REG - Clean Power Hydrogen - Group Annual Report and Financial Statements
27/05/2022 07:00
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RNS Number : 0063N Clean Power Hydrogen 27 May 2022
The information communicated within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulations (EU) No.
596/2014 which is part of UK law by virtue of the European Union (withdrawal)
Act 2018. Upon the publication of this announcement, this inside information
is now considered to be in the public domain.
27 May 2022
Clean Power Hydrogen Plc
("CPH2", the "Company" or the "Group")
Publication of Group Annual Report and Financial Statements
CPH2, the UK-based green hydrogen technology and manufacturing company that
has developed the IP-protected Membrane-Free Electrolyser ("MFE"), announces
the publication of the audited accounts for the year ended 31 December 2021 of
Clean Power Hydrogen Group Limited ("Clean Power"), the main trading
subsidiary of the Group. These accounts relate to a period before CPH2's
admission to trading on AIM in February 2022, shortly prior to which Clean
Power became a wholly owned subsidiary of CPH2 by way of a share-for-share
exchange.
Going forward, CPH2 will publish accounts consolidating the results of Clean
Power into its own results, starting with the half year results to 30 June
2022.
For more information, please contact:
Clean Power Hydrogen Plc via Camarco
Jon Duffy, Chief Executive Officer
Cenkos Securities plc - NOMAD & Broker
Neil McDonald +44 (0)131 220 9771
Peter Lynch +44 (0)131 220 9772
Adam Rae +44 (0)131 220 9778
Camarco PR + 44(0) 20 3 757 4980
Billy Clegg
Owen Roberts
To find out more, please visit: https://www.cph2.com (https://www.cph2.com)
Overview of CPH2
CPH2 is the holding company of Clean Power Hydrogen Group Limited ("Clean
Power") which has almost a decade of dedicated research and product
development experience. This experience has resulted in the creation of
simple, safe and sustainable technology which is designed to deliver a modular
solution to the hydrogen production market in a cost-effective, scalable,
reliable and long-lasting manner. The Group's strategic objective is to
deliver the lowest LCOH in the market in relation to the production of green
hydrogen. The Group's MFE technology is already commercially available and
demonstrating cost efficiencies and technological advantages. CPH2 is listed
on the AIM market and trades under the ticker LON:CPH2.
Directors' report for the year ended 31 December 2021
The directors of Clean Power present their annual report and the audited
consolidated financial statements for the year ended 31 December 2021. This
report has been prepared in accordance with the special provisions relating to
small companies within Part 15 of the Companies Act 2006 and in accordance
with section 414B, the directors have taken the exemption from preparing a
Strategic Report.
Principal activities
The principal activity of the company and Group is the development of a
patented method of hydrogen and oxygen production together with the
development of a gas separation technique which enables hydrogen to be
produced as 'Green Hydrogen' and oxygen to medical grade purity.
The company was a holding company for the Group and is the main trading
company. In February 2022, a newly formed parent company, Clean Power Hydrogen
plc, was put in place by a share for share exchange and this was then listed
on the AIM market of the London Stock Exchange in order to raise equity to
fund the further development of the Group. The new group will consequently
report under International Financial Reporting Standards ('IFRS') in 2022 and
the company has therefore also adopted IFRS in these financial statements.
Business review and future developments
The Group recorded a loss of £3,317,000 for the financial year (2020:
£1,659,000) and at 31 December 2021 the Group had net liabilities of
£352,000 (2020: net assets of £2,195,000). This reflects the development
stage of the group with the first significant orders being received and in
progress during 2021. The nature of a specific medium term incentive scheme
for a key executive has also impacted the results by £1,227,000 (2020: by
£738,000) and net liabilities by a cumulative £1,965,000 (2020: £738,000).
This arrangement was converted from a cash or equity scheme into an equity
settled basis in February 2022 and the liability will be reversed in 2022.
Excluding these the loss for the year would be £2,090,000 and net assets
£1,613,000 at 31 December 2021.
The Group has almost a decade of dedicated research and product development
experience. This experience has resulted in the creation of simple, safe and
sustainable technology which is designed to deliver a modular solution to the
hydrogen production market in a cost-effective, scalable, reliable and
long-lasting manner.
The Group designs and manufactures hydrogen production units that incorporate
its Membrane-Free Electrolyser ('MFE') technology which, in combination with
cryogenic gas separation, delivers hydrogen and oxygen in separate streams.
When the Group's MFE is supplied by renewable electricity it delivers green
hydrogen with a purity of up to 99.999% and medical grade oxygen.
The Group's strategic objective is to deliver the lowest Levelised Cost of
Hydrogen ('LCOH') in the market in relation to the production of green
hydrogen. The Group's MFE technology is already commercially available and
demonstrating cost efficiencies and technological advantages.
In addition to a contracted orderbook of 4MW for delivery in 2022, the Group
has an established pipeline of new opportunities at varying stages of
development, including active discussions with current and quoted customers in
respect of potential orders in excess of 160MW. The development of the
hydrogen economy is forecast to lead to a 650x increase in European demand for
electrolysers by 2030, with an EU electrolysis capacity target equivalent to
40GW. This requires investment of up to c. €47bn towards electrolysers
producing 10 million tonnes/year of renewable hydrogen. The Group aims to
become a globally recognised and highly-profitable designer, manufacturer and
licensor of its MFE technology and is targeting 4GW production capacity by
2030
The Group is a developer and seller of the MFE technology through traditional
product sales channels and the intellectual property protection obtained by
the Group enables it to pursue international joint venture and licensing
arrangements. Consequently, the Group has the potential to offer a low-cost
business model combined with the potential to scale in the short term.
Post balance sheet events
In order to meet the Group objectives the AIM listing noted above was made on
16 February 2022 by the company's new parent, Clean Power Hydrogen plc,and
raised a net £27.5m of new equity to fund development and operations for the
foreseeable future.
Dividends
Dividends of £nil (2020: £nil) were paid during the year.
Consolidated statement of comprehensive income for the year ended 31 December 2021
Note 2021 2020
£'000 £'000
Revenue 28 107
Cost of sales (25) (158)
Gross profit 3 (51)
Other operating income 42 107
Administrative expenses 4 (3,480) (1,859)
Operating loss 4 (3,435) (1,803)
Finance income 5 7 4
Finance expense 5 (37) (4)
Loss before taxation (3,465) (1,803)
Taxation 7 148 144
Loss for the financial year (3,317) (1,659)
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit or loss:
Foreign currency differences 20 (20)
Total comprehensive expense for the year (3,297) (1,679)
Consolidated statement of financial position as at 31 December 2021
Note 31 December 2021 31 December 2020
1 January 2020
£'000 £'000 £'000
Assets
Non current assets
Intangible assets 8 1,176 769 437
Property, plant and equipment 9 1,327 154 164
Trade and other receivables 12 120 - -
2,623 923 601
Current assets
Inventories 11 2,082 8 6
Trade and other receivables 12 704 130 44
Tax recoverable 143 - -
Other financial asset at amortised cost 18 - 400 -
Cash at bank and in hand 480 2,937 1,005
3,409 3,475 1,055
Total assets 6,032 4,398 1,656
Liabilities
Current liabilities
Trade and other payables 13 (2,772) (802) (98)
Loan from a related party 20 (382) (405) (382)
Lease liabilities 14 (131) (31) (29)
(3,285) (1,238) (509)
Non current liabilities
Accruals and deferred income 13 (2,243) (931) -
Lease liabilities 14 (856) (34) (65)
(3,099) (965) (65)
Total liabilities (6,384) (2,203) (574)
Net (liabilities)/assets (352) 2,195 1,082
Equity
Called up share capital 18 9 9 8
Share premium account 5,545 4,995 2,274
Currency differences reserve 4 (16) 4
Accumulated loss (5,910) (2,793) (1,205)
Total equity (352) 2,195 1,082
Company statement of financial position as at 31 December 2021
Note 31 December 2021 31 December 2020
1 January 2020
£'000 £'000 £'000
Assets
Non current assets
Intangible assets 8 1,061 659 341
Tangible assets 9 1,327 154 164
Investments 10 - - -
Trade and other receivables 12 120 - -
2,508 813 505
Current assets
Inventories 11 2,082 8 6
Trade and other receivables 12 776 187 82
Tax recoverable 143 - -
Other financial asset at amortised cost 18 - 400 -
Cash at bank and in hand 463 2,926 996
3,464 3,521 1,084
Total assets 5,972 4,334 1,589
Liabilities
Current liabilities
Trade and other payables 13 (2,758) (794) (88)
Lease liabilities 14 (131) (31) (29)
(2,889) (825) (117)
Non current liabilities
Accruals and deferred income 13 (2,243) (931) -
Lease liabilities 14 (856) (34) (65)
(3,099) (965) (65)
Total liabilities (5,988) (1,790) (182)
Net (liabilities)/assets (16) 2,544 1,407
Equity
Called up share capital 18 9 9 8
Share premium account 5,545 4,995 2,275
Accumulated loss (5,462) (2,460) (876)
Total equity (16) 2,544 1,407
Consolidated statement of changes in equity for the year ended 31 December 2021
Share premium account Foreign currency reserve
Called up share capital £'000 £'000 Accumulated loss Total
£'000 £'000 equity
£'000
Balance as at 1 January 2020 8 2,275 4 (1,205) 1,082
Loss for the financial year - - - (1,659) (1,659)
Other comprehensive expense
Foreign currency differences - - (20) - (20)
Total comprehensive expense for the year - - (20) (1,659) (1,679)
Share based payment - - - 71 71
Issue of share capital 1 2,720 - - 2,721
Total contributions by owners 1 2,720 - 71 2,792
Balance as at 31 December 2020 9 4,955 (16) (2,793) 2,195
Loss for the financial year - - - (3,317) (3,317)
Other comprehensive income
Foreign currency differences - - 20 - 20
Total comprehensive expense for the year - - 20 (3,317) (3,297)
Share based payment - - - 200 200
Shares issued - 550 - - 550
Total contributions by owners - 550 - 200 750
Balance as at 31 December 2021 9 5,545 4 (5,910) (352)
Company statement of changes in equity for the year ended 31 December 2021
Called up share capital Share premium account Accumulated loss Total equity
£'000 £'000 £'000 £'000
Balance as at 1 January 2020 8 2,275 (876) 1,407
Loss and total comprehensive expense for the financial year - - (1,655) (1,655)
Share based payment - - 71 71
Issue of share capital 1 2,720 - 2,721
Total contributions by owners 1 2,720 71 2,792
Balance as at 31 December 2020 9 4,995 (2,460) 2,544
Loss and total comprehensive expense for the financial year - - (3,310) (3,310)
Share based payment - - 200 200
Issue of share capital - 550 - 550
Total contributions by owners - 550 200 750
Balance as at 31 December 2021 9 5,545 (5,570) (16)
Consolidated cash flow statement for the year ended 31 December 2021
2021 2020
Note £'000 £'000
Cash flow from operating activities
Loss for the financial year (3,317) (1,659)
Adjustment for:
Depreciation of property, plant and equipment 154 59
Amortisation 11 6
Impairment 28 -
Loss on disposal 17 3
Share based payment (including LTIP) 1,427 809
Net finance costs 30 -
Taxation credit (148) (144)
Changes in working capital:
Increase in inventories (2,074) (2)
Increase in trade and other receivables (837) (86)
Increase in trade and other payables 2,602 157
Cash used in operations (2,107) (857)
Income tax received 5 144
Net cash used in operating activities (2,102) (713)
Cash flows from investing activities
Purchase of property, plant and equipment (319) (57)
Proceeds from disposal of tangible fixed assets - 5
Government capital grants received 141 193
Purchase of intangible assets (418) (338)
Net cash used in investing activities (596) (197)
Cash flows from financing activities
Issue of share capital (net of costs) - 2,321
Interest received 7 4
Share subscription received in advance - 550
Cash proceeds from financial asset held 400 -
Interest paid (37) (4)
Payment of lease liabilities (129) (29)
Net cash generated from financing activities 241 2,842
Net (decrease)/increase in cash and cash equivalents (2,457) 1,932
Cash and cash equivalents at the beginning of the year 2,937 1,005
Cash and cash equivalents at the end of the year 480 2,937
Major non-cash movements: £400,000 of share capital issued in 2020 was
satisfied by the issue of a bond with cash received in 2021 and £550,000
of cash was received in advance in 2020 in respect of shares issued in 2021.
Notes to the financial statements for the year ended 31 December 2021
1 Summary of significant accounting policies and general information
Clean Power Hydrogen Group Limited is a company incorporated in the United
Kingdom. The registered address of the company is Unit D Parkside Business
Park, Spinners Road, Doncaster, England, DN2 4BL. The principal activity of
the company and its subsidiaries is the development of a patented method of
hydrogen and oxygen production together with the development of a gas
separation technique which enables hydrogen to be produced as 'Green Hydrogen'
and oxygen to medical grade purity.
The Group financial statements have been prepared in accordance with UK
adopted international accounting standards ("IFRS") and in accordance with the
requirements of the Companies Act 2006. The Group and company prepared
published financial statements for the year ended 31 December 2020 under UK
GAAP applying FRS 102.
The parent company financial statements have been prepared under applicable
United Kingdom Accounting Standards (FRS101 'Reduced Disclosure Framework')
and applying the same IFRS transition adjustments which are set out in note
21. The principal accounting policies applied in the preparation of these
consolidated and separate financial statements are set out below.
These policies have been consistently applied to all the years presented,
unless otherwise stated.
The financial statements are drawn up in Sterling, the functional currency of
the company and the Group. The level of rounding for the financial statements
is the nearest thousand pounds.
The preparation of financial statements requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in
the process of applying the accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements, are disclosed in note 2.
Exemptions
FRS 101 allows a qualifying entity certain disclosure exemptions, subject to
certain conditions, which have been complied with, and the company has taken
advantage of the following exemptions:
· IAS 7 Statement of cash flows;
· IFRS 7 Financial instruments disclosures;
· IAS 24 Key management remuneration.
Basis of consolidation
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets (both tangible and intangible),
liabilities and contingent liabilities are initially recognised at their fair
values at the acquisition date. Goodwill arising on the acquisition of the
Irish subsidiary company in an earlier period was fully impaired with a nil
goodwill balance at transition to IFRS.
The consolidated financial statements present the results of the company and
its subsidiaries as if they formed a single entity. Intercompany transactions
and balances between Group companies are therefore eliminated in full.
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when it is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group and cease to be
consolidated from the date on which control is transferred out of the Group.
Going concern
The Company's new parent company, Clean Power Hydrogen plc, listed on AIM on
16 February 2022 and raised a net £27.5m of new equity in order to fund
investment in the manufacturing operations, working capital.and continuing
development work. The Group's forecasts and projections to 31 December 2023
based on the current trends in trading and after taking account of the funds
currently held, show that the company and the Group will be able to operate
within the level of cash reserves.
The company is now reliant upon financial support from its parent company,
which the Board of Clean Power Hydrogen plc has agreed to provide for a period
in excess of 12 months from the date of signing of these accounts.
The directors therefore have a reasonable expectation that the company and
Group have adequate resources to continue in operational existence for the
foreseeable future and consider the going concern basis to be appropriate.
Revenue
Revenue comprises income from the sale of equipment for the electrolytic
production of clean hydrogen and oxygen and related consultancy fees.
Equipment revenue is recognised to the extent that the performance
obligations, being the agreement to transfer the product is satisfied, which
is when the customer obtains control of the equipment. The transfer takes
place in accordance with the terms agreed with each customer, either at the
point in time the goods are despatched to or received by the customer.
Consultancy fees are recognised over the period the service is delivered.
Government grants
Government grants are recognised in the statement of comprehensive income on a
systematic basis over the periods in which the Group recognises the related
costs as an expense for which the grants are intended to compensate as
follows:
Income based grants
Income based government grants are recognised in other operating income based
on the specific terms related to them as follows:
· A grant is recognised in other operating income when the grant
proceeds are received (or receivable) provided that the terms of the grant do
not impose future performance-related conditions.
· If the terms of a grant do impose performance-related conditions
then the grant is only recognised in income when the performance-related
conditions are met.
· Any grants that are received before the revenue recognition
criteria are met are recognised in the statement of financial position as an
other creditor within liabilities.
Capital grants
Government grants received relating to tangible and intangible fixed assets
are treated as deferred income and released to the income statement over the
expected useful lives of the assets concerned.
Share based payment
The company operates an equity-settled share-based compensation plan in which
the company receives services from employees as consideration for share
options. Warrants have also been issued as part of the compensation for
professional services received. The fair value is established at the point of
grant using an appropriate pricing model and then the cost is recognised as an
expense in administrative expenses in the statement of comprehensive income,
together with a corresponding credit directly in equity to retained earnings
over the period in which the services are fulfilled. This is when the
professional services are received or over the estimated period to vesting in
respect of employees. The cumulative expense recognised for equity-settled
transactions at each reporting date until vesting date reflects the extent to
which the vesting period has expired and the company's best estimate of the
number of equity instruments that will ultimately vest.
The Group also has a long term incentive plan ('LTIP') in place with a bonus
payable after 3 years, linked to the Group value and share price. Under the
accounting standard this is treated as cash settled although it may, by mutual
agreement of employee and employer, be settled by the issue of equity. The
potential value is calculated at each balance sheet date using the estimated
share price at that date, and this amount, including any related national
insurance, is accrued in liabilities.
Income tax
Current income tax assets and/or liabilities comprise obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
periods, that are unpaid/due at the reporting date. Current tax is payable on
taxable profits, which may differ from profit or loss in the financial
statements. Calculation of current tax is based on the tax rates and tax laws
that have been enacted or substantively enacted at the reporting period.
Deferred taxes are calculated using the liability method on temporary
differences between the carrying amounts of assets and liabilities and their
tax bases.
A deferred tax asset is recognised for all deductible temporary differences to
the extent that it is probable that taxable profit will be available against
which the deductible temporary difference can be utilised, unless the deferred
tax asset arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and at the time of the
transaction, affects neither accounting profit nor taxable profit (tax loss).
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply to the period when the asset is realised or the liability is
settled, based on tax rates and tax laws that have been enacted or
substantively enacted by the end of the reporting period.
Research and development costs
An internally generated intangible asset arising from development (or the
development phase) of an internal project is recognised if, and only if, all
of the following have been demonstrated:
· It is technically feasible to complete the development such that
it will be available for use, sale or licence;
· There is an intention to complete the development;
· There is an ability to use, sell or licence the resultant asset;
· The method by which probable future economic benefits will be
generated is known;
· There are adequate technical, financial and other resources
required to complete the development;
· There are reliable measures that can identify the expenditure
directly attributable to the project during its development.
The amount recognised is the expenditure incurred from the date when the
project first meets the recognition criteria listed above. Expenses
capitalised to date consist of direct and subcontract costs including
materials or testing overheads. Employee costs have not been capitalised as
the time has not been reliably captured and measured in respect of the element
spent on specific projects, other research or operational time.
Where the above criteria are not met, research and development expenditure is
charged to the income statement in the period in which it is incurred.
Capitalised development costs are initially measured at cost. After initial
recognition, they are recognised at cost less any accumulated amortisation and
any accumulated impairment losses.
The depreciable amount of a development cost intangible asset with a finite
useful life is allocated on a systematic basis over its useful life, currently
expected to range from 3 to 6 years. Amortisation begins when the asset is
available for use, i.e. when it is in the location and condition necessary for
it to be capable of operating in the manner intended by management.
The amortisation period and the amortisation method for the assets with a
finite useful life is reviewed at least each financial year-end. If the
expected useful of the asset is different from previous estimates, the
amortisation period is changed accordingly.
Patent costs
Patent cost assets are initially measured at cost. After initial recognition,
they are recognised at cost less any accumulated amortisation and any
accumulated impairment losses. The costs are amortised over a 10 year
estimated useful life.
Software
Software assets are capitalised at the purchase cost. Subsequent to initial
recognition it is stated at cost less accumulated amortisation and accumulated
impairment. Software is amortised in the Statement of Comprehensive Income on
a straight line basis over its estimated useful life of 3 years. These costs
are recognised in administrative expenses.
Property plant and equipment
Property, plant and equipment is recognised as an asset only if it is probable
that future economic benefits associated with the item will flow to the Group
and the cost of the item can be measured reliably.
An item of property, plant and equipment that qualifies for recognition as an
asset is measured at its cost. Cost of an item of property, plant and
equipment comprises the purchase price and any costs directly attributable to
bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management.
After recognition, all property, plant and equipment (including plant,
computer equipment and fixtures) is carried at cost less any accumulated
depreciation and any accumulated impairment losses.
Depreciation is provided at rates calculated to write down the cost of assets,
less estimated residual value, over their expected useful lives on the
following basis:
Leasehold improvements 20% straight line
Plant and machinery 20%
straight line
Office equipment 33%
straight line
The residual value and the useful life of an asset is reviewed at least at
each financial year-end and if expectations differ from previous estimates,
the changes are accounted for as a change in an accounting estimate in
accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors.
Gains or losses arising on the disposal of property, plant and equipment are
determined as the difference between the disposal proceeds and the carrying
value of the asset and are recognised in profit or loss.
Right-of-use assets and leases
Assets and liabilities arising from a lease with a duration of more than one
year are initially measured at the present value of the lease payments and
payments to be made under reasonably certain extension options are also
included in the measurement of the liability. The lease payments are
discounted using the interest rate implicit in the lease or the incremental
borrowing rate that the individual lessee would have to pay to borrow the
funds necessary to obtain an asset of similar value to the right-of-use asset
in a similar economic environment with similar terms, security and conditions.
Lease payments are allocated between principal, presented as a separate
category, and finance cost. The finance cost is charged to profit or loss over
the lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. Right-of-use assets are
measured at cost comprising the amount of the initial measurement of lease
liability, any lease payments made at or before the commencement date less any
lease incentives received and any initial direct costs and are presented as a
separate category.
Right-of-use assets are generally depreciated over the shorter of the asset's
useful life and the lease
term on a straight-line basis. If the Group is reasonably certain to exercise
a purchase option, the right-of-use asset is depreciated over the underlying
asset's useful life.
Payments associated with short-term leases of equipment and all leases of
low-value assets are recognised on a straight-line basis as an expense in
profit or loss. Short-term leases are leases with a lease term of 12 months or
less. Associated costs of all leases, such as maintenance, service charges and
insurance, are expensed as incurred.
Impairment of intangible assets and property, plant and equipment
For impairment assessment purposes, assets are grouped at the lowest levels
for which there are largely independent cash flows. As a result, some assets
are tested individually for impairment and some are tested at cash-generating
unit level.
All individual assets or cash-generating units are tested for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.
An asset or cash-generating unit is impaired when its carrying amount exceed
its recoverable amount. The recoverable amount is measured as the higher of
fair value less cost of disposal and value in use. The value in use is
calculated as being net projected cash flows based on financial forecasts
discounted back to present value.
The impairment loss is allocated to reduce the carrying amount of the asset
pro-rata on the basis of the carrying amount of each asset in the unit. Assets
are subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist. An impairment loss is reversed if the asset's
or cash-generating unit's recoverable amount exceeds its carrying amount.
Inventories
Inventories are initially recognised at cost, and subsequently at the lower of
cost and net realisable value. Cost comprises all costs of purchase, costs of
conversion and an appropriate proportion of fixed and variable overheads
incurred in bringing the inventories to their present location and condition.
Net realisable value being the estimated selling price less costs to complete
and sell. Where necessary, provision is made to reduce cost to no more than
net realisable value having regard to the nature and condition of inventory,
as well as its anticipated utilisation and saleability.
Financial instruments
Financial assets
Financial assets are recognised in the statement of financial position when,
and only when, the Group becomes a party to the contractual provisions of the
instrument. These comprise trade and other receivables and cash and cash
equivalents.
Financial assets are initially recognised at fair value, which is usually the
cost, plus directly attributable transaction costs.
Financial assets are measured at amortised cost using the effective interest
method. Discounting is omitted where the effect of discounting is immaterial.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a lifetime expected credit loss provision for trade receivables.
The Group measures loss allowances at an amount equal to lifetime ECL, which
will be estimated using past experience of the historical credit losses.
Historical loss rates, where applicable, are then adjusted for current and
forward-looking information on macroeconomic factors affecting the group's
customers, such as inflation rates. The gross carrying amount of a financial
asset is written off (either partially or in full) to the extent that there is
no realistic prospect of recovery.
The group recognises loss allowances for expected credit losses (ECLs) on
financial assets measured at amortised cost to the extent that these are
material. The Group has determined that there is no material impact of ECLs on
the financial statements.
A financial asset is derecognised when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and all
substantial risks and reward are transferred.
Financial liabilities
Financial liabilities include borrowings, lease liabilities, trade and other
payables.
Financial liabilities are obligations to pay cash or other financial assets
and are recognised in the statement of financial position when, and only when,
the group becomes a party to the contractual provisions of the instrument.
Financial liabilities are initially recognised at fair value adjusted for any
directly attributable transaction costs.
After initial recognition, financial liabilities are measured at amortised
cost using the effective interest method, with interest-related charges
recognised as an expense in finance costs. Discounting is omitted where the
effect of discounting is immaterial.
A financial liability is derecognised only when the contractual obligation is
extinguished, that is, when the obligation is discharged, cancelled or
expires.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with other short term, highly liquid investments that are readily convertible
into known amounts of cash and are subject to an insignificant risk of changes
in value.
Foreign currencies
Transactions entered into by the Group in a currency other than the functional
currency of sterling are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated at the
rates ruling at the reporting date. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are recognised
immediately in the statement of comprehensive income in administrative
expenses.
The results of overseas subsidiaries are translated into the Group's
presentational currency of sterling weighted average exchange rate for the
year. The weighted average exchange rate is used, as it is considered to
approximate the actual exchange rates on the date of the transactions. The
assets and liabilities of such undertakings are translated at the year-end
exchange rate. Exchange differences arising on translating the opening net
assets at opening rate and the results of overseas operations at actual rate
are recognised in other comprehensive income and accumulated in a separate
equity reserve.
Equity and reserves
Share capital represents the nominal value of shares that have been issued.
Share premium represents the excess consideration received over the nominal
value of share capital upon the sale of shares, less any incidental costs of
issue.
The accumulated loss reserve represents all current and prior period trading
losses.
The cumulative currency differences reserve represents translation differences
in respect of the net assets of overseas subsidiaries.
Standards, amendments and interpretations in issue but not yet effective
There are no new standards, interpretations and amendments which are not yet
effective in these financial statements, expected to have a material effect on
the company or Group's future financial statements.
2 Critical accounting judgements and estimation uncertainty
The preparation of the financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgments
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected.
The estimates and judgements that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Share based payments (note 18)
The Group uses the Black-Scholes option-pricing model where applicable for
equity-settled arrangements, with inputs, in particular volatility, requiring
significant judgement in application.
In respect of cash-settled arrangements the value at each balance sheet date
involves a critical estimate of the share price, made using the information
from new investors subscribing for or purchasing shares at a similar date.
Details of assumptions applied are set out in the note.
Right of use assets (note 9)
The application of IFRS16 involves a degree of estimation in respect of the
applicable discount rate of 6% applied and judgement in respect of any
lease options or variable payments. The discount rate is reviewed in
conjunction with the rates on similar borrowings and lease extension periods
by reference to business plans and the most likely outcome.
Intangible assets (note 8)
The capitalisation of development costs is also subject to a degree of
judgement in respect of the viability of new technology and know-how,
supported by the results of testing, and by forecasts for the overall value
and timing of sales which may be impacted by other future factors which could
impact the assumptions made.
Amortisation commences once management consider that the asset is in use, i.e.
when it is judged to be at a stage capable of application to commercial
revenue streams and the cost is amortised over the estimated useful life of
the know-how based on the expected life of the technology and related revenue.
3 Segmental reporting
IFRS 8, Operating Segments, requires operating segments to be identified on
the basis of internal reports that are regularly reviewed by the Group's chief
operating decision maker. The chief operating decision maker is considered to
be the executive Directors.
The Group at this stage comprises only one operating segment for the
development and sale of equipment for the electrolytic production of clean
hydrogen and oxygen. The operating segments are monitored by the chief
operating decision maker and strategic decisions are made on the basis of
adjusted segment operating results.
All material assets, liabilities, revenues and expenses are located in, or
derived in, the United Kingdom with the exception of capitalised patent costs
and the related party loan liability in the Irish subsidiary of the Group
which are denominated in Euros.
All revenue to date arises from one customer, in each year, reflecting the
stage of development of the Group and commencement of revenue in 2020 in
respect of initial test scale equipment and consultancy fees in 2021.
4 Operating loss
The operating loss is stated after charging/(crediting):
2021 2020
£'000 £'000
Wages and salaries 1,030 475
Social security costs 109 56
Other pension costs 14 8
Share based payment 1,427 720
Total staff costs 2,580 1,259
Government grant income (in other operating income) (42) (107)
Exceptional employee related costs (see note 18) 1,227 738
IPO preparation related costs 108 -
Auditor's remuneration (2021: PKF Littlejohn LLP, 2020: Mazars LLP)
For audit 37 16
For taxation compliance - 1
For other assurance services - 3
Foreign exchange loss 5 1
Depreciation of tangible owned fixed assets 68 31
Depreciation of right-of-use assets 86 28
Amortisation of intangible assets 11 6
Impairments of right -of-use assets 28 -
Loss on disposal of tangible assets 17 3
Cost of inventory sold - 158
The monthly average number of staff employed by the Group during the year was 26 (2020: 13).
5 Directors emoluments
2021 2020
£'000 £'000
Remuneration for qualifying services 450 225
Pension contributions 1 1
Consultancy fees 103 96
Cash settled share based payment 1,078 649
Equity settled share based payment 200 71
1,832 1,042
The highest paid director received remuneration of £250,000 for 2021 and a
potential bonus cost of £1,078,000 was accrued in respect of his LTIP
entitlement (2020: £69,000 of remuneration and a £649,000 potential bonus
accrual).
Retirement benefits were accruing to 3 directors in respect of defined
contribution schemes (2020: 2).
The consultancy fees paid to directors or companies controlled by them are
also included in the disclosures in note 20.
6 Finance income and expense
2021 2020
£'000 £'000
Finance income:
Bank interest receivable 7 4
Finance expense:
Lease liability financing charges (37) (4)
7 Income tax
2021 2020
£'000 £'000
Current tax
UK corporation tax - -
Adjustments in respect of prior periods 148 144
Total tax credit 148 144
Factors affecting the tax credit for the year
The tax assessed for the year is higher (2020: higher) than the standard rate
of corporation tax in the UK of 19% (2020: 19%). The differences are
explained below:
2021 2020
£'000 £'000
Loss before taxation (3,357) (1,803)
Income tax calculated at the standard rate of corporation tax in the UK of 19% (638) (343)
(2020: 19%)
Effects of:
Expenditure not deductible for tax purposes 48 14
Enhanced research and development allowances (123) (77)
Deferred tax not recognised (note 17) 713 406
Adjustments in respect of prior periods (148) (144)
Total tax credit for the year (148) (144)
Tax credits in respect of research and development expenditure have recognised
on receipt to date whilst experience of initial claims being collated and
accepted is gained. The tax rate used for the reconciliation is the corporate
tax rate of 19% (2020: 19%) payable by corporate entities in the UK on taxable
profits under UK tax law.
The Finance Act 2020 enacted in March 2020 maintained the rate of UK
corporation tax rate at 19% and, as the enacted rate, is accordingly applied
to deferred taxation balances at 31 December 2020.
In May 2021 an increase to 25% from April 2023 was substantively enacted. The
tax rate used to calculate unrecognised deferred tax is therefore 25% at 31
December 2021, being the rate at which the timing differences were expected to
unwind based on enacted rates at each balance sheet date.
8 Intangible assets
Development costs Patents Software Total
Group £'000 £'000
£'000 £'000
Cost
At 1 January 2020 343 85 16 444
Additions 313 25 - 338
At 31 December 2020 656 110 16 782
Additions 404 13 1 418
At 31 December 2021 1,060 123 17 1,200
Accumulated depreciation
At 1 January 2020 - - 7 7
Charge for the year - 1 5 6
At 31 December 2020 - 1 12 13
Charge for the year - 6 5 11
At 31 December 2021 - 7 17 24
Net book amount
At 31 December 2021 1,060 116 - 1,176
At 31 December 2020 656 109 4 769
At 1 January 2020 343 85 9 437
The Group has received cumulative grants from UK government research and
development initiatives amounting to £334,000 in respect of capitalised
development expenditure (2020: £193,000). These grants are deferred within
liabilities and amortised in line with depreciation or impairment of the
related development asset.
The development costs relate to the direct expenditure incurred on the Group's
membrane free electrolysis technology.
Development costs Patents Software Total
Company £'000 £'000
£'000 £'000
Cost
At 1 January 2020 330 2 16 348
Additions 312 11 - 323
At 31 December 2020 642 13 16 671
Additions 400 12 1 413
At 31 December 2021 1,042 25 17 1,084
Accumulated depreciation
At 1 January 2020 - - 7 7
Charge for the year - - 5 5
At 31 December 2020 - - 12 12
Charge for the year - 6 5 11
At 31 December 2021 - 6 17 23
Net book amount
At 31 December 2021 1,042 19 - 1,061
At 31 December 2020 642 13 4 659
At 1 January 2020 330 2 9 341
9 Property, plant and equipment
Right-of-use property Leasehold improvements Plant and machinery Office equipment Total
Group and Company £'000
£'000 £'000 £'000
£'000
Cost
At 1 January 2020 136 39 59 13 247
Additions - 8 31 18 57
Disposals - - (11) - (11)
At 1 January 2021 136 47 79 31 293
Additions 1,069 59 238 22 1,388
Disposals - (46) - - (46)
At 31 December 2021 1,205 60 317 53 1,635
Accumulated depreciation
At 1 January 2020 50 15 14 4 83
Charge for the year 28 9 14 8 59
Disposals - - (3) - (3)
At 1 January 2021 78 24 25 12 139
Charge for the year 86 12 40 16 154
Impairment 44 - - - 44
Disposals - (29) - - (29)
At 31 December 2021 208 7 65 28 308
Net book amount
At 31 December 2021 997 53 252 25 1,327
At 31 December 2020 86 23 54 19 154
At 1 January 2020 58 24 45 9 164
10 Investments
Investment in subsidiary undertakings
£'000
Cost and net book value at 31 December 2021, 31 December 2020 and 1 January -
2020
Principal subsidiary undertakings Address and country Principal activity Class of % share
shares held
holding
of registration
Clean Power Hydrogen Limited Streamstown House, Streamstown, Co. Westmeath, N91 AY72, Republic of Ireland Holds intellectual property Ordinary
100%
Hydrogen United Limited Unit D, Parkside Business Park, Spinners Road, Doncaster, DN2 4BL, England Ordinary
Dormant 100%
CPH2 Northern Ireland Limited 5 Willowbank Road, Millbrook Industrial Estate, Larne, Antrim, BT40 2SF, Ordinary
Northern Ireland
Dormant 51%
11 Inventories
31 December 2021 31 December 2020
1 January 2020
Group and company £'000 £'000 £'000
Raw materials and consumables 9 8 6
Work in progress 2,073 - -
2,082 8 6
No impairment of inventory has arisen.
Work in progress represents the costs incurred in the production of machines
for confirmed orders received in 2021 but not completed at 31 December 2021
(no orders not fulfilled as of 31 December 2020).
12 Trade and other receivables
Group Company
31 December 2021 31 December 2020 31 December 2021 31 December 2020
1 January 2020 1 January 2020
Current £'000 £'000 £'000 £'000
Trade receivables - 39 - - 39 -
Amounts owed by group undertakings - - - 72 57 38
Other receivables 282 56 22 282 56 22
Prepayments and accrued income 422 35 22 422 35 22
704 130 44 776 187 82
Non current
Other receivables 120 - - 120 - -
Amounts owed by group undertakings are unsecured, interest free and have no
fixed date of repayment.
Revenue only commenced in 2020 and there have been no impairment charges nor
expected credit loss provisions made, as the credit risk in respect of trade
and other receivables is considered low. The directors consider that the
carrying amount of trade and other receivables approximates to their fair
value.
13 Trade and other payables
Group Company
31 December 2021 31 December 2020 31 December 2021 31 December 2020
1 January 2020 1 January 2020
Current £'000 £'000 £'000 £'000 £'000 £'000
Trade payables 376 125 33 376 125 33
Other payables 14 56 25 14 56 20
Share subscription received in advance - 550 - - 550 -
Taxation and social security 48 32 19 42 26 14
Accruals 97 39 21 89 37 21
Deferred income 2,237 - - 2,237 - -
2,772 802 98 2,758 794 88
Non current liabilities
Accruals (LTIP Liability) 1,965 738 1,965 738 -
Deferred income 278 193 278 193 -
2,243 931 - 2,243 931 -
Shares were subsequently issued in early 2021 against the advance share
subscription cash received and shown as a liability above at 31 December 2020.
The directors consider that the carrying amount of trade and other payables
approximates to their fair values. Details of the LTIP related accrual are set
out in note 18.
14 Lease liabilities
Group and company 31 December 2020 31 December 2020
1 January 2020
£'000 £'000 £'000
Current 131 31 29
Due in one to two years 120 34 31
Due in two to five years 408 - 34
Due in more than five years 328 - -
856 34 65
The financing charges in respect of right-of-use assets are disclosed in note
5 and the right-of-use-assets and depreciation in note 9. Right-of-use assets
and lease liabilities relate principally to property leases. The Group leases
its main operating premises, typically on a five to eight year lease, subject
to periodic rent reviews and potential breaks, with the intention and
assumption made in measuring assets and liabilities that the extended period
will be utilised. Total cash outflows in respect of leases are £166,000 for
the year ended 31 December 2021 (2020: £33,000).
15 Financing activities and movements in total borrowings
Group 2021 2020
£'000 £'000
At 1 January (470) (476)
Cash movements:
Lease liability payments 129 29
Interest paid 37 4
Non-cash movements
Interest accrued (37) (4)
Foreign currency movements 23 (23)
Early notice given on leases 18 -
New lease liabilities (1,069) -
At 31 December (1,369) (470)
Comprising:
Lease liabilities (987) (65)
Related party loan (382) (405)
(1,369) (470)
16 Financial instruments and capital management
Risk management
The Board has overall responsibility for the determination of the company and
the Group's risk management objectives and policies. The overall objective of
the Board is to set policies that seek to reduce risk as far as possible
without unduly affecting the group's flexibility. All funding requirements and
financial risks are managed based on policies and procedures adopted by the
Board of Directors. The Group is exposed to financial risks in respect of
market, credit and foreign exchange risk.
Capital management
The company's capital comprises all components of equity which includes share
capital and retained earnings. The company's objectives when maintaining
capital are to safeguard the entity's ability to continue as a going concern,
so that it can continue to provide future returns for shareholders and
benefits for other stakeholders, and to provide an adequate return to
shareholders by managing technology development, pricing products as revenue
commences commensurately with the level of risk.
The capital structure of the company consists of shareholders equity with all
working capital requirements financed from equity and property costs funded by
lease agreements.
The company sets the amount of capital it requires in proportion to risk. It
manages its capital structure and raises capital in the light of the
investment in product development, changes in economic conditions, the ability
to finance capital purchases and the risk characteristics of the underlying
assets and activity. In its development the company has raised equity capital
and has not utilised borrowings in view of the risks at this stage. Following
the AIM listing, the company's parent now manages capital and in order to
maintain or adjust the capital structure, may issue new shares, or sell assets
to reduce debt.
Market risks
These arise from the nature and location of the customer markets, competing
technology and foreign exchange rate risks.
The Group expects to trade initially primarily within the UK and Irish
markets. This is likely to expand to other markets, and accordingly there will
be a risk relating to the underlying performance of these markets and their
currency risk which will be actively monitored by the directors.
Foreign exchange risk
The company has an Irish subsidiary which funded the initial product
development with equity and a related party loan denominated in Euros. It
expects to commence trade with overseas customers with the only revenue to
date invoiced in sterling. There has therefore been a reduced sensitivity to
fluctuations in exchange rates and a 10% movement in Euro exchange rates would
impact the statement of financial position by approximately £35,000.
The Group had the following net balance in respect of the Irish subsidiary
denominated in foreign currency:
31 December 2021 31 December 2020 1 January
2020
£'000 £'000 £'000
Euro denominated (337) (350) (324)
Interest rate risk
Lease liabilities are derived at fixed interest rates and reflect an
underlying fixed rental with no current exposure to floating rates.
Credit risk
Credit risk is the risk of financial loss if a customer or counterparty to a
financial instrument fails to meet its contractual obligations. The Group is
mainly exposed to credit risk from credit sales and attempts to mitigate
credit risk by assessing the creditworthiness of customers and closely
monitoring payments history.
Credit risk on cash and cash equivalents is considered to be minimal as the
counterparties are all substantial banks with high credit ratings.
Liquidity risk
The maturity of the Group's financial liabilities including trade and other
payables, other loans and lease liability total payments with the interest
payable is as set out below. Current liabilities were payable on demand or to
normal trade credit terms with the exception of lease liabilities which are
payable quarterly.
At 31 December 2021 Up to 1 year 1-2 years 2-5 years Over 5 years
£'000 £'000 £'000 £'000
Trade and other payables (485) - (1,965) -
Loan from a related party (382) - - -
Lease liabilities (131) (169) (507) (352)
(998) (169) (2,472) (352)
At 31 December 2020 Up to 1 year 1-2 years 2-5 years
£'000 £'000 £'000
Trade and other payables (220) - (738)
Loan from a related party (405) - -
Lease liabilities (34) (33) -
(659) (33) (738)
Classification of financial instruments
All financial assets have been classified as at amortised cost, and all
financial liabilities have been classified as other financial liabilities
measured at amortised cost.
Financial assets
31 December 2021 31 December 2020 1 January
2020
At amortised cost £'000 £'000 £'000
Trade and other receivables 402 95 22
Other financial asset - 400 -
Cash and cash equivalents 480 2,937 1,005
882 3,432 1,027
Financial liabilities
At amortised cost
Trade and other payables (2,450) (958) (79)
Loan from a related party (382) (405) (382)
Lease liabilities (987) (65) (94)
(3,819) (1,428) (555)
17 Deferred taxation
Unrecognised deferred tax Tax losses Capital allowances Share based payment Total
asset/(liability)
£'000 £'000 £'000 £'000
At 1 January 2020 103 (15) (15) 73
At 31 December 2020 384 (35) 140 489
At 31 December 2021 992 (105) 1,105 1,992
Deferred tax assets have not been recognised at the year end dates as the
utilisation of losses was not yet considered sufficiently probable. Deferred
tax rates of 25% at 31 December 2021 (31 December 2020: 19%, 1 January 2020:
17%) have been applied.
18 Share capital and share based payment
Allotted, called up and fully paid £0.001 ordinary shares Number Share capital Share premium amount
£'000 £'000
As at 31 December 2019 8,344,145 8 2,275
Issued in the year 1,190,453 1 2,720
Cancelled in the year (454,546) - -
As at 31 December 2020 9,080,052 9 4,995
Issued in the year 183,333 - 550
As at 31 December 2021 9,263,385 9 5,545
In the year ended 31 December 2021, 183,333 shares were issued at £3 each.
The funds had been received under a short term loan arrangement prior to 31
December 2020 and hence the cashflow for this period ended 30 June 2021 shows
no inflow in respect of these shares. (2020, 815,453 £0.001 ordinary shares
were issued at £3 and 375,000 at £1 each). In 2020 454,546 shares were also
purchased by the company and cancelled at £0.001 each.
£400,000 of the consideration for the shares in 2020 was settled by receipt
of an interest bearing bond disclosed as an other financial asset, which was
subsequently redeemed and the cash received early in 2021.
All £0.001 ordinary shares rank equally with the right to receive dividends
and capital distributions.
Options and share based payment
Warrants and options giving the holder the right to purchase shares at a
future date have been granted in respect of advisers and employees including
directors with £200,000 expensed in the year ended 31 December 2021 (2020:
£71,000). The fair values have been derived using a Black-Scholes model
applying a risk free rate of 1% and volatility of 50 The vesting period
applied is 3 years in respect of all employee options. They are as follows
with no options exercised or cancelled in the year or prior year.
Date of issue Number of warrants Exercise price per share Fair value per share
£ £
2017 13,812 0.40 0.138
August 2019 89,952 1.00 0.345
The warrants were exercisable at any time up to a listing or sale of the
Group.
Number of options Exercise price per share Fair value per share
Date of issue
£ £
December 2018 192,745 0.70 0.242
July 2020 240,369 0.70 0.467
September 2020 708,719 0.70 0.467
683,114 of the options were exercisable on a listing or sale and 458,719 at
any time.
In addition, the company also has an LTIP in place with a cash-settled bonus
arrangement payable, linked to the Group value and share price over the 3 year
period to September 2023. The charge for the year ended 31 December 2021,
derived in line with the accounting policy was £1,227,000 (2020: £738,000)
including the related national insurance costs with a cumulative liability of
£1,965,000 (2020: £738,000).
19 Post balance sheet events
On 1 February 2022, Clean Power Hydrogen plc issued 185,267,700 Ordinary
Shares in consideration of the transfer to it of the entire issued share
capital of the company on a 20 for one basis.
On 16 February 2022, Clean Power Hydrogen plc was admitted to trading on AIM
and in the process issued £30 million of new share capital to be used to
expand the enlarged Group's activities for the foreseeable future.
Clean Power Hydrogen plc, the new parent company, also granted options on a
prorata basis as follows:
· Options over 11,410,220 ordinary shares on equivalent EMI terms
in exchange for the EMI options which were exercised on admission to AIM.
· Options over 13,426,440 ordinary shares in exchange for the
unapproved scheme options
· Warrants over in aggregate 2,075,280 ordinary shares in exchange
for the surrender of warrants which were then exercised.
On 10 February 2022, it also granted options over 10,608,980 Ordinary Shares
under an unapproved scheme to replace the LTIP arrangement. Exercise from 30
June 2024 of 25% is subject to remaining in employment and 75% also to sales
related performance conditions. The accrued cash settlement liability will be
credited to the income statement in the 2022 financial statements with no
liability at the next period end. Share based payment charges will be recorded
in the income statement over the expected vesting period to 2024 based on the
fair value of the modified equity-settled arrangements and credited to equity
with a nil net impact on net assets
20 Control and related party transactions
At 31 December 2021, the company was an ultimate parent company. Following the
year end, as a result of an exchange of shares, the immediate and ultimate
parent company became Clean Power Hydrogen plc. There is no individual
ultimate controlling party.
The key management personnel is considered to be the directors. Please refer
to note 5 for details of key management personnel remuneration.
There have been transactions with directors and with other entities over which
the directors have control in respect of small interest free loans,
outstanding expense balances and amounts owed in respect of consultancy fees
charged included in trade and other payables. These are as follows in
aggregate:
Year ended 31 December 2021 2020
£'000 £'000
Amounts owed by the Group at the year end 11 70
Consultancy fees charged in year 103 114
Purchases in the year 13 -
In addition, there was a loan to the Group of £382,000 (2020: £405,000) from
Streamstown Mouldings Limited, incorporated in the Republic of Ireland and
controlled by Joe Scott, a director of the company.
This was interest free with no fixed repayment terms. This loan was repaid in
2022 following receipt of the proceeds of the IPO of Clean Power Hydrogen plc,
now the 100% shareholder of the company.
21 Transition to IFRS and FRS101
From 1 January 2020 the Group has adopted International Financial Reporting
Standards (IFRS) in the preparation of these financial statements. The company
has adopted the UK standard FRS 101 and hence applied IFRS with a number of
disclosure exemptions. The main items contributing to the changes in the
financial information compared with that reported under the United Kingdom
standard FRS 102 ('UK GAAP') are shown below and result in the same net
adjustments to reported results and net assets or liabilities in both the
Group and the company:
IFRS 16: Leases. Under this standard, the concept of assessing a lease
contract as either operating or financing is replaced by a single lessee
accounting model. Substantially all former operating lease contracts where the
rental was expensed under UK GAAP result in a lessee acquiring and recognising
a right-to-use asset and a financial liability under IFRS. The asset is
depreciated over the term of the lease and the interest on the financing
liability is charged over the same period. A full retrospective approach has
been applied with the liability representing the future lease payments at
inception discounted at an incremental borrowing rate and with an equal right
of use asset at inception. The income statement is impacted, with the rent
expense relating to operating leases being replaced by a straight line
depreciation charge arising from the right-to-use assets and interest charges
arising from lease financing which are higher in earlier years.
On transition at 1 January 2020, there were no right of use assets or lease
liabilities as all leases were considered short term at that date. Right of
use assets and discounted lease liabilities at the estimated incremental rate
of 6% have been recorded of £136,000 in 2018 on inception of two property
leases with a term of up to 5 years, assumed to run full term. The
operating lease rentals of £32,000 expensed in 2020 have been replaced by the
inclusion of depreciation of £28,000 and financing charges of £4,000 with no
net impact on profits before tax. The carrying value of the right-of-use
assets at 1 January 2020 was £86,000 and £58,000 at 31 December 2020. The
carrying value of lease liabilities, was £94,000 at 1 January 2020 and
£65,000 at 31 December 2020.
Government grants. Capital grants received in 2020 of £193,000 which had been
netted against the capitalised development costs under UK Gaap have been
reclassified and presented in non-current deferred income under IFRS with the
deferred income to be released to income in line with the amortisation of the
related asset. In 2020, grants received in respect of eligible costs included
in the UK GAAP revenue have been reclassified to other operating income.
In addition, the more comprehensive review of accounting for the transition
has identified matters which were applicable under UK GAAP but which had not
been applied and therefore represent the amendment of errors. These are as
follows:
IFRS 2: share based payment. The company has issued share options and warrants
which result in equity-settled share based payment charges. A Black-Scholes
model has been applied to calculate the charges resulting in additional
administrative expenses of £71,000 in 2020. A corresponding credit has been
made directly to reserves as the charges relate to equity settled
transactions. The company also has a long term incentive arrangement which
results in a cash-settled share based payment charge. A charge of £738,000
arises in 2020 together with an equal liability in the statement of financial
position at 31 December 2020.
The Group has used the transition exemption and not restated the prior
acquisition under IFRS business combination accounting. Accordingly, the
impaired goodwill at transition on 1 January 2020 of £nil is adopted as
opening cost with no asset recognised.
Amounts owed by the Group to a related party company at each year end and
included in accruals and other creditors have been reclassified in the
statement of financial position to one current loan balance in other payables
to more appropriately reflect the nature and legal form of the balance which
has remained substantially unchanged throughout the period other than for
exchange differences. It has no formal repayment or interest terms indicating
an on demand nature.
No cash flow statement has been included in the UK statutory financial
statements for the year ended 31 December 2020 as a result of taking the small
group exemption. The cash flow statement has therefore been prepared in IFRS
format from the adjusted IFRS financial information.
Reconciliation of Group comprehensive income for the year ended 31 December
2020 is as follows.
Year ended 31 December 2020 UK GAAP as reported IFRS 16 IFRS 2 Reclass IFRS
£'000 £'000 £'000 £'000 £'000
Revenue 214 - - (107) 107
Cost of sales (158) - - - (158)
Gross profit/(loss) 56 - - (107) (51)
Other operating income - - - 107 107
Administrative expenses (1,054) 4 (809) - (1,859)
Operating loss (998) 4 (809) - (1,803)
Net finance income 4 (4) - - -
Loss before taxation (994) - (809) - (1,803)
Taxation 144 - - - 144
Loss for the year (850) - (809) - (1,659)
The company loss for the year was £846,000 under UK GAAP (with £4,000 less
administrative expenses) and has been impacted by identical adjustments
resulting in an IFRS loss of £1,655,000.
Reconciliation of the Group opening balance sheet as of 1 January 2020 and
equity as of 31 December 2020 is as follows:
As at 1 January 2020 UK GAAP as reported IFRS 16 Reclass IFRS
£'000 £'000 £'000 £'000
Share capital 8 - - 8
Share premium 2,275 - - 2,275
Foreign currency reserve 5 - (1) 4
Accumulated loss (1,201) (5) 1 (1,205)
Total equity 1,087 (5) - 1,082
As at 31 December 2020 UK GAAP as reported IFRS 16 IFRS 2 Reclass IFRS
£'000 £'000 £'000 £'000 £'000
Share capital 9 - - - 9
Share premium 4,995 - - - 4,995
Foreign currency reserve (15) - - (1) (16)
Accumulated loss (2,051) (5) (738) 1 (2,793)
Total equity 2,938 (5) (738) - 2,195
Reconciliation of the company opening balance sheet as of 1 January 2020 and
equity as of 31 December 2020 is as follows:
As at 1 January 2020 UK GAAP as reported IFRS 16 IFRS
£'000 £'000 £'000
Share capital 8 - 8
Share premium 2,275 - 2,275
Accumulated loss (871) (5) (876)
Total equity 1,412 (5) 1,407
UK GAAP as reported IFRS 16 IFRS 2 IFRS
As at 31 December 2020
£'000 £'000 £'000 £'000
Share capital 9 - - 9
Share premium 4,995 - - 4,995
Accumulated loss (1,717) (5) (738) (2,460)
Total equity 3,287 (5) (738) 2,544
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