Earnings Release • Jun 25, 2019
Earnings Release
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National Storage Mechanism | Additional information
RNS Number : 2636D
RedT Energy PLC
25 June 2019
This announcement contains inside information
25 June 2019
redT energy plc
("redT" or the "Company")
2018 Full Year Results
redT energy plc (AIM:RED), the energy storage solutions company, today announces its full year results for the 12 months ended 31 December 2018.
HIGHLIGHTS
Financial
2018 financials were in line with management expectations. 2018 saw the first revenue contribution (£2.5m) from the redT business, with the installation of a number of Second Generation ("Gen 2") machines at customer sites across the year. This was a vital step in validating the Company's technology and forms a crucial element which will support the Company in its drive to attract a strategic partner to secure the long-term future of the business.
· Revenue1 up 87% to £4.2m (2017: 2.2m)
· Year-end free cash £3.3m (2017: £6.6m)
· Trading loss1 £11.7m (2017: £6.3m loss)
· Operating loss1 of £12.2m (2017: loss £7.2m)
· Loans and borrowings £Nil (2017: £Nil)
(1) From continuing operations
The Strategic Review process launched on 14 March 2019 is progressing well and there are ongoing advanced discussions with a number of potential partners. Based on current forecasts, the Board estimates the Group requires at least £10m of investment to reach a scale where it becomes cash generative, expected to be in the second half of 2021. Following the announcement on 9 April 2019 after the General Meeting approving the Strategic Review fundraise, the Group's latest cash flow forecasts indicate that, without further funding, the business possesses cash reserves sufficient to fund operations up until the end of November 2019. The Board recognises that the need to secure funding before then casts doubt on the Group's ability to continue as a going concern and a material uncertainty paragraph has been included to this effect in the independent auditor's report. The Board, however, remains optimistic that the Group will secure the necessary capital in the appropriate time scale.
Operational
During the reporting period, the Company delivered 2.3MWh of its Gen 2 machines to customers in key applications and regions across the world. This achievement significantly increased redT's deployed product base, with the systems acting as important reference sites in key markets. In June, redT launched its new Third Generation ("Gen 3") product, with the first product sale announced in August 2018.
· More than 2.3MWh of machines (38 tank units) delivered to customers in the UK, Europe, Australia, Asia and sub-Saharan Africa.
· Deployment of the first vanadium flow / lithium-ion hybrid energy storage system, at a site in Melbourne, Australia. This is currently the largest behind-the-meter commercial energy storage system in the country, and a key reference site.
· Entry into Asian market, with unit sales to sites in Thailand.
· Launch of Gen 3 product and subsequent 300kWh sale to Anglian Water, the UK's largest water company by geographic area.
· Exclusivity agreement signed for German grid-scale project portfolio.
Post period activity
· On 14 March 2019, the Company announced it had commenced a Strategic Review to seek strategic partners to support and finance the continued growth of the business.
· On 25 March 2019, the Company announced it had signed a partnership with Statkraft, Europe's largest generator of renewable energy to provide a fully financed 'solar plus storage' product to UK Commercial & Industrial customers. This is the first time a product of this type has been offered to the UK market and the partnership aims to roll out up to 100MWp of solar and 60MWh of flow machines over the next 3 years.
· On 3 April 2019, the Company announced it had signed a purchase agreement to supply a 5MWh flow machine solution as part of the consortium delivering the £41 million Energy Superhub Oxford project. This project will be the largest deployment of flow machines in the UK to date and is redT's first "grid-scale" project.
Neil O'Brien, Executive Chairman at redT said:
"I have been impressed by the significant step forward we have made in the design and manufacturing processes of the latest Gen 3 units and remain optimistic about the Company and its people's ability to succeed in a market that is forecast to drive fundamental, positive change in our energy system in the years to come.
Right now, our immediate focus continues to be the satisfactory conclusion of the Strategic Review process, which is essential to provide the funding and support the Company requires in the near-term to succeed in this space. Progress to date with the Strategic Review has been encouraging and we look forward to updating shareholders further as soon as it is practical to do so.
Alongside the Strategic Review, which is being led by the Board, the executive team remain focussed on the manufacture, delivery and operation of our existing projects and securing further business from our sales opportunity pipeline. This work will support the widespread roll-out of our 3rd Generation product, which is the foundation for the Company to become cash generative in the future.
In closing, I would like to thank our highly dedicated staff who have faced and overcome the significant challenges of the last 12 months, and my Board colleagues for their continuing support and contribution to the ongoing activities of the Strategic Review process. I would like to extend my thanks also to our shareholders for their continuing support in the face of challenging circumstances, and to our customers for trusting in us to deliver high-quality energy storage infrastructure solutions for their projects."
Enquiries:
| redT energy plc | +44 (0)20 7121 6111 |
| Neil O'Brien, Executive Chairman Fraser Welham, Chief Financial Officer |
|
| Joe Worthington, Investor & Media Relations | |
| Investec Bank plc (Nominated Adviser and Broker) | +44 (0)20 7597 5970 |
| Jeremy Ellis / Chris Sim / Cassie Herlihy | |
| VSA Capital (Financial Adviser and Joint Broker) Andrew Monk / Andrew Raca |
+44 (0)20 3005 5000 |
| Celicourt Communications (Financial PR) Mark Antelme Jimmy Lea Ollie Mills |
+44 (0)20 7520 9266 |
Notes to Editors
About redT energy
redT energy plc are experts in energy storage, specialising in the design, manufacture, installation and operation of energy storage infrastructure which creates revenue alongside reliable, low-cost renewable generation for businesses, industry and electricity distribution networks. Using patented vanadium redox flow technology to store energy in liquid, redT's own energy storage machines can be run continually with no degradation: charging and discharging for over 25 years, matching the lifespan of renewable assets in on-grid, off-grid and weak-grid settings.
redT's energy storage solutions, developed over the past 15 years, address today's changing energy market by providing a flexible platform for time shifting surplus renewable power, securing electricity supplies and earning revenue through grid services. The Company has customers in the UK, Europe, sub-Saharan Africa, Australia and Asia Pacific. For more information, visit www.redTenergy.com
For sales, press or investor enquiries, please contact the redT team on +44 (0)207 061 6233.
Executive Chairman's Report
As your new Executive Chairman, I see my main objective as delivery on the Strategic Review we announced in March. I am pleased to report that we have held constructive discussions with various groups and these parties have conducted key due diligence. I believe we now have routes forward to achieving our key target, namely a properly financed group which is well set to exploit the market opportunities.
I myself have had more time to spend in the business and would wish to record my confidence in the capabilities we have, the quality of our staff and the size of the addressable market, which is still in its infancy.
The short-term market headwinds have eased. The fall in the vanadium price to more normalised levels is helpful and developments within the industry are also taking place whereby electrolyte rental agreements will remove this uncertainty. We have also faced a period of regulatory stability in major European markets which has allowed project developers to establish their plans.
During 2018, we were focussed on scaling our operations and gaining commercial momentum through the delivery of our Generation 2 ("Gen 2") machines to customers. However, delays in winning orders and consequent limited revenues have left us behind schedule in the delivery of our business plan. As a Board, we have addressed this by sharpening our strategic focus, implementing Board changes and renewing our efforts on delivering projects. I appreciate the patience and support of our staff and existing shareholders over the last 12 months.
We are beginning to see the benefits of the teams' efforts and in recent months have been able to announce a number of successful developments:
· the divestment of our legacy Camco US business in April 2019, resulting in a net cash benefit of US$1m;
· the formation of a partnership with Norwegian state utility, Statkraft, in March 2019 to offer a fully financed solar plus storage solution to the UK C&I sector via a power purchase agreement (PPA) structure;
· the signing of a purchase agreement to supply flow machines to the 5MWh, UK grid, Energy Superhub Oxford project.
The Strategic Review process, launched on 14 March 2019, is progressing well and there are ongoing advanced discussions with a number of potential investors. Based on current forecasts, the Board estimates the Group requires at least £10m of investment to reach a scale where it becomes cash generative, forecast to be in the second half of 2021. Despite these positive developments it is not certain that the Group will be able to secure the investment required before current cash reserves run out (as detailed in the Strategic Review and Board Changes below), creating a material uncertainty that casts significant doubt about the Group's ability to continue as a going concern. However, based on the ongoing discussions, the Board is optimistic that the Group will secure the necessary funding in the appropriate time scale.
Our Strategy
Whilst recognising the challenges facing us, our strategy remains unaltered. It is our aim to provide economic, energy storage infrastructure, based on our advanced 3rd generation ("Gen 3") vanadium redox flow technology, enabling the further penetration of renewable energy into the energy system and capitalising on the opportunities presented by the inevitable global energy transition.
Our modular, containerised vanadium flow machines give clients flexibility in a new and evolving energy industry. The modularised approach, along with the long life and heavy-cycling characteristics, of our vanadium flow machines addresses the need for sustainability and provides a route to lower costs over the 20 year plus projects we are targeting.
The Market
2018 saw the stationary energy storage market continue to grow rapidly, even exceeding previous strong growth expectations. In line with this outlook, Bloomberg New Energy Finance (BNEF) significantly increased its forecast for investment in the sector, predicting an inflow of more than US$620bn between 2018 and 2040 with a cumulative deployment of nearly 3TWh globally.
Driven by decreasing costs of solar and wind powered generation, coupled with rising commercial energy prices and wholesale market volatility, much of this growth is expected to be focussed within grid-scale energy storage and commercial and industrial (C&I) scale applications. With our new Gen 3 product now launched and ready for delivery to our first customer site, and production about to commence for our first large grid scale project in the UK, our product offering is well positioned to capture the growing market opportunity for heavy-cycling energy storage infrastructure.
Operational Review
2018 was focussed on the delivery of a significant number (2.3MWh, equating to 38 redT tank units) of machines to customers in the UK, EU, Australia, Asia and sub-Saharan Africa. In June 2018, we also launched the new Gen 3 product into key market segments. This product is designed to form a foundation on which the Company can grow towards becoming cash-generative.
In the course of the year, the redT team faced a number of challenges, including an unprecedented spike in the price of vanadium and a number of significant policy changes, especially in the UK and German markets. These served to create uncertainty and undermine short-term confidence across the industry, which has manifested in project delays and protracted decision making by market participants. I am delighted with the way in which the team has been able to address these obstacles and rework project proposals to maintain commercial viability in a difficult market environment.
Strategic Review and Board Changes
In October 2018, the Group completed a £5m fundraise to fund working capital to progress delivery of the existing order pipeline and announced it was seeking one or more strategic partners to support and fund the further development of the Group as it moves towards becoming cash generative. Unfortunately, despite reaching detailed negotiations with a potential partner, strategic investment was not forthcoming within the timeframe dictated by the Group's financial position. Consequently, in March 2019, we launched a formal Strategic Review process, implemented a range of cost cutting measures and raised £3.2m by way of a placing and open offer to fund the process.
Changes were also made to the Board, which included my appointment as Executive Chairman with a mandate to deliver the Strategic Review process. Jeff Kenna stepped down as Chairman but remains on the Board and is providing valuable assistance in moving the business forward. Finally, Scott McGregor stepped down from the Board but remains as CEO of the business running day to day operations.
With the Placing and Open Offer approved by shareholders at the General Meeting on 9 April 2019 providing short term funding, the Board is now focussed on completing the Strategic Review, the aim of which is to secure the long-term future of the business.
At the time of writing this report, the cash reserves of the Group were £3.4m. The Group's latest cash flow forecasts indicate that, without further funding, these will run out in November 2019. Unless additional funding is obtained by then the Group would have no option but to cease trading.
Commercial Review
There have been a number of key commercial developments during 2018:
German grid-scale project portfolio
In July 2018, redT signed an exclusivity agreement to co-develop, alongside the original developer, a large portfolio of grid-scale, vanadium flow, energy storage projects in Germany which aim to support the national, interconnected electricity network by bidding into the Secondary Control Reserve ("SCR") market. Having received a conditional commitment letter from a financial investor in September 2018 to fully finance the first project, there was a change in the SCR bidding mechanism. This necessitated additional analysis to assess the impact of the modifications. In March 2019, the Group announced that it had redesigned the proposed solution into a vanadium flow and gas engine hybrid installation to accommodate the changes to the bidding mechanism. The redesigned first project now consists of 8MWh of redT flow machines (200 units) hybridised with 32MW of low-cycling gas engines. This solution is applicable across the entire portfolio and is currently being reviewed by the finance partner with a view to progressing towards financial close.
First Gen 3 Sale to Anglian Water
In August 2018, the Group received its first order for a Gen 3 machine from one of the UK's largest water companies, Anglian Water. The 60kW, 300kWh (4 units) machine will be used to reduce energy costs at one of Anglian Water's sites in the East of England by allowing almost three times more solar PV generation to be installed and utilised at the site. Alongside the initial machine order, redT and Anglian Water also signed a collaboration agreement to optimise solar plus storage as a solution across their wider portfolio of sites in the UK.
In March 2019 the manufacture of this first machine was completed and is currently undergoing testing whilst confirmation on site preparation is awaited from the customer.
Battery Storage Framework agreement for the UK Public Sector
In September 2018 the Group was awarded a place on the Essentia Battery Storage Framework, pre-qualifying it to supply energy storage solutions to Essentia's extensive portfolio of UK public sector clients. There was no financial impact from this framework agreement in 2018 and none currently forecast in 2019, however we continue to explore material opportunities to deploy machines across the public sector and, via the Framework, have presented a number of energy storage solutions to Essentia's public sector customers.
In 2019, the Group has made further commercial achievements, including:
Solar plus Storage Partnership with Statkraft
In March 2019, the Group signed a heads of terms partnership with Norwegian state utility company, Statkraft, to provide a fully financed solar plus storage solution to UK C&I customers. This is the first time a solar plus storage product, financed under a PPA model, has been offered to the UK market. The partnership aims to roll out approximately 100MWp of PV and 60MWh of redT flow machines (800 units) to the UK market over the next 3 years.
Energy Superhub Oxford - redT's first large, UK grid project
In March 2019 the Group signed an agreement as a member of a consortium set up to deliver a £41m, 50MW, grid-connected, vanadium flow / lithium-ion hybrid energy storage system in Oxford, UK. redT will supply and install 5MWh (72 units) of vanadium redox flow machines together with ancillary components. The project will be the largest deployment of flow machines in the UK and will be the largest vanadium flow / lithium-ion hybrid energy storage system globally. The project is scheduled for delivery across 2019 and 2020.
As at 31 May 2019, the Group estimates its weighted sales opportunity pipeline to be circa £199m (March 2019: £145m), determined as detailed in the table below. These estimates do not represent forecasts of the future financial performance of the Group.
| Deal Stage of Project | Gross1 | Weighted1 | Average Expected Conversion Rate | |
| Project Development | £45m (1,379 units2) | £27m (835 units) | 60% | |
| Quoted | £55m (4,414 units) | £14m (1,178 units) | 26% | |
| Early stage | £1,107m | £158m | 14% | |
| Total | £1,207m | £199m | 16% |
1. The "gross" amounts in the above table are extracted from the Group's customer relationship management (CRM) system which tracks the progress and status of live commercial sale enquiries. The "weighted" figures are calculated by applying a probability weighting to the gross value of each enquiry based on management's estimate of the likelihood that an enquiry will result in a firm order at some point in the future. The probability weighting does not take into account the timing of when an enquiry might become an order. Management uses the following broad guidelines when allocating probability weightings:
| Remote | 0-10% |
| Possible | 10-40% |
| Reasonably likely | 40-60% |
| Probable | 60-90% |
2. As redT storage machines come in various sizes, the Group uses "units" as a common measure to quantify volumes of machines. The different size storage machines consist of a number of "units" which typically have a 15kW power / 75 kWh energy storage capacity. These capacities may, however, vary from application to application.
This pipeline excludes the recent 72 unit Energy Superhub Oxford project win, as this is considered an order.
Outlook and Progress
I have been impressed by the significant step forward we have made in the design and manufacturing processes of the latest Gen 3 units and remain optimistic about the Group and its people's ability to succeed in a market that is forecast to drive fundamental, positive change in our energy system in the years to come.
Right now, our immediate focus continues to be the satisfactory conclusion of the Strategic Review process, which is essential to provide the funding and support the Group requires in the near-term to succeed in this space.
Alongside the Strategic Review, which is being led by the Board, the executive team remain focussed on the manufacture, delivery and operation of our existing projects and securing further business from our sales opportunity pipeline. This work will support the widespread roll-out of our Gen 3 product, which is the foundation for the Group to become cash-generative in the future.
In closing, I would like to thank our highly dedicated staff who have faced and overcome the significant challenges of the last 12 months, and my Board colleagues for their continuing support and contribution to the ongoing activities of the Strategic Review process. I would like to extend my thanks also to our shareholders for their continuing support in the face of challenging circumstances, and to our customers for trusting in us to deliver high-quality energy storage infrastructure solutions for their projects.
Neil O'Brien
Executive Chairman
Financial Review
Change of Reporting Currency
Following the exit from the Euro denominated Carbon business in January 2018, the Group predominantly comprises the Great British Pound (GBP) denominated redT business. The Board therefore decided to change the Group's reporting currency to GBP with effect from 1 January 2018. Comparative figures have been restated from the previously reported Euro figures by converting them at appropriate exchange rates.
Overall Group result
As previously reported, the Camco business was substantially discontinued early in January 2018 with the divestment of Camco Africa and the cessation of the Carbon activities. This left the USA consultancy business as the only continuing Camco activity which continued to make a significant contribution to the 2018 result at a revenue and gross profit level as can be seen from the table below. This business was sold in April 2019 completing the exit from the legacy Camco activities.
| redT | Camco | Group | ||||||||||||
| 2018 | 2017 | Variance | 2018 | 2017 | Variance | 2018 | 2017 | Variance | ||||||
| £m | £m | £m | % | £m | £m | £m | % | £m | £m | £m | % | |||
| Continuing activities | ||||||||||||||
| Revenue | 2.5 | 0.7 | 1.8 | 250 | 1.7 | 1.5 | 0.2 | 9 | 4.2 | 2.2 | 2.0 | 87 | ||
| Gross profit | 0.4 | 0.4 | - | (4) | 1.3 | 1.5 | (0.2) | (10) | 1.7 | 1.9 | (0.2) | (8) | ||
| Admin (excl. SBP (1)) | (12.1) | (7.1) | (5.0) | (71) | (1.3) | (1.1) | (0.2) | (16) | (13.4) | (8.2) | (5.2) | (63) | ||
| Trading (loss)/profit | (11.7) | (6.7) | (4.7) | (75) | - | 0.4 | (0.4) | (89) | (11.7) | (6.3) | (5.4) | (84) | ||
| SBP (1) | (0.6) | (0.9) | 0.3 | 37 | - | - | - | - | (0.6) | (0.9) | 0.3 | 37 | ||
| Operating loss | (12.3) | (7.6) | (4.7) | (62) | - | 0.4 | (0.4) | (89) | (12.3) | (7.2) | (5.1) | (72) |
(1) SBP - Share-based payments
Group revenue from continuing activities grew £2.0m to £4.2m (2017: £2.2m) attributable mainly to sales of redT Gen 2 machines.
Group operating loss from continuing activities for the year was £12.3m (2017: £7.2m loss) which, excluding non-cash, share-based payments, corresponds to a trading loss of £11.7m (2017: £6.3m loss), £5.4m more than 2017 due to the continuing expansion of redT's operations as explained below.
Share-based payments reduced to £0.6m (2017: £0.9m). This non-cash charge estimates the value of share-options given to employees by forecasting the probability weighted, potential increases in value of the share options based on historical volatility of the share price. This estimated increase in value is charged over the vesting period of the options. The reduction in the charge from 2017 to 2018 reflects a reducing charge from prior year options as they vest or lapse, partially offset by new charges relating to options issued to employees during 2018.
redT energy storage business
During 2018, redT continued building the team and developing its products in line with its business model of being an energy storage expert as well as a supplier of its own patented energy storage machines.
Overall, the redT business generated a trading loss of £11.7m (2017: £6.7m loss).
Revenue of £2.5m (2017: £0.7m) comprised £2.1m from sales of Gen 2 machines and £0.4m of grant funding. The gross profit of £0.4m is attributable to the grants; as expected the Gen 2 machine sales did not generate positive margins.
The full year impact of new hires during 2017 and additional hires in 2018 increased average staff numbers from 45 in 2017 to 71 in 2018. Increased staff and higher product development costs accounted for substantially all of the £5.0m (71%) increase in redT administrative expenses (excluding SBP) to £12.1m (2017: £7.1m). As most of the Gen 2 sales were only recognised at the end of 2018 and these were not expected to generate positive margins, amortisation of redT's £6.1m research and development intangible asset was not commenced during the year.
Camco business
The Camco business historically comprised the legacy Carbon and consultancy activities in Africa and the USA. The Group divested its holdings in Camco Africa on 5 January 2018 for a nominal amount and ceased its Carbon activities on 10 January 2018. The results of these businesses constitute the amounts presented as discontinued operations in these financial statements.
Camco USA continued throughout 2018, focusing on the management of the third-party biogas assets, producing a break even result at operating profit level for the year (2017: £0.4m). The Camco USA business was sold in April 2019 completing the exit from the legacy Camco activities.
Cash and cash equivalents
At 31 December 2018, the Group held free cash reserves of £3.3m (2017: £6.6m). The Group continues to have no loans or borrowings. The key movements in cash during 2018 were: proceeds from issue of share capital of £8.5m (2017: £14.6m), cash outflow from operating activities of £11.5m (2017: £9.1m), and cash utilised for the acquisition of property, plant and equipment of £0.4m (2017: £0.5m).
Fundraising and basis of preparation
The Group completed the following fundraises since the beginning of 2018:
13 April 2018 - raised £3.85m (before expenses) from institutional investors through the placing of 65,392,342 ordinary shares, at a price of 5.9p. The new shares were admitted to trading on AIM on 19 April 2018. Following admission, the Group's enlarged issued share capital comprised 719,315,766 ordinary shares.
3 October 2018 - raised £5.0m (before expenses) from institutional investors through the placing of 71,903,366 ordinary shares, at a price of 7.0p. The new shares were admitted to trading on AIM on 9 October 2018. Following admission, the Group's enlarged issued share capital comprised 791,219,132 ordinary shares
9 April 2019 - raised £3.20m (before expenses) via a placing and open offer of 160,031,304 ordinary shares at a price of 2.0p. The new shares were admitted to trading on AIM on 10 April 2019. Following admission, the Group's enlarged issued share capital comprised 951,520,436 ordinary shares.
As foreseen in previous and the current management's forecasts and also mentioned in recent market analysts' projections, it is necessary for the Group to raise additional financing to fund operations until production and sales are increased to a level at which the business becomes cash generative. The £5.0m proceeds raised from the placing on 3 October 2018 was less than the amount targeted to fund the business towards cash generation. Following this outcome, the Group has run a formal process to identify and engage with potential strategic investors to support and fund the development of the business. The Group has been in, and remains in, active discussions with a number of interested parties. Unfortunately, one party, with whom negotiations were at an advanced stage, withdrew in February 2019. At that time none of the discussions with other potential investors were sufficiently advanced to secure funding required by the Group in the short term. Therefore, on 14 March 2019, the Board launched a comprehensive Strategic Review to explore all the options available to the Group to fund its business going forward, including continuing the search for strategic partners. On 9 April 2019 the Group raised £3.2m from a placing and open offer to fund the business whilst the Strategic Review is completed and long-term funding secured for the business. At the same time a cost cutting exercise was implemented to reduce the energy storage business operating costs to a minimum whilst ensuring that the long-term value of the business is maintained. The main element of this cost cutting was a redundancy process which reduced ongoing staff costs by 25%, a monthly saving of £83k after the redundancies are fully effective.
The cash balance at 31 December 2018 was £3.3m and, at time of writing this review, was £3.4m. The Group's latest cash flow forecasts indicate that, without further funding, cash will run out in November 2019. Unless additional funding is obtained by then the Group would have no option but to cease trading.
The Group's need to raise additional investment creates a material uncertainty that casts significant doubt about its ability to continue as a going concern, however, based on the ongoing discussions with potential investors, the Board is optimistic that the necessary funding will be secured in the appropriate time scale. The Board therefore considers it appropriate to present these financials on a going concern basis.
Fraser Welham
Chief Financial Officer
Consolidated Statement of Financial Position
At 31 December 2018
| Notes | 2018 | 2017 | 2016 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| £'000 | £'000 | £'000 | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Non-current assets | |||||||||
| Property, plant and equipment | 13 | 538 | 429 | 88 | |||||
| Intangible assets and goodwill | 14 | 13,491 | 13,304 | 12,776 | |||||
| Deferred tax assets | 10 | - | 85 | 149 | |||||
| _______ | |||||||||
| Total non-current assets | 14,029 | 13,818 | 13,013 | ||||||
| _______ | |||||||||
| Current assets | |||||||||
| Inventories | 15 | 525 | 550 | - | |||||
| Prepayments and accrued income | 16 | 626 | 947 | 434 | |||||
| Trade and other receivables | 17 | 559 | 1,974 | 661 | |||||
| Corporate tax receivable | - | 6 | 6 | ||||||
| Cash and cash equivalents | 3,344 | 6,603 | 2,346 | ||||||
| _______ | |||||||||
| Total current assets | 5,054 | 10,080 | 3,447 | ||||||
| _______ | |||||||||
| Total assets | 19,083 | 23,898 | 16,460 | ||||||
| Current liabilities | |||||||||
| Trade and other payables | 18 | (1,567) | (1,487) | (3,386) | |||||
| Deferred income | 19 | (173) | (1,789) | (409) | |||||
| _______ | |||||||||
| Total current liabilities | (1,740) | (3,276) | (3,795) | ||||||
| _______ | |||||||||
| Non-current liabilities | |||||||||
| Deferred income | 19 | (35) | (62) | (189) | |||||
| _______ | |||||||||
| Total non-current liabilities | (35) | (62) | (189) | ||||||
| _______ | |||||||||
| Total liabilities | (1,775) | (3,338) | (3,984) | ||||||
| Net assets | 17,308 | 20,560 | 12,476 | ||||||
| Equity attributable to equity holders of the parent | Notes | 2018 £'000 |
2017 £'000 |
2016 £'000 |
|||||
| Share capital | 20 | 6,777 | 5,560 | 3,979 | |||||
| Share premium | 99,473 | 92,198 | 79,790 | ||||||
| Share-based payment reserve | 20 | 2,225 | 1,707 | 1,260 | |||||
| Retained earnings | (91,072) | (78,391) | (70,994) | ||||||
| Translation reserve | 20 | 1,327 | 1,067 | (27) | |||||
| Other reserve | 20 | (1,422) | (1,422) | (1,422) | |||||
| Non-controlling interest | 20 | - | (159) | (110) | |||||
| Total equity | 17,308 | 20,560 | 12,476 | ||||||
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
| Notes | 2018 | 2017 Restated |
|
| Continuing operations | £'000 | £'000 | |
| Revenue | 3 | 4,162 | 2,228 |
| Cost of sales | (2,448) | (356) | |
| Gross profit | 1,714 | 1,872 | |
| Administrative expenses | (13,955) | (9,104) | |
| Loss from operating activities | (12,241) | (7,232) | |
| Financial income | 9 | 14 | 1 |
| Foreign exchange movement | 9 | (162) | (252) |
| Net financing expense | (148) | (251) | |
| Loss before tax | (12,389) | (7,483) | |
| Income tax (charge)/credit | 10 | (92) | (48) |
| Loss from continuing operations | (12,481) | (7,531) | |
| Discontinued Operations | |||
| (Loss)/profit from discontinued operations (net of tax) | 4 | (41) | 85 |
| Loss for the year | (12,522) | (7,446) | |
| Other comprehensive income | |||
| Items that are or may be reclassified subsequently to profit or loss: | |||
| Exchange differences on translation of foreign operations | 260 | 1,094 | |
| Total comprehensive loss for the year | (12,262) | (6,352) | |
| Loss for the year attributable to: | |||
| Equity holders of the parent | (12,681) | (7,397) | |
| Non-controlling interest | 159 | (49) | |
| _______ | _______ | ||
| (12,522) | (7,446) | ||
| Total comprehensive loss for the year attributable to: | |||
| Equity holders of the parent | (12,421) | (6,303) | |
| Non-controlling interest | 159 | (49) | |
| _______ | _______ | ||
| (12,262) | (6,352) | ||
| Notes | 2018 | 2017 | |
| Basic loss per share in Pence | |||
| From continuing operations | 11 | (1.76) | (1.17) |
| From discontinued operations | 11 | (0.01) | 0.01 |
| From continuing and discontinued operations | 11 | (1.77) | (1.16) |
| Diluted loss per share in Pence | |||
| From continuing operations | 11 | (1.76) | (1.17) |
| From discontinued operations | 11 | (0.01) | 0.01 |
| From continuing and discontinued operations | 11 | (1.77) | (1.16) |
Consolidated Statement of Changes in Equity
For year ended 31 December 2018
| 2018 | 2018 | 2018 | 2018 | 2018 | 2018 | 2018 | 2018 | 2018 | ||
| Notes | Share capital |
Share premium | Share-based payment reserve | Retained earnings | Translation reserve |
Other reserve | Equity attributable to shareholders of the Company | Equity attributable to non-controlling interest | Total Equity |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Balance as at 1 January 2018 | 5,560 | 92,198 | 1,707 | (78,391) | 1,067 | (1,422) | 20,719 | (159) | 20,560 | |
| Total comprehensive loss for the year | ||||||||||
| Loss for the year | - | - | - | (12,522) | - | - | (12,522) | (12,522) | ||
| Minority interest loss not recoverable | (159) | (159) | 159 | - | ||||||
| Other comprehensive loss | ||||||||||
| Foreign currency transaction differences | - | - | - | 260 | - | 260 | - | 260 | ||
| ______ | ||||||||||
| Total comprehensive loss for the year | - | - | - | (12,681) | 260 | - | (12,421) | 159 | (12,262) | |
| ______ | ||||||||||
| Transactions with owners, recorded directly in equity | ||||||||||
| Contributions by and distributions to owners | ||||||||||
| Share-based payments | 7 | - | - | 518 | - | - | - | 518 | - | 518 |
| Issuance of shares | 20 | 1,217 | 7,834 | - | - | - | - | 9,051 | - | 9,051 |
| Transaction costs arising on share issues | - | (559) | - | - | - | - | (559) | - | (559) | |
| ______ | ||||||||||
| Total contributions by and distributions to owners | 1,217 | 7,275 | 518 | - | - | - | 9,010 | - | 9,010 | |
| ______ | ||||||||||
| ______ | ||||||||||
| Balance at 31 December 2018 | 6,777 | 99,473 | 2,225 | (91,072) | 1,327 | (1,422) | 17,308 | - | 17,308 | |
| ______ |
Consolidated Statement of Changes in Equity
For year ended 31 December 2017
| 2017 | 2017 | 2017 | 2017 | 2017 | 2017 | 2017 | 2017 | 2017 | ||
| Notes | Share capital |
Share premium | Share-based payment reserve | Retained earnings | Translation reserve |
Other reserve | Equity attributable to shareholders of the Company | Equity attributable to non-controlling interest | Total Equity |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Balance as at 1 January 2017 | 3,979 | 79,790 | 1,260 | (70,994) | (27) | (1,422) | 12,586 | (110) | 12,476 | |
| Total comprehensive loss for the year | ||||||||||
| Loss for the year | - | - | - | (7,397) | - | - | (7,397) | (49) | (7,446) | |
| Other comprehensive loss | ||||||||||
| Foreign currency transaction differences | - | - | - | - | 1,094 | - | 1,094 | - | 1,094 | |
| ______ | ||||||||||
| Total comprehensive loss for the year | - | - | - | (7,397) | 1,094 | - | (6,303) | (49) | (6,352) | |
| ______ | ||||||||||
| Transactions with owners, recorded directly in equity | ||||||||||
| Contributions by and distributions to owners | ||||||||||
| Share-based payments | 7 | - | - | 447 | - | - | - | 447 | - | 447 |
| Issuance of shares | 20 | 1,581 | 12,512 | - | - | - | - | 14,093 | - | 14,093 |
| Transaction costs arising on share issues | - | (104) | - | - | - | - | (104) | - | (104) | |
| ______ | ||||||||||
| Total contributions by and distributions to owners | 1,581 | 12,408 | 447 | - | - | - | 14,436 | - | 14,436 | |
| ______ | ||||||||||
| ______ | ||||||||||
| Balance at 31 December 2017 | 5,560 | 92,198 | 1,707 | (78,391) | 1,067 | (1,422) | 20,719 | (159) | 20,560 | |
| ______ |
Consolidated Statement of Cash Flow
For year ended 31 December 2018
| Notes | 2018 | 2017 | |
| --- | --- | --- | --- |
| £'000 | £'000 | ||
| --- | --- | --- | --- |
| Cash flows from operating activities | |||
| Loss for the year | (12,522) | (7,446) | |
| Adjustments for: | |||
| Depreciation, amortisation and impairment | 13 | 274 | 116 |
| Foreign exchange loss/(gain) on translation | 9 | 162 | 252 |
| Financial (income)/expense | 9 | (14) | (1) |
| Impairment of receivables - bad debt write-off | 22 | (4) | 4 |
| Equity settled share-based payment expenses | 7 | 570 | 906 |
| Taxation | 10 | 92 | 48 |
| _______ | _______ | ||
| (11,442) | (6,121) | ||
| Decrease in trade and other receivables | 1,433 | (1,763) | |
| Increase in inventory | 25 | (550) | |
| Decrease in trade and other payables | (1,500) | (646) | |
| (42) | (2,959) | ||
| _______ | _______ | ||
| Net cash outflow from operating activities | (11,484) | (9,080) | |
| Cash flows from investing activities | |||
| Acquisition of property, plant and equipment | 13 | (382) | (461) |
| Net cash from investing activities | (382) | (461) | |
| Cash flows from financing activities | |||
| Proceeds from the issue of share capital | 8,492 | 14,625 | |
| Interest received/(paid) | 9 | 14 | 1 |
| Net cash inflow from financing activities | 8,506 | 14,626 | |
| Net increase in net cash and cash equivalents | (3,360) | 5,085 | |
| Net cash and cash equivalents at 1 January | 6,603 | 2,347 | |
| Effect of foreign exchange rate fluctuations on cash held | 101 | (829) | |
| Net cash and cash equivalents at 31 December | 3,344 | 6,603 | |
Notes
redT energy plc (the "Company") is a public company incorporated in Jersey under the Companies (Jersey) Law 1991. The address of its registered office is 3rd floor, Standard Bank House, 47-49 La Motte Street, St Helier Jersey, JE2 4SZ. The consolidated financial statements of the Company for the year ended 31 December 2018 comprise of the Company and its subsidiaries (together the "Group"). The Company's shares are quoted on AIM, a market operated by London Stock Exchange Plc.
A Statement of compliance
These consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union ("adopted IFRS").
These consolidated financial statements have been prepared in accordance with and in compliance with the Companies (Jersey) Law 1991, an amendment to which means separate parent company financial statements are not required.
These consolidated financial statements were approved by the Board on 25 June 2019.
B Basis of preparation
The financial statements are presented in Great British Pounds (GBP), the functional currency of the Company, rounded to the nearest thousand pounds Sterling. The Group changed its functional currency on 1 January 2018 to better reflect the predominant currency for transactions within the Group. The presentational currency was also changed. Therefore, all prior year disclosures have been restated to be presented in GBP. In accordance with IAS 8 a third balance sheet have been included to show the retrospective impact of the restatement.
The accounting policies set out below have been applied consistently in the year and presented in these consolidated financial statements. The accounting policies have been consistently applied across all Group entities for the purposes of producing these consolidated financial statements.
The financial statements have been prepared on historical cost and going concern basis.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised, if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:
Impairment of goodwill - goodwill is tested annually for any impairment in accordance with the accounting policy stated in Note 1 G below. These tests require the use of management estimates and assumptions as detailed in Note 14 - Intangible & goodwill.
Share-based payments - the expense relating to share-based payments is determined in accordance with the accounting policy stated in Note 1 L below. The calculation of this expense requires the use of various management estimates.
Critical accounting Judgements and assumptions
In the view of the directors there are no critical accounting judgements in the Group's financial statements.
Going Concern Basis
The redT business is still a young business in an emerging market and has not yet reached the stage in its development when it is cash generative. As such, it is still dependent on its ability to attract additional investment to fund its operations.
During the early part of 2018, the Board came to the conclusion that to flourish in what is forecast to become a vast market, where energy supply and infrastructure interact, the Group needs to partner with one or more strategic partners with global reach to support and fund the business.
In October 2018 £4.7m net proceeds (after expenses) was raised from the placing which was less than the amount targeted to fund the business towards being cash generative. Factors contributing to the shortfall included a lack of installed machines, reducing the Group's ability to demonstrate the commercial viability of its products and a number of macro factors creating a challenging global investment environment.
Following the October 2018 fundraise, the Board stepped up the search for strategic partners by appointing advisers and launching a formal search process. This process was expanded to an all-encompassing Strategic Review in March 2019 and, in April 2019, additional funding of £3.2m was raised, mainly from existing shareholders, to allow time to complete this review and secure long-term funding for the business. At the same time a cost cutting exercise was implemented to reduce the energy storage business operating costs to a minimum whilst ensuring that the long-term value of the business is maintained. The main element of this cost cutting was a redundancy process which reduced ongoing staff costs by 25%, a monthly saving of £83k after the redundancies are fully effective.
The cash balance at 31 December 2018 was £3.3m and, at time of finalising these financial statements, was £3.4m. The Group's latest cash flow forecasts indicate that, without further funding, cash will run out in November 2019. Unless additional funding is obtained by then the Group would have no option but to cease trading. However, the Board is optimistic, based on the progress and the advanced status of discussions, that the current cash reserves provide the Group with adequate time to conclude the Strategic Review and secure the necessary long-term funding that it requires. Based on current forecasts, the Board estimates the Group requires at least £10m of investment to reach a scale where it becomes cash generative, forecast to be in the second half of 2021; the Board is targeting an investment in line with this.
Despite there being advanced discussions ongoing with a number of potential investors, it is not certain that the Group will be able to secure the level of investment required before cash runs out, particularly given the result of the October 2018 fundraise. This therefore creates a material uncertainty that casts significant doubt about the Group's ability to continue as a going concern.
In addition to the funding issue discussed above, the Directors have also reviewed other varying, and wide-ranging information relating to both present and future conditions when reaching their conclusion regarding going concern. These included:
· the opportunity presented by the rapidly emerging energy storage market;
· the commercial viability of redT's vanadium redox flow energy storage product within this market;
· contracts being delivered and projects currently in the pipeline.
The Group also has established relationships with a number of customers and suppliers and has the continuing support of existing investors, as evidenced by recent fundraises.
Having taken all 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 that exists arising from the need to secure long-term funding within the coming few months.
The financial statements do not include any adjustments that would be necessary should the going concern basis of preparation not be appropriate.
Basis of consolidation
Subsidiaries - subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
Transactions eliminated on consolidation - intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
Business Combinations
The Group adopted IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) for all business combinations occurring in the financial year starting 1 January 2009. All business combinations occurring on or after 1 January 2009 are accounted for by applying the acquisition method. The Group adopted IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) for acquisitions of non-controlling interests occurring in the financial year starting 1 January 2009. The Group also applied IAS 27 (2008) for the disposal and acquisition of non-controlling interests that do not result in loss of control.
Acquisitions and disposals of non-controlling interests are accounted for as transactions with equity holders in their capacity as equity holders and therefore no goodwill is recognised as a result of such transactions.
The Group applied IAS 27 (2008) in accounting for transactions which result in the loss of control of subsidiaries. Under the accounting policy transactions that result in loss of control are accounted for by derecognising the previously consolidated assets and liabilities of the subsidiary and the carrying amount of any non-controlling interests in the former subsidiary and recognising the retained investment at its fair value at the date when control is lost and any consideration received. The resulting difference, including any related gains or losses previously recognised in other comprehensive income that qualify to be recycled to profit or loss, is recognised in profit or loss as a gain or loss on the disposal.
C Revenue recognition
US business
Revenue recognition on US service contracts
The US business generates revenue on the management of third-party biogas facilities. Revenue is recognised monthly based upon the contractual monthly management fees.
redT energy storage business
Revenue recognition on contracts for large, integrated multi-machine installations
Revenue is recognised in the income statement in proportion to the stage of completion and meeting of any performance conditions set out in the contract. The Group recognises revenue from contracts with customers based on a five-step model as set out in IFRS 15:
| Step 1 | Identify contract(s) with a customer: a contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met. |
| Step 2 | Identify performance obligations in the contract: a performance obligation is a promise in a contract with a customer to transfer a good or service to the customer. |
| Step 3 | Determine the transaction price: the transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. |
| Step 4 | Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the Group allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Group expects to be entitled in exchange for satisfying each performance obligation. |
| Step 5 | Recognise revenue when (or as) the Group satisfies a performance obligation. |
Revenue recognition on contracts for the supply of individual machines
Revenue from machine sales is recognised when the machine has been delivered, installed and is ready to operate. Where the customer has been billed in advance, revenue will be deferred and recognised as deferred income on the balance sheet until the system has been installed and is ready to operate.
Group (Other)
Revenue recognition on CDM carbon and EU ETS compliance services
The Group derives revenue from the sale of emissions allowances and offsets to its clients which it acquires in a separate transaction. The Group acts as principle in both the sale and purchase transactions with revenue and purchase cost recognised simultaneously on the transaction date.
D Goodwill
Subsidiary
On acquisitions since 1 January 2009 the Group measures goodwill as the fair value of the consideration transferred, including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration.
A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.
The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree.
Transaction costs that the Group incurs in connection with a business combination, such as finder's fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.
Subsequent measurement - goodwill is measured at cost less accumulated impairment losses.
Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment.
E Intangible assets
Intangible assets recognised within the balance sheet relate exclusively to 'research and development (R&D)' as part of the acquisition of the Renewable Energy Dynamics Holdings Limited (REDH) business in September 2015. The R&D related to expenditure incurred within two main categories, Technical Expertise (Personnel Costs) and Other Directly Attributable Administration Expenses incurred by the REDH business since 2010 until the date of acquisition. At the date of acquisition, R&D was capitalised as an intangible asset.
Amortisation of the intangible assets will begin once the redT energy storage system becomes fully commercialised, with the recognition of revenue in the Income Statement from the sale of commercial systems. This criterion was not met in the year ended 31 December 2018. The situation will be reviewed in 2019 to confirm the amortisation status of the intangible asset, as well as to determine its effective useful economic life.
F Property, plant and equipment
Computer and office equipment: computer and office equipment is held at historical cost less accumulated depreciation and impairment losses. Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of three years.
Leasehold improvements: leasehold improvements are held at historical cost less accumulated depreciation and impairment losses. Depreciation is charged to the income statement on a straight-line basis over the remaining life of the lease.
Property plant and equipment: property plant and equipment is held at historical cost less accumulated depreciation and impairment losses. Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of the assets (3 to 25 years).
G Impairment
The carrying amounts of the Group's property, plant and equipment, goodwill and other intangibles are reviewed at least annually to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For assets that have an indefinite useful life the recoverable amount is estimated at each balance sheet date.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised immediately in the income statement. The recoverable amount is the greater of the fair value less cost of disposal and the value in use. Value in use is calculated as the present value of estimated future cash flows, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
An impairment loss is reversed when there is an indication that the impairment loss may no longer exist because of a change in the estimates used to determine the recoverable amount. An impairment loss is only reversed to the extent that the asset's carrying amount does not exceed the carrying amount that the asset would have had, net of depreciation and amortisation, if no impairment loss had been recognised. An impairment loss in respect of goodwill on acquisition is not reversed.
H Non-current assets held for sale and discontinued operations
A non-current asset or a group of assets containing a non-current asset (a disposal group) is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is highly probable within one year.
On initial classification as held for sale, non-current assets and disposal groups are measured at the lower of previous carrying amount and fair value less costs of disposal with any adjustments taken to profit or loss. The same applies to gains and losses on subsequent re-measurement, although gains are not recognised in excess of any cumulative impairment loss. Any impairment loss on a disposal group is first allocated to goodwill and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets and investment property, which continue to be measured in accordance with the Company's accounting policies. Intangible assets and property, plant and equipment, once classified as held for sale or distribution, are not amortised or depreciated.
A discontinued operation is a component of the Company's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale. When an operation is classified as a discontinued operation, the comparative income statement is restated as if the operation has been discontinued from the start of the comparative period.
I Foreign exchange
Foreign currency transactions
Transactions in currencies different from the functional currency of the Group entity entering into the transaction are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rate at the date of transaction.
Year-end FX rates to GBPs as applied in the financial statements: EUR 1.1094 (2017: 1.1254), USD 1.2690 (2017: 1.1999), CNY 8.728 (2017: 7.8068), ZAR 18.3107 (2017: 14.8608).
J Inventory
Stock
Represents stock of "stack units" and other associated parts for the manufacture, maintenance and repairs of storage machines.
Work in progress
Consists of energy storage machine under construction.
Finished goods
Completed energy storage machines that are awaiting installation and commissioning.
Inventory is reviewed on an ongoing basis to ensure that any obsolete stock is written off and the carrying value of all inventory lines are at the lower of cost and net realisable value.
K Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to business combinations or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or recoverable on the taxable income for the year using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to the tax payable in respect of previous years.
Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax liabilities are recognised only to the extent that they are not offset by unrecognised deferred tax assets.
L Employee benefits
Employee share schemes
The Group enters into arrangements that are equity-settled, share-based payments with certain employees (including Directors) in the form of share options. The fair value of these options are estimated at the date of grant and combined with the Group's estimate of options that will eventually vest to arrive at an overall expected value. This value is then amortised through the income statement on a straight-line basis over the vesting period. Fair value is measured by use of an appropriate model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than market conditions linked to the price of the shares of the Company. The charge is adjusted at each balance sheet date to reflect the actual number of shares expected to vest based on non-market performance conditions such as Group profit targets and employment service conditions where appropriate. The movement in cumulative charges since the previous balance sheet is recognised in the income statement, with a corresponding entry in equity.
Where the Company grants share based payment awards over its own shares to employees of its subsidiaries it recognises the corresponding movement directly in equity and recharges in the full the share based payment charge to the relevant subsidiary.
Annual Leave
The annual leave year runs from January to December and it is company policy that all leave must be taken within the year. There is therefore no liability in relation to annual leave at the end of the year.
Defined contribution pension scheme
In the UK, the Group operates a defined contribution retirement benefit plan for qualifying employees. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss when they are due.
M Operating segments
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed regularly by the Group's Chief Executive Officer (CEO) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, corporate expenses, and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and intangible assets other than goodwill.
N Earnings per share
The Group presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.
The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS. Anti-dilution is when an increase in earnings per share or a reduction in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.
O Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefit will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
P Leased assets
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Leases where the group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term to produce a constant periodic rate of interest on the remaining balance of the liability.
Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
Determining whether an arrangement contains a lease
At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset.
At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group's incremental borrowing rate.
Q Finance income and expense
Finance income comprises interest income on surplus funds, unwinding of the discount on receivables and accrued income. Interest income is recognised as it accrues in profit or loss using the effective interest method.
Finance expenses comprise interest expense on borrowings, finance leases and unwinding of the discount on payables, provisions and accrued costs. All borrowing costs are recognised in profit or loss using the effective interest method.
Foreign currency gains and losses arising from retranslation and settlement of monetary items denominated in currencies different to the functional currency of the entity in which they arise are reported on a net basis.
R Non-derivative financial assets
The Group has the following non-derivative financial assets: cash and cash equivalents, trade and other receivables and other financial assets. Such financial assets are recognised initially at fair value and subsequently carried at amortised cost and assessed for impairment at the end of each financial period.
S Non-derivative financial liabilities
The Group has the following non-derivative financial liabilities: trade and other payables and payments on account. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.
T New accounting standards and interpretations
(a) New standards, amendments and interpretations
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2018, these have had no material impact on the group.
· Amendments to IAS 7 'Statement of cash flows' on disclosure initiative. These amendments to IAS 7 introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The group does not currently hold any balance sheet liabilities for which cash flows are classified as financing activities.
· Amendments to IAS 12 'Income taxes' on recognition of deferred tax assets for unrealised losses. These amendments on the recognition of deferred tax assets for unrealised losses clarify how to account for deferred tax assets related to debt instruments measured at fair value. The group does not currently hold applicable debt instruments.
· IFRS 12 'Disclosure of interests in other entities' regarding clarification of the scope of the standard. This amendment clarifies that the disclosures requirement of IFRS 12 are applicable to interest in entities classified as held for sale except for summarised financial information. Previously it was unclear whether all other IFRS 12 requirements were applicable for these interests. The group does not currently have any interests in items requiring disclosure under the amended standard.
· Amendments to IFRS 2, 'Share based payments', on clarifying how to account for certain types of share-based payment transactions. This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee's tax obligation associated with a share-based payment and pay that amount to the tax authority. The group results are not materially affected by these changes.
· IFRS 9 'Financial instruments'. This amendment replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. The group currently does not have such instruments which would be materially affected by these changes.
· IFRS 15 'Revenue from contracts with customers' is a converged standard from the IASB and FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. The core principle is to recognise revenue when control of the goods or service transfers to the customer. This is opposed to recognising revenue when the risks and rewards transfer to the customer under the existing revenue guidance and determining an appropriate transaction price when multiple performance obligations exist. Group revenues in 2018 have been for machine sales delivered in the year. The changes to this standard have not had a material impact on the group results for this year.
(b) New standards, amendments and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2018 and have not been applied in preparing these financial statements. None of these are expected to have a significant impact on the preparation of the financial statements of the group.
· IFRIC 22 'Foreign currency transactions and advance consideration'. This IFRIC addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or prices in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice. Based upon the initial assessment, this standard is not expected to have a material impact on the group.
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2019 and have not been applied in preparing these financial statements. The full impact of these standards has yet to be fully assessed.
· IFRS 16 'Leases'. This standard replaces the current guidance in IAS 17 and is a far-reaching change in accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts. Grossing up the future lease liabilities shown at note 23 and including the asset and lease liability and accounting for principal and interest charges is not likely to have a material impact on the financial statements given the low value of the commitments. Based upon the initial assessment, this standard is expected to result in recognition of a 'right of use' asset and equivalent lease liability of approximately £0.4m.
· IFRIC 23 'Uncertainty over income tax treatments'. This IFRIC clarifies how the recognition and measurement requirements of IAS 12 'income taxes', are applied where there is uncertainty over income tax treatments. The IFRS IC has clarified previously that IAS 12, not IAS 37 'Provisions, contingent liabilities and contingent assets', applies to accounting for uncertain income tax treatments. IFRIC 23 explains how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the tax authority.
Operating segments
The Group reports these results in line with the following main reporting segments:
redT - redT develops and supplies durable and robust energy storage machines based upon a proprietary vanadium redox flow technology for on and off-grid applications. This operating segment also contains the corporate costs of the Group.
Camco - Camco business segment comprises of Africa, US and Carbon. Camco Africa manages an investment advisory mandate with Renewable Energy Performance Platform (REPP) in partnership with Greenstream Network Ltd. The US comprises the management of divested biogas assets via a service contract agreement. Carbon contains the EU ETS Compliance Services business.
Inter segment transactions are carried out at arm's length.
| Operating segments | redT | Camco | Consolidated | ||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||
| Revenue | 2,525 | 722 | 1,637 | 1,506 | 4,162 | 2,228 | |||
| Gross profit/(loss) | 355 | 370 | 1,359 | 1,502 | 1,714 | 1,872 | |||
| Administrative expenses | (12,066) | (7,058) | (1,319) | (1,140) | (13,385) | (8,198) | |||
| Trading profit | (11,711) | (6,688) | 40 | 362 | (11,671) | (6,326) | |||
| Share-based payments | (570) | (906) | - | - | (570) | (906) | |||
| Loss from continuing operations | (12,281) | (7,594) | 40 | 362 | (12,241) | (7,232) | |||
| Discontinued operations | - | - | (41) | 85 | (41) | 85 | |||
| Results from operating activities | (12,281) | (7,594) | (1) | 447 | (12,282) | (7,147) | |||
| Finance income/(expense) | 14 | 1 | |||||||
| Foreign exchange movement | (162) | (252) | |||||||
| Taxation | (92) | (48) | |||||||
| Loss for the year | (12,522) | (7,446) | |||||||
| Total assets | 17,340 | 21,746 | 1,743 | 2,165 | 19,083 | 23,911 | |||
| Total liabilities | (1,576) | (2,593) | (199) | (746) | (1,775) | (3,339) | |||
| Capital expenditure | 382 | 461 | - | - | 382 | 461 | |||
| Depreciation | 274 | 115 | - | 1 | 274 | 116 | |||
| The group derives the following types of revenue: | ||
| 2018 | 2017 | |
| £'000 | £'000 | |
| redT | 2,525 | 722 |
| Camco | 1,637 | 1,506 |
| Total revenue | 4,162 | 2,228 |
4. Discontinued operations
The Group divested its holdings in Camco Africa Limited on 5 January 2018 for a nominal amount. The book and fair value of the net assets in the company at the time of sale was £nil, so the profit on the disposal was also £nil. The Group ceased its Carbon activities on 10 January 2018. These businesses constitute the discontinued operations in these financial statements. Financial information relating to the discontinued operations from the start of the year to the date of disposal/cessation and the prior year is set out below.
Results of the discontinued operation
| 2018 | 2017 | ||
| £'000 | £'000 | ||
| Revenue | 497 | 8,102 | |
| Expenses | (538) | (8,017) | |
| (Loss)/profit for the year | (41) | 85 |
Cash (used in)/from discontinued operation
| 2018 | 2017 | ||
| £'000 | £'000 | ||
| Net cash (used in)/from operating activities | (41) | 85 | |
| Net cash (used in)/from discontinued operations | (41) | 85 |
Included in comprehensive income are the following:
| 2018 | 2017 | |
| £'000 | £'000 | |
| Depreciation of property, plant and equipment - owned assets (Note 13) | 297 | 116 |
| Operating lease rental - land and buildings (Note 23) | 335 | 187 |
| Share-based payments (Note 7) | 570 | 906 |
Services provided by the Group's auditor:
During the year the Group obtained the following services from the Company's auditor, PricewaterhouseCoopers LLP:
| 2018 | 2017 | |
| £'000 | £'000 | |
| Audit of these financial statements | 55 | 55 |
| Amounts receivable by auditors and their associates in respect of: | ||
| Audit of financial statements of subsidiaries pursuant to legislation | 10 | 10 |
| Non-audit services | - | 8 |
| Total services | 65 | 73 |
The average number of persons employed by the Group (including Executive Directors) during the year, analysed by category, was as follows:
| Number of employees | ||||
| 2018 | 2017 | |||
| redT | 71 | 45 | ||
| Camco | 8 | 15 | ||
| 79 | 60 | |||
The aggregate payroll costs of continuing operations were as follows:
| 2018 | 2017 | |||
| £'000 | £'000 | |||
| Wages and salaries | 5,512 | 3,956 | ||
| Share-based payments (see Note 7) | 570 | 906 | ||
| Social security costs | 444 | 315 | ||
| Contributions to defined contribution plans (Note 8) | 93 | 108 | ||
| 6,619 | 5,285 | |||
Wages and salaries shown above include salaries paid in the year and bonuses relating to the year. These costs are charged within administration expenses.
Over its history the Group has operated various share-based incentive plans: Long-Term Incentive Plan, the Camco 2006 Executive Share Plan the 2015 redT Employee Share Plan and the 2018 redT Employee Share Plan details of which are given below.
Long-Term Incentive Plan (the "LTIP")
The Board has historically approved the LTIP under which Directors and employees were entitled to equity-settled payment following annual vesting dates from 31 December 2008 up to 31 December 2012, upon certain market and non-market performance conditions being met in the years preceding the vesting dates.
The purpose of the LTIP was to incentivise Directors and employees to meet profit and share price performance targets over the years ending on the vesting dates. The LTIP aligned Director's objectives with those of the shareholders.
The LTIP is now closed and accordingly no further awards were made during the year. As at the beginning and end of the year, there were 750,000 options, vested and exercisable at 1.0 € cent per share held by Scott McGregor. Whilst in employment there is no defined time-lapse period, however post-employment termination, there is a 12-month exercise period.
Camco 2006 Executive Share Plan (the "Plan")
On 27 July 2012, the Company resolved at general meeting to amend the terms of the Plan such that awards could be made under the Plan for a period of 10 years from 27 July 2012 over up to 10 per cent of the ordinary shares in issue as 27 July 2012 plus any shares subsequently issued.
Under the Plan the Company can make awards of share options or conditional rights to receive shares ("awards") to selected Directors and employees.
The purpose of the Plan was to incentivise Directors and employees to meet market (share price) and non-market (operational) performance targets over the vesting period.
The Plan is now closed and accordingly no further awards were made during the year. As at the beginning and end of the year there were 3,406,358 options, vested and exercisable, at 1.0 € cent per share held by Scott McGregor. These awards have a time-lapse period of 10 years from the date of grant (30 July 2023) or 12 months post-employment termination if earlier.
2015 and 2018 redT employee Share Plans
On 30 November 2015, the Company resolved at a general meeting to approve the 2015 redT employee Share Plan (the "2015 Plan"), which allowed for awards to be made up to 10% of the issued share capital of the Company from time to time.
Under the 2015 Plan the Company can make awards of share options or conditional rights to receive shares ("awards") to selected Directors and employees.
The purpose of the 2015 Plan was to incentivise Directors and employees to meet market (share price) and non-market (operational) performance targets over the vesting period.
On 14 May 2018, the Board adopted the redT energy 2018 Employee Share Option Plan (the "2018 Plan"), which introduced HMRC scheme rules and includes a CSOP, EMI and unapproved part, and the redT energy 2018 Consultant Share Option Plan. The 2018 Plan replaces the 2015 Plan with a share option plan which is able to benefit from tax incentives offered by the UK Government relating to employee share incentives. Where appropriate, options previously granted under the 2015 Plan have been surrendered and reissued on exactly the same commercial terms as they were originally granted under the 2015 Plan.
· 7 December 2015 the Company awarded several employees (no Directors at the time) the option to acquire an allotted number of ordinary shares of up to €0.01 each in the capital of the Company at an Exercise Price of 5.6p per share (11,535,321 shares) and an Exercise Price of 1.179 € cents (1.063p at 31 December 2018 closing GBP/EUR rate) (13,898,307 shares). 6,949,153 of allotted options exercisable at 5.6p were forfeited in 2016, 416,886 in 2017 and 2,779,661 in 2018, leaving 1,389,621 outstanding at 31 December 2018.
· 30 June 2016 the Company awarded an employee (not a Director) the option to acquire an allotted 2,779,661 of ordinary shares of up to €0.01 each in the capital of the Company at an Exercise Price of 5.6p per share. These were all forfeited in 2018.
· 13 March 2017 the Company awarded to several employees, including Directors, the option to acquire an allotted number of ordinary shares of up to €0.01 each in the capital of the Company at an Exercise Price of 8p per share (20,225,000 shares). 9,500,000 of these options were forfeited in 2018 leaving 10,725,000 outstanding at 31 December 2018.
· 18 May 2018 the Company awarded several employees (including Directors) the option to acquire an allotted number of ordinary shares of up to €0.01 each in the capital of the Company at an Exercise Price of 5.9p per share (13,521,283 shares) and an Exercise Price of £7.05p (12,399,552 shares). 1,223,407 of allotted options exercisable at 5.9p and 3,829,245 options exercisable at 7.05p were forfeited in 2018 leaving 12,297,876 options at 5.9p and 8,570,307 options at 7.05p outstanding at 31 December 2018.
· 29 May 2018 the Company awarded several employees (including Directors) the option to acquire an allotted number of ordinary shares of up to €0.01 each in the capital of the Company at an Exercise Price of 5.95p per share (6,436,113 shares) and an Exercise Price of £7.0p (6,461,109 shares). 100,000 of allotted options exercisable at 5.95p were forfeited in 2018 leaving 6.336,113 5.95p options outstanding at 31 December 2018.
Exercise criteria for 2018 Plan (including reissued 2015 Plan) awards
Awards without performance criteria
41,571,975 unvested options at 31 December 2018: 25% of options vest on the 2nd anniversary of the commencement of employment, a further 25% on the 3rd anniversary of the date of grant, a further 25% on the 4th anniversary of the date of grant and the remainder on the 5th anniversary of the date of grant. The option period will survive after the vesting conditions are satisfied for up to 36 months if the Company remains quoted. The fair value of the options at the date of grant were:
| Date of award | Exercise price | Fair value |
| 31 December 2015 | 1.179€ cents | 7.69p |
| 31 December 2015 | 5.60p | 4.68p |
| 13 March 2017 | 8.00p | 4.86p |
| 18 May 2018 | 5.90p | 2.60p |
| 18 May 2018 | 7.05p | 2.43p |
| 29 November 2018 | 5.95p | 2.19p |
| 29 November 2018 | 7.00p | 2.05p |
The fair value of these options is measured at the grant date using the Black-Scholes option pricing model taking into account the terms and conditions upon which the instruments were granted combined with management's best estimate of the extent to which options will be forfeited in the future.
Awards with performance criteria
3,250,000 of unvested options will vest based upon a non-market performance condition. These options will vest upon the achievement of specific and measurable operational targets set by the Board. The fair value at the date of grant was 5.31p.
The fair value of these options is measured at the grant date using the Black-Scholes option pricing model taking into account the terms and conditions upon which the instruments were granted combined with an estimate of the extent to which the operational targets will be satisfied.
3,250,000 of granted options will vest based upon a market-based performance condition. These options will vest upon the Company's 90-day volume weighted average share price reaching the level of 15p. The fair value at the date of grant was 4.71p.
The fair value of these share options is estimated as at the date of grant using a Monte-Carlo model, taking into account the terms and conditions upon which the options were granted.
In respect of all the awards above, the fair value at the grant date is recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
The expense charged in respect of these plans is set out below.
| 2018 | 2017 | |
| £'000 | £'000 | |
| 2015 & 2018 redT Employee Share Plans | 570 | 906 |
| 570 | 906 | |
The movements in outstanding unvested and vested options is set out below.
| 2018 | 2018 | 2017 | 2017 | |
| Average exercise price | Number of options | Average exercise price | Number of options | |
| Unvested Options | ||||
| Outstanding at the beginning of the year | 5.379p | 33,055,354 | 2.597p | 21,264,136 |
| Granted | 6.459p | 38,818,057 | 8.000p | 20,225,000 |
| Forfeited | 7.017p | (18,392,059) | 5.600p | (416,886) |
| Vested | 3.134p | (5,229,377) | 4.675p | (8,016,896) |
| Outstanding at the end of the year | 5.844p | 48,251,975 | 5.379p | 33,055,354 |
| Vested not exercised options | ||||
| Outstanding at the beginning of the year | 3.382p | 12,173,254 | 0.852p | 4,156,358 |
| Vested | 3.134p | 5,229,377 | 4.675p | 8,016,896 |
| Expired | 7.084p | (1,819,915) | - | |
| Outstanding at the end of the year | 2.820p | 15,582,716 | 3.382p | 12,173,254 |
Defined contribution plans
In the UK the Group operates a defined contribution, retirement benefit plan for qualifying employees. The assets of this plan are held separately from those of the Group. The only obligation of the Group is to make the contributions.
The total expense recognised in the income statement is £93,091 (2017: £107,584), which represents the contributions paid to the plan. There were no outstanding payments due to the plan at the balance sheet date.
| 2018 | 2017 | |
| £'000 | £'000 | |
| Finance income | ||
| Interest on bank deposits | 14 | 1 |
| 14 | 1 | |
| Foreign exchange movements | (162) | (68) |
| Net finance expense | (148) | (67) |
Recognised in the income statement
| 2018 | 2017 | |
| £'000 | £'000 | |
| Current tax expense/(credit): | ||
| Foreign tax | 7 | (18) |
| Deferred tax expense: | ||
| Movement in deferred tax asset in current year | 85 | 66 |
| Total income tax in the income statement | 92 | 48 |
The tax charge for the period is lower (2017: lower) than the 0% rate of corporation tax in Jersey and the differences are explained below:
Reconciliation of effective tax rate
| 2018 | 2017 | |
| £'000 | £'000 | |
| Loss before tax | (12,389) | (7,483) |
| Loss before tax at 0% rate of corporation tax in Jersey (2017: 0%) | - | - |
| Effects of: | ||
| Effect of different tax rates of subsidiaries operating in other jurisdictions | (2,058) | (928) |
| Non-deductible expenses | 3 | (5) |
| Origination and reversal of timing differences recognised | 85 | 30 |
| Unutilised losses carried forward and not recognised | 2,062 | 951 |
| Total income tax charge/(credit) in the income statement | 92 | 48 |
The Company's subsidiaries carry on business in other tax regimes where the corporation tax rate is not zero. At 31 December 2018, the Group had tax losses carried forward within certain UK subsidiaries available for use in future periods amounting to £22,174k (2017: £11,234k). Under current tax legislation these tax losses can be carried forward indefinitely and be set of against future profits arising from the same activities at the tax rate prevailing at that time. Due to the uncertainty regarding the timing and extent of future profits within these UK subsidiaries, no deferred tax assets have been recognised in respect of these tax losses. Deferred tax has also ceased to be recognised on the timing differences between accounting and tax treatment in these UK subsidiaries given the off-setting tax losses on which no deferred tax has been recognised.
Deferred Tax
| 2018 | 1 January | Current year charge | Foreign exchange movement | 31 December |
| £'000 | £'000 | £'000 | £'000 | |
| Share options | 127 | (127) | - | - |
| Accelerated capital allowances | (42) | 42 | - | - |
| 85 | (85) | - | - | |
| 2017 | 1 January | Current year credit /(charge) |
Foreign exchange movement | 31 December |
| £'000 | £'000 | £'000 | £'000 | |
| Share options | 161 | (31) | (3) | 127 |
| Accelerated capital allowances | (12) | (29) | (1) | (42) |
| 149 | (60) | (4) | 85 | |
Timing differences and tax losses on which deferred tax is not recognised
| 2018 | 2017 | |
| £'000 | £'000 | |
| Accelerated capital allowances | (35) | (42) |
| Share Options | 197 | 127 |
| Tax losses | 22,174 | 11,234 |
| 22,336 | 11,319 | |
Loss per share attributable to equity holders of the Company is calculated as follows:
| 2018 | 2017 | |
| Pence per share | Pence per share | |
| Basic loss per share | ||
| From continuing operations | (1.76) | (1.17) |
| From continuing and discontinued operations | (1.77) | (1.16) |
| Diluted loss per share | ||
| From continuing operations | (1.76) | (1.17) |
| From continuing and discontinued operations | (1.77) | (1.16) |
| Loss used in calculation of basic and diluted loss per share | £'000 | £'000 |
| From continuing operations | (12,640) | (7,482) |
| From continuing and discontinued operations | (12,681) | (7,397) |
| Weighted average number of shares used in calculation | ||
| Basic | 718,771,339 | 637,107,480 |
| Diluted | 718,771,339 | 637,107,480 |
Basic loss per share is calculated by dividing the loss attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the period.
Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential shares. Where the inclusion of potentially issuable shares decreases the loss per share (anti-dilutive), the potentially issuable shares have not been included. This was the situation for both the 2018 and 2017 calculations. The weighted average number of shares not included in the diluted share calculation because they were anti-dilutive was 44,361,763 (2017: 41,294,430).
| Weighted average number of shares used in calculation - basic and diluted | ||
| 2018 | 2017 | |
| Number | Number | |
| Number in issue at 1 January | 653,923,424 | 467,928,894 |
| Effect of shares issued in the year | 64,847,915 | 169,178,586 |
| Weighted average number of basic shares at 31 December | 718,771,339 | 637,107,480 |
| Effect of share options granted not yet exercised which are not anti-dilutive |
- | - |
| Weighted average number of diluted shares at 31 December | 718,771,339 | 637,107,480 |
12. Directors' share interests
| 2018 | 2017 | |||
| Number | Number | |||
| Executive Directors | ||||
| Scott McGregor* | 11,973,126 | 11,973,126 | ||
| Non-executive Directors | ||||
| Jonathan Marren | 7,743,815 | 7,743,815 | ||
| Jeffrey Kenna | 2,162,325 | 2,162,325 | ||
| Neil O'Brien | 625,000 | 625,000 | ||
| Michael Farrow | 86,230 | 86,230 |
* Scott McGregor ceased to be a Director on 14 March 2019, but remains with the business to run the operations.
The beneficial interests of the Directors in the ordinary share capital of the Company are shown above. In addition, the executive Directors have conditional rights to acquire shares arising from awards granted under the Share Based Incentive Plan. These awards are detailed in the Report of the Remuneration Committee on pages 18 to 21.
| Computer and office equipment | Leasehold improve-ment | Property plant & equipment | Total | |
|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | |
| --- | --- | --- | --- | --- |
| Cost at 1 January 2018 | 530 | 229 | 22 | 781 |
| Additions | 241 | 73 | 68 | 382 |
| Cost at 31 December 2018 | 771 | 302 | 90 | 1163 |
| Accumulated depreciation at 1 January 2018 | (287) | (62) | (3) | (352) |
| Charge for the year | (140) | (109) | (24) | (273) |
| Accumulated depreciation at 31 December 2018 | (427) | (171) | (27) | (625) |
| Net book value at 31 December 2018 | 344 | 131 | 63 | 538 |
| Net book value at 31 December 2017 | 243 | 167 | 19 | 429 |
| Goodwill - Subsidiary acquisition (REDH) | ||
| 2018 | 2017 | |
| £'000 | £'000 | |
| Cost at 1 January | 7,257 | 6,970 |
| Effect of movements in foreign exchange | 105 | 287 |
| Cost at 31 December | 7,362 | 7,257 |
| Intangible assets - R&D (REDH) | ||
| 2018 | 2017 | |
| £'000 | £'000 | |
| Cost at 1 January and 31 December | 6,046 | 5,806 |
| Effect of movements in foreign exchange | 83 | 241 |
| Cost at 31 December | 6,129 | 6,047 |
| Total Goodwill & Intangible Assets | ||
| 2018 | 2017 | |
| £'000 | £'000 | |
| Cost at 1 January and 31 December | 13,491 | 13,304 |
Amortisation
Amortisation of the intangible assets will begin once the redT energy storage system becomes fully commercialised, with the recognition of revenue in the Statement of Comprehensive Income for the sale of a commercial system. Whilst sales were recognised in the year ended 31 December 2018 they only occurred in the last month of the year and related to sales of Gen 2 machines which were not expected to and did not create a positive margin. The above criterion has therefore yet been achieved. A review will be undertaken in 2019 to confirm the amortisation status of the intangible asset, as well as to determine the effective useful life.
Goodwill is not amortised but tested annually for impairment.
Impairment testing
Goodwill and intangible assets have been allocated to the redT cash generating unit (CGU). The Group conducts a formal review to determine whether the carrying value of intangible assets, including goodwill, can be supported. This impairment review comprises a value in use comparison, where the carrying amount of the intangible assets are compared with the recoverable amount, the Net Present Value (NPV) obtained by discounting the future cash flows of the CGU. The recoverable amount attributable to the intangible assets exceeded the carrying amount at the 31 December 2018.
The cash flow forecasts used for the above analysis were derived from the most recent financial results and the 2019-2022 Business Plan approved by management and the Board. The key assumptions for the NPV calculation were the discount rate applied to projected positive net cash flows of 20% (pre-cash generative cashflows have been discounted at 2.5%) and growth rate beyond 2022 of 2.5%, in line with the long-term inflation assumption of 2.5%.
An increase in the discount rate to 25% reduces, but does not eliminate, the excess of the recoverable amount over the carrying value. Similarly, a reduction in the growth rate beyond the forecast period from 2.5% to 0% reduces, but does not eliminate, the excess of the recoverable amount over the carrying value.
| 2018 | 2017 | |
| £'000 | £'000 | |
| Stock | 393 | 297 |
| Work in progress | 130 | 101 |
| Finished goods | 2 | 152 |
| 525 | 550 | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Prepayments | 371 | 858 |
| Accrued income | 255 | 89 |
| 626 | 947 | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Trade receivables | 373 | 1,386 |
| Other receivables | 186 | 588 |
| 559 | 1,974 | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Trade payables | 505 | 265 |
| Accruals | 1,028 | 1,182 |
| Other payables | 34 | 40 |
| 1,567 | 1,487 | |
| 2018 | 2017 | ||||
|---|---|---|---|---|---|
| £'000 | £'000 | ||||
| --- | --- | --- | --- | --- | --- |
| Non-current liabilities | |||||
| Deferred income | 35 | 62 | |||
| Current liabilities | |||||
| Deferred income | 173 | 1,789 |
| Number | Number | ||||
|---|---|---|---|---|---|
| 2018 | 2018 | 2017 | 2017 | ||
| --- | --- | --- | --- | --- | --- |
| '000 | '000 | '000 | '000 | ||
| --- | --- | --- | --- | --- | --- |
| Authorised | |||||
| Ordinary shares of €0.01 | 1,250,000 | 10,994 | 1,250,000 | 11,107 | |
| Issued and fully paid | |||||
| All ordinary shares of €0.01 (all classified in shareholders' funds) | |||||
| Issued on 1 January | 653,923 | 5,560 | 467,929 | 3,988 | |
| Issued in the year | 137,296 | 1,217 | 185,994 | 1,572 | |
| Issued at 31 December | 791,219 | 6,777 | 653,923 | 5,560 | |
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
Share-based payment reserve
The share-based payment reserve comprises the equity component of the Company's share-based payments charges.
Translation reserve
The translation reserve comprises foreign currency differences arising from the translation of the financial statements of foreign operations.
Other reserve
Other reserve comprises the portion of the consideration paid for REDH minority interests over the fair value of the shares purchased.
Non-controlling interest
Non-controlling interest comprises a 0.3% shareholding in REDH.
The Group Financial Risk Management framework addresses the following key risks:
Market risk
The carbon market is subject to political and regulatory risk on a national, regional and global basis. The consequence of the interaction of these frameworks and regulation is that the market price for carbon credits has been significantly affected by demand and supply considerations which have led to large fluctuations in market prices. The Group actively manages this risk by locking in a buy/sell price for all transactions.
Counterparty credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group's exposure to credit risk arises from the Group's operating activities, primarily its receivables from customers. The Group has implemented a credit scoring process for all new customers (and existing customers of a certain size) that highlights credit risk and aids the prevention of bad debt. Credit risk is analysed further in Note 21.
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's approach is to maintain sufficient funds on call to meet these requirements as they fall due with the rest of cash on term deposit in the relevant currencies as set out below. Liquidity risk is analysed further in Note 21.
Foreign exchange risk
The Group is exposed to foreign exchange translation risk on receivables, payables and cash when balances held are denominated in a currency other than the functional currency of the Group which is the Euro. The Group operates a policy of not speculating on foreign exchange and aims to mitigate its overall foreign exchange risk by holding currency in line with regional operating expense, acting as a natural hedge against adverse foreign exchange movement.
The currency exposure on balances held is set out below:
| Euro | Sterling | US Dollar |
Chinese Yuan | South African ZAR | Aust-ralian Dollar | Total | |
|---|---|---|---|---|---|---|---|
| 31 December 2018 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| --- | --- | --- | --- | --- | --- | --- | --- |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Cash and cash equivalents | 68 | 1,822 | 1,345 | 89 | 20 | - | 3,344 |
| Trade and other receivables | 30 | 180 | 324 | - | 22 | 3 | 559 |
| Trade and other payables | (768) | (586) | (204) | 1 | (4) | (6) | (1,567) |
| ______ | ______ | ______ | _______ | ______ | _____ | ______ | |
| Net exposure | (670) | 1,416 | 1,465 | 90 | 38 | (3) | 2,336 |
| ______ | ______ | ______ | _______ | ______ | ______ | ______ |
| Euro | Sterling | US Dollar |
Chinese Yuan | South African ZAR | Total | |
|---|---|---|---|---|---|---|
| 31 December 2017 | £'000 | £'000 | £'000 | £'000 | £000 | £'000 |
| --- | --- | --- | --- | --- | --- | --- |
| --- | --- | --- | --- | --- | --- | --- |
| Cash and cash equivalents | 921 | 4,749 | 785 | 128 | 20 | 6,603 |
| Trade and other receivables | 355 | 1,080 | 533 | - | 5 | 1,974 |
| Trade and other payables | (659) | (735) | (64) | - | (30) | (1,488) |
| ______ | ______ | ______ | _______ | ______ | _______ | |
| Net exposure | 617 | 5,094 | 1,254 | 128 | (5) | 7,089 |
| ______ | ______ | ______ | _______ | ______ | _______ |
A 5% weakening of the following currencies against the GBP at 31 December 2018 would have increased / (decreased) equity and profit and loss, via exchange differences on translation of foreign operations within the Income Statement, by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures at that date.
This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis is performed on the same basis for 31 December 2017.
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| £'000 | £'000 | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Sterling | - | (243) | ||||
| Euro | 32 | - | ||||
| US Dollar | (70) | (60) | ||||
| Chinese Yuan | (4) | (6) | ||||
| South African ZAR | (2) | - | ||||
| Australian Dollar | (3) | - | ||||
| ______ | _______ | |||||
| (47) | (309) | |||||
| ______ | _______ |
A 5% strengthening of the above currencies against the GBP at 31 December 2018 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
Fair value of financial assets and liabilities
The Directors are of the view that there is no material difference between the carrying values and fair values of the Group's financial assets and liabilities.
Capital management
Given the Group's development stage, the Board has pursued an equity only funding model and thus currently the Group's capital is solely equity. The Board's policy is to maintain a strong capital base in order to maintain investor, creditor and market confidence and to sustain future development of the business. To ensure this, the board regularly reviews the Group's cash requirements and future projections. From time to time the Group purchases its own shares on the market primarily to be used for issuing shares under the Group's share option programme. The Group does not have a defined share buy-back plan or dividend policy. The Group is not subject to any externally imposed capital adequacy maintenance requirements.
Credit risk
The Directors consider that the carrying value of certain financial assets represents the maximum credit exposure. The maximum exposure to credit risk is as follows:
| 2018 | 2017 | |
| £'000 | £'000 | |
| Trade and other receivables | 559 | 1,974 |
| Cash on deposit | 3,344 | 6,603 |
| 3,903 | 8,577 | |
The ageing of trade and other receivables at the balance sheet date was:
| 2018 | 2017 | |
| £'000 | £'000 | |
| Current | 143 | 1,537 |
| Past due under 30 days | 162 | 99 |
| Past due between 31 and 120 days | 254 | 338 |
| 559 | 1,974 | |
As at 31 December 2018, trade receivables of £416,000 (2017: £432,735) were past due but not impaired. These relate to a number of customers for whom there is no recent history of default. Trade receivables have not been impaired as all amounts are recoverable (2017: £3,554).
The creation and release of provision of impaired receivables has been included in administrative expenses in the Statement of Comprehensive Income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.
Impairment losses
The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows:
| 2018 | 2017 | |
| £'000 | £'000 | |
| Balance at 1 January | 4 | 1 |
| Written off against provision | - | (2) |
| Increase/(reduction) in provision | (4) | 6 |
| Effects in movement of foreign exchange | - | (1) |
| Balance at 31 December | - | 4 |
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial assets. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
The following are the contractual maturities of financial liabilities including estimated interest payments and excluding the impact netting agreements for both continuing and discontinued operations:
Non-derivative financial liabilities
| 2018 | Carrying | Contractual | 1 year or less |
|---|---|---|---|
| £'000 | £'000 | £'000 | |
| --- | --- | --- | --- |
| Trade payables | 504 | 504 | 504 |
| Accruals | 1,027 | 1,027 | 1,027 |
| Other payables | 34 | 34 | 34 |
| 2017 | Carrying | Contractual | 1 year or less |
|---|---|---|---|
| £'000 | £'000 | £'000 | |
| --- | --- | --- | --- |
| Trade payables | 265 | 265 | 265 |
| Accruals | 1,184 | 1,184 | 1,184 |
| Other payables | 39 | 39 | 39 |
There are no derivative financial instruments.
At the end of the reporting period, the Group's future minimum lease payments under operating leases were as follows:
| Operating lease commitments | |||||
|---|---|---|---|---|---|
| 2018 | 2017 | ||||
| --- | --- | --- | --- | --- | --- |
| £'000 | £'000 | ||||
| --- | --- | --- | --- | --- | --- |
| Less than one year | 156 | 188 | |||
| Between 1 year and 5 years | 227 | 443 | |||
| 383 | 631 | ||||
The leases relate to rent for properties within the Group. 2017 also includes company vehicles which were all terminated in 2018.
The Group's related business partner is The Oak Group Ltd (formerly Consortia Secretaries Limited) which is 100% owned by Consortia Partnership Limited ("Consortia") who have been appointed Company Secretary. Michael Farrow, a non-executive Director of the Company, is a Director of The Oak Group. The amounts charged to administration expenses in respect of these services are shown in the table below.
| Income statement | |||||
|---|---|---|---|---|---|
| 2018 | 2017 | ||||
| --- | --- | --- | --- | --- | --- |
| £'000 | £'000 | ||||
| --- | --- | --- | --- | --- | --- |
| Administrative expenses: | |||||
| The Oak Group Ltd | 27 | 36 |
| Balance sheet | |||||
|---|---|---|---|---|---|
| 2018 | 2017 | ||||
| --- | --- | --- | --- | --- | --- |
| £'000 | £'000 | ||||
| --- | --- | --- | --- | --- | --- |
| Trade and other payables: | |||||
| The Oak Group Ltd | - | - |
Key management personnel
The Group's key management personnel comprise the Board of Directors whose emoluments are detailed below.
| 2018 | 2018 | 2018 | 2018 | 2018 | |||
| Salaries and fees |
Benefits in kind | Termination Payments | Pension benefits* | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Executive Directors | |||||||
| Scott McGregor | 200 | 3 | - | 10 | 213 | ||
| Fraser Welham | 121 | 4 | - | 6 | 131 | ||
| David Stewart | 122 | 2 | 88 | 6 | 218 | ||
| Scott Laird | 36 | - | 24 | - | 60 | ||
| Non-executive Directors | |||||||
| Jeffrey Kenna | 60 | - | - | - | 60 | ||
| Michael Farrow | 30 | - | - | - | 30 | ||
| Jonathan Marren | 35 | - | - | - | 35 | ||
| Neil O'Brien | 30 | - | - | - | 30 | ||
| Total | 650 | 9 | 112 | 6 | 777 | ||
* During 2018 Scott Laird waived his contractual entitlement to pension contributions (5%).
| 2017 | 2017 | 2017 | 2017 | ||
| Salaries and fees | Benefits in kind | Pension benefits* | Total | ||
| £'000 | £'000 | £'000 | £'000 | ||
| Executive Directors | |||||
| Scott McGregor | 200 | 1 | - | 201 | |
| David Stewart | 100 | 2 | 4 | 105 | |
| Scott Laird | 65 | - | - | 65 | |
| Non-executive Directors | |||||
| Jeffrey Kenna | 60 | - | - | 60 | |
| Michael Farrow | 30 | - | - | 30 | |
| Jonathan Marren | 35 | - | - | 35 | |
| Neil O'Brien | 26 | - | - | 26 | |
| Zainul Rahim bin Mohd Zain | 16 | - | - | 16 | |
| Total | 532 | 3 | 4 | 539 | |
* During 2018 Scott McGregor and Scott Laird waived their contractual entitlement to pension contributions (5%).
Directors' interests in the shares of the Company are disclosed in Note 12.
In 2018 the spouse of Scott McGregor invoiced and was paid £10,215 for Project work undertaken in 2018. Scott McGregor was not involved in the negotiations for the services which were carried out by the redT project manager and signed off by the Chairman at the time, Jeff Kenna.
Following the sale of Camco Africa Limited (CAL) in January 2018, the Group provided the services of one of its South African employees to CAL's wholly owned subsidiary, Camco Management Limited, under a services agreement. Scott McGregor is a director of CAL and was a shareholder in the company during 2018. Scott McGregor was not involved in the negotiations of the services which were carried out by Scott Laird, redT's Finance Director at the time. The amount invoiced for these services during 2018 was £21,134. All invoices were settled during the year and there was nil outstanding at the 31 December 2018.
On 5 April 2019 the Group completed the divestment of its legacy Camco business with the sale of its wholly owned subsidiary Camco International Group Inc. ('CIG'). This business provides project development and asset management services to biogas projects in the USA.
CIG was sold to an entity controlled by Jim Wiest, Managing Director of CIG. Cash receipts from the sale consist of a distribution of US$1.0 million to the Group funded by a loan into CIG from a third party plus US$0.5m of further consideration payable in two equal instalments, the first paid on 30 April 2019 and the balance due 31 July 2019.
The divestment of CIG constituted a related party transaction under the AIM Rules. The Directors concluded, having consulted with Investec acting in its capacity as the Company's Nominated Adviser, that the terms of the sale were fair and reasonable insofar as the Company's shareholders were concerned.
On 9 April 2019 the Group raised £3.20m (before expenses) via a placing and open offer of 160,031,304 ordinary shares at a price of 2.0p. The new shares were admitted to trading on AIM on 10 April 2019. Following admission, the Group's enlarged issued share capital comprised 951,520,436 ordinary shares.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
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