RedT Energy PLC – Interim Results

redT energy plc (AIM:RED), the energy storage technology company, is pleased to announce its results for the six months ended 30 June 2019

HIGHLIGHTS

Financial

·           Revenue from continuing operations £0.2m (H1 2018 £0.2m)

·           Trading loss⁽¹⁾ reduced to £3.8m (H1 2018: £5.5m loss) as operating costs cut

·           Operating loss from continuing operations £3.5m (H1 2018: £5.7m loss)

·           Operating loss is net of £0.6m profit on disposal of Camco USA business

·           Half year end free cash £3.1m (31 December 2018: £3.3m)

·           Loans and borrowings £Nil (H1 2018: £Nil)

·           Profit from discontinued operations £Nil (H1 2018 £Nil)

⁽¹⁾ Operating loss from continuing operations excluding profit on disposal of Camco USA and share-based payments

2019 interim financials were in line with management expectations.

Proposed Merger and Fundraising

On 25 July 2019, the Group announced it had agreed to outline terms, via a non-binding Memorandum of Understanding, for a proposed merger with Avalon Battery Corporation (“Avalon”). To drive the growth and development of the enlarged Group, provide working capital and take advantage of the substantial opportunity presented by the merger, the enlarged Group intends to raise at least £24m of new funds as part of the merger.  redT and Avalon have received substantial preliminary support for this fundraising from a strong, new strategic investor that intends to make a cornerstone investment in the merged business, as well as from existing institutional investors in redT and both existing and certain proposed new investors in Avalon.  The outline terms incorporate some interim financing to fund the business and additional costs associated with the merger process whilst it is underway.  It is expected that the merger and the fundraising will be inter-conditional and complete at the same time.

Further details on the interim funding are expected to be announced in the near future, at which time a conference call will be held for investors.

Operational

During H1 2019 redT focused on its near-term pipeline, cutting costs and other expenditure where possible.

Developments during the period include:

·       First Gen 3 machine manufactured and tested awaiting Anglian Water to complete civil works at their site ready to accept the machine.  Once this machine is commissioned, there are significant follow-on opportunities to optimise energy storage across other of Anglian Water’s water treatment sites via a Collaborative Partnership agreement.

·       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 project incorporating a 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 now scheduled for delivery in 2020.

·       German grid portfolio – our revised proposition for the first project remains under consideration with our funding partner, however progress has been delayed as a result of ongoing changes to the German Secondary Control Reserve market by the German regulatory bodies. Clarity on the changes is not expected before December 2019. An update on the project will be provided once the implication of the proposed changes has been assessed, likely during H1 2020.

Commercial Update

As at 31 August 2019, the Group estimates its weighted sales opportunity pipeline to be circa £203m (31 May 2019: £199m), determined as detailed in the table below. These estimates do not represent forecasts of the future financial performance of the Group.

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:

This pipeline excludes the recent 72 unit Energy Superhub Oxford project win, as this is considered an order.

Financial Review

As previously announced, 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. On 14 March 2019 the Board launched a comprehensive Strategic Review to explore all the options available to the Group to fund its business.  On 9 April 2019 the Group raised £3.2m (before expenses) from a placing and open offer to fund the business whilst the Strategic Review is completed and long-term funding secured. At the same time, a cost cutting exercise was implemented to reduce 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.

On 5 April 2019 the Camco USA business was sold completing the exit from the legacy Camco activities.  This transaction resulted in a cash inflow of £0.6m, net of cash sold with the business. £0.5m of this was received by 30 June 2019 with the balance received at the end of July 2019.  The results from Camco USA, up to the date of sale (£35k loss), are reported in the results from discontinued operations in these financial statements. The transaction generated a profit on disposal of £0.6m.

The cash balance at 30 June 2019 was £3.1m. The Group’s latest cash flow forecasts indicate that, without further funding, such as the interim funding mentioned above, cash will run out in December 2019. Unless additional funding is obtained by December, 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 developments described above, 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.

Outlook

The immediate focus is on securing interim funding to complete the proposed Merger and Fundraise and ensure a satisfactory conclusion to the Strategic Review process This should provide both the immediate funding required by the Group and in the near term create a leading, global player with the secure financial position, global footprint and industry expertise required to succeed in the rapidly emerging energy storage market.

Alongside this process, 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.

Work has already started to identify and plan for the exciting opportunities that will be created by the merger with Avalon. Further details of these will be provided later in the process. 

Commenting on the results, redT Executive Chairman, Neil O’Brien said:

“The global energy storage market is continuing its rapid growth as our energy system progresses strongly towards widespread decarbonisation. I am highly optimistic about the growing role our products will play in the inevitable global energy transition and retain my confidence in the redT team’s ability to deliver shareholder value. 

It is my strong belief that the proposed merger with Avalon and accompanying fundraise, if successful, will create a strong and financially robust company that will become a leader in the vanadium redox flow sector, and can compete effectively in one of the world’s fastest growing markets.

I would like to thank our shareholders for their patience and support throughout the Strategic Review process to date and I look forward to providing further news on progress soon.“

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