Business context and reporting period
Vivopower International PLC is an international solar development and Australian critical power services business. Its 20-F is an annual report for the fiscal year ended June 30, 2020, prepared under IFRS in U.S. dollars—not a 2019 Q4 filing. The company changed its year-end from March 31 to June 30; the June 30, 2019 comparative year is unaudited, so period comparisons should be treated accordingly.
Critical Power Services (J.A. Martin and Kenshaw) generated nearly all revenue. Solar Development focuses on developing and selling projects, primarily through joint ventures. The company reported 13,557,376 ordinary shares outstanding at fiscal year-end.
Key financial metrics
| Metric | FY ended June 30, 2020 | Comparative FY ended June 30, 2019 |
|---|---|---|
| Revenue | $48.7 million | $43.5 million |
| Gross profit / margin | $7.8 million / 16.1% | $6.1 million / 14.0% |
| Operating profit (loss) | $2.2 million | ($5.2 million) |
| Net loss | ($5.1 million); loss per share $0.38 | ($11.3 million) |
| Adjusted EBITDA | $3.9 million | ($3.8 million) |
| Cash from operating activities | ($4.6 million) | $2.2 million |
| Cash and cash equivalents at year-end | $2.8 million; a further $1.0 million was restricted | $7.1 million |
| Debt, current and long-term / net debt | $26.0 million / $23.1 million | $21.7 million / $14.6 million |
| Current assets / current liabilities; current ratio | $20.5 million / $19.7 million; 1.04 | $36.3 million / $29.1 million; 1.25 |
| Total assets / shareholders’ equity | $62.4 million / $17.9 million | $73.1 million / $22.5 million |
Adjusted EBITDA is a non-IFRS measure defined by the company; it excludes interest, taxes, depreciation and amortization, impairments, and specified non-recurring costs. Critical Power Services revenue was $48.6 million, while Solar Development revenue was $0.1 million.
Material changes versus the comparative year
- Revenue increased about 12%, chiefly from Kenshaw contracts in data centers and hospitals. Critical Power Services gross margin improved to 14.5% from 13.4%, which management attributed to cost control and selective price increases.
- General and administrative expenses fell by $1.7 million to $5.5 million, reflecting cost reductions, particularly in Solar Development and Corporate Office.
- Reported operating results improved, but included a $1.6 million solar-development gain. This comprised gains related to the VivoRex and Sun Connect disposals, partly offset by a $1.2 million loss on discontinued ISS joint-venture projects.
- Cash declined by $4.3 million during the year, operating cash flow was negative, and debt increased by $4.3 million. The current ratio fell to 1.04.
Outlook, risks and unusual items
- Management reported a $15.4 million forward order book for Critical Power Services at June 30, 2020, equivalent to 32% of that segment’s FY2020 revenue. It expected further opportunities in data centers, health care and solar-related services; no formal quantitative earnings or revenue guidance is provided.
- COVID-19 caused employee stand-downs, redundancies, project delays and longer supplier lead times. Management said these disruptions adversely affected profitability margins. Australian government grants contributed $0.7 million of FY2020 revenue.
- The company disclosed substantial liquidity and going-concern risks, including continuing losses, negative operating cash flow, low cash reserves, reliance on project sales and external financing, and $26.0 million of debt. Directors nevertheless considered available resources and planned actions sufficient to meet obligations through September 2021. They cited cost reductions, potential release of restricted cash, operating cash generation and anticipated ISS project realizations.
- In June 2020, the company refinanced its AWN shareholder debt into a $23.3 million loan, with 10% annual interest plus a 2% line fee. Payments are deferred until a corporate liquidity event; principal repayment is scheduled to begin July 2021. The loan is secured by specified Aevitas assets and general security over VivoPower assets.
- Management assumed control of the U.S. ISS joint venture after alleging breaches by its partner. The filing describes 32 active or deferred projects and six discontinued projects; the expected realization timing and recovery of invested amounts remain uncertain. Post-year-end, ISS offered to transfer its 50% interest for $1, conditional on VivoPower waiving future claims; negotiations were ongoing.
- The former CEO’s U.K. litigation remained unresolved at filing. VivoPower recorded a $1.1 million provision and incurred $0.9 million of legal fees during FY2020; the former CEO’s claims include alleged unpaid notice-period amounts and shares, among other items.
- One customer accounted for $20.4 million, about 42% of FY2020 revenue. Separately, Kenshaw reported 69% of its revenue from one customer, indicating meaningful customer concentration.
- In August 2020, the company announced plans to enter commercial light-electric-vehicle energy solutions. This was an announced strategy, not established FY2020 revenue. A July 2020 Aevitas proposal reconstituted convertible preference shares and notes as cumulative 7% preference shares without mandatory exchangeability, subject to the filing’s description of the approved proposal.
- The company reported no impairment charge in FY2020, but disclosed that specified adverse changes to VivoPower Pty Ltd’s valuation assumptions could require impairment of $0.9 million to $1.5 million. It also identified foreign-exchange, solar-project execution, financing, regulatory and joint-venture risks.
Most important facts for investors to verify
- Whether operating cash flow and liquidity improved after June 30, 2020, and whether the company’s plans to fund operations through September 2021 were achieved.
- The AWN loan’s full accrued-interest and line-fee burden, security terms, repayment capacity and related-party governance.
- ISS project status, realizable sale proceeds, timing, remaining investment commitments and the outcome of negotiations with ISS.
- The durability of Critical Power Services margins and the exposure to its major customer, including the concentration disclosed for Kenshaw.
- The outcome and ultimate cost of the Comberg litigation, compared with the $1.1 million provision.
- The potential effects of equity awards and the Aevitas preference-share restructuring on shareholder dilution, claims priority and future cash obligations.