Results of Operations for the Six Months Ended June 30, 2022 and June 30, 2021
The following table sets forth Arrival’s historical operating results for the year to date June 30, 2022 and 2021 followed by an analysis of Arrival’s results of operations during these periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of USD | | For the Six Months Ended June 30, | | | | |
| | 2022 | | 2021 | | Changes | | % Changes |
| Administrative Expenses | | (136,436) | | | (79,687) | | | (56,749) | | | 71.2 | % |
| Research and Development Expenses | | (60,260) | | | (23,112) | | | (37,148) | | | 160.7 | % |
| Impairment Expense | | (24,131) | | | (2,306) | | | (21,825) | | | 946.4 | % |
| Listing expense | | — | | | (1,188,335) | | | 1,188,335 | | | * |
| Other Income | | 2,403 | | | 1,964 | | | 439 | | | 22.4 | % |
| Other Expenses | | (104) | | | — | | | (104) | | | * |
| Operating Loss | | (218,528) | | | (1,291,476) | | | 1,072,948 | | | (83.1) | % |
| Finance Income | | 137,389 | | | 106,188 | | | 31,201 | | | 29.4 | % |
| Finance Expense | | (14,659) | | | (14,398) | | | (261) | | | 1.8 | % |
| Net Finance Income | | 122,730 | | | 91,790 | | | 30,940 | | | 33.7 | % |
| Loss Before Tax | | (95,798) | | | (1,199,686) | | | 1,103,888 | | | (92.0) | % |
| Tax expense | | (4,152) | | | (7,570) | | | 3,418 | | | (45.2) | % |
| Loss for the Period | | (99,950) | | | (1,207,256) | | | 1,107,306 | | | (91.7) | % |
| * The percentage increase from 2021 is not included as variance is not comparable to the prior year |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Administrative Expenses
Administrative expenses increased $56.7 million, or 71.2%, from $79.7 million for the period ended June 30, 2021 to $136.4 million for the period ended June 30, 2022. The increase was driven by provisions for obsolete inventory (USD 14.9 million) and related purchase commitment penalties (USD 7.3 million) , share based payment expenses related to new programs (USD 9.1 million) , asset write offs and other expenses related to our move from our Russia location and increased wage (USD 3.3 million), travel (USD 1.8 million) and consultative spend (USD 18.9 million) as the company readies for start of production.
Research and Development Expenses
Research expenses increased by $37.1 million, or 160.7%, from $23.1 million for the period ended June 30, 2021 to $60.3 million for the period ended June 30, 2022. The increase was primarily due to increased wages and salaries as Arrival expanded its work on our programs and readies for start of production.
Impairment Expense
Impairment expense increased by $21.8 million, from $2.3 million for the period ended June 30, 2021 to $24.1 million for the period ended June 30, 2022. Impairment charges relate to the impairment of the specific project components of internally developed intangible assets and right-of-use assets for leases that are no longer expected to generate future cash flows. For more information on impairment expense, please see note 5.
Listing Expenses
In March 2021, the Business Combination Agreement (or Merger Agreement) between CIIG and Arrival came into effect and both companies were merged with Arrival becoming the listed entity. In accordance with IFRS, the difference between the fair value of the shares deemed to have been issued by Arrival and the fair value of the identifiable net assets of CIIG and warrants transferred have been recorded as a listing expense.
Net Finance Income /(Expense),
Net Finance Income/(Expense) increased by $30.9 million from net finance income of $91.8 million for the period ended June 30, 2021 to net finance income of $122.7 million for the period ended June 30, 2022. The change in net finance income is mainly attributable to the fair value increase of the embedded derivatives which had an impact of $104.9 million and gain in foreign exchange differences of $26.5 million which is partially offset by a decrease in fair value of warrants of $93.7 million and a decrease in interest receivable on employee loans of $5.7 million.
Cash Flows
The following table sets forth a summary of Arrival’s operating, investing and financing cash flows for the six months ended June 30, 2022 and 2021 followed by an analysis of the cash flows during these periods.
| | | | | | | | | | | | | | |
| in thousands of USD | | For the Six Months Ended June 30, |
| | 2022 | | 2021 |
| | |
| Net cash used in operating activities | | (173,354) | | | (121,397) | |
| Net cash used in investing activities | | (194,282) | | | (128,905) | |
| Net cash from financing activities | | (16,389) | | | 693,438 | |
| Net increase/(decrease) in cash and cash equivalents | | (384,025) | | | 443,136 | |
Cash Flows from Operating Activities
Arrival’s cash flows used in operating activities to date have been primarily comprised of costs related to the development of its products, manufacturing processes, payroll and changes in accounts payable and other current assets and liabilities.
Net cash used in operating activities was $173.4 million for the six months ended June 30, 2022 compared to $121.4 million for the six months ended June 30, 2021. The increase of $52 million was primarily due to increased outflows on staff and other project costs as Arrival expanded its research and development activities and readies for start of production, as well as outflows on supporting infrastructure such as property costs and prepayments made for the acquisition of inventory.
Cash Flows from Investing Activities
Arrival’s cash flows used in investing activities to date are primarily comprised of capitalized development expenditures related to vehicle development, vehicle components, software and microfactories. In addition, Arrival purchases tangible fixed assets (plant and equipment) in support of both research and development programs.
Net cash used in investing activities was $194.3 million for the six months ended June 30, 2022, compared to $128.9 million for the six months ended June 30, 2021. In both periods this primarily consisted of cash outflows for development program expenditures (staff and project costs) capitalized as intangible assets under construction and the acquisition of plant and equipment for the microfactories under construction.
Cash Flows from Financing Activities
Net cash from financing activities was $(16.4) million for the six months ended June 30, 2022, compared to 693.4 million for the six months ended June 30, 2021 which was primarily due to prior year merger and issuance activities.
EXHIBIT 99.1
FINANCIAL STATEMENTS
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Arrival
Condensed Interim Consolidated Financial Statements
For the period ended June 30, 2022 and years ended December 31 2021 and 2020 (unaudited)
C O N T E N T S
Arrival
Condensed consolidated statement of profit or (loss)
For the six months period ended June 30, 2022 and 2021 (unaudited)
| | | | | | | | | | | | | | | | | |
| | | Six months ended June 30, |
| In thousands of USD | | | 2022 | | 2021 |
| Note | | | | |
| Continuing Operations | | | | | |
| Administrative expenses | | | (136,436) | | | (79,687) | |
| Research and development expenses | | | (60,260) | | | (23,112) | |
| Impairment expense | 6, 7 | | (24,131) | | | (2,306) | |
| Listing expense | 15 | | — | | | (1,188,335) | |
| Other income | | | 2,403 | | | 1,964 | |
| Other expenses | | | (104) | | | — | |
| Operating loss | | | (218,528) | | | (1,291,476) | |
| Finance income | 16 | | 137,389 | | | 106,188 | |
| Finance cost | 16 | | (14,659) | | | (14,398) | |
| Net finance income | | | 122,730 | | | 91,790 | |
| Loss before tax | | | (95,798) | | | (1,199,686) | |
| Tax expense | 12 | | (4,152) | | | (7,570) | |
| Loss for the period | | | (99,950) | | | (1,207,256) | |
| Attributable to: | | | | | |
| Owners of the Company | | | (99,950) | | | (1,207,256) | |
| Earnings per share | 14 | | | | |
| Basic and diluted earnings per share | | | (0.16) | | | (2.20) | |
Condensed consolidated statement of other comprehensive (loss)/income
| | | | | | | | | | | | | | | | | |
| In thousands of USD | | | Six months ended June 30, |
| | | 2022 | | 2021 |
| Loss for the period | | | (99,950) | | | (1,207,256) | |
| Items that may be reclassified subsequently to the consolidated statement profit or (loss) | | | | | |
| Exchange differences on translating foreign operations | | | (91,322) | | | 10,874 | |
| Total other comprehensive (loss)/income | | | (91,322) | | | 10,874 | |
| Total comprehensive loss for the period | | | (191,272) | | | (1,196,382) | |
| Attributable to: | | | | | |
| Owners of the Company | | | (191,272) | | | (1,196,382) | |
The accompanying notes are an integral part of these consolidated financial statements. All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Arrival
Condensed consolidated statement of financial position
As at June 30, 2022, December 31, 2021 and December 31,2020 (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of USD | | | June 30,
2022 | | December 31, 2021 | | December 31, 2020 |
| ASSETS | | | | | | | |
| Non-Current Assets | Note | | | | | | |
| Property, plant and equipment | 4 | | 312,856 | | | 271,607 | | | 138,317 | |
| Intangible assets and goodwill | 5 | | 473,957 | | | 414,674 | | | 210,723 | |
| Deferred tax asset | 12 | | 1,463 | | | 2,171 | | | 1,392 | |
| Prepayments | | | 24,151 | | | 23,384 | | | — | |
| Trade and other receivables | 6A | | 33,647 | | 40,916 | | | 13,235 | |
| Total Non-Current Assets | | | 846,074 | | | 752,752 | | | 363,667 | |
| Current Assets | | | | | | | |
| Inventory | 7 | | 30,692 | | | 22,977 | | | 14,504 | |
| Loans to executives | | | — | | | — | | | 5,207 | |
| Trade and other receivables | 6B | | 61,468 | | | 45,312 | | | 63,104 | |
| Prepayments | | | 52,090 | | | 48,118 | | | 23,262 | |
| Cash and cash equivalents | | | 512,615 | | | 900,606 | | | 82,314 | |
| Total Current Assets | | | 656,865 | | | 1,017,013 | | | 188,391 | |
| TOTAL ASSETS | | | 1,502,939 | | | 1,769,765 | | | 552,058 | |
| EQUITY AND LIABILITIES | | | | | | | |
| Capital and reserves | | | | | | | |
| Share capital | 8 | | 70,317 | | | 74,046 | | | 274,126 | |
| Share premium | | | 5,844,397 | | | 5,844,397 | | | 331,718 | |
| Other reserves | | | (3,173,899) | | | (3,095,804) | | | 79,888 | |
| Accumulated deficit | | | (1,697,011) | | | (1,597,061) | | | (292,680) | |
| Total Equity | | | 1,043,804 | | | 1,225,578 | | | 393,052 | |
| Non-Current Liabilities | | | | | | | |
| Deferred tax liability | 12 | | 7,077 | | | 7,465 | | | 3,375 | |
| Warrants | 10 | | 334 | | | 3,611 | | | — | |
| Loans and borrowings | 9 | | 364,547 | | | 451,525 | | | 107,870 | |
| Total Non-Current Liabilities | | | 371,958 | | | 462,601 | | | 111,245 | |
| Current Liabilities | | | | | | | |
| Current tax liabilities | 12 | | 2,619 | | | 358 | | | 615 | |
| Loans and borrowings | 9 | | 17,221 | | | 14,258 | | | 5,221 | |
| Trade and other payables | 13 | | 67,337 | | | 66,970 | | | 41,925 | |
| Total Current Liabilities | | | 87,177 | | | 81,586 | | | 47,761 | |
| TOTAL EQUITY AND LIABILITIES | | | 1,502,939 | | | 1,769,765 | | | 552,058 | |
The accompanying notes are an integral part of these consolidated financial statements. All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Arrival
Condensed consolidated statement of changes in equity
For the period ended June 30, 2022 and 2021 (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of USD | | | Share
capital | | Share
premium | | Accumulated
deficit | | Other
reserves* | | Total
equity |
| Balance at at January 1, 2022 | | | 74,046 | | | 5,844,397 | | | (1,597,061) | | | (3,095,804) | | | 1,225,578 | |
| (Loss) for the period | | | — | | | — | | | (99,950) | | | — | | | (99,950) | |
| Impact from the change of the currency of the shares from EUR to USD | | | (3,729) | | | — | | | — | | | 3,729 | | | — | |
| Other comprehensive income | | | — | | | — | | | — | | | (95,051) | | | (95,051) | |
| | | 70,317 | | | 5,844,397 | | | (1,697,011) | | | (3,187,126) | | | 1,030,577 | |
| Transactions with shareholders | | | | | | | | | | | |
| Equity-settled share-based payments | | | — | | | — | | | — | | | 13,761 | | | 13,761 | |
| RSP repurchases | | | — | | | — | | | — | | | (554) | | | (554) | |
| SOP exercised | | | — | | | — | | | — | | | 20 | | | 20 | |
| Balance at June 30, 2022 | | | 70,317 | | | 5,844,397 | | | (1,697,011) | | | (3,173,899) | | | 1,043,804 | |
| | | | | | | | | | | |
| Balance at January 1, 2021 | | | 274,126 | | | 331,718 | | | (292,680) | | | 79,888 | | | 393,052 | |
| Loss for the period | | | — | | | — | | | (1,207,256) | | | — | | | (1,207,256) | |
| Other comprehensive income | | | — | | | — | | | — | | | 10,874 | | | 10,874 | |
| | | 274,126 | | | 331,718 | | | (1,499,936) | | | 90,762 | | | (803,330) | |
| Transactions with shareholders | | | | | | | | | | | |
| Issuance of share capital as consideration for the merger with CIIG | | | 8,543 | | | 711,625 | | | — | | | 870,922 | | | 1,591,090 | |
| Adjustment of shareholding transferred from Arrival Luxembourg S.à r.l. to Arrival | | | (211,064) | | | 4,602,685 | | | — | | | (4,391,621) | | | — | |
| Initial share capital of Arrival | | | 35 | | | — | | | — | | | — | | | 35 | |
| Reduction of capital of Arrival | | | (35) | | | — | | | — | | | 35 | | | — | |
| Conversion of warrants | | | 954 | | | 67,843 | | | — | | | 67,521 | | | 136,318 | |
| Acquisition of own shares | | | — | | | — | | | — | | | (178) | | | (178) | |
| Equity settled share base payments | | | — | | | — | | | — | | | 4,449 | | | 4,449 | |
| Balance at June 30, 2021 | | | 72,559 | | | 5,713,871 | | | (1,499,936) | | | (3,358,110) | | | 928,384 | |
*Other reserves comprise of foreign currency translation, share base payments reserves relating to Arrival Share Option Plan 2020 (“SOP”), Restricted Share Plan (“RSP”) and Restricted Stock Unit (“RSU”) and equity reserves which are not distributable.
The accompanying notes are an integral part of these consolidated financial statements. All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Arrival
Condensed consolidated statement of cash flows
For the six months period ended June 30, 2022, and 2021 (unaudited)
| | | | | | | | | | | | | | | | | |
| | | For the six months ended June 30, |
| In thousands of USD | Note | | 2022 | | 2021 |
| | | | | |
| Cash flows used in operating activities | | | | | |
| Loss for the period | | | (99,950) | | | (1,207,256) |
| Adjustments for: | | | | | |
| •Depreciation/Amortization | 4, 5 | | 18,481 | | | 10,997 | |
| •Impairment losses and write -offs | 4, 5, 6, 7 | | 47,191 | | | 2,406 | |
| •Net unrealized foreign exchange differences | | | (19,882) | | | 5,150 | |
| •Net finance expense | 16 | | 8,609 | | | (2,854) | |
| •Change in fair value of warrants | 10 | | (3,277) | | | (97,021) | |
| •Listing expense | 15 | | — | | | 1,168,515 | |
| •Change in fair value of embedded derivative | | | (104,931) | | | — | |
| •Fair value movement on employee loans including fair value charge for the new employee loans issued on April 8, 2022 | | | 3,537 | | | — | |
| •Reversal of difference between fair value and nominal value of loans repaid | | | (295) | | | (1,742) | |
| •Employee share scheme | 17 | | 9,870 | | | 1,563 | |
| •Profit on disposal of fixed assets | | | (109) | | | (1,043) | |
| • Profit from the modification of lease | | | (1,762) | | | — | |
| • Deferred taxes | | | 1,724 | | | 5,072 | |
| • Income Tax | | | 2,428 | | | 107 | |
| Cash flows used in operations before working capital changes | | | (138,366) | | | (116,106) | |
| (Increase) in trade and other receivables | | | (26,167) | | | (36,076) | |
| Increase in trade and other payables | | | 21,796 | | | 24,773 | |
| (Increase) of inventory | | | (28,379) | | | (1,966) | |
| Cash flows used in operations | | | (171,116) | | | (129,375) | |
| Income tax and other taxes | | | (2,878) | | | 7,923 | |
| Interest received | | | 640 | | | 55 | |
| Net cash used in operating activities | | | (173,354) | | | (121,397) | |
| Cash flows from investing activities | | | | | |
| Acquisition of intangible assets | 5 | | (109,005) | | | (90,666) | |
| Acquisition of property, plant and equipment | 4 | | (44,045) | | | (23,208) | |
| Grants received | | | — | | | 175 | |
| Prepayments for tangible and intangible assets | | | (41,301) | | | (15,197) | |
| Cash received on acquisition of entities, net of consideration paid | | | — | | | (9) | |
| Proceeds from the sale of fixed assets | | | 69 | | | — | |
| Net cash used in investing activities | | | (194,282) | | | (128,905) | |
Arrival
Condensed consolidated statement of cash flows (continued)
For the six months ended June 30, 2022, and 2021 (unaudited)
| | | | | | | | | | | | | | | | | | |
| | | For the six months ended June 30, | |
| In thousands of USD | Note | | 2022 | | 2021 | |
| | | | | | |
| Cash flows from financing activities | | | | | | |
| Cash paid for redemption of public warrants | | | — | | | 69,116 | | |
| Proceed from the issuance of new shares | | | — | | | 631,297 | | |
| Proceeds from exercise of employee share option plan | | | 20 | | | — | | |
| Repayment of borrowings | | | — | | | — | | |
| Repayment of interest | | | (5,888) | | | (53) | | |
| Repayment of lease liabilities | | | (10,521) | | | (6,922) | | |
| Net cash from financing activities | | | (16,389) | | | 693,438 | | |
| Net (decrease)/increase in cash and cash equivalents | | | (384,025) | | | 443,136 | | |
| Cash and cash equivalents at January 1 | | | 900,606 | | | 82,314 | | |
| Effects of movements in exchange rates on cash held | | | (3,966) | | | 3,442 | | |
| Cash and cash equivalents at June 30 | | | 512,615 | | | 528,892 | | |
The accompanying notes are an integral part of these consolidated financial statements. All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
Note 1. INCORPORATION AND PRINCIPAL ACTIVITIES
General
Arrival (the “Company” or the “Group” if together with its subsidiaries, previously named Arrival Group S.A.) was incorporated in Luxembourg on October 27, 2020 as a Société Anonyme for an unlimited period. The Company has its registered address at 60A, rue des Bruyères, L-1274 Howald, Luxembourg and is registered at the Luxembourg Commercial Register under number R.C.S Luxembourg n° B248209.
These unaudited condensed consolidated interim financial statements as at and for the six months ended June 30, 2022, comprise the Company and its subsidiaries (together referred to as the "Group). The Group’s principal activity is the research & development (“R&D”) and design of electric commercial vehicles, electric vehicle components, robotic manufacturing processes for electric vehicles and associated software. The Group’s main operations are in the United Kingdom, United States and Europe.
Merger in the prior period
On November 18, 2020 the Company entered into a business combination agreement (Merger agreement) with CIIG Merger Corp. (“CIIG”) for the transfer of the shareholding in CIIG to Arrival.
In line with the terms of the arrangement, on conclusion of the transaction, on March 24, 2021, the Shareholders of CIIG exchanged their shareholding in CIIG for new shares issued in Arrival where one share in CIIG would be exchanged for one share in Arrival. As a result of this transaction, all the shareholding in CIIG is transferred to Arrival and CIIG is merged with Arrival, with Arrival being the resultant entity listed on NASDAQ. Arrival trades under ticker symbol “ARVL”.
The transaction was accounted for as a reverse merger in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Under the reverse merger method of accounting, Arrival is treated as the “acquirer” company.
Operations in Russia
Due to geopolitical considerations and the uncertain nature, magnitude and duration of Russia’s war in Ukraine and actions taken by Western and other states and multinational organizations in response thereto, Arrival has taken the decision to close our Russia location. In this process the company has expended time and resources in relocating employees and data from Russia to other jurisdictions. USD 5,505,697 in costs have been incurred related to this move, the majority of which (approximately USD 4,563,420) relate to provisions of property, plant and equipment, inventory and other assets that can not be moved from Russia due to country restrictions. The remaining costs relate to relocation of employees. There are no remaining material costs to be incurred relating to this move.
2. BASIS OF PREPARATION
These interim financial statements for the six months ended June 30, 2022 have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group’s last annual consolidated financial statements as at and for the year ended December 31 2021 (‘last annual financial statements’). They do not include all of the information required for a complete set of financial statements prepared in accordance with IFRS Standards. However,
selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements. Numbers are presented in whole dollars (USD) unless otherwise stated, following the change in presentational currency from Euros to US Dollars with effect from January 1, 2022 as noted in more detail below. Dollar values in tables are in USD thousands.
These unaudited interim financial statements were authorized for issue by the Board of Directors (the “Board”) on August 12, 2022 and have been prepared on a going concern basis.
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
2. BASIS OF PREPARATION (continued)
Going Concern
The condensed interim consolidated financial statements (‘financial Statements’) have been prepared on a going concern basis. In determining the appropriate basis of preparation for the period ended June 30, 2022, the Board is required to consider whether the Group and Company will be able to operate within the level of available cash and liquidity for the
foreseeable future, being a period of at least 12 months following the approval of the financial statements.
Arrival is a Company with an extremely limited operating history, it has incurred losses in the operation of its business related to research and development activities in respect of Electric Vehicles (EV) since its inception and has generated no revenues to date. As Arrival attempts to transition from research and development activities to commercial production and sales, it is difficult to forecast Arrival’s future cash flows. The estimated costs and timelines that Arrival has developed to reach full scale commercial production are subject to inherent risks and uncertainties.
In the reporting period, there have been significant challenges in the external and macroeconomic environment in which Arrival operates such as global supply chain issues, the ongoing pandemic, geopolitical tensions and rising costs. The Company has also seen an increase in its estimated build costs impacting its overall short term profitability targets.
In July 2022, in response to these conditions, the Company announced restructuring plans, including redundancies and other cost cutting measures, that required a realignment of the organization to focus on production of the Large Van product and Bicester microfactory. The Company has temporarily paused the Bus program, put its Car program on hold and delayed the build out of the Charlotte microfactory until further funding is secured which is currently anticipated to enable Charlotte to re-start during 2023.
Arrival continues to see a great deal of interest in its products, supported by continuing increases in Letters of Interest but as yet does not have committed orders for its vehicles prior to production commencing.
Accordingly, the Company has refreshed its near term and long term business plans, updating planning assumptions for the latest understanding of the cost of completing research and development activities, working capital, capital expenditure, operating expenditure, average selling price, bills of materials and revenues. There is however uncertainty as to the achievability and timing of the business plan including the planned cost cutting measures.
Additionally, the Company is establishing an At the Market program (ATM) funding which allows the sale of up to $300 million of equity into the market at the time of the Company’s choosing, subject to a percentage of the average daily trading volumes. However, as this funding is just being established there can be no certainty as to the actual funds the Company will raise and the timing thereof. If adequate funding is not secured as and when needed then the Company will need to further defer the Charlotte Microfactory build and Bus program as well as undertake additional steps to reduce costs. There is uncertainty as to the ability of the Company to secure such funding, the timing of doing so and the ability to take appropriate mitigating steps
Arrival had $ 512,614,742 cash and cash equivalents at the end of June 30, 2022. The Board has considered the Group’s cash flow forecasts for the period to August 2023 being the period assessed for going concern purposes together with a severe but plausible downside scenario through to December 2023 reflecting the Group’s early stage of development, production, there being delays to or no funding secured and other uncertainties, as noted above. It has determined that while the company has sufficient cash to meet its immediate needs for the assessed twelve month period and execute a reduced near term business plan, including starting production in 2022 for Van, the Board will need to secure additional capital to execute its full business plan, including the move to hard tooling, the build out of the Charlotte Microfactory, restart of the Bus program and in the longer-term the deployment of additional microfactories and vehicle platforms. Arrival cannot be certain that additional funds will be available to it on favorable terms when required, or at all.
There can be no assurance that Arrival’s estimates related to the costs and timing necessary to complete design and engineering of its Electric Vehicles will prove accurate or that its plans to transition from soft to hard tooling, which is a
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
2. BASIS OF PREPARATION (continued)
key part of the Company’s ability to manage the vehicle build costs to produce at profitable levels, will be achieved in the timelines proposed, and that the required funding to do so will be secured. The tooling required within Arrival’s microfactories may also be more expensive to produce than predicted, or have a shorter lifespan, resulting in additional replacement and maintenance costs, which could have an impact on Arrival’s results of operations and financial condition. Similarly, Arrival may experience higher raw material waste in the composite process than it expects, resulting in higher operating costs and hampering its ability to be profitable.
Notwithstanding the uncertainties noted above, the Board is satisfied that the Group has sufficient funds to continue to be able to realize its assets and discharge its liabilities as they fall due for a period of at least 12 months from the date of approval of the financial statements and therefore it remains appropriate that the financial statements have been prepared on a going concern basis. However, these matters indicate the existence of a material uncertainty related to events or conditions that may cast significant doubt on the group’s and the company’s ability to continue as a going concern and, therefore, that the group and company may be unable to realize their assets and discharge their liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.
Incorporation and prior period merger
Arrival was incorporated on October 27, 2020 and had no material operations. As a result of the reorganization, it become the parent company of Arrival Luxembourg S.à r.l., the operating company as of March 24, 2021. The transaction with CIIG was accounted for as a reverse merger. In accordance with IFRS 2 guidance on reverse mergers, the unaudited condensed consolidated interim financial statements of the Group presented as of June 30, 2022 are a continuation of those of Arrival Luxembourg S.à r.l. consolidated financial statements which were prepared in accordance with the IFRS as issued by IASB for the immediately preceding financial year ended December 31, 2021 and activity prior to the transaction date is presented, being that of Arrival Luxembourg S.à r.l.. The net assets (predominantly cash & cash equivalents) acquired from CIIG at the transaction date are included only from the date of merger.
Presentation currency
On January 1, 2022 the Group changed its presentational currency from Euro to US dollars in order to provide users of our financial statements with greater transparency of company performance. Given that a significant amount of group transactions are in USD we believe this is more reflective of the economic environment across the group.
In accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, this change in presentational currency was applied retrospectively and accordingly, prior year financial statements have been restated.
Financial information included in the consolidated financial statements for years ended 31 December 2021 and 2020 have been restated in US dollars as follows:
•assets and liabilities in non-US denominated currencies were translated into US dollars at the rate of exchange ruling at the relevant balance sheet date;
•non-US dollar income statements and cash flows were translated into US dollars at average rates of exchange for the relevant period;
•share capital, share premium and all other equity items were translated at the historical rates prevailing on the date of each relevant transaction;
•non-US dollar capital transactions including the listing expenses were translated into US dollars at the historical rates prevailing on the date of each relevant transaction; and
•the cumulative foreign exchange translation reserve has been restated on the basis that the Group has reported in US dollars since incorporation.
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Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
2. BASIS OF PREPARATION (continued)
In preparing these financial statements, the exchange rates used in respect of the Euro (€) are:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Closing Rate June 30 | Closing rate December 31 | | Average rate for the period ended June 30 | | Average rate for the year ended December 31 |
| ISO Code | | 2022 | 2021 | 2021 | | 2020 | | 2022 | 2021 | | 2021 | | 2020 |
| EUR | | 1.047414 | 1.092998 | 1.131610 | | 1.227100 | | 1.092998 | 1.202483 | | 1.183269 | | 1.147000 |
On June 3, 2022, as part of the Extraordinary General Meetings (‘EGM’) held on that day, the shareholders approved the change of currency of the issued share capital of Arrival from Euro (EUR) to United States dollars (USD) by applying the EUR / USD exchange rate published on the website of the European Central Bank on June 2, 2022. The rate used for the conversion is 1.0692.
Significant Accounting Policies
The accounting policies applied in these unaudited condensed consolidated interim financial statements are the same as those applied in the Consolidated financial statements of Arrival as at and for the year ended December 31, 2021, with the exception of the adoption of the new standards that have become effective as from January 1, 2022. The new standards and the amendments to them that become effective as of January 1, 2022, did not have a material impact on Arrival's financials.
3. USE OF JUDGEMENTS AND ESTIMATES
In preparing these unaudited condensed consolidated interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities. Actual results may differ from these estimates.
The significant judgements made by management in applying the Group’s accounting policies and key sources of estimation uncertainty were the same as those described in the last annual consolidated financial statements for the year ended December 31, 2021 for Arrival Luxembourg S.à r.l. except for:
Going Concern
The Company has refreshed its near term and long term business plans, updating planning assumptions for the latest understanding of the cost of completing research and development activities, working capital, capital expenditure, operating expenditure, average selling price, bills of materials and revenues.
In assessing going concern, the The Board has considered the Group’s cash flow forecasts for the period to August 2023 being the period assessed for going concern purposes together with a severe but plausible downside scenario through to December 2023 reflecting the Group’s early stage of development, production, there being delays to or no funding secured and other uncertainties, as noted above. It has determined that while the company has sufficient cash to meet its immediate needs for the assessed twelve month period and execute a reduced near term business plan, including starting production in 2022 for Van, the Board will need to secure additional capital to execute its full business plan, including the move to hard tooling, the full build out of the Charlotte Microfactory, restart of the Bus program and in the longer-term the deployment of additional microfactories and vehicle platforms. For more information see note 2.
(i) Impairment Assessment
Arrival performs an annual impairment test for its assets or when there is an indication of impairment at the reporting date. The Group performs a quarterly assessment of all impairment indicators for all assets within the scope of IAS 36.
Right of Use Assets
For the six months period ended June 30, 2022, it was identified that the right of use assets of three of our leases needed to be impaired. Further information on the impairment of the leases is included in note 4.
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Arrival
Notes to the Condensed consolidated interim financial statements
as of and for the three and six months ended June 30, 2022, 2021 and 2020 (unaudited)
3. USE OF JUDGEMENTS AND ESTIMATES (continued)
Intangible Assets and Goodwill
The group also performs a quarterly review of all projects classified as internally developed intangible assets in our Consolidated statement of financial position. Under the requirements of IAS 38, an entity is required to recognize an intangible asset if specified criteria are met.
With the Company's recently announced proposed reorganization of its business in response to the challenging economic environment and as it focuses on its next major milestone (starting production of the Arrival Van in Q3 2022), certain development projects elements have been temporarily paused in order to focus efforts on the vehicle launch for Vans or pending further funding. While the company does intend to complete these projects over time, this pause, as per IAS 36, may indicate that such assets will be assessed on an individual basis and should be assessed separately for impairment rather than on a CGU level. As a result of this, Arrival has considered such projects within the CGU to identify any impacted by the revised business plan and assessed for impairment and recorded an impairment of USD 8,938,226 as of June 30, 2022 related to these assets. For further information please see note 5.
Cash Generating Unit (CGU) Assets
Arrival performs an annual impairment test for its CGU assets or when there is an indication of impairment at the reporting date. During the quarter, the share price reduction of Arrival led to a corresponding decrease in the company's market capitalization and this was deemed by Management to be an indication of impairment. In accordance with IFRS 13 management used a valuation technique based on the quoted market price for the Company’s equity shares to determine best estimate of the fair value less cost to disposal of the Auto CGU. This assessment was performed considering the level 1 input of stock price and market capitalization compared to total CGU assets. As at June 30, 2022 Auto CGU consisted of intangible assets of $473,957,000 and tangible assets of $312,856,000. The market capitalization as at June 30, 2022 was $1,008,415,884. Adjustments were made for cash and debt to provide a comparable analysis, considering corporate assets or liabilities that are not related to the CGU. Based on this evaluation no impairment was considered necessary.
Financial Assets
IFRS 9 requires that a valuation allowance for expected credit losses (“expected loss model”) is recognized for all financial assets measured at amortized cost or at fair value through other comprehensive income. Arrival considers a wide range of information when assessing credit risk and measuring expected credit losses, including past events and current conditions, but also reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. Based on the instruments expected credit quality, it must be differentiated between the following three conditions.
Stage 1 financial assets are those for which credit quality has not deteriorated significantly since initial recognition or that have a low credit risk.
Stage 2 financial assets are those that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low.
Stage 3 covers financial assets for which objective evidence of impairment are present at the reporting date.
For all assets within the first category (Stage 1) “12-month expected credit losses” are recognized. For all assets within the second category we recognize “lifetime expected credit losses”. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument.
Instruments within the scope of these requirements include loans that were granted to some employees in connection with Arrival`s Restricted Share Plan (RSP). For estimating the expected credit loss for such loans, we have obtained the help of a professional third-party valuation expert for valuation inputs and determining the fair value and the expected credit losses for the RSP loans. As of June 30, 2022, the RSP employee loans were subject to additional expected credit losses charged to finance cost after management adopted revised estimates about expected repayment dates from employees. For further information, please see note 6.
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Arrival
Notes to the Condensed consolidated interim financial statements
as of and for the three and six months ended June 30, 2022, 2021 and 2020 (unaudited)
3. USE OF JUDGEMENTS AND ESTIMATES (continued)
(ii) Share-based payments
The Company had certain share-based payment plans in effect at the beginning of the year, and during the first half of 2022, the Company has introduced two more share-based payment plans; an RSU agreement and a Long-Term Incentive Plan (LTIP). In determining the periodic compensation expense for these share-based payment programs, certain estimates have to be made. For further information about the newly introduced share-based payment plans, the underlying assumptions used to determine the periodic compensation expense, and the effect of the change in estimates, please see note 17.
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Arrival
Notes to the Condensed consolidated interim financial statements
as of and for the three and six months ended June 30, 2022, 2021 and 2020 (unaudited)
4. PROPERTY, PLANT AND EQUIPMENT | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of dollars | Land and
Buildings | | Plant and
Equipment | | Furniture and
fittings | | Motor
Vehicles | | Assets under
Construction | | TOTAL |
| | | | | | | | | | | |
| Cost | 225,252 | | 66,630 | | 8,170 | | 1,108 | | 90,708 | | 391,868 |
| Depreciation | (27,446) | | (25,001) | | (3,566) | | (659) | | — | | | (56,672) |
| Impairment | (15,843) | | (5,537) | | (89) | | (162) | | (709) | | (22,340) |
| Net book value at June 30, 2022 | 181,963 | | 36,092 | | 4,515 | | 287 | | 89,999 | | 312,856 |
| | | | | | | | | | | |
| Cost | 207,378 | | | 52,822 | | | 8,598 | | | 1,146 | | | 55,128 | | | 325,072 |
| Depreciation | (22,013) | | | (20,728) | | | (3,183) | | | (595) | | | — | | | (46,519) |
| Impairment | (3,543) | | | (2,733) | | | (210) | | | (219) | | | (241) | | | (6,946) |
| Net book value at December 31, 2021 | 181,822 | | | 29,361 | | | 5,205 | | | 332 | | | 54,887 | | | 271,607 |
| | | | | | | | | | | |
| Cost | 114,999 | | | 31,848 | | | 6,984 | | | 738 | | | 6,310 | | | 160,879 |
| Depreciation | (7,912) | | | (12,636) | | | (1,713) | | | (272) | | | — | | | (22,533) |
| Impairment | — | | | (29) | | | — | | | — | | | — | | | (29) |
| Net book value at December 31, 2020 | 107,087 | | | 19,183 | | | 5,271 | | | 466 | | | 6,310 | | | 138,317 |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
During the period under review, Management has decided to impair certain leases in Russia, the U.S. and in Spain as the Group plans to no longer utilize these lease locations. The total impairment of these leases amounted to USD 13,035,632. In addition, as the Group plans to stop its operations in Russia, an impairment of USD 2,862,462 has been recognized relating to plant and equipment that the Group has in Russia. In addition there was a reversal of impairment for an amount of USD 1,093,152 as assets that have been fully impaired in 2021 relating to Charging CGU, have been move during the period to our new office in Georgia and have been put into use.
During the first half of 2022 the Company entered into new lease agreements in Georgia, England, the U.S., and China. Those additional leases resulted in a corresponding increase of the right-of-use asset by USD 41,659,841 which is reflected in the table above within land and buildings. The foreign exchange impact on leases was a decrease and amounted to USD 15,321,963. Furthermore, the Group has cancelled several leases which resulted in a decrease of the right-of use of asset for an amount of USD 13,996,489.
Additions during the 6 month period ended June 30, 2022, for plant and equipment include acquisition for USD 12,910,000 and reclassification from assets under construction of USD 3,680,752. The total foreign exchange difference for plant and equipment decrease the total amount by USD 3,309,561
During the 6 months period ended June 30, 2022, the Group the additions to the assets under construction amounted to USD 47,350,742. An amount of USD 28,268,000 relates to addition to the plant, machinery and tooling classified under this category as well as leasehold improvements under construction of USD 14,402,000. Additions to the assets under construction include capitalized borrowing costs of an amount USD 3,680,752. Assets that have been put into use which were classified under assets under construction have been reclassified to the appropriate category. More specifically, USD 3,149,189 has been reclassified to plant and equipment and USD 3,615,467 to land and buildings. Foreign exchange differences for the 6 months period ended June 30, 2022 were USD 4,888,441.
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Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
5. INTANGIBLE ASSETS AND GOODWILL
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of USD | Goodwill | | Assets under
construction | | Patent, trademarks
and other rights | | Software | | TOTAL |
| | | | | | | | | |
| Cost | 30 | | | 522,801 | | | 510 | | | 24,600 | | | 547,941 | |
| Amortization | — | | | — | | | (162) | | | (6,600) | | | (6,762) | |
| Impairment | — | | | (66,936) | | | (286) | | | — | | | (67,222) | |
| Net book value at June 30, 2022 | 30 | | 455,865 | | 62 | | 18,000 | | 473,957 |
| | | | | | | | | |
| Cost | 32 | | | 473,841 | | | 568 | | | 10,841 | | | 485,282 | |
| Amortization | — | | | — | | | (169) | | | (4,464) | | | (4,633) | |
| Impairment | (2) | | | (65,648) | | | (325) | | | — | | | (65,975) | |
| Net book value at December 31, 2021 | 30 | | | 408,193 | | | 74 | | | 6,377 | | | 414,674 |
| | | | | | | | | |
| Cost | 35 | | | 256,200 | | | 573 | | | 5,575 | | | 262,383 | |
| Amortization | — | | | — | | | (102) | | | (2,498) | | | (2,600) | |
| Impairment | (2) | | | (49,058) | | | — | | | — | | | (49,060) | |
| Net book value at December 31, 2020 | 33 | | | 207,142 | | | 471 | | | 3,077 | | | 210,723 |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Assets under construction include all costs of projects that are in development phase. The projects under development relate to electric vehicles, electric vehicle components and software. Assets under construction include equipment, tooling and parts that have been acquired during the period and will be used for the development of Arrival's projects. The amount of additions to Assets under construction during the period amounted to USD 88,338,757 (2021: USD 151,764,964) and are net of grants and research and development tax incentives of USD 8,301,721 (2021: USD 16,602,818). Additions to the assets under construction includes capitalized borrowing cost for an amount of USD 7,583,368.
With the company's recently announced proposed reorganization of its business in response to the challenging economic environment as it focuses on its next major milestone – starting production of the Arrival Van in Q3 2022, certain development projects elements within our internally developed intangible assets have been temporarily paused in order to focus efforts on the vehicle launch for Vans or pending further funding. While the company does intend to complete these projects over time, this pause, as per IAS 36, may indicate that such assets should be assessed separately for impairment rather than on a CGU level. Arrival has considered such projects within the CGU to identify any impacted by the revised business plan and assessed for impairment. As a result, the Company has recorded an impairment of USD 8,938,226 as of June 30, 2022. The impairment charge relates to the initial development cost of the Cars project which remains in the Group’s longer term business plans to develop further but for which funding will be needed to progress and having considered the criteria for capitalization of initial development costs under IAS 38 and the likely timelines to secure funding the Company has determined to impair the associated assets in full, there being no future cash flows that can be reasonably attributed to these assets as at June 30, 2022.
Impairments for assets under construction have increase during the period by USD 9,086,718 million due to impairments recognized during the period (see note above). This increase in the impairment account was net-off by the change of foreign exchange differences which amounted to USD 7,799,066 million.
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Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
6. TRADE AND OTHER RECEIVABLES
A.Non-Current trade and other receivables
| | | | | | | | | | | |
| In thousands of dollars | June 30, 2022 | 31 December,
2021 | December 31, 2020 |
| Loans receivable | 17,801 | | 21,613 | | 2,259 | |
| Call deposit | 4,457 | | 4,584 | | 1,984 | |
| Cash Guarantees and deposits | 11,344 | | 14,663 | | 8,992 | |
| Other | 45 | | 56 | | — | |
| Total | 33,647 | | 40,916 | | 13,235 | |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Non - current trade and other receivables are composed of financial assets classified at amortized cost. The Group classifies its financial asset at amortized cost if both of the following criteria are met:
•The assets are held within a business model whose objective is to collect the contractual cash flows and
•The contractual terms give rise to cash flows that are solely the payments of principal and interest
(i) Loans receivable
On September 30, 2021, the Group signed new loan agreements in order to refinance RSP loans that were expiring in October 2021. Due to the refinancing, IFRS 9 required de-recognition of the carrying amounts of the loans re-financed and recognition of the new loans granted. Certain Loans were re-financed on April 8, 2022, resulting in de-recognition of the old loans and recognition of the new loans granted. As of December 31, 2021, management decided to extend the terms of the loans maturing in October 2022 to October 10, 2027 and was then approved by the Board of Directors on April 8, 2022. Accordingly, management has reassessed the expected redemption date for all loans and based on the updated redemption dates the BSMOPM yields a fair value of the loans maturing in October 2027 of USD 20,582,787 and a fair value for the loans maturing on October 10, 2030, of USD 2,347,153. The difference between the carrying amount of the loans expected to mature in 2027 and the fair value of these loans has been recorded as impairment of RSP for USD 13,117,000 loans as of December 31, 2021.
Subsequent to the re-financing on April 8,2022, a net loss on refinancing of RSP loans of USD 2,459,862 was included in finance costs for the period ended June 30, 2022.
Correspondingly, certain impairments recognized in first quarter of 2022 were reversed in the second quarter of 2022, with a net impairment loss of USD 1,076,896 being recognized in finance cost for the six months period ended June 30,2022. This impairment loss reflects management's re-assessment of the recoverability of the loans.
The loss on refinancing of RSP Loans and the impairments or impairment reversals of RSP loans are disclosed in note 16, Finance Income and Costs.
During the reporting period, the company reassessed the timing of cash flows of the RSP loans. It is now estimated that the loans will be paid back as per the timelines presented in the table below. Management has reassess the expected repayment of the loans given the extension that has been granted as well as the current market conditions. As of December 31, 2021 it was estimated that the loans were going to be repaid as follows: 20% in 2023, 20% in 2024, 30% in 2025 and 30% in 2026.
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Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
A.Non-Current trade and other receivables (continued)
| | | | | | | | |
| Year of Projected Payback | % Payback Estimate
Loans Maturing 2027 | % Payback Estimate Loans Maturing 2030 |
| 2022 | — | — |
| 2023 | — | — |
| 2024 | — | — |
| 2025 | 20% | 10% |
| 2026 | 20% | 10% |
| 2027 | 60% | 20% |
| 2028 | — | 20% |
| 2029 | — | 20% |
| 2030 | — | 20% |
(ii) Call deposits
Call deposits are comprised of deposits the Group have made for facilities in the US for which the Group does not have the right to withdraw the money. Call deposits are maintained and renewed as needed in order to comply with the terms of certain lease agreements.
(iii) Cash guarantees and deposits
Cash guarantees and deposits are amounts that some companies of the Group have deposited in escrow accounts in order to obtain a lease and/or to obtain services provided by third parties. The cash guarantees match each lease duration. The leases expire between 2 to 15 years.
B. Current trade and other receivables
| | | | | | | | | | | | | | | | | |
| In thousands of USD | June 30, 2022 | | December 31, 2021 | | December 31, 2020 |
| R&D tax credits | 22,892 | | | 14,847 | | | 26,135 | |
| VAT receivable | 17,981 | | | 13,772 | | | 6,455 | |
| Other tax receivables | 12,307 | | | 13,807 | | | — | |
| Call deposit | — | | | — | | | 524 | |
| Deferred charges | 7,384 | | | 1,116 | | | 53 | |
| Loans receivable | — | | | 143 | | | 29,344 | |
| Impairment of other receivables | (151) | | | (42) | | | (7) | |
| Other receivables | 1,055 | | | 1,669 | | | 600 | |
| Total | 61,468 | | | 45,312 | | | 63,104 | |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Research and Development (R&D) Tax Credits are credits that our UK companies have claimed based on the R&D incentive program of the UK government. The Research and Development Expenditure Credit ("RDEC") incentive program credits are recognized in intangible assets and as a credit in the statements of profit or loss against non-capitalized program expenses. Small and Medium Enterprise Research and Development ("SME R&D") relief is credited to tax expense in the consolidated statement of profit or loss Loans receivable comprises short term loans to employees including mobility incentive scheme of cycling to work. R&D Tax Credits are credits that our UK companies have claimed based on the R&D incentive program of the UK government.
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Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
7. INVENTORY
| | | | | | | | | | | |
| In thousands of USD | June 30, 2022 | December 31, 2021 | December 31, 2020 |
| Raw materials, consumables and others | 44,671 | 24,642 | | 14,504 |
| Inventory write-downs | (13,979) | | (1,665) | | — | |
| Inventory | 30,692 | | 22,977 | | 14,504 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| Charges to the statement of profit or (loss) | 13,979 | | 1,665 | | — | |
| | | |
| Inventory write-downs - closing balance | 13,979 | | 1,665 | | — | |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Inventory write-downs consist primarily of aged batteries cells that are no longer suitable for production use and no longer have a viable alternative use case.
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Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
8. CAPITAL AND RESERVES
Share capital and share premium
On June 3, 2022, during the Extraordinary General Meeting of Arrival, the following was resolved to abolish the nominal value of all shares issued by the Company, so that the value of each share will forthwith be its accounting par value and the issued capital will be changed from Euro to USD by applying the EUR/USD exchange rate published on the website of the European Central Bank on June 2, 2022 (the "Exchange Rate"). The rate used for the conversion is 1.0692. Existing issued capital amounting to EUR 65,766,108 is converted into its equivalent amount in USD 70,317,122 per the exchange of USD.
9. LOANS AND BORROWINGS
| | | | | | | | | | | |
| In thousands of USD | June 30, 2022 | December 31, 2021 | December 31, 2020 |
| Non-current loans and borrowings | | | |
| Lease liability | 181,804 | 173,904 | 107,870 | |
| Convertible notes | 169,243 | 159,021 | — | |
| Embedded derivatives | 13,500 | 118,600 | — | |
| Total non-current loans and borrowings | 364,547 | 451,525 | 107,870 | |
| | | |
| Current loans and borrowings | | | |
| Current portion of lease liabilities | 16,281 | 13,076 | 5,221 | |
| Accrued interest on convertible notes | 933 | 1,182 | — | |
| Other | 7 | — | | — | |
| Total current loans and borrowings | 17,221 | 14,258 | 5,221 |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
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Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
9. LOANS AND BORROWINGS (continued)
The following table shows the change of the lease liability over the last six months ended June 30, 2022, and the additional lease liabilities that arose from new and modified leases during the period:
| | | | | | | | | | | |
| In thousands of USD | Currency | Weighted average of incremental borrowing rate | Carrying amount |
| January 1, 2022 | | | 186,980 |
| New leases | | | |
| Office in Georgia | USD | 9.80% | 1,022 |
| Warehouse/R&D facility in Georgia | USD | 9.40% | 322 |
| Battery Module facility in England | GBP | 5.40% | 12,845 |
| Office in China | CNY | 5.40% | 96 |
| Composite/logistic and Van assembly in the USA | USD | 5.50% | 27,375 |
| Modification of leases | | | |
| Office in RUS | RUB | 9.20% | (99) |
| Office, warehouse and factory in Lithuania | EUR | 6.20% | 380 |
| Office in Germany | EUR | 4.00% | 613 |
| Office in Israel | ILS | 6.20% | (773) |
| Repayments | Multi-currency | | (10,521) |
| Interest on leases | | | 6,312 |
| Cancellation of leases | | | (10,734) |
| Foreign exchange impact | Multi-currency | | (15,733) |
| June 30, 2022 | | | 198,085 |
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Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
9. LOANS AND BORROWINGS (continued)
The following table shows the carrying amount of the lease liabilities and the convertible notes and their expected future cash outflows split based on their maturities.
| | | | | | | | | | | | | | | | | |
| In thousands of USD | Carrying amount | Total | Within one year | Between 1 and 5 years | More than 5 years |
| June 30, 2022 | | | | | |
| Leases | 198,085 | | 268,582 | | 25,499 | | 93,736 | | 149,347 | |
| Convertible notes | 170,176 | | 370,400 | | 11,200 | | 359,200 | | — | |
| December 31, 2021 | | | | | |
| Leases | 186,980 | | 259,883 | | 24,074 | | 89,284 | | 146,525 | |
| Convertible notes | 160,203 | | 376,248 | | 11,448 | | 364,800 | | — | |
| December 31, 2020 | | | | | |
| Leases | 113,091 | | 166,389 | | 12,137 | | 52,649 | | 101,603 | |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
The Group leases office buildings and industrial buildings used for the development and production of our products. Depending on the type of lease and the location, the lease durations vary from 1 to 15 years.
Where practical, the Group seeks to have an option to extend and/or to renew the lease. This option is exercisable only by the Group. The Group assess at the lease commencement date whether it is reasonably certain to exercise the extension option. For the leases that it is estimated that the option will be exercised, the extended lease maturity date has been factored-in when discounting the lease liability. The lease commitments shown in the above table also include the amounts that the Group will have to pay related to these leases.
10. WARRANTS
During the reporting period no warrants were newly issued or redeemed. The movement of the warrants during the period was as follows:
| | | | | | | | |
| In thousands of USD | Number of Warrants | Value (USD thousand) |
| January 1, 2021 | | |
| Warrants issued by Arrival | 20,112,493 | | 208,586 | |
| Change in fair value | — | | (122,299) | |
| Warrants exercised | (17,009,291) | | (82,669) | |
| Warrants redeemed | (711,536) | | (7) | |
| December 31, 2021 | 2,391,666 | | 3,611 | |
| Change in fair value | — | | (3,277) | |
| June 30, 2022 | 2,391,666 | | 334 | |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
During the first half of 2022 no additional warrants were issued, exercised, or redeemed. The fair value of the outstanding warrants decreased from USD 3,611,417 as of December 31, 2021, by USD 3,276,584 to USD 334,000 as of June 30, 2022.
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
11. FINANCIAL INSTRUMENTS – FAIR VALUES
The following table shows the carrying amounts, and if applicable, the fair values and measurement categories of the Group’s financial instruments within the scope of IFRS 7. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
| | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of USD | Measurement category | | Carrying amount | | Fair value1,2 | | Level in the fair value hierarchy |
| June 30, 2022 | | | | | | | |
Trade and other receivables1 | AC | | 77,314 | | — | | — |
| Loans to employees | AC | | 17,801 | | 20,441 | | 3 |
Cash and cash equivalents1 | AC | | 512,615 | | — | | 1 |
| Total financial assets | | | 607,730 | | | | |
Trade and other payables1 | AC | | 67,337 | | — | | — |
Lease liabilities2 | AC | | 198,085 | | — | | — |
| Convertible notes | AC | | 170,176 | | 110,340 | | 3 |
| Embedded derivative | FVTPL | | 13,500 | | 13,500 | | 3 |
| Warrants | FVTPL | | 334 | | 334 | | 3 |
| Total financial liabilities | | | 449,432 | | | | |
| | | | | | | |
| Aggregated according to measurement categories: | | | | | | | |
| Financial assets measured at amortized cost (AC) | AC | | 607,730 | | — | | 1/3 |
| Financial assets measured at fair value through profit or loss (FVTPL) | FVTPL | | — | | — | | — |
| Financial liabilities measured at amortized cost (AC) | AC | | 435,597 | | — | | 3 |
| Financial liabilities measured at fair value through profit or loss (FVTPL) | FVTPL | | 13,835 | | 13,835 | | 3 |
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
11. FINANCIAL INSTRUMENTS - FAIR VALUES (continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| In thousands of USD | Measurement category | | Carrying amount | | Fair value1,2 | | Level in the fair value hierarchy |
| December 31, 2021 | | | | | | | |
| Trade and other receivables1 | AC | | 64,615 | | | — | | | - |
| Employee loans | AC | | 21,613 | | | 22,930 | | | 3 |
| Cash and cash equivalents1 | AC | | 900,606 | | | — | | | 1 |
| Total financial assets | | | 986,834 | | | — | | | |
| Trade and other payables1 | AC | | 66,970 | | | — | | | - |
| Lease liabilities2 | AC | | 186,980 | | | — | | | - |
| Convertible notes | AC | | 160,203 | | | 174,616 | | | 3 |
| Embedded derivative | FVTPL | | 118,600 | | | 118,601 | | | 3 |
| Warrants | FVTPL | | 3,611 | | | 3,611 | | | 3 |
| Total financial liabilities | | | 536,364 | | | — | | | |
| | | | | | | |
| Aggregated according to measurement categories: | | | | | | | |
| Financial assets measured at amortized cost (AC) | AC | | 986,832 | | — | | 1/3 |
| Financial assets measured at fair value through profit or loss (FVTPL) | FVTPL | | — | | — | | — |
| Financial liabilities measured at amortized cost (AC) | AC | | 414,152 | | — | | 3 |
| Financial liabilities measured at fair value through profit or loss (FVTPL) | FVTPL | | 122,212 | | 122,212 | | — |
| | | | | | | | | | | | | | |
| In thousands of USD | Measurement category | Carrying amount | Fair value1,2 | Level in the fair value hierarchy |
| December 31, 2020 | | | | |
| Trade and other receivables1 | AC | 44,735 | | — | | - |
| RSP loans | AC | 36,811 | | 37,096 | | 3 |
| Cash and cash equivalents1 | AC | 82,314 | | — | | 1 |
| Total financial assets | | 163,860 | | 37,096 | | |
| Trade and other payables1 | AC | 41,924 | | — | | - |
| Lease liabilities2 | AC | 113,091 | | — | | - |
| Total financial liabilities | | 155,015 | | — | | |
| | | | | |
| Aggregated according to categories in IFRS 9: | | | | |
| Financial assets measured at amortized cost (AC) | AC | 163,860 | | 37,096 | | 1/3 |
| Financial assets measured at fair value through profit or loss (FVTPL) | FVTPL | — | | — | | - |
| Financial liabilities measured at amortized cost (AC) | AC | 155,015 | | — | | 3 |
| Financial liabilities measured at fair value through profit or loss (FVTPL) | FVTPL | — | | — | | - |
1The simplification option under IFRS 7.29(a) was used for disclosures of certain fair values where the carrying amount is a reasonable approximation of the instruments fair value. |
2Measurements within the scope of IFRS 16 are exempted from the requirements of IFRS 13 (IFRS 13.6(b)) |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
12. INCOME TAXES
Income tax expense is recognized at an amount determined by multiplying the profit/(loss) before tax for the interim reporting period by the Company’s best estimate of the weighted-average annual income tax rate expected for the full financial year, adjusted for the tax effect of certain items recognized in full in the interim period. As such, the effective tax rate in the interim financial statements may differ from the Company’s estimate of the effective tax rate ("ETR") for the annual financial statements. The Group’s consolidated effective tax rate in respect of continuing operations for the six months ended June 30, 2022 was (4.33)% (2021: (0.62)%). The decrease in the ETR between the period ended June 30, 2022 and June 30, 2021 is mainly attributed to a reduction in the amount of losses incurred before tax and a decrease in expenses which are considered not deductible for tax purposes, including listing expenses and Fair Value of the warrants as a result of the CIIG merger.
13. TRADE AND OTHER PAYABLES
| | | | | | | | | | | | | | |
| In thousands of USD | June 30, 2022 | | December 31, 2021 | December 31, 2020 |
| Current liabilities | | | | |
| Trade payables | 41,531 | | | 41,238 | | 11,221 | |
| Wages, Salaries, Bonus & Payroll Charges | 7,723 | | | 9,332 | | 19,480 | |
| Accrued expenses | 15,068 | | | 15,599 | | 10,817 | |
| Other payables | 3,015 | | | 801 | | 407 | |
| 67,337 | | | 66,970 | | 41,925 | |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Other payables includes Income Tax and National Insurance contributions for employees. Accruals primarily relate to goods and services received but yet to receive invoice.
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
14. LOSS PER SHARE
The calculation of basic loss per share has been based on the following losses attributable to ordinary shareholders and weighted number of shares outstanding:
i. (Loss) attributable to ordinary shareholders from continuing operations:
| | | | | | | | |
| Six months ended June 30, |
| In thousands of USD | 2022 | 2021 |
| (Loss) for the period, attributable to the owners of the Company (basic) | (99,950) | (1,207,256) |
| | |
| | | | | | | | |
| Six months ended June 30, |
| In thousands of shares | 2022 | 2021 |
| Ordinary shares as at January 1 | 633,289 | | 466,762 | |
| Conversion of preferred A shares into ordinary shares | — | | 41,944 | |
| Issue of shares to CIIG shareholders | — | | 39,557 | |
| Issue of shares for exercise of warrants | — | | 292 | |
| Exercise of options by SOP participants | 2 | | — | |
| Shares repurchased from RSP participants | (98) | | (4) | |
| Shares granted to RSU scheme’s participants | 782 | | — | |
| Weighted-average number of Ordinary shares as at the end of the period | 633,975 | | 548,551 | |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
15. LISTING EXPENSE
On November 18, 2020 the Business Combination Agreement (or Merger Agreement) was executed between CIIG and Arrival. As a result of the completion of the business combination, the shareholders of CIIG exchanged their shares in CIIG for shares in Arrival on March 24, 2021. Additionally, warrants issued by CIIG to its shareholders were cancelled and re-issued by Arrival. As a result of this arrangement, CIIG was merged with Arrival with Arrival being the listed entity. CIIG pre-acquisition by Arrival did not have any operations and did not meet the definition of Business and hence the transaction was accounted an equity transaction in accordance with IFRS 2 “Share based Payments”.
In accordance with the guidance provided by the IFRS Interpretations Committee in March 2013, management identified the difference between the fair value of the shares deemed to have been issued by Arrival and the fair value of the identifiable net assets of CIIG and warrants transferred have been recorded as a Listing expense as a part of the Operating expenses in the Consolidated statement of profit or (loss).
The fair value of the issued shares was determined by multiplying the share price as of the date of the transaction with the shares issued. The warrants issued consisted of private and public warrants. The fair value of the public warrants were determined on the opening quoted price subsequent to the listing. The fair value of the private warrants was determined using a Black Scholes model.
The table below sets out the listing expense incurred in the six months to June 30, 2021.
| | | | | |
| Six months ended |
| In thousands of USD | June 30, 2021 |
| Listing expenses | |
| Reverse merger impact in the consolidated statement of profit or (loss) due to IFRS 2 accounting treatment | |
| Fair value of shares issued | 1,591,090 | |
| Fair Value of Warrants transferred | 208,586 | |
| Total value of consideration | 1,799,676 | |
| Less | |
| Fair Value of net asset received | (631,161) | |
| Total reverse merger impact in the consolidated statement of profit or (loss) due to IFRS 2 accounting treatment | 1,168,515 | |
| Other expenses directly linked to the listing expense** | 19,820 | |
| Total listing expense | 1,188,335 | |
**Additionally, the company had incurred additional costs of USD 19,820,009 in relation to the SPAC transaction and reverse merger which has been presented as a part of the Listing expense. All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
16. FINANCIAL INCOME/EXPENSE
| | | | | | | | | | | | | | |
| | 6 months ended |
| In thousands of USD | Note | 30 June 2022 | | 30 June 2021 |
| Finance income | | | | |
| Change in fair value of warrants | | 3,277 | | | 97,021 | |
| Change in fair value of embedded derivatives | | 104,931 | | | — | |
| Interest receivable on RSP loans calculated using effective interest rate | | 1,526 | | | 7,252 | |
| Other interest | | 775 | | | 172 | |
| Reversal of difference between fair value and nominal value of loans repaid | | 295 | | | 1,742 | |
| Foreign exchange differences | | 26,491 | | | — | |
| Other finance income | | 94 | | | 1 | |
| Total finance income | | 137,389 | | | 106,188 | |
| | | | |
| | | | |
| Finance cost | | | | |
| Bank charges | | (212) | | | (197) | |
| Interest on convertible notes | | (4,558) | | | — | |
| Other interest payable | | (40) | | | (181) | |
| Interest on leases | | (6,312) | | | (4,390) | |
| Foreign exchange differences | | — | | | (9,630) | |
| | | | |
| Loss on refinancing of RSP loans | | (2,460) | | | — | |
| Impairment of financial assets | | (1,077) | | | — | |
| Other | | — | | | — | |
| Total finance cost | | (14,659) | | | (14,398) | |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
Change in the fair value of embedded derivative represents the movement in fair value of the embedded derivative during the period. The significant decrease in the value of the embedded derivative is mainly driven by the decrease in the share price of Arrival, the increase in volatility as well as the increase in risk free rate.
In addition, the Group has recognized significant foreign exchange gains for the six months period ended June 30, 2022 as the Group benefited from the strengthening of the USD compared to other currencies. The Group maintains the majority of it cash in USD.
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
17. SHARE BASED PAYMENTS
During the first half of 2022, Arrival introduced two new share-based payment plans as part of its Incentive Compensation Plan (ICP) program, (A) a Restrictive Stock Units (RSU) and Performance Stock Units (PSUs) Plan and (B) a Long-Term Incentive Plan (LTIP) which includes 3 different types of share-based compensation (i) Performance Stock Units (ii) Restrictive Stock Units (RSU) plan and (iii) Stock Option Plan (SOP)s; details of which are described as follows:
(A) Restrictive Stock Units (RSUs) and Performance Stock Units (PSUs)
RSU and PSUs were introduced on January 10, 2022 for all employees who joined the company on or before August 31, 2021. The number of RSUs granted to each employee is based on the job level and tenure at Arrival. The respective employees obtain the right to receive Arrival common stock when certain vesting conditions are met. If an employee leaves prior to the vesting conditions being met, the RSUs will be forfeited. This program is accounted for as an equity-settled share-based payment transaction. The total number of RSU and PSUs granted were 1,730,013 and 1,730,909 respectively and the total fair value of the awards as of the grant date amounted to USD 13,912,906.
The vesting conditions are based on the satisfaction of service conditions and other non-market performance conditions:
•time-based vesting condition where 50% of the RSUs vest at a specific point of time
•performance-based vesting conditions
◦25% of the RSUs vest based on achievement of a production rate milestone when the board determines that a microfactory is fully operational, met the confirmed vehicle output, and when the Participant has provided its services until the respective milestone achievement date.
◦25% vest based on achievement of a contribution milestone determined by the Board the total contribution of any one microfactory was greater than or equal to the contribution target, and when the participant has provided services until the respective Milestone achievement date. Based on the current stipulations,
▪50% of the contribution milestone are met once a microfactory generates a gross margin of at least USD 80 million
▪100% of this milestone are met once the gross margin equals or exceeds USD 100 million
▪125% of this milestone are met once a microfactory reports a gross profit of at least USD 120 million.
The period over which the RSU expense is spread in the consolidated statement of profit or (loss) is based on the achievement of the production rate milestone and the contribution milestone. An increase/(decrease) in the estimated number of awards expected to vest would result in an increase (decrease) of total compensation expense dependable on (i) achievement of the milestones and (ii) employee turnover rate which are based on management's best estimates relying on the below assumptions.
The key assumptions for this program as of June 30, 2022 are summarized below:
•The grant date is January 24, 2022 based on the date that management signed and dated on the RSU agreements and the fair value of the RSUs is USD 4.02, which is Arrival`s closing share price on this date.
•The vesting period and the expense recognition starts on January 10, 2022 (at the service commencement date when an explanatory letter was sent to employees explaining when the share-based program would be issued)
•The time vesting condition vests automatically once an individual employee has completed 12 months of service
•The end of the vesting period is different per each tranche of the award, as the performance conditions are expected to be met at different points in time
•Based on the current business plan it is expected that the production rate milestone will be fulfilled in April 2024, and the contribution milestone will be met in November 2024
•The expected annual employee turnover rate is 17%.
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
17. SHARE BASED PAYMENTS (continued)
(B) Long-Term Incentive Plan (LTIP)
LTIP awards was introduced on May 9, 2022 (the "grant date") and are subjected to the terms, definitions, and provisions of the Company’s 2021 incentive compensation plan (ICP). The LTIP program comprises of three different types of share-based compensation (i) Performance Stock Units (PSUs) (ii) Restricted Stock Units (RSUs) and (iii) Stock Options which are awarded based on job level and are tied to employment. The underlying instrument of the RSU and PSU awards and the stock options are Arrival common stock which are traded on the NASDAQ under stock symbol ARVL.
The PSUs are granted annually, and the RSUs and the Stock Options are granted quarterly. The options vest as to 25% on the first anniversary of the grant date and thereafter 25% on every subsequent anniversary, until all options are fully vested, i.e. the options vest equally over a four year period. The RSUs and PSUs are accounted for as an equity-settled share-based payment transaction. The fair value of the RSUs and PSUs are based on Arrival`s closing share price on the grant date.
(i) LTIP - Restrictive Stock Units (LTIP RSUs)
The RSUs are granted quarterly to the employees and vest in equal installments over a three-year period. i.e. 33.33% vest after the first anniversary of the grant date, 33.33% vest after two years, and the remaining 33.33% vest three years after the grant date. The requirement for the RSUs to vest is that the employee remains employed within the Arrival Group until the vesting date. The first vesting of the RSUs will occur on May 9, 2023, one year after the commencement date.
The total number of LTIP RSUs granted were to 13,347,757 having a fair value as of grant date of USD 22,936,786.
(ii) LTIP - Performance Stock Units (LTIP PSUs)
The PSUs grant the employee the right to receive Arrival common stock when the vesting conditions are met i.e. a performance target is reached. The vesting conditions are based on the satisfaction of two different performance conditions as follows:
(a) production rate milestone - 50% of the PSUs vest when the Board determines that a microfactory has been fully operational and met the confirmed vehicle output. The quantity of the vehicle output determines the quantity of the awards granted:
•with a minimum achievement criteria equal to 8,000 vans per year, 50% of the PSU awards that have been granted for the production rate milestone vest, which is equal to 25% of all PSU awards.
•with vehicle output equal to 10,000 vans per year, the predefined target is considered to be met to 100% and all PSU awards that have been granted for the production rate milestone will vest. This would be equal to 50% of the total PSU awards granted.
•with vehicle output equal to 12,000 vans per year, the target is considered to be exceeded and 125% of the PSU awards that have been granted for the production rate milestone will vest. This would be equal to 62.5% of the total PSU awards granted.
(b) contribution milestone vest based upon achievement of a “contribution milestone” determined by the Board where the total contribution of any one microfactory was greater than or equal to the contribution target which is based on the sales price received in cleared funds, the bill of material for the vehicles produced and the resulting level of gross profit. The contribution milestone vest in stages once a certain gross profit margin has been achieved by a microfactory. Based on the current stipulations,
▪50% of the contribution milestone are met once a microfactory generates a gross margin of at least USD 80 million
▪100% of this milestone are met once the gross margin equals or exceeds USD 100 million
▪125% of this milestone are met once a microfactory reports a gross profit of at least USD 120 million.
The total number of LTIPs PSUs granted amounted to 37,365,637 having a fair value as of grant date of USD 64,209,111.
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
17. SHARE BASED PAYMENTS (continued)
(iii) LTIP - Stock Options Plan (SOPs)
The fair value of the stock options has been determined using the Black-Scholes-Merton Option Pricing Model (BSMOPM). The options have been granted in three different tranches which have slightly different terms. The Management Options and the Employee Options are subject to time-based vesting conditions (i.e., service conditions). 25% of the options shall vest on the first anniversary of the contractual grant date; and thereafter 25% of the options shall vest on every subsequent anniversary, until fully-vested. The Company granted 10,879,959 SOPs having a fair value as of grant date of USD 10,162,424.
During the six months ending June 30, 2022, the total cost for the forementioned new programs that were implemented in 2022 amounted to USD 12,121,929. Of that amount a total share-based payment expense of USD 9,136,291 has been recognized in the P&L and the remainder of USD 2,985,638 has been capitalized on the balance sheet.
The total number of outstanding awards as of June 30, 2022 for all the forementioned new programs was 60,791,472.
The following table sets out the model inputs used in the BSMOPM for determining the fair value of the options that were granted in 2022:
| | | | | | | | | | | | | | |
| Management Options | Employee Options | Topup
Options | |
| Grant date | May 20, 2022 | May 16, 2022 | May 22, 2022 | The grant date is based on the volume-weighted average date on which each employee signed their option agreement. |
| Share price at grant date | $1.8280 | $1.7315 | $1.7335 | This is based on the volume-weighted average opening share price on each date the employee signed their option agreement. |
| Exercise price | $1.90 | $1.90 | $1.90 | The exercise price is the same for all three batches. |
| Expected term | 5.47 - 6.97 years | 0.98 - 3.98 years | 0.96 years | The expected term is based on theoretical considerations and typical market practice taking into account the contractual exercise period and the expected exercise behavior of the recipients. |
| Number of options | 1,046,956 | 9,574,913 | 258,090 | Reflects the total number of options that were granted to the participants. |
| Risk-free rate | 2.84% - 2.89% | 2.05% - 2.76% | 2.05% | Based on the market yield on zero-coupon US treasury bonds with a maturity commensurate to the expected term. |
| Dividend yield | —% | —% | —% | It is expected that no dividends are paid out during the expected terms to exercise. |
| Volatility | 98.90% | 85.40% - 111.60% | 85.40% | Estimate based on the historical volatility of Arrival and a range of comparators over a period commensurate to the expected term. |
The following table displays the sensitivity of the stock options fair value to a change in the expected term:
Table of Contents
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
17. SHARE BASED PAYMENTS (continued)
| | | | | | | | | | | |
| Sensitivity of total fair value to expected term |
| In thousands USD | | | |
| Expected term | Management Options | Employee Options | Topup Options |
| Base case -0.5 years | 1,485 | 11,284 | 235 |
| Base case -0.25 years | 1,505 | 11,495 | 248 |
| Base case | 1,524 | 11,967 | 253 |
| Base case +0.25 years | 1,541 | 12,069 | 258 |
| Base case +0.5 years | 1,558 | 12,264 | 262 |
The following table displays the sensitivity of the stock options to a change in the expected share price volatility:
| | | | | | | | | | | |
| Sensitivity of total fair value to expected volatility |
| In thousands USD | | | |
| Expected volatility | Management Options | Employee Options | Topup Options |
| Base case -20% | 2 | 10,307 | 209 |
| Base case -10% | 1,435 | 11,179 | 231 |
| Base case | 1,524 | 11,967 | 253 |
| Base case +10% | 1,600 | 12,671 | 273 |
| Base case +20% | 1,665 | 13,293 | 292 |
For the LTIP program, the employee turnover rate is estimated to be 17% and the performance conditions are expected to be met in April 2024 (production milestone) and November 2024 (contribution milestone). The expectations regarding the employee turnover rate and the milestone achievement dates are subject to quarterly revision and can naturally change as time passes. A change in any of such assumptions as well as a change in any of the inputs used in the BSMOPM would result in a change of the periodic compensation expense.
(C). Stock Option Plans 2020 (SOPs 2020)
For the SOP 2020 program that was implemented in 2020 a total expense of USD 1,469,467 has been recognized in the first half of 2022. For the expense calculation it is assumed that the annual employee turnover rate equals 17%, that the profitability milestone is achieved in November 2024, and that the production milestone is achieved in April 2024.
There has been a revision in production milestone in the second quarter of 2022 from October 31, 2023 to April 30, 2024. This change in estimate resulted in a reduced expense recognition as a result of the total compensation expense is now spread out over a longer period. The impact of the change in the period amounted to USD 1,246,249. The total number of outstanding SOPs 2020 awards as of June 30, 2022 was 13,128,512.
18. RELATED PARTY TRANSACTIONS
The Group’s related parties include its ultimate parent company Kinetik, key management personnel and any subsidiaries or entities under the significant influence of Kinetik. Transactions between Group entities which have been eliminated on consolidation are not disclosed.
Table of Contents
Arrival
Notes to the condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
18. RELATED PARTY TRANSACTIONS (continued)
The following transactions were carried out with related parties:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands USD | Transactions for the period | Balance as at |
| Six months ended June 30, | | June 30, 2022 | December 31, 2021 | | December 31, 2020 |
| Related party | 2022 | | 2021 | | |
| Hyundai Kia | — | | | — | | | — | | 283 | | | — | |
| Hyundai Mobis | 1,125 | | | 254 | | | (351) | | — | | | — | |
| Hyundai Motor Company | — | | | (534) | | | — | | — | | | — | |
All prior year comparatives have been translated to US Dollars due to a change in presentational currency. See note 2.
The related party transactions relate mainly to acquisition of materials and services.
Key management personnel compensation during the six months ended June 30, 2022 was USD 1,694,915 and it represents the remunerations and benefits 5 key employees of the Group received during the period. Compensation was comprised of wages and salaries, social contributions and other benefits.
In addition the Key management personnel has received a total number of new awards (RSUs and LTIPs see note 17) of 3,165,049 having a fair value USD 5,529,178. The expense charged statement of profit or (loss) and other comprehensive income/(loss) in regards to this Scheme amounted to USD 845,518. An expense of USD 332,294 was also charged during the period in the statement of profit or (loss) and other comprehensive income/(loss) which relates to SOP schemes granted in 2020. Furthermore, an amount of USD 656,447 has been paid to 5 non-executive Directors during the six months period ended June 30, 2022. During the period an amount of USD 144,896 has been charged to the statement of profit or (loss) and other comprehensive income/(loss) in regards to RSUs that have been granted to the non-executive Directors.
Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended 31 December 2021 and 2020 (unaudited)
19. Claims and Litigations
From time to time, Arrival may become involved in additional legal proceedings arising in the ordinary course of its business.
On December 22, 2021, plaintiffs Bruce Schmutter and Dean Samet, purported Arrival stockholders, filed a putative class action complaint against Arrival, Denis Sverdlov, Tim Holbrow, Michael Ableson, and Avinash Rugoobur in the U.S. District Court for the Southern District of New York captioned Schmutter, et al. v. Arrival S.A., et al. (1:21-11016-NRB). Plaintiffs asserted claims on behalf of all persons and entities that purchased or otherwise acquired Arrival common stock between November 18, 2020 and November 19, 2021 under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint alleged that defendants made false and/or misleading statements or omissions concerning Arrival’s operations, financial performance, and future growth prospects and profitability. On March 7, 2022, plaintiffs filed a notice of voluntary dismissal of the Schmutter action.
On January 12, 2022, plaintiff Miguel Sanchez filed a putative class action complaint against Arrival, Denis Sverdlov, Tim Holbrow, Michael Ableson, and Avinash Rugoobur in the United States District Court for the Eastern District of New York captioned Sanchez v. Arrival S.A., et al. (1:22-cv-00172) asserting substantially the same claims and allegations as those asserted in the Schmutter complaint. On February 22, 2022, and February 23, 2022,a number of purported Arrival shareholders filed motions for appointment as lead plaintiff in the Sanchez action. On April 15, 2022, the court appointed Mostaco Corp. as lead plaintiff in that action.
On April 8, 2022, another purported Arrival shareholder, Alexandre Lioubinine, filed a putative class action complaint in the Supreme Court of the State of New York captioned Lioubinine v. Arrival, et. al. (651783/2022). The complaint asserts claims against Arrival and certain of its current and former executives and members of the board of directors under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. The complaint alleges that Arrival’s Registration Statement on Form F-4 filed with the SEC on December 15, 2020, as amended on January 21, February 16, and February 25, 2021, and declared effective on February 26, 2021 (the “Registration Statement”) contained material misstatements and omissions concerning the Company’s operations, financial performance, and future growth prospects and profitability. Lioubinine purports to assert his claims on behalf of all persons and entities who purchased or otherwise acquired Arrival ordinary shares pursuant or traceable to the Registration Statement.
As the cases are still in their early stages, it is not possible to determine the likelihood of success on the merits or any potential liability. Arrival intends to vigorously defend the actions.
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Arrival
Notes to the Condensed consolidated interim financial statements
For the period ended June 30, 2022 and years ended December 31 2021 and 2020 (unaudited)
20. SUBSEQUENT EVENTS
On July 12, 2022, Arrival has proposed plans that include a realignment of the organization that would enable it to deliver business priorities until late 2023 primarily utilizing the USD 512,614,742 cash and cash equivalents. Arrival’s proposal includes a targeted 30% reduction in spend across the organization and anticipates that it could potentially impact up to 30% of employees globally.
Due to geopolitical considerations and the uncertain nature, magnitude and duration of Russia’s war in Ukraine and actions taken by Western and other states and multinational organizations in response thereto, Arrival has taken the decision to close our Russia location and on August 8, 2022, Arrival completed the sale of the subsidiary, Arrival RUS, LLC. This sale did not have a material impact on the consolidated results of the company.