Vivopower International PLC — Form 20-F summary
Reporting period: Fiscal year ended March 31, 2018 (FY2018), with FY2017 as the main comparison. Although the request identifies “2017 Q4,” this is an annual filing, not a quarterly report; it does not provide a standalone Q4 financial results summary. Amounts are U.S. dollars unless noted. Financial statements follow IFRS and were audited by PKF Littlejohn LLP.
Business context and financial performance
Vivopower develops, owns and operates solar projects and provides power infrastructure services in Australia through Aevitas. The business reports Solar Development, Power Services and Corporate Office segments. FY2018 results reflect a major shift from U.S. solar development revenue in FY2017 to a full year of Australian Power Services revenue.
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $33.6 million | $32.3 million |
| Gross profit | $5.1 million | $27.3 million |
| Gross margin | 15.2% | 84.6% |
| Operating income/(loss) | ($7.6 million) | $17.3 million |
| Net income/(loss) | ($27.9 million) | $5.6 million |
| Basic and diluted EPS | ($2.06) | $0.73 |
| Operating cash flow | $8.9 million | $6.4 million |
| Cash and cash equivalents at year-end | $1.9 million | $11.0 million |
| Debt, current and long-term | $22.3 million | $20.3 million |
| Net debt | $20.4 million | $9.3 million |
- Power Services contributed $31.8 million of revenue and $4.3 million of gross profit, including twelve months of Aevitas operations versus approximately three months in FY2017. Its reported segment operating profit was $1.1 million.
- Solar Development contributed $1.8 million of revenue and $0.8 million of gross profit. No ISS Joint Venture projects reached construction during FY2018.
- Cash from operations benefited from $11.5 million of receivables collections and a $7.0 million increase in payables and provisions; it was not equivalent to recurring earnings. Investing activities used $16.6 million and financing activities used $1.3 million, leaving cash down $9.0 million year over year.
- Current assets were $21.3 million and current liabilities $20.6 million, for a 1.03 current ratio, down from 2.53. Total assets were $76.3 million, total liabilities $39.3 million and equity $37.0 million.
Material changes versus FY2017
- Revenue rose 4.3%, but gross profit fell sharply as NC project development fees declined from $24.6 million to $0.8 million. Power Services revenue increased to $31.8 million from $5.6 million as the prior-year period included only a partial year of Aevitas.
- Gross margin fell from 84.6% to 15.2% as lower-margin electrical products and services became the dominant revenue source. Aevitas’ gross margin improved to 13.1% from 11.9%.
- FY2018 included $1.9 million of restructuring costs, a $10.2 million impairment of the NC project investments, and $11.1 million of goodwill impairment. Finance expense rose to $3.4 million from $0.6 million.
- General and administrative expense increased to $12.8 million from $9.3 million, reflecting the full-year inclusion of acquired businesses, one-time consulting and remuneration costs, and public-company costs.
- Cash fell while debt increased. The company invested $14.1 million in the ISS Joint Venture and ended the year with a remaining $1.3 million commitment recorded in payables.
Strategy, outlook and key risks
- Management shifted solar development focus to the United States and Australia and discontinued initiatives in Latin America, Europe and Asia. It said the former model of buying developed projects for resale was insufficiently profitable amid competition.
- The ISS Joint Venture holds 38 U.S. utility-scale projects across nine states, with approximately 1.8 GW of stated capacity. Projects were at early or advanced development stages. Management expected the first project to be presented to Vivopower for potential acquisition in July 2018 and anticipated opportunities as projects mature over the following years.
- Management targets a 1.75x–2.00x multiple of invested capital for its development approach; this is a target, not a financial forecast. The filing provides no formal revenue or earnings guidance.
- Management stated that current cash, the planned NC project sale proceeds, anticipated operating cash flow and project financing were expected to meet cash requirements for at least 12 months. The going-concern assessment also relied on cost reductions, possible refinancing or renegotiation of the related-party loan, and potential further asset sales. The filing acknowledged that additional financing may not be available on acceptable terms.
- After year-end, the company agreed to sell its NC-31 and NC-47 minority interests for $11.6 million plus a potential merchant-power earn-out; it reported net proceeds of $11.4 million after transaction costs. The sale closed July 3, 2018. A $4.0 million bridge loan from the buyer’s parent was used in part to repay the $2.0 million DEPCOM loan and was repaid at closing.
- Key risks include low cash relative to obligations, dependence on financing and project sales, variable project timing and revenue, execution and permitting risks, U.S. solar tariffs, changes to renewable-energy incentives, power-price and interest-rate movements, and reliance on joint-venture partners and counterparties.
Unusual items, contingencies and governance
- The $10.2 million impairment reduced the $21.6 million carrying value of the NC project interests to their $11.4 million net realizable value for sale. Goodwill impairment included $10.5 million associated with VivoPower Australia and $0.6 million associated with Philippine entities.
- The company recorded a $6.3 million income-tax recovery despite its pretax loss, principally reflecting deferred tax movements and a release of prior-year tax provisions.
- Former CEO Philip Comberg sued the company and a subsidiary, claiming unpaid notice-period amounts, shares, bonuses and other sums. The company denied the claims and counterclaimed for approximately $27 million plus unquantified amounts. No provision was recorded because the outcome and any liability could not be reliably measured.
- The group disclosed $1.0 million of bank guarantees securing customer performance obligations. It also had a $380,000 provision for an onerous SREC sales contract.
- Arowana International Limited held approximately 60.3% of outstanding shares and was the ultimate controlling party. The company had a $19.0 million related-party loan bearing 8.5% interest; its repayment schedule began in April 2018. Related-party arrangements also included executive services and recharged consulting fees.
- Management reported effective disclosure controls and internal control over financial reporting as of March 31, 2018. The auditor’s report opined that the financial statements fairly presented the company’s position, results and cash flows under IFRS.
Important facts for investors to verify
- Cash available after the NC project sale and debt repayments, and whether the company can fund operations and project commitments without further asset sales or external financing.
- The status, financing requirements, project-level economics and conversion to construction of the ISS portfolio; FY2018 produced no construction-stage ISS projects.
- The terms and repayment progress of the $19.0 million Arowana loan, including any amendments or refinancing, and the treatment of Aevitas convertible instruments classified as equity.
- Whether the targeted restructuring savings are realized and whether Power Services’ margins and cash generation can support corporate costs.
- Developments in the Comberg litigation and counterclaim, the SREC contract losses, and any other changes in contingent liabilities or guarantees.
- Reconcile the filing’s inconsistent narrative reference to FY2018 gross profit of $5.5 million with the audited statement and segment table, which report $5.123 million.