly, the Group has entered into a Joint Development and Commercialisation Agreement with Gamesa Electric and Siemens Gamesa Renewable Energy to co-develop a next-generation vanadium flow battery able to address projects at utility scale. The gated development process is proceeding with the achievement of the first milestone anticipated before the end of the year. Finally, the Group has been progressing a number of sales contracts, completion of which, management expect to be able to announce soon.
Larry Zulch, Chief Executive Officer at Invinity said:
"We spent the Period building Invinity's ability to address the global opportunities for non-lithium energy storage now and for years to come. This vital 'behind the scenes' work is paying off as we establish Invinity as foremost in providing a factory-built flow battery product, progressing to our goal of being the global leader in utility-grade energy storage. Our VS3 is finally shipping as a standardized product into multiple projects, marking a highly significant inflection point for the Group. I couldn't be more pleased at the progress we've made, the size of the opportunity in front of us, and our ability to address it."
Enquiries:
Invinity Energy Systems plc +44 (0)204 551 0361
Larry Zulch, Chief Executive Officer
Peter Dixon-Clarke, Chief Financial Officer
Joe Worthington, Director of Communications
Canaccord Genuity (Nominated Adviser and Joint Broker) +44 (0)20 7523 8000
Henry Fitzgerald-O'Connor / James Asensio
VSA Capital (Financial Adviser and Joint Broker)
Andrew Monk / Simon Barton +44 (0)20 3005 5000
Hudson Sandler (Financial PR)
Nick Lyon / Nick Moore +44(0) 207 796 4133
STRATEGY UPDATE
During the first six months of 2021, the Group made tremendous advances in its strategic goal of becoming the first battery manufacturer to offer a truly viable alternative to existing lithium-ion stationary energy storage systems. This strategy relies on delivering a modular, value engineered, factory-built product - not a prototype, one-off, custom installation, or experiment - and doing so efficiently and in volume.
It is only when combined with energy storage that wind and solar become a dispatchable asset rather than a periodic, and sometimes unreliable, contributor to global energy needs. As wind and solar take their proper place in the energy infrastructure, they must be matched with utility-grade energy storage. Until Invinity unveiled what we believe to be the industry's first flow battery delivered as a turn-key, factory-built product, battery energy storage with the following four primary characteristics was not available:
1) Safe. Utility grade storage must not pose a persistent fire risk. Invinity's VS3 stores energy in an aqueous electrolyte which simply cannot catch fire. Our products are designed with a "safety in depth" philosophy.
2) Long life. Utility grade energy storage should last as long as the renewable energy products it supports, which is generally 25 years for wind and solar products. The VS3 is designed to have a 25-year lifetime with no limitations on cycling.
3) Economical. The cost per unit of energy stored and discharged must be lower than the alternatives. Based on research, the costs per megawatt hour (MWh) of the Invinity VS3 are anticipated to be less than lithium-ion systems over the lifetime of the battery.
4) Proven. Utility-grade energy storage must be proven in operation in the field. Invinity has over 25 MWh installed or in committed projects. We expect this "proven" quality to be demonstrated upon the imminent completion of Energy Superhub Oxford, the first of a number of projects the Group will complete in 2021.
We don't believe any energy storage battery product without all four of these characteristics can accurately call itself utility grade. In this ability, Invinity stands alone.
Certainly, the timing is right to make utility-grade energy storage available to the global market. In many of today's largest energy markets, renewable penetration is currently constrained by the inability to use all the energy produced when the wind is blowing and the sun is shining, coupled with shortages when they are not. The UK, for example, will require a three-fold increase (an additional 200 GWh) to its grid capacity alone by 2050 to meet its renewable targets. Utility grade energy storage is expected to deliver a large proportion of this.
The amount of lithium needed to support the electrification of transport will impact global supplies, reducing its availability for the stationary storage applications where it would be in direct competition with our flow batteries. Finally, increasing scepticism about so-called "Blue Hydrogen" has propelled interest in "Green Hydrogen" made from renewable energy, which requires energy storage to provide a consistent electrical supply to the electrolysers as demonstrated by the Group's announced project with EMEC, the European Marine Energy Centre, which uses tidal power, smoothed by our vanadium flow battery, to create Green Hydrogen.
Preparing the Group to properly meet this global opportunity for stationary energy storage has been management's primary focus. Overseen by a team with exceptional experience in flow batteries and energy storage, the Group has deployed capital raised in December 2020 to add employees in product development, project management, quality systems, supply chain, manufacturing operations, customer solutions, logistics, and more. We have instituted systems, processes, and procedures to support the GroupÕs ability to scale including progress toward ISO certification. Plus we have efficiently built product now held as inventory which will imminently convert to revenue.
The Group has been addressing ever-larger commercial opportunities, progressing from hundreds of kilowatt hours (kWh) to multiple megawatt hours (MWh). But to properly meet future global demand for energy storage alternatives to lithium systems, the Group must be able to address requirements measured in 100s of MWh and even in gigawatt-hours (GWh).
Projects of this size are the goal of the Group's recently announced Joint Development and Commercialisation Agreement (JDCA) with Gamesa Electric and Siemens Gamesa Renewable Energy, leaders in grid-scale power systems and wind turbines. Together, Invinity and Gamesa Electric are developing the next generation of vanadium flow batteries with an unprecedented ability to scale to meet the largest, most significant requirements in the transition to a renewable energy future. The joint development process progresses as a sequence of defined milestones, the achievement of the first of which is expected by the end of 2021. The Group has devoted considerable resources to this effort and anticipates this commitment to continue for the two years of joint product development and the many years thereafter of joint commercialisation.
The Group's efforts toward building a robust product and a scalable organization will see its first external expression in Energy Superhub Oxford and other projects the Group will deliver in 2021. Like many companies over the past 18 months, we have had to overcome significant obstacles in completing and delivering our VS3 product. While the well-publicised global chip shortage, supply chain disruptions, shipping issues, and component delivery delays have put all our projects behind their original schedules, the Invinity team has persevered and solved the issues, emerging stronger and more confident than ever.
Everyone at Invinity is focused on realising the objective of being the flow battery leader. Indeed, we believe we are at the forefront of providing an alternative to lithium systems for stationary battery storage, we are deploying a compelling product, our market potential is of a very significant magnitude, our team is experienced and dedicated, and we enjoy the support of our shareholders and investors. We can't wait to show you what's next.
COMMERCIAL UPDATE
2021 has been a year when energy shortages and grid disruptions, from Texas to the UK, have repeatedly been front-page news. Universally one of the best responses to instability is to build resilience, meaning the addition of assets to the grid that can overcome supply shortages and extreme weather. This has generated significant discussion in our industry on the technical solutions and business models that can be deployed in response. Few mature energy storage solutions can deliver the same resilience and flexibility to the electric grid as Invinity's safe, robust and economical vanadium flow batteries.
As our market presence matures, Invinity is seeing an ever-larger number of industry players adopt exactly this view. In the days following the recent "thermal event" at a major battery project in Southern California, for example, we saw a tremendous increase in the number of enquiries seeking to understand how Invinity's VFBs can provide an alternative long-duration, high-throughput utility-grade energy storage solution with significantly lower risk.
This growing awareness that our VFBs deliver capabilities above and beyond those of other storage technologies in some of the toughest, heaviest-duty applications is one of the major reasons our commercial pipeline continues to grow. And while we continue to have a healthy group of opportunities which we categorise as "Base" (in contracting) and "Upside" (expected to enter contracting in the near term), our customers, their engineers and constructors, and the professionals who support them continue to manage the disruptions of the last year, slowing the completion of new contracts.
Nevertheless, we remain very positive about the opportunities in the nearer categories of our pipeline and expect that several will close before the end of 2021. There are some very exciting events to come: As stimulus bills focused on infrastructure in the U.S. and elsewhere become written into law, and as our lawmakers themselves gather for COP26 a stone's throw away from Invinity's newly expanded manufacturing facility in Bathgate Scotland, we expect the impetus for existing and new customers to contract for and to construct breakthrough storage solutions using Invinity's VFBs will only accelerate.
Against that backdrop, our commercial opportunities as at 14 September are as follows:
Base Upside Pipeline
14 September 2021 18.8 MWh 38.4 MWh 262.6 MWh
17 May 2021 (FY2020) 10.1 MWh
30.8 MWh 232.0 MWh
23 September 2020 (HY2020) 13.7 MWh 36.4 MWh 68.9 MWh
Year-on-Year Change +37% +5% +281%
As we reported in our 2020 Annual Report, we continue to see an increase in the average size of the opportunities in our commercial pipeline, with the average opportunity value 17% higher than in May 2021. As noted at that time, those larger opportunities tend to introduce complexities that present longer time horizons to close. We are at the early stages of development of even larger and truly exciting opportunities. As Invinity advances our VFBs to fulfil their promise as the first batteries that are utility-grade at utility-scale, we expect these enormous opportunities to become the focus of our future efforts.
FINANCIAL REPORT
The six-months under review have been characterised by scaling up manufacturing capability and expanding the business to service the current and growing future demand for our product. To this end, £11.2m of cash (£15.9m gross of receipts) was deployed in the Period. Of this £15.9m, notably £8.6m was used to build the inventory needed to deliver on our contracts and a further £3.9m to continue building the leading team in our sector.
Income statement & balance sheet
The result for the six-month period was a loss of £8.8m (against £5.0m loss for the comparative period and £24.3m loss for the prior year).
With revenue on closed contracts not being booked until commencement of delivery in the second half of this year, the primary drivers of the result were administrative expenses of £5.9m (H1 2020: £4.0m) and other items of £1.9m (H1 2020: £1.0m). As ongoing product research and development is not typically capitalised, it is included within administrative expenses under the GroupÕs accounting policies.
Other items of £1.9m relates primarily to an increase in the provision for onerous contracts, which is mainly due to global cost increases in the supply chain being experienced by all manufacturers over the last twelve-months, particularly for shipping from China, which, for example, increased six-fold from approximately $3,700 to $21,000 per 40-foot container from China to Europe.
As planned, we have been deploying cash to deliver on contracts and build our ongoing capabilities. The main balance sheet movements have therefore been the £8.6m build of completed and in-process Inventory, a £3.0m increase in contract liabilities representing milestone payments on closed contacts received before revenue can be recognised for accounting, and the £11.2m use of funds (see table below).
Current terms of trade and the need for early orders for long-lead items mean that inventory payments are initially recorded as prepayments within other current assets until the goods or services are transferred to the Group, at which point they are classified as inventory until transferred to the customer. At the Period end, £4.6m of inventory related payments were classified as prepayments and £5.5m as inventory, before allocated contract losses.
Use of funds
A summary of the payments and receipts during the six-month period is as follows:
Payments and receipts £'m
Inventory (including ESO & Yadlamalka) 8.6
Property, plant and equipment 0.6
Product related expenditure (including R&D) 0.8
Payroll 3.9
Other 2.0
15.9
Receipts§(4.7)
11.2
Payroll primarily reflects the investment in human resource within the Group to support growth targets with employee headcount increasing from 103 at the start of the Period to 132 at the end. The increased headcount has allowed for the creation of a specific Customer Operations department and all but one of the new hires across the Group are product facing, as set out below:
Headcount§1 January
2021§30 June
2021
Operations 20 48§
Commercial 17§17
Product development & technology 19 27
Solutions engineering and customer operations 14 26
Other 13§14
103 132
Receipts include £1.0m from the exercise of warrants under the Riverfort facility and £0.5m of UK Government grants. The £3.2m balance relates to milestone payments on closed contracts.
Going concern
The Group is debt free and had cash balances of £10.9m and £6.1m at the end of June 2021 and August 2021 respectively. It has closed contracts to the value of approximately £13.5m, of which £5.7m had been received by the end of June 2021 with most of the £7.8m balance expected by the end of June 2022. Most of the inventory payments required to deliver those contracts have already been made.
The Group has a growing pipeline of future sales (see above) with 57.2MWh of potential new contracts in Base and Upside and a further 262.6 MWh in Pipeline. This continued increase has largely been driven by the rapidly improving macro environment, both in terms of total addressable market and active and growing government support in its key markets.
The Group continually reviews its funding position and the funding options that are available to it. Based on this ongoing review and subject to the near-term rate of customer deliveries and new closed contracts, the Group expects to require additional finance within the next six months, assuming the continued rate of growth. The expectation is that additional finance will be available from both equity and non-equity sources or a combination of the two.
Having taken all of the above factors into account, the directors continue to believe it is appropriate to prepare these financial statements on a going concern basis, noting the material uncertainty arising from the need to secure additional funding within the coming months.
Financial outlook
The outlook for the Group remains positive both at a Group level and a macro level.
At the Group level, a further £7.8m of receipts are expected on closed contracts and revenue for most of those contracts is expected to be recognised in the second half of this year. Site delays (see above) at Yadlamalka mean that the revenue, of about £6.7m, is unlikely to be recognised on that contract until 2022.
At a macro level, the growing imperative for a utility grade alternative to lithium places the Group in exactly the right place to take full advantage both in the near term and beyond.
