REG - Powerhouse Energy Gp - Audited Results for Year Ended 31 December 2022
30/06/2023 07:00
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RNS Number : 4564E Powerhouse Energy Group PLC 30 June 2023
30 June 2023
Powerhouse Energy Group plc
("Powerhouse" or the "Company")
Audited Results for the Year Ended 31 December 2022
Powerhouse Energy Group Plc (AIM: PHE), a company pioneering integrated
technology that converts non-recyclable waste into low carbon energy, is
pleased to announce its audited results for the year ended 31 December 2022.
FY2022 Summary
Operational Performance
· Substantial progress made in developing the Company's business strategy,
exemplified by new project arrangements.
· Creation of, and continuous progress on the Powerhouse Technology
Centre at Bridgend, with view to placing Powerhouse Energy Group at the
forefront of the waste-to-energy sector in pyrolysis and gasification.
Financial performance
· Company reported revenue for the year of £380,277.
· Gross profit for the year of £84,365.
· Significant goodwill and trade debt impairment due to Company's
changing business strategy. This reduction in the balance sheet value has no
implication on the ongoing business of the Company.
· Cash at bank of £5,882,897 as at 31 December 2022.
Company Growth
· Negotiated terms for Powerhouse to take a 50% shareholding in the Peel
NRE Ltd special purpose vehicle, Protos Plastics-to Hydrogen No 1 Ltd -
transaction acquiring 100% of the share capital completed post the year end.
· 50% shareholding agreed with Hydrogen Utopia International Plc at
Konin in Poland and Tipperary, Ireland.
· Antony Gardner-Hillman appointed as Non-Executive Chairman.
· Anthony Gale and David Hitchcock appointed as new Non-Executive
Directors.
· Keith Riley appointed as Interim Chairman and then as Acting Chief
Executive Officer.
Outlook
· Change from the original business model, moving away from the model of
licensing PHE technology to third party developers for flat returns by way of
fixed annual licence fees.
· Announced Joint Venture with Hydrogen Utopia International Plc at
County Longford in Ireland, replacing the Tipperary project.
· Obtained full ownership and control of the Protos Plastics-to
Hydrogen No 1 Ltd site near Chester.
· Acquired the remaining 52% of Engsolve, the Company's engineering
capability.
· Appointment of Noage Energy Ltd as the Company's representative in
Northern Ireland.
· Revitalised Board including the appointment new Non-Executive
Directors bringing a range of additional skills and experience to support the
highly experienced competent executive team, including the appointment of
Professor Karol Kacprzak in February 2023.
· Vision: to be a leader in technology solutions that rid the world of,
and utilise, non-recycled wastes, producing sustainable energy whilst
mitigating climate change impacts.
Antony Gardner-Hillman, Non-Executive Chairman, commented:
"Having joined the Board in January this year, I am delighted to see the
considerable progress that the Company has made in such a short period of
time. This year has seen Powerhouse focused on where the business is heading,
moving away from the business model of licensing our technology to third party
developers which we felt was under-selling the true value of Powerhouse.
We are also delighted to have re-shaped the Company's board, with four new
non-executive directors who bring a wide range of extensive experience which
will support the Company's growth and strategy going forward.
The changes implemented since the year end leave us well positioned to make
significant progress this year and in the longer term as we strive towards a
sustainable future. I look forward to the strong future that is ahead for
Powerhouse."
Keith Riley, Acting Chief Executive Officer, commented:
"In 2022 we commenced a transition in the Company's business strategy that
will start to be realised in 2023. This will be to recognise market demand and
to provide the Company with a continuing revenue stream and enable its capital
projects to be developed as the necessary elements come into place. We have
also broadened the base of the business to allow this to happen.
We have had an excellent working relationship with Peel NRE Ltd and look
forward to it continuing. 2022 showed, however, that the structure of the
Protos Plastic to Hydrogen project as it was, was not optimal and needed to be
changed. The two companies worked together on alternative arrangements and in
2023 we concluded that it was best for Powerhouse to take full control. We
will now apply the strategy we describe in the Strategic Report in the Annual
Report to bring it to fruition.
A key foundation stone of the new business strategy is the Company's knowhow
and capabilities. In 2022 the Company took the decision to invest in these,
firstly creating the Powerhouse Technology Centre at Bridgend in Wales, which
will be in operation in late 2023, and then the acquisition of Engsolve Ltd
and its integration into the Group completed in June 2023. We will build on
these further as the Company progresses.
I recognise that 2022 was a frustrating year for those wishing to see
construction starting on a facility incorporating Powerhouse technology but
believe that the steps taken in 2022 were essential and will lead to an even
stronger Company in the future than would otherwise have been the case."
The annual report and accounts for the year ended 31 December 2022 will be
sent to shareholders shortly and available to view on the Company's website:
https://www.powerhouseenergy.co.uk (https://www.powerhouseenergy.co.uk)
For more information, contact:
Powerhouse Energy Group plc powerhouse@tavistock.co.uk (mailto:powerhouse@tavistock.co.uk)
Keith Riley
WH Ireland Limited (Nominated Adviser) +44 (0) 207 220 1666
James Joyce
James Bavister
Enzo Aliaj
Turner Pope Investments (TPI) Ltd (Joint Broker) +44 (0) 203 657 0050
Andrew Thacker
James Pope
Tavistock (Financial PR) powerhouse@tavistock.co.uk (mailto:powerhouse@tavistock.co.uk)
Simon Hudson
Nick Elwes
Heather Armstrong
About Powerhouse Energy Group plc
Powerhouse Energy has developed a process technology which can utilise waste
plastic, end-of-life-tyres, and other waste streams to convert them
efficiently and economically into syngas from which valuable products such as
chemical precursors, hydrogen, electricity, heat and other industrial products
may be derived.
Powerhouse Energy's process produces low levels of safe residues and requires
a small operating footprint, making it suitable for deployment at enterprise
and community level.
Powerhouse Energy is quoted on the London Stock Exchange's AIM Market under
the ticker: PHE and is incorporated in England and Wales.
For more information see www.powerhouseenergy.co.uk
(http://www.powerhouseenergy.co.uk)
CHAIRMAN'S STATEMENT
I was delighted to join the Board of Powerhouse Energy Group plc
("Powerhouse", PHE" or the "Company") as Non-Executive Chairman on 1 January
this year and am pleased to be able to report positive steps forward during
the short period of my tenure of office so far.
We have re-assessed where the business stands and is heading. We have
re-examined and moved away from the business model of licensing our technology
to third party developers for flat returns by way of fixed annual licence
fees, a model that we felt was under-selling the real value of Powerhouse. The
Company has now altered its strategy towards joint venture arrangements with
project development partners, giving Powerhouse more say, and providing upside
opportunity for our shareholders. The change of direction has been shown in
our recent announcements on the projects at County Longford in Ireland, and at
Konin in Poland. We were also very pleased that at the Protos site near
Chester, once it became clear that our partner (originally the site owner and
licensee of our technology) no longer shared our vision for the project's
development, Powerhouse took full ownership and control on terms which
included acceptable lease provisions for the site. In addition, we were
delighted to announce that we have brought our engineering capability fully
in-house, having now increased our ownership of Engsolve Limited ("Engsolve"),
our engineering partner, to 100%. Engsolve was established and, until this
most recent transaction majority owned, by Powerhouse COO Paul Emmitt
(Powerhouse had acquired a 48% interest in Engsolve in 2021). Although the
former arrangement worked well in practice, it was not necessarily the best
platform from which to build the business that Powerhouse should be. The new
arrangement simplifies the Company's access to its essential engineering
requirements. The Board sees it as a step forwards in presenting Powerhouse to
the market as a stand-alone business, with all the essential components
in-house, thereby reducing reliance on third parties and ensuring maximum
potential value for Powerhouse's shareholders.
In 2022, excellent progress continued on the Technology Centre in Bridgend, a
vitally important part of our ability to demonstrate that Powerhouse intends
to place itself at the forefront of businesses aspiring for a position in the
waste-to-energy sector. Hydrogen fuel is only one part of the waste-to-energy
picture. The Company has maintained a watchful eye on the market for hydrogen,
particularly in relation to the publicity attracted by the use of hydrogen as
a transport fuel. That market remains in its infancy and as such, we will
continue to develop our capabilities in electricity and heat production,
fuelled by raw materials (non-recyclable waste products with no use) that to
others are a growing problem but which, to Powerhouse, are the keys to the
door.
The Company has seen that progression by licensing our technology to third
parties does not mean they will provide the significant funding required for
the construction of each plant. The Company will continue to need to do that
with a development partner, as we will do at Longford and Konin, or as in the
case of the Protos site, where the Company expects to "go it alone". We are
now exploring the right mix of equity and project finance, to be ready when
the opportunity opens up so as to ensure the business can progress according
to our strategy.
Post the year end the Board has been re-shaped, with four new non-executive
appointments, including myself, bringing an undoubted range of additional
skills and experience to provide a non-executive component to support the
highly experienced executive team. As Chairman, my focus is on planning the
pathway to financial sustainability, ensuring that we have the right skills
and other resources within the Company, on the right terms, and that
Powerhouse continues to develop and protect its intellectual property. I
expect to see Powerhouse prove its viability in a commercial context whilst we
develop our working relationships with third parties and maintain their
confidence in order to deliver our projects economically.
I wish to thank my predecessor Keith Riley, who held the reins as Interim
Non-Executive Chairman before moving to a new role as Acting CEO, leading the
small but excellent Powerhouse executive team. They have made the induction
process easy for the new non-executive board members. I would also like to
thank our shareholders for their continued support over the last few
challenging years. The year ahead promises to be an exciting one as we deliver
on expectations and progress our vision for Powerhouse.
Antony Gardner-Hillman
Non-Executive Chairman
29 June 2023
CHIEF EXECUTIVE OFFICER'S REVIEW
The year under review was a challenging one for Powerhouse, but one that I
believe will be ultimately rewarding. It was the year that started a change
that the Board believe will move the Company towards its goal of trading
profitably and being at the forefront of the waste-to-energy sector. 2021 had
seen a change in chairmanship of the Board, and it was hoped that the
appointment of a new Chief Executive Officer in January 2022, followed by a
new Non-Executive Chairman three months later would bring stability. This was
not to be the case, however, and on request of the Board, I stepped in as
Interim Chairman in June, and then had to assume the dual role of Interim
Chairman and Acting Chief Executive in August 2022.
My objective in joining the PHE board from the outset was to help progress the
Company towards becoming a profitable enterprise. The first step to doing this
was to put in place a Board that could both maintain the governance required
for a company quoted on AIM, whilst contributing to the day-today running of
the Company in a way that previous Boards had not. These changes were finally
achieved with the Board appointments which occurred at the beginning of 2023,
and I welcome what I see as a fresh start for the Company.
As with previous years from a financial perspective, the Company continued to
sustain an overall loss in 2022. In 2021, the Company reported revenue of
£701,435 which was derived from three main sources as described in the
Strategic Report, one of which was services provided to the Protos project.
During 2022, as a result of the construction contract tendering exercise on
Protos I describe below, PHE's engineering activity diminished whilst waiting
for the prospective contractors to prepare and return their bids. As a result,
revenue reduced to £380,277 in the year - a reduction of 46%. This revenue in
2022 was made up of £38,984 of HUI exclusivity income and £341,293 of
billings to Protos Plastics to Hydrogen No1 Ltd, Peel NRE's special purpose
vehicle (SPV) for the Protos project.. It was also possible, however, to
achieve a reduction in cost of sales from £599,914 in 2021 to £295,912 in
2022, lowering the impact on gross profit ahead of exceptionals which reduced
from £101,521 in 2021 to £84,365 in 2022 - a reduction of 17%. In the event,
however, following the acquisition of the Protos SPV on 28 April 2023, it has
been decided to impair £341,293 of billings to the Protos SPV (Refer to note
29 in the financial statements). The added value of the work carried out by
the Company billed to the SPV will, however, be recovered during 2023, as it
remains an integral part of the project's development.
The major movements in the accounts for 2022 are the reduction in goodwill,
the impairment of the loan made to the Protos SPV and the trade debt billed to
the Protos SPV described above. All can be attributed to the Company
changing its business strategy following the takeover of the Protos SPV and
placing the Company on a realistic and solid basis from which it can grow. The
Company has moved away from a twin reliance on technology licence sales (with
dependence on a third party to develop the project to which the licence will
apply), and granting of exclusive rights to third parties in selected
territories. It was evident that this approach had led to a restriction on the
activities PHE could undertake, and stagnation of the Company's development.
In consequence, in 2022 the Company decided to become proactively involved in
the development of its own facilities and began initially by entering into
joint ventures with development partners. In the event, the joint venture with
Peel was not realised and PHE acquired 100% shareholding in the Protos SPV,
making it currently the sole developer of this project.
In 2021 the goodwill had been determined by considering a five year view on
the development of a series of facilities that Peel was to develop
progressively and the quantum determined by summating the incoming licence
fees and performing a discounted cash flow to calculate the net present value.
This was despite there being no contractual basis or obligation in place for
the development of those projects. The goodwill value in 2022 was eroded
marginally from that of 2021 due to the passage of time. It became apparent
during 2022, however, that the rate of project development anticipated in
previous years was optimistic and that due to limitations on resources and
supply chain capacity, the realisation of these capital projects will be
slower than anticipated. In consequence, the Board decided that the previous
goodwill calculation could not be supported and the Company would write off
the goodwill value in the 2022 accounts down to a realistic value in today's
market. The previous goodwill evaluation of £42.96m is therefore reported as
being impaired by £40.66m, along with £0.5m of exclusivity fees from Peel
NRE `protos project', giving a total impairment of £41.16 million. There is
no implication on the ongoing business of the Company by this reduction in
balance sheet value, and the value added represented by the loan value by
the SPV under Peel and the trade debt in the Protos project will be
re-established in 2023.
As reported in a previous annual report, a Front-End Engineering Design
("FEED") had been carried out on the Powerhouse proprietary technology for
converting plastics to hydrogen, trademarked DMG™.. This had been funded
through a loan facility to the Protos SPV made available by PHE and
underwritten by Peel NRE Ltd, the then project owners, in November 2021. In
February 2022, this facility was extended until 31 August 2022, the view at
the time being that financial close of the Protos Plastics to Hydrogen project
could be achieved within that period. This facility was extended again in
August 2022 to 31 March 2023 and then further extended to 29 April 2023.
Late 2022 saw a major change in the Peel project management team and the
contracting strategy for construction of the Protos project. This led to an
extensive tendering process during the spring and summer of 2022 whereby four
pre-qualified, selected construction contractors were invited to tender for
the construction, commissioning and setting to work of the Plastics to
Hydrogen facility at Protos based on full specifications and a full form
contract draft. This resulted ultimately in Petrofac being selected as
preferred contractor, but what was consistent across all bidders was that the
total installed cost of the development was significantly greater than had
been estimated previously. Also consistent across the potential contractors
was a requirement that further work was required on the FEED before prices
could be finalised. Rather than the £20 million stated at time of the
Dumbarton Dock planning permission, the tenders indicated the installed cost
to be more than twice this. It became immediately apparent that the revenues
that had been assumed from hydrogen sales and waste gate fees would not
produce the return on investment required and Peel could not declare financial
close within the timescale anticipated. In consequence, to allow the project
development to continue, the various agreements between PHE and Peel had to be
extended.
In May 2022, we announced the Global Technology and Information Centre, now
known as the Powerhouse Technology Centre, which will be opened late 2023 in
Bridgend, Wales. This indicates a strong commitment by the Company to invest
in itself and its future development. Gasification as a means of treating
large volumes of unprocessed waste has proved to have limitations and has even
led to some developments being impaired. This has created a false impression
that the technology "does not work" on wastes. This is not the case, and the
true potential of converting waste materials into synthetic gas (or syngas)
which can then be used to produce other products is still to be realised. The
technology Powerhouse deploys is built on years of academic work and an
original reference plant. The Company has performed several years of testing
using the demonstrator unit at Thornton, and we have more recently used
advanced computer techniques with Manchester University to improve the design
further. We now even have a patent about to be granted on the temperature
control of the kiln with several still pending. Nevertheless, there is still
much we can do, and the Feedstock Testing Unit to be installed at Bridgend
will be a scaled version of the commercial unit proposed for Protos and
elsewhere, and will permit a much closer simulation of the commercial unit
than its predecessor did. This will also enable the company to apply its
technology to other feedstocks, simplify the gas processing system and
optimise the outputs.
In June 2022, Peel announced that it had obtained planning permission at
Dumbarton Dock, West Dunbartonshire, Scotland for a 13,500 tonnes per annum
DMG™ unit. Unfortunately, this was short-lived as following the moratorium
on incineration by Scottish Government, the permission was called in for
examination by the Recorder in November 2022. It is my belief that the case
for the plastics to hydrogen facility could have been made successfully and
would have set a test case for these non-combustion waste conversion
technologies, thereby making obtaining planning permission for future
facilities that much easier. In the event Peel decided it would not contest
the case and withdrew the planning permission.
It was evident to me from this and earlier events in late 2021/early 2022,
that if PHE was to have a future, it had to have a level of involvement in
projects incorporating its technology. Without this, the Company had no
control on project decisions and was making statements on matters that were
not of its making, nor had any ability to influence. To address this, it was
agreed with Peel that PHE should acquire 50% of the shareholding in Protos
Plastics to Hydrogen No1 Ltd, the SPV set up by Peel for development of the
project. This was announced in September 2022, and documents were drawn up
ready for signature, when following discussions in early 2023 on roles and
further funding of the development activities, it was decided that the optimal
way forward was for PHE to acquire the entire SPV and take over the project
development, with Peel remaining as landlord of the site. This was completed
on 28 April 2023 and all agreements between Peel and PHE were terminated.
As a result of this evolution during 2022, the Company used the first quarter
of 2023 to develop its new business strategy. The main goal is to develop a
portfolio of capital projects, but with a broadening of both the feedstock and
product output beyond the narrow niche of plastics to hydrogen. Whilst plastic
and hydrogen will remain an important business line for PHE, it relies heavily
on the growth of demand for hydrogen. Demand is growing, but currently lags
behind what is required to sustain the building of multiple PHE hydrogen from
waste production facilities in the UK. The Board has every confidence this
will change and by the end of this decade the use of hydrogen as a transport
fuel will be common. PHE is in an excellent position to take advantage of
this, but in the interim the Company must find alternative sources of revenue.
The recent full integration of Engsolve into PHE provides this opportunity and
in the Strategic Report we set out the role Engsolve will play.
Engsolve has provided engineering support to PHE for many years, with the
Company holding 48% of the shareholding in since August 2021. The Company
has now acquired the remaining stock. Engsolve will bring with it a history
of successfully delivering engineering services to the energy, oil and gas,
manufacturing, waste, and safety sectors. It is PHE's intention to build on
this legacy, taking advantage of its specialist knowledge and the R&D
capability emerging from the Powerhouse Technology Centre, to become a
significant service provider. This will bring new revenue streams into the
company and help build its reserves to support the capital projects.
Lastly, during 2022, PHE embarked upon building a pipeline of projects. This
is still underway and results are only now beginning to emerge. Heads of terms
were signed with Hydrogen Utopia International Plc ("HUI") in August 2022 for
a project in Konin, Poland, but progress was severely delayed due to recent
events in Eastern Europe. In March 2023, however, it was announced that a
similar arrangement had been agreed with HUI on a project in Longford,
Ireland. More recently, we have also announced an initiative in Ballymena,
Northern Ireland. We will, however, continue to be cautious in building the
pipeline. PHE must maintain focus on Protos, as with an implemented planning
permission and engineering largely complete, at time of writing, this still
remains PHE's fastest route to an installation - and focus must not be
detracted from that. Furthermore, it is important that PHE does not enter into
agreements it cannot properly service. The road to success in this market is
through expertise and quality. If we deliver the quality the market demands,
the quantity will follow, and the Board are confident that it will.
Keith Riley
Acting Chief Executive Officer
29 June 2023
STRATEGIC REPORT
This strategic report presents the Directors' opinion regarding the future
direction of the Company and contains certain forward-looking statements.
These statements are made by the Directors in good faith, based on the
information available to them at the time of writing and such statements
should be treated with caution as they address uncertainties.
During 2022 the Company received three sources of revenue:
1. £38,984 of HUI Exclusivity fees in relation to Konin, Greece &
Portugal
2. £341,293 of billings to Peel's Protos special purpose vehicle (SPV),
Protos Plastics to Hydrogen No1 Ltd.
3. £60,326 arising from Engsolve profit share
These sources of revenue were the only ones available to the Company in the
year. No other source of revenue was available, as income from licencing of
the DMG™ Technology could not and would not commence until project
documentation for the construction of the project had been completed and the
payment profile agreed. With the extant agreements in place, it was possible
that no payment would be received until commencement of commercial operations
of the facility.
Ahead of exceptional items, the Company made a gross profit in the year of
£84,365, derived from revenue items 1 and 2 above. This compared to a gross
profit in 2021 of £101,521. During 2022, due to the construction contract
tendering exercise on Peel's Protos project, the Company's project related
activities reduced pending prospective contractors preparing and returning
bids. As a result, revenue reduced to £38,984 of exclusivity income and
£341,293 of billings to the Protos SPV - a reduction of 46% from that in
2021. Due to a reduction in cost of sales from £599,914 in 2021 to £295,912
in 2022, gross profit was only reduced by 17%.
The sources of revenue stated above were the only ones available to the
Company in 2022. No other source of revenue was available, as income from
licencing of the DMG™ Technology could not, and would not commence until
project documentation for the construction of the project had been completed
and the payment profile agreed. With the agreements in place, it was
possible that no payment would be received until commencement of commercial
operations of the facility. The Company had no other means of generating
revenue available to it.
Administration expenses for the year were £2,258,177, compared with
£2,147,476 in 2022, due primarily to the additional costs incurred by changes
to the Board of Directors. This gave an overall loss for the year ahead of
exceptional items of £2,113,486, compared to £2,007,628 in 2021.
In 2021 the goodwill had been determined by considering a series of 30
facilities that Peel was to develop progressively over a period between 2022
and 2050, with the goodwill being a quantum determined by summating the
incoming licence fees over a five-year period and performing a discounted cash
flow to calculate the net present value. The goodwill value in 2022 is eroded
from that of 2021 due to the passage of time, and the realisation that the
incidence of projects over the period will be restricted to 5 in number. The
basic model is the same. The previous goodwill evaluation of £42,960,000 is
therefore reduced by £40,660,000 to £2,300,000. It has also been decided to
impair the Peel NRE exclusivity fees of £500,000, the loan drawdown and
interest accrual under the PHE loan facility to the Protos SPV of £2,159,274
along with the trade debtor owed to the Company by the Protos SPV of
£1,183,686, giving a total balance sheet reduction of £44.5m.
There is no implication in this adjustment on the ongoing trading of the
Company by this reduction in balance sheet value. Both expenditure under the
loan and the owner engineer services provided by the Company to the Protos SPV
contributed to the development of the project in terms of intellectual
property and physical assets. These will be will be re-evaluated and
consolidated during 2023 into a loan to Protos Plastics to Hydrogen No 1 Ltd
by the Company as project development costs and in accordance with the
business strategy described below.
The Vision and the Mission
The vision of Powerhouse is to be a leader in technology solutions that rid
the world of and utilise non-recycled wastes producing sustainable energy
whilst mitigating climate change impacts.
The Company's mission is to provide flexible, innovative, solutions to global
pollution by converting such non-recycled wastes into valuable end-products,
including low carbon energy. We will develop facilities to achieve this and
when appropriate, will license third party developers to deliver similar
facilities that reduce environmental impact. We will also use our expertise to
assist others in their efforts to reduce climate change.
The Commercial Offering
The commercial offering of Powerhouse is to apply its expertise in engineering
and project management to the development of facilities that can generate
continuous profit streams for the Company. It specialises in low carbon energy
production from waste materials but is able to apply its know-how and
expertise to any application that reduces the impacts to the environment, both
pollution and climate change.
The Company has developed as its core technology a rotating kiln that can
process organic or fossil-based carbonaceous materials using pyrolysis and
gasification. This produces a synthetic gas (or syngas) that can produce a
range of products including:
Gaseous fuels
Liquid fuels
Electrical power
Heat
Chemical feedstocks
Char
Sources of Revenue
Until now, PHE has focused exclusively on the licencing of its proprietary
technology for the production of hydrogen from plastics. The arrangement with
Peel was based entirely upon a licencing model. This was seen as a low-cost,
low-risk option. This model did, however, depend on third parties to develop
the application for the technology, and PHE played little or no role in the
project management. Unfortunately, it was also flawed because whilst multiple
facilities deploying the registered trademark DMG technology were projected,
there was little appreciation of the technical complexity involved and the
inextricable link that is needed between the engineering and the management of
the project development. Consequently, the supply chain's ability to deliver
the equipment was over estimated. There was also a hidden risk that to sell
any licence there is an inevitable requirement for warranties to be given and
with a "hands-off' position within the project, the Company was not set up
to deliver these. For the Company to sell further licences to less "friendly"
clients than Peel, it was also necessary to have the reference of an
operational plant.
In the third quarter of 2022, the decision was made that PHE must be able to
control its own destiny and could no longer rely entirely on others to deliver
facilities deploying its technology. As a consequence, the licence model was
superseded by the Company taking a direct interest in such projects.
To develop an operating facility such as that proposed at Protos, it requires
a construction and commissioning programme of at least 18 months. Specialist
materials are required for some of the equipment due to the high operating
temperatures and the propensity of hydrogen to embrittle steels and leak from
even welded joints. This means that some of the equipment can only come from
specialist manufacturers and the delivery periods are long due to supply chain
issues. Prior to construction, it is necessary to obtain planning permission
and the necessary environmental permits, so the typical project cycle time
from conception to reality of a PHE plastics to hydrogen facility is around
four years. With other configurations - for example, an electricity generation
only facility - it can be a few months less, but not substantially shorter.
Whatever the period of development, construction and setting to work, the
Company earns no revenue during that period whatever business model is adopted
and may not do so until the facility is generating sufficient profits.
To date, shareholder funds have financed the Company's working capital. If
nothing else is put in place, this would remain the case until revenue was
earned from an operating project. On top of this, the question must be
addressed of how the capital project is to be financed.
Engsolve, being now fully integrated within the Powerhouse Group, brings with
it a history of providing engineering services to third party clients.
Although this income is modest at present, it can form a base on which the
Company can build a revenue stream whilst the capital projects are developed.
This will inevitably require recruitment of some new personnel and a
deliberate drive to sell these services. Engsolve has an existing base and a
successful track record. With positioning of the Company within its specialist
areas, it will be possible to build the client base rapidly, producing income
from engineering services to reduce the cash requirement from shareholder
funds. This will also enable PHE to build its equity share in the capital
projects.
Financing of the PHE Capital Projects
No extensive consideration had previously been given to the financing of
facilities within the Company as it was to be done by others. The only action
taken by the Company was to carry out a raise of £10 million (gross) through
shareholder equity in August 2021. This funded the loan to Peel on Protos -
hence the development on that site - and has provided the Company's working
capital ever since.
The new strategy is for PHE to develop a portfolio of capital projects. By
taking an equity interest in these projects, the eventual dividend flow will
greatly exceed that which could be generated by licence fees. This will have a
significant positive impact on the Company's value and will drive growth and
increase overall returns on invested capital.
To achieve this, each project will be considered on its merits although the
approach taken in their structure and financing may differ from project to
project. In every case, a special purpose vehicle (SPV) will be formed, and
the Company will develop the project to financial close. Ahead financial
close, however, a decision will be taken on the approach taken by the Company
at financial close, and this may be different for each project. For example,
initially when the Company has limited equity, it may dilute its interest at
financial close to become a minor shareholder in the SPV, or even sell the
total shareholding in the project. The Company's income from the project will
be a development fee that will be charged to equity partners entering the
project (or for its sale) and a dividend pro rata with the shareholding. As
the portfolio builds and cash position strengthens, the proportion of equity
the Company maintains in the project can grow.
In each case a form of project finance is used, with minimal or no call on
shareholders to invest directly in the SPVs unless they express a wish to do
so.
Project Finance
Project finance is the funding of long-term infrastructure, using a limited or
even non-recourse financial structure. Equity and debt are used to finance the
project and are paid back from the cash flow generated by the project. This is
effectively a loan structure that relies primarily on the project's cash flow
for repayment, with the project's assets, rights, and interests held as
secondary collateral.
The key to obtaining project finance is de-risking the technical risks and
attention to detail in establishing the costs and revenue streams and the
covenants of the third parties concerned. This is the stage that the Company
is now at on Protos and will update the financial market when the
appropriate arrangements have been completed.
Research & Development
The application of R&D has always been an important factor in PHE's
development. This remains the case, and in 2022 the Company announced its
intent to enhance this by establishing the Powerhouse Technology Centre at
Bridgend. A purpose-designed Feedstock Testing Unit (FTU) is in manufacture
and will be installed within the Centre during 2023. The FTU is a scaled
version of the commercial Thermal Conversion Chamber (TCC) and will allow
simulations of the commercial operating plant to be carried out under
controlled conditions. It is anticipated that this will enable the Powerhouse
Technology to be demonstrated in practice independent of building the
commercial unit and hence give comfort to potential investors that the
technical risk can be mitigated.
It is the director's firm belief that the use of thermal processes such as
pyrolysis and gasification will grow in forthcoming years as lead chemical
recycling develops and overtakes and possibly replaces for some materials
physical recycling. Building the Company's expertise and knowledge in this
field will allow the Company to be at the forefront of this transition. The
ambition is for the Company to be the go-to company in the UK for these
thermal treatments and associated materials behaviour, and for the Powerhouse
Technology Centre to become a profit centre in its own right.
PRINCIPAL RISKS AND MITIGATIONS
The Board of Directors is responsible for ensuring that the risk register is
maintained and updated. This ensures a reasonable, but not absolute, assurance
that significant risks are mitigated and managed to an acceptable level.
The Executive Directors are responsible for establishing and maintaining the
risk register on all capital projects. This identifies risks and assesses
their potential impact using quantification techniques. Mitigations are then
considered, and the residual risk identified.
Significant risks are those which if materialise will have material impact on
the Company's long-term performance and delivery of its business strategy.
These are summarised in the following table.
Risk Description Mitigation
Operations Greater than anticipated increases in global pricing and pressures on supply All suppliers to be pre-qualified for their relevant experience and stability.
chain adversely impact financial viability of capital projects,
Regular review of supply chain and maintain competitive tension.
Supply chain manufacturing capacity is constrained and cannot meet required
delivery times.
General cost-side inflation will be reflected in offtake price escalation.
Longer development timescales than anticipated.
Contract security and performance requirements to be included in all major
supplier contracts.
Key contractors/suppliers are unwilling to provide required performance
guarantees.
In-house team to be strengthened with competent personnel, whilst also working
with experienced partners - eg strategic framework agreement with Petrofac.
Technical Risk Risk that the technical solution chosen does not perform to the standards Pyrolysis and gasification are well established technologies widely reported
anticipated. in the literature.
Substantial testing of the feedstock conversion to syngas process has been
carried out by PHE using the Demonstrator Unit at Thornton.
PHE works with academia to deploy latest computer-aided tools.
Independent due diligence on the process will be carried out prior to
implementation.
The new FTU to be installed at Bridgend will have the capability of simulating
the commercial kiln to enable predictive testing to be performed.
Intellectual Property Patent applications may not be granted. Patents give PHE unique control over its technology, but knowhow and expertise
is considered to be more important and can mitigate against copying.
Maintaining patents is costly and cannot cover the whole world.
Government Policy Drivers of demand for pollution reduction, recycling and climate change Maintain presence and communicate with government departments on Low Carbon
avoidance rely on support from Government policy. Fuels Standards.
Policy supports for avoided CO2 emissions and counterfactuals is important to Currently counterfactuals are not recognised within UK policy.
provide PHE with competitive advantage.
Competition Competition may depress revenues or even act as a barrier to PHE's entry to The need to establish capital projects acts as a high barrier to entry, which
the market. deters competition. PHE is not aware of any significant competitor within its
business strategic area.
Once access to land is established, competitive pressures lie with waste gate
fees and offtake sales. PHE strategy now is to target waste streams that can
command adequate gate fees and adapt offtakes to match market demand - hence
the broadening of offering beyond plastics and hydrogen.
Funding of working capital/cash flow Cost of development significantly above ability of shareholder equity to fund. All capital projects are programmed budgeted and the spend controlled. Most of
the development spend on Protos is already expensed.
Cash position inadequate to fund project development.
Cash flow is managed and reviewed monthly.
New business strategy of providing engineering services through Engsolve will
improve cash flow.
Financing of capital projects Shareholder equity cannot finance capital projects. Project finance approach to be followed. PHE will de-risk each element
required to achieve an investable project.
Cost of capital projects increase and depress IRR below investment level.
Engineering design completed. Specifications available for plant &
equipment to be contracted using model form contracts.
Projects value engineered to minimise cost prior to design freeze.
Capital costs to be fixed as early as possible. Currency risk to be hedged.
Feedstock supply risk Feedstock unavailable or only at negative gate fees. Quantified assessments of available feedstock have been carried out.
PHE will target available feedstocks and seek long-term agreements for
feedstock supply.
Offtake market risk Offtake market at different price point than anticipated. Expand the range of offtakers approached to provide competitive tension.
Lack of demand for offtake. Adapt the project to meet market demand.
Regulatory and Compliance Risk Regulations may change. Projects designed to meet existing regulations. Change in law provisions
included in project contracts.
Key Performance Indicators (KPIs)
Due to the nature of the Company's business strategy, which was essentially
passive, relying on others to develop projects so that licences for the
Company's technology could be sold, no KPI performance measuring system was in
place. It is also of note that the number of employees of the Company as at 31
December 2022 was one.
Following the implementation of the strategy described above, the Company will
adopt a range of metrics in the form of KPIs, which will be reported on
periodically to measure performance. The implementation of the KPIs will be
rolled out during 2023 and cover the following:
Financial measures:
· Underlying profit & loss to measure the Company's
profitability for the year attributable to equity shareholders of the Group.
It will exclude exceptional items, remeasurements, timing and force majeur
incidents from the calculation;
· Company capital investment. The Company plans to invest in the
development of its capital projects and will publish five-year plan from
January 2023 to March 2028 across all areas of the Powerhouse Group.
· Research and Development spend. This will measure expenditure
invested in the development of decarbonisation of energy systems, and will
provide a transparent view of the Company's compatibility with reduction in
contamination, pollution and climate change mitigation.
· Return on capital employed (ROE). The Company will provide a target
and forecast on the potential ROE of its capital investments to provide an
indication of its performance in generating value for shareholders.
Non-Financial Measures
· Contamination & Pollution Reduction. This is a projected measure
of the reduction the Company's projects will have on reducing contamination
and pollution by the waste products processed by the Company's capital
projects and engineering services provided to others.
· Climate change mitigation. This is a projected measure of the
reduction the Company's projects and engineering services will have on
reducing climate change impacts.
· Stakeholder satisfaction. Customer and stakeholder satisfaction, will
be measure with view to maintaining engagement with these groups and
improving service levels.
· Employee Engagement. The Company will measure how engaged our
employees feel, based on the percentage of favourable responses to questions
repeated annually in our employee engagement survey. The target will be to
increase engagement compared with the previous year. A review of diversity
within the workforce will also be carried out with view to increasing
diversity as the workforce grows.
Statement of Directors' Duties to Stakeholders under s.172 Companies Act 2006
The Directors acted in in good faith throughout the year with view to
promoting the long-term success of the Company for the benefit of its members
as a whole, with due regard to stakeholders and the matters set out in
section 172 of the Companies Act 2006.
The Board recognises its responsibilities to each of the Company's
stakeholders and to society, and have endeavoured to ascertain the interests
and views of its stakeholders and consider these when making decisions. The
Board acknowledges its responsibility for setting and monitoring the culture,
values and reputation of the Powerhouse Energy Group, and seeks to live by
its values.
When making decisions, the Directors have regard to all stakeholders but
acknowledge that not every decision will result in a preferred outcome for
all. The Board strives to balance the different and competing priorities and
interests of our stakeholders in a way compatible with the long-term,
sustainable success of the business and which maintains a standard of business
conduct aligned to our values and purpose.
The Directors are aware of their duty under section 172 of the Companies Act
2006 to act in the way which they consider, in good faith, would be most
likely to promote the success of the Company for the benefit of its members as
a whole. and, in doing so, to have regards (amongst other matters) to
· The likely consequences of any decision in the long term;
· The interests of the Company's employees;
· The need to foster the Company's business relationships with
suppliers, customers and others;
· The impact of the Company's operations on the community and the
environment;
· The desirability of the Company maintaining a reputation for high
standards of business conduct; and
· The need to act fairly between members of the Company.
The Board recognises that the long-term success of the Company requires
positive interaction with its stakeholders. Positive engagement with
stakeholders will enable our stakeholders to better understand the activities,
needs and challenges of the business and enable the Board to better understand
and address relevant stakeholder views which will assist the Board in its
decision making and to discharge its duties under Section 172 of the Companies
Act 2006.
We reproduce here the Code of Conduct of the Company for easy reference which
the directors believe meet the requirements of s172.
Company's Code of Conduct
1. Introduction
This Powerhouse Energy Group (Powerhouse) Code of Conduct is a steering
document that defines how the Company will act towards its employees, towards
its clients, business partners, suppliers, competitors, and other
organisations in all situations related to our business. The Code of Conduct
is an integral part of the Company's Environmental, Social and Governance
(ESG) Strategy and defines our corporate responsibility in society.
It is mandatory that this Code of Conduct is understood and complied with by
all personnel working for the Company and its subsidiaries or on their behalf,
including Representatives.
The Powerhouse Board of Management and CEO are ultimately responsible for the
Code and its implementation. The Board will monitor its compliance through
annual performance reviews, annual employee surveys and internal and external
audits.
All Powerhouse officers, employees and those representing the Company
represent the Company's brand and reputation through the solutions and value
we create and our behaviour.
2. Our People
Powerhouse will maintain a structured recruitment process with a structured
performance appraisal and talent management process. We will create
development opportunities and continuous learning for our employees. By
encouraging a feedback culture and working with the insights from our
employees, we increase their engagement.
It is the responsibility of each employee to look after their own personal and
professional development, but at all times supported by the Company. Employees
will be given equal opportunities for professional development both within
their existing fields and in new areas.
The Company believes that diversity is an important asset within the company
and in our relationships with clients and stakeholders. We promote equal
rights and opportunities of employees in the workplace regardless of their
gender identity, age, ethnicity, religion or other belief, disability, or
sexual orientation.
3. Social Responsibility
The company accepts continuing responsibility for its services to its clients
and thereby to society. The company will permanently contribute to the benefit
of its clients and society through sustained technological development and
personnel training aimed at improving its performance.
Sustainability is a permanent goal in every project. The largest contribution
to sustainability lies in the projects Powerhouse develops and has three
facets:
1. Our projects must contribute to sustainable development;
2. We will strive to increase the sustainability performance of our
client's projects; and
3. We will act sustainably in our own operations and performance.
Powerhouse is committed to improve the lives of people and to respect human
rights. We should always act in a socially and ethically responsible way,
within the laws of the countries in which we operate. We support and respect
human rights, as defined by the UN in the Universal Declaration of Human
Rights.
4. Quality of Service
The Company will only undertake project assignments in its areas of expertise
where it has the capabilities to deliver efficient and effective service to
its clients. We are committed to providing high quality services to clients
and will focus on quality management as a working methodology and on permanent
improvement as a means to improve that quality of service. It is our intent to
be certified in Quality, Environment and Health & Safety in accordance
with ISO 9001, ISO 14001 and ISO 45001 and we are committed to continuously
improve our management system.
Health and safety is a top priority for the Company, with a zero-incident
target. We are committed to eliminate hazards, reduce risk and ensure that
health and safety information, instruction, training, and supervision is
provided to all.
The Company is committed to the continual improvement of its knowledge base,
abilities and tools in the area of its expertise. The company will focus on
technology management as a working methodology and shall extend to its clients
the benefits of its professional achievements.
5. Objectivity
Powerhouse will be loyal to its clients and will maintain the confidentiality
of any information from the client that is obtained in the process of
performing services. The Company will also keep confidential the documents and
reports prepared for the client.
The Company will avoid any conflict of interest and will inform a client
beforehand of any potential conflict of interest that could emerged during the
execution of its services.
The Company will only offer its services under contracting terms that do not
interfere with its independence, integrity and objectivity.
Powerhouse will not accept any remuneration that could encourage the offering
of a biased opinion.
6. Corporate integrity
Powerhouse complies with all applicable laws, regulations, and other
requirements applicable to operations in the countries where Powerhouse is
active. This Code applies to all parts of the organisation, irrespective of
where we are based, or where our projects are performed.
The Company will operate and compete in accordance with the legislation of
each Territory and will not accept fraud, corruption, bribes, or unpermitted
competition-restricting practices. We are committed to supporting
international and local efforts to eliminate corruption and financial crime.
We will not commit to activities that we cannot defend or account for, and we
must not make decisions based on improper relationships or personal
relationships. We also undertake to maintain correct and accurate accounting
and reporting in accordance with the accounting rules in each Territory in
which we operate.
The company will act at all times for the benefit of clients, and will carry
out services with professional integrity, whilst not jeopardising the interest
of society.
The promotional activity of the company and its services will uphold the
dignity and reputation of the industry. Brochures and other formal documents
describing resources, experience, work and reputation will reflect the
Company's actual circumstances in a truthful manner.
The Company will manage with integrity its internal and external clients. It
will focus on business integrity management as a working methodology.
We respect the privacy of individuals and recognise the importance of personal
data entrusted to us by our employees, clients, and other parties.
Confidential information received by Powerhouse from clients and other
external parties must as a minimum be treated and protected in the same way as
the Company's own confidential information. It is the responsibility of every
employee and Representative to process and protect all personal data compliant
with the applicable privacy legislation in a relevant and proper manner.
Employees and Representatives must report any violations of business ethics or
human rights that arise in their course of work, even if the Company is not
directly involved or party to it. In addition, employees should report
incidents which could be a breach of business ethics and may remain anonymous
if they so wish.
7. Communications
Powerhouse employees are encouraged to communicate and share information but
must at the same time ensure that the Powerhouse brand is strengthened and not
weakened.
Our communications must always reflect, protect and develop the Company's
position in the market as well as show that we are available to our
stakeholders Every Powerhouse employee and Representative is an ambassador for
the company. Communications must support the Company's business goals and
profitable growth strategy while securing a cohesive brand identity in the
market. All managers are responsible for ensuring that they and their
employees comply with the guidance documents that apply for communication
within and from Powerhouse.
As a company listed on the London AIM stock market we are obliged to
communicate anything related to the Powerhouse business, financial condition,
and results in line with the laws and rules that apply to listed companies. We
report transactions correctly and in a true and fair way.
8. Competition
The company will only solicit work and participate in private and public
competitive tendering under a high standard of corporate ethics and
competitive practices, and with total integrity in its transactions. The
Company will not participate in prohibited anti-competitive activities,
illegal price-fixing agreements, market sharing or abuse of dominant position.
The company favours quality-based selection for the contracting of services.
If solicited to review the work performed by another company, the company will
act in accordance with its business integrity and objectivity policies.
The Company will not endorse compensation or contribution arrangements
destined to influence or secure work no seek commissions from suppliers of
equipment and services recommend it to the client as part of the company's
services.
The Company will not take part in activities that could damage the reputation
of it's business or the business of others.
Keith Riley
Acting Chief Executive Officer
29 June 2023
STATEMENT OF COMPREHENSIVE INCOME
For The Year Ended 31 December 2022
31 December 31 December
Note 2022 2021
£ £
Revenue 2 380,277 701,435
Cost of sales (295,912) (599,914)
Gross Profit 84,365 101,521
Administrative expenses 4 (2,258,177) (2,147,476)
Acquisition costs 0 (11,735)
Share of associate 5 60,326 50,062
Operating loss (pre exceptional items) (2,113,486) (2,007,628)
Exceptional Items
Exclusivity Impairment 6 (500,000) -
Goodwill Impairment 6 (40,660,000) -
Loan Impairment 7 (2,159,274) -
Revenue Impairment 7 (986,392) -
Operating Loss (post exceptional items) (46,419,152) (2,007,628)
Net finance income/(cost) 8 65,448 10,987
Loss before taxation (46,353,704) (1,996,641)
Income tax credit 9 155,025 126,145
Total comprehensive loss (46,198,679) (1,870,496)
Loss per share (pence) 10 (1.17) (0.05)
Diluted loss per share (pence) 10 (1.17) (0.05)
All activities are in respect of continuing operations and there are no other
items of comprehensive income.
The notes numbered 1 to 30 are an integral part of the financial information.
STATEMENT OF FINANCIAL POSITION
As At 31 December 2022
Note 2022 2021
£ £
ASSETS
Non-current assets
Intangible fixed assets 11 2,502,073 43,554,498
Tangible fixed assets 12 5,795 33,092
Investments in subsidiary undertakings 13 1 1
Investments in associated undertakings 13 187,638 140,540
Total non-current assets 2,695,507 43,728,131
Current Assets
Loans receivable 14 0 1,165,286
Trade and other receivables 15 403,247 963,648
Corporation tax recoverable 16 166,318 155,227
Cash and cash equivalents 17 5,882,897 9,637,460
Total current assets 6,452,462 11,921,621
Total assets 9,147,969 55,649,752
LIABILITIES
Current liabilities
Creditors: amounts falling due within one year 18 (279,306) (563,781)
Total current liabilities (279,306) (563,781)
Total assets less current liabilities 8,868,663 55,085,971
Net assets 8,868,663 55,085,971
EQUITY
Share capital 21 22,900,856 22,900,856
Share premium 22 61,291,710 61,291,710
Merger relief reserve 22 0 36,117,711
Accumulated deficit 23 (75,323,903) (65,224,306)
Total surplus 8,868,663 55,085,971
The financial statements of Powerhouse Energy Group Plc, Company number
03934451, were approved by the Board of Directors and authorised for issue on
29 June 2023 and signed on its behalf by:
Keith Riley
Director
The notes numbered 1 to 30 are an integral part of the financial information.
STATEMENT OF CASHFLOWS
For The Year Ended 31 December 2022
Note 2022 2021
£ £
Cash flows from operating activities
Operating Loss (46,419,152) (2,007,628)
Adjustments for:
Share based payments (18,629) 34,829
Amortisation 10,263 5,049
Depreciation 27,970 28,824
Goodwill & Exclusivity impairment 41,160,000 -
Loan Impairment 2,077,600 -
Share of associate result (49,033) (50,062)
Provision against investments 0 49
Loan Interest Charge 81,674 -
Other none cash movements 3,006 -
-Changes in working capital:
Decrease/(Increase) in contract costs 0 14,550
Decrease/(Increase) in trade and other receivables 560,401 (763,338)
Increase/(Decrease) in trade and other payables (284,475) 55,015
Tax credits received 166,318 118,927
Net cash used in operations (2,684,057) (2,563,785)
Cash flows from investing activities
Purchase of interest in associate 13 0 (99,990)
Loans advanced 14 (927,600) (1,150,000)
Purchase of intangible fixed assets 11 (117,838) (39,965)
Purchase of tangible fixed assets 12 (673) (8,896)
Net cash flows from investing activities (1,046,111) (1,298,851)
Cash flows from financing activities
Proceeds from issue of shares 0 10,063,802
Payments of principal under leases 20.3 (23,455) (23,882)
Net finance costs 8 (940) (4,299)
Net cash flows from financing activities (24,395) 10,035,621
Net increase/(decrease) in cash and cash equivalents (3,754,563) 6,172,985
Cash and cash equivalents at beginning of year 9,637,460 3,464,475
Cash and cash equivalents at end of year 5,882,897 9,637,460
The notes numbered 1 to 30 are an integral part of the financial information.
STATEMENT OF CHANGES IN EQUITY
For The Year Ended 31 December 2022
Ordinary share capital Share premium Merger Accumulated deficit
£ Deferred shares £ relief £ Total
£ reserve £
£
Balance at 1 January 2021 18,575,503 3,113,785 52,594,934 36,117,711 (63,544,097) 46,857,836
Transactions with equity parties:
- Share issues on exercise warrants 24,477 - 174,603 - - 199,080
- Share issues to exercise options 278,000 - 253,982 - - 531,982
- Share issues in year 909,091 - 9,090,909 - - 10,000,000
Share based payments - - - - 190,287 190,287
Share issue costs - - (822,718) - - (822,718)
Reserve transfer- goodwill impairment - - - - - -
Total comprehensive loss - - - - (1,870,496) (1,870,496)
Balance at 31 December 2021 19,787,071 3,113,785 61,291,710 36,117,711 (65,224,306) 55,085,971
Transactions with equity parties:
- Share issues on exercise warrants - - - - -
- Share issues to exercise options - - - - - -
- Share issues in year - - - - - -
Share based payments - - - - (18,629) (18,629)
Reserve transfer - goodwill impairment - - - (36,117,711) 36,117,711 0
Total comprehensive loss - - - - (46,198,679) (46,198,679)
Balance at 31 December 2022 19,787,071 3,113,785 61,291,710 0 (75,323,903) 8,868,663
The following describes the nature and purpose of each reserve within equity:
Deferred shares: Represents the combined total
of all deferred shares (0.5p, 4p and 4.5p)
Share premium: Amount subscribed for share
capital in excess of nominal value
Merger relief reserve: Amount subscribed for share capital in
excess of nominal value where merger relief applies (Note 1.1)
Accumulated deficit: Accumulated deficit represents the
cumulative losses of the company and all other net gains and losses and
transactions with shareholders not recognised elsewhere
The notes 1 to 30 are an integral part of the financial information.
NOTES TO THE ACCOUNTS
For The Year Ended 31 December 2022
1. accounting policies
Powerhouse Energy Group Plc is a company incorporated in England and Wales.
The Company is a public limited company quoted on the AIM market of the London
Stock Exchange. The address of the registered office is 15 Victoria Mews, Mill
Field Road, Cottingley Business Park, Bingley BD16 1PY. The principal activity
of the Company is to continue the development of its technology and to support
its customers in order to achieve its full commercial roll-out. The following
accounting policies have been applied consistently in dealing with items which
are considered material in relation to the financial information.
1.1. Basis of preparation
This financial information is for the year ended 31 December 2022 and has been
prepared in accordance with International Financial Reporting Standards
("IFRS") issued by the International Accounting Standards Board (IASB), as
adopted for use in the United Kingdom (UK) and with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS (except as
otherwise stated). These accounting policies and methods of computation are
consistent with the prior year, unless otherwise stated.
The Company's only UK subsidiaries are non-trading and not material. There are
also long-term restrictions on the operations of the Company's subsidiaries in
the US and Switzerland. With these restrictions in place, the Company is also
unable to exert control over the subsidiaries. As such the Company has claimed
exemptions applicable to it under Companies Act section 405 (2) and 405 (3b)
and IFRS 10 to not present any Consolidated financial statements for the year
ended 31 December 2022. Investments in subsidiaries that are not consolidated
are carried at cost less any provision for impairment.
The acquisition of Waste2Tricity Limited during 2020 was transacted by way of
a share for share exchange and qualifies for merger relief, meaning that no
share premium is recorded on the issue of the consideration shares. The excess
of the fair value of consideration shares over their nominal value has been
recorded in a merger relief reserve.
Associates are entities which the Company has significant influence but not
control or joint control as defined under IAS 28. This is generally the case
where the Company holds between 20% and 50% of the voting rights. Investments
in associates are accounted for using the equity method of accounting.
Under the equity method of accounting, investments are initially recognised at
cost and adjusted thereafter to recognise the Company's share of the
post-acquisition profits or losses of the investee in the Income statement.
Dividends received or receivable from associates and joint ventures are
recognised as a reduction in the carrying value of the investment.
When the Company's share of losses in an equity-accounted investment exceeds
or equals its interest in the equity, the Company does not recognise further
losses, unless it has incurred obligations or made payments on behalf of the
other entity. Unrealised gains on transactions between the Company and its
associates and joint ventures are eliminated to the extent of the Company's
interest in these entities. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment in the asset transferred.
Accounting policies of the equity accounted investees are changed where
necessary to ensure consistency with the policies adopted by the Company. The
carrying value of equity accounted investments is tested for impairment in
accordance with the policy described in Note 1.18 (ii).
As of 31(st) December 2022 the Company has one associate, Engsolve Limited,
the interest in which was acquired during 2021.
Other investments, which are not publicly traded, are initially measured at
cost and subsequently measured at cost less accumulated losses.
1.2. Judgements and estimates
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts in the financial statements.
Areas involving a higher degree of judgements or complexity, or areas where
assumptions or estimates are significant to the financial statements such as
the exercise to assess the fair value of goodwill, share based payments (share
options and warrants) and going concern are disclosed within the relevant
notes.
1.3. Going concern
The financial statements have been prepared on a Going Concern basis. The
Directors' views are based upon working capital projections which take into
account the intended use of the funds in hand over the next 12 months.
At 31st December 2022 the company was still pursuing a business strategy of
selling licences for use of its technology to Peel Group on a series of
projects to be constructed on sites within Peel's ownership and Peel's
control. In prior years, Goodwill had been calculated using a discounted cash
flow calculation od licence fees arising from 10 prospective projects to be
developed by Peel over a ten-year period. As at 31st December 2022, Peel had
two projects under development - Protos in Cheshire and Rothsay Dock in
Clydebank - with others still in prospect, but it had become evident that
due to availability of resources and limitations in the supply chain, no more
than five projects would be constructed within a 10 year view. The Goodwill
valuation is, therefore calculated on this basis, resulting in a reduction of
Goodwill from 42.69m in 2021 to 2.3m at the end of this reporting period, and
it is the view of the directors that this is a fair valuation at this time .
Towards the end of 2022, thinking on the licencing business strategy was
changing and discussions were underway with Peel with view to the Company
acquiring a 50% ownership of Protos Plastics to Hydrogen No1, the special
purpose vehicle (SPV) set up by Peel to finance and develop the project at
Protos. This change in business strategy is described in the Strategic Report
section of this Annual Report and crystallised post-reporting period in May
2023, when the company acquired 100% of the SPV shareholding. It also entered
into a 50/50 joint venture with Hydrogen Utopia International for a project to
be developed at Longford, Republic of Ireland and is developing a further
prospect for a wholly owned project in Ballymena, Northern Ireland.
In looking forward to determine the Going Concern status, the business
planning of the Company post the current reporting period, is based on the
following:
· The acquisition of Engsolve Ltd (announced June 2023) giving the
Company the ability to earn revenues from engineering services. Engsolve had
an existing client base, a history of providing such services and was
integrated into the Company Group with an existing bank balance. This
provides an immediate and ongoing revenue stream to the Company, extending its
positive cash position;
· The development of a series of capital projects addressing
contamination, pollution and climate change mitigation and deploying where
possible, but not exclusively, the Company's proprietary technology. These
projects will be developed to a point where the construction and future
operation of the project can be financed using combinations of equity and
debt.
Adopting this approach:
· The Company will have an ongoing revenue stream;
· Investment in the development of the capital projects will be via
shareholder loans to the SPV, repayable at financial close;
· In the event development of the project does not look viable (for
example, failing to obtain the necessary permissions), expenditure will be
curtailed and a replacement project identified;
· As the project approaches financial close and viability is
established, equity partners will be sought to take shareholder equity in the
SPV and the project financed by a mix of equity and debt to be determined or
the Company's entire shareholding in the SPV sold.
The directors consider therefore that other than fixed costs, the cash spend
looking forward can be managed. Within the 13-month cashflow projection (June
2023 - June 2024) £740k is discretionary and can be adjusted or even
stopped. Large capital expenditure can also be avoided until the Company is in
a position make to such investments. The Cashflow also includes the net costs
of acquisition of Engsolve of £107k and annual spend of £475k. It is
anticipated that Engsolve revenues over the period will exceed these values.
A cash inflow of £1.2m is also anticipated following asset financing of the
Feedstock Testing Unit and associated equipment to be installed in the
Powerhouse Technology Centre at Bridgend later in 2023, offsetting this
capital purchase. The Company has received two initial offers of asset finance
for the New Test Unit. In the unlikely event the Company does not receive the
asset finance it will need to reduce expenditure on capital projects, offset
by income from Engsolve activities.
It is of note that the loan made to the Protos SPV of £2.16m was expended on
engineering and project management, the value of which has been preserved in
the SPV and now under control of the Company. This loan will be recovered
along with the £1.18m Protos debt at financial close of the Protos project.
In consequence, this balances of £3.34m is not included in the Going Concern
evaluation, and in the directors' opinion does not materially impact their
opinion regarding Going Concern. The loan and debtor will be provided for at
the end of Dec 22 and will be fully impaired. Should the Protos project
proceed the provision for the loan and debtor will be reversed and then fully
recovered from the Protos SPV.
1.4. Foreign currency translation
The financial information is presented in sterling which is the Company's
functional currency.
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are revalued to the
exchange rate at date of settlement or at reporting dates (as appropriate).
Exchange gains and losses resulting from such revaluations are recognised in
the Statement of Comprehensive Income.
Foreign exchange gains and losses are presented in the Statement of
Comprehensive Income within administrative expenses.
1.5. Revenue
(i) Engineering services
The Company has provided engineering services for the application of its
technology, the intellectual property which the Company owns. Revenue from
providing services is recognised in the accounting period in which services
are rendered. For fixed-price contracts, revenue is recognised based on the
actual service provided to the end of the reporting period as a proportion of
the total services to be provided to the extent to which the customer receives
the benefits. This is determined based on the actual labour hours spent
relative to the total expected labour hours.
Where contracts include multiple performance obligations as specified by the
work scope, the transaction price will be allocated to each performance
obligation based on estimated expected cost-plus margin.
Estimates of revenues, costs or extent of progress toward completion of
services are revised if circumstances change. Any resulting increases or
decreases in estimated revenues or costs are reflected in profit or loss in
the period in which the circumstances that give rise to the revision become
known by management.
In case of fixed-price contracts, the customer pays the fixed amount based on
a payment schedule. If the services rendered by the Company exceed the
payment, a contract asset is recognised. If the payments exceed the services
rendered, a contract liability is recognised.
If a contract includes an hourly fee, revenue is recognised in the amount to
which the Company has a right to invoice.
(ii) Exclusivity fees
Where the Company grants a developer exclusive rights to utilise its
technology in a particular territory for an exclusivity fee, the fee is
recognised in the income statement over the agreed exclusivity period.
1.6. Leases
For any new contracts entered into, the Company considers whether a contract
is, or contains, a lease. A lease is defined as 'a contract, or part of a
contract, that conveys the right to use an asset for a period of time in
exchange for consideration'. To apply this definition the Company assesses
whether the contract meets three key evaluations which are whether:
(i) the contract contains an identified asset which is either explicitly
defined in the contract or implicitly specified by being identified at the
time the asset is made available to the Company;
(ii) the Company has the right to obtain substantially all of the economic
benefits from use of the asset throughout the period of use, considering its
rights within the defined scope of the contract;
(iii) the Company has the right to direct the use of the identified asset
throughout the period of use.
Where the above evaluations are met, at lease commencement date, the Company
recognizes a right of use asset and a lease liability on the balance sheet.
The right of use asset is measured at cost, which is made up of the
measurement of the initial lease liability, any direct initial costs incurred
by the Company, an estimate of any costs to dismantle and remove the asset at
the end of the lease, and any lease payments made in advance of the lease
commencement date.
The Company depreciates right of use assets on a straight-line basis from the
lease commencement date to the earlier of the end of the useful life of the
right of use asset or the end of the lease term. The Company assesses the
right of use asset for impairment when such indicators exist.
At the commencement date the Company measured the lease liability at the
present value of the lease payments unpaid at that date, discounted using the
interest rate implicit in the lease if that rate is readily available or the
Company's incremental borrowing rate. For the assessment of the lease entered
into in 2020 the Company applied a rate of 7.5%.
Subsequent to initial measurement the liability will be reduced for payments
and increased for interest. It is remeasured to reflect any reassessment or
modification or is there are any changes to the repayment schedule.
1.7. Finance income and expenses
(i) Income
Interest income is calculated by applying the effective interest rate to the
gross carrying amount of a financial asset except for financial assets that
subsequently become credit impaired. For credit impaired financial assets, the
effective interest rate is applied to the net carrying amount of the financial
asset (after deduction of the loss allowance).
(ii) Expense
The effective interest method is a method of calculating the amortised cost of
a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial
liability, or, where appropriate, a shorter period, to the net carrying amount
on initial recognition.
1.8. Income tax expense
The tax expense for the period comprises current and deferred tax.
UK corporation tax is provided at amounts expected to be paid (or recovered)
using the tax rates and laws that have been enacted or substantively enacted
by the balance sheet date.
Deferred tax is recognised in respect of all temporary differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right
to pay less tax in the future have occurred at the balance sheet date.
Temporary differences are differences between the Company's taxable profits
and its results as stated in the financial statements that arise from the
inclusion of gains and losses in tax assessments in periods different from
those in which they are recognised in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised
only to the extent that, on the basis of all available evidence, it can be
regarded as more likely than not that there will be suitable taxable profits
from which the future reversal of the underlying temporary differences can be
deducted.
Deferred tax is measured at the average tax rates that are expected to apply
in the periods in which the temporary differences are expected to reverse,
based on tax rates and laws that have been enacted or substantively enacted by
the balance sheet date. Deferred tax is measured on a non-discounted basis.
1.9. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation.
Cost represents the cost of acquisition or construction, including the direct
cost of financing the acquisition or construction until the asset comes into
use.
Depreciation on property, plant and equipment is provided to allocate the cost
less the residual value by equal instalments over their estimated useful
economic lives of 3 years, once the asset is complete.
The expected useful lives and residual values of property, plant and equipment
are reviewed on an annual basis and, if necessary, changes in useful life or
residual value are accounted for prospectively.
1.10. Intangible assets
Goodwill represents the future economic benefits arising from a business
combination that are not individually identified and separately recognised.
Goodwill is carried at cost less accumulated impairment losses. Refer to note
1.18 for impairment testing procedures. Goodwill impairment losses are not
reversible as explained in note 1.18 (iii).
Exclusivity rights acquired in a business combination that qualify for
separate recognition are recognised as intangible assets at their fair value
and subsequently assessed for impairment loss.
Costs associated with patent applications are capitalised in the year of spend
and amortised over their estimated useful lives of 20 years on a straight-line
basis commencing from the date of patent application. Any cost associated with
the upkeep of a patent is amortised over the remaining useful life of that
patent.
An internally generated intangible asset arising from development is only
recognised where all of the following have been demonstrated: (i) the
technical feasibility of completing the asset; (ii) the intention to complete
the asset and the ability to use or sell it; (iii) the availability of
resources to complete the asset; and (iv) the ability to reliably measure the
cost attributable to the asset during its development.
Research and development
In all other instances research and development expenditure is recognised as
an expense as incurred. Development costs previously recognised as an expense
are not recognised as an asset in a subsequent period.
1.11. Other non-current assets
Other non-current assets represent investments in subsidiaries. The
investments are carried at cost less accumulated impairment. Cost was
determined using the fair value of shares issued to acquire the investment.
Financial assets
The Company classifies financial assets as loans and receivables within
current assets, except for maturities greater than 12 months after the balance
sheet date. These are classified as noncurrent assets. Assets are initially
recognised at fair value plus transaction costs. Loans and receivables are
subsequently carried at amortised cost using the effective interest rate
method.
1.12. Contract costs
The Company recognises costs incurred in fulfilling contracts with customers
that are directly associated with the contract as an asset if those costs are
expected to be recoverable. Contract costs are amortised on a basis consistent
with the transfer of goods and services to which the asset relates.
1.13. Trade and other receivables
Trade receivables are initially recognised at fair value. Subsequently they
are carried at amortised cost less any provision for impairment.
1.14. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits and are
recognised and subsequently carried at fair value. For the purpose of
presentation in the statement of cashflows, cash and cash equivalents include
cash on hand, deposits held at call with financial institutions, other short
term, highly liquid investments with original maturities of three months or
less that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value, and bank overdrafts.
Bank overdrafts are shown within borrowings in current liabilities in the
balance sheet.
1.15. Trade and other payables
Trade payables are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers. Trade and other
payables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method.
1.16. Financial assets and liabilities
i) Financial assets
Loans receivable, where forward receivables comprise solely of payments of
principal and interest, are measured at amortised cost. Interest income from
these financial assets is included in finance income using the effective
interest rate method.
ii) Financial liabilities
Loans payable are financial obligations arising from funding received and used
to support the operational costs of the Company. These are initially
recognised at fair value. Loans are subsequently carried at amortised cost
using the effective interest method.
1.17. Adoption of new and revised standards
i) New and amended standards adopted by the Company
New and amended standards for the current period and effective from 1 January
2022 have been applied by the Company, including:
Covid-19 Related Rent Concessions (Amendment to IFRS 16)
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39 and
IFRS 7)
Business Combinations (Amendments to IFRS 3
Onerous Contracts - cost of fulfilling a contract (Amendment to IAS 37)
Annual Improvement to IFRS Standards (Amends 4 IFRS standards)
Property Plant & Equipment - Proceeds before intended use Amendment to IAS
16
There are no transition adjustments relating to the adoption of these
standards.
ii) Standards issued but not yet effective
Certain new accounting standards and interpretations have been published that
are not mandatory for 31 December 2022 reporting periods and have not been
adopted early by the Company. These standards are not expected to have a
material impact on the entity in the current or future reporting periods and
on foreseeable future transactions.
1.18. Impairment
(i) Goodwill
Goodwill and intangible assets that have an indefinite useful life are not
subject to amortisation and are tested annually for impairment, or more
frequently if events or changes in circumstances indicate that they might be
impaired.
(ii) Other assets
At each balance sheet date, the carrying amounts of assets are reviewed to
determine whether there is any indication that those assets have suffered an
impairment loss. An impairment loss is recognised whenever the carrying amount
of an asset or its cash generating unit exceeds its recoverable amount.
Impairment losses recognised in respect of cash generating units are allocated
first to reduce the carrying amount of any goodwill allocated to cash
generating units and then to reduce the carrying amount of the other assets in
the unit on a pro-rata basis. A cash generating unit is the group of assets
identified on acquisition that generate cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. The
recoverable amount of assets or cash generating units is the greater of their
fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. For an asset that does not
generate largely independent cash inflows, the recoverable amount is
determined for the cash generating unit to which the asset belongs.
(iii) Reversals of impairments
An impairment loss in respect of goodwill is not reversed. In respect of other
assets, an impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been
recognised.
1.19. Share based payments
Share based payments are made to employees and third parties and all are
equity settled.
(i) Third party provision of services
a) Via issue of shares
Contractors receive remuneration in the form of share-based payments, whereby
services are provided and settled by the issue of shares. The cost of equity
settled transactions is determined at the fair value of the services provided,
based upon invoiced amounts or formal agreements in place with suppliers.
b) Via issues of share warrants
The Company also issues share warrants to third parties in relation to
services provided by suppliers. The cost of equity settled transactions is
determined at the fair value of the services provided, based upon invoiced
amounts or formal agreements in place with suppliers. Where no fair value of
services can be directly obtained, the fair value at the grant date is
determined using the Black and Scholes valuation model. At each reporting date
the Company revises its estimates of the number of options that are likely to
be exercised with any adjustment recognised in the income statement.
(ii) Directors and employees
c) Via issues of share options
The Company has issued share options to Directors and employees through
approved and unapproved option plans. The fair value of options issued is
determined at the date of grant and is recognised as an expense in the Income
Statement. The fair value at the grant date is determined using the Black and
Scholes valuation model. At each reporting date the Company revises its
estimates of the number of options that are likely to be exercised with any
adjustment recognised in the income statement.
Where share-based payments give rise to the issue of new share capital, the
proceeds received by the Company are credited to share capital and share
premium when the share entitlements are exercised.
1.20. Employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual
leave and accumulating sick leave that are expected to be settled wholly
within 12 months after the end of the period in which the employees render the
related service are recognised in respect of employees' services up to the end
of the reporting period and are measured at the amounts expected to be paid
when the liabilities are settled. The liabilities are included within
creditors in the balance sheet.
For defined contribution pension plans, the company pays contributions to
publicly or private administered pension insurance plans on a mandatory,
contractual or voluntary basis. The Company has no further payment obligations
once the contributions have been paid. The contributions are recognised as
employee benefit expense when they are due. Prepaid contributions are
recognized as an asset to the extent that a cash refund or a reduction in the
future payments is available.
The Company does not contribute to any defined benefit pension plans.
1.21. Segmental reporting
An operating segment is a component of the Company:
• that engages in business activities from which it may earn revenues
and incur expenses (including revenues and expenses relating to transactions
with other components of the Company);
• whose operating results are reviewed regularly by the Company's chief
decision maker to make decisions about resources to be allocated to the
segment and assess its performance; and
• for which discrete financial information is available.
The Company considers it has one business segment, being a UK based
development company intending to license its technology to projects in the UK
and internationally.
2. Revenue
2022 2021
£ £
Engineering and related services 341,293 628,859
Exclusivity fees 38,984 71,829
Other - 747
380,277 701,435
During the year, the Company billed for engineering work carried out on
projects. All revenue generated has arisen in the UK.
3. Employee costs
2022 2021
£ £
Directors' fees 581,072 274,575
Wages and salaries 174,769 178,710
Social security costs 75,609 48,835
Pensions 16,817 3,960
848,267 506,080
Highest Paid Director - refer to note 27
The number of average monthly employees (including Directors) are as follows:
2022 2021
Management 6 7
Operations 3 3
Total 9 10
The total number of employees as at 31 December 2022 (including Directors) was
4 (2021: 9) comprising 3 in management and 1 in operations (2020: 5 in
management, 4 in operations). All Directors are classed as management.
4. Administrative expenses
Included in administrative expenses are: 2022 2021
£ £
Research and development costs 431,185 585,195
Amortisation 10,263 5,049
Depreciation 5,397 4,199
Depreciation - right of use asset 22,573 24,625
Share based payments (18,629) 34,829
Foreign exchange (gains)/losses 162 (429)
Auditor's remuneration for audit services:
Fees payable to the Company's auditor for the audit of the Company's annual 31,000 25,000
financial statements
Fees payable to the Company's auditor and their associates for other services: 1,500 1,000
Non-audit fees paid to auditors
R & D Taxation advisory and compliance services 12,000 10,000
5. Share of associate
2022 2020
£ £
Share of profits 60,326 50,062
60,326 50,062
The Company acquired a 48.39% stake in Engsolve on 12 August 2021 as explained
in note 13. The above result represents the Company's share of the associate's
profits arising since acquisition. The Company's share of the associate's tax
is included in the tax charge (see note 9).
6. Goodwill & Exclusivity impairment
2022 2021
£ £
Goodwill Impairment 40,660,000 -
Exclusivity impairment 500,000 -
41,160,000 -
In 2020, Goodwill of £57,152,699 was recognised on the acquisition and hive
up of Waste2tricity Limited. An independent fair value assessment is
commissioned by the Directors on the carrying value at each balance sheet date
as explained in note 11. Impairments are made based upon the results of those
assessments plus input from the Board. Refer to CEO Report
7. Loan & Revenue impairment
2022 2021
£ £
Loan Impairment 2,159,274
Revenue impairment 986,392 -
3,145,666 -
Further description on the impairment of the Loan impairment ("loan debtor")
and Revenue impairment ("trade debtor") is disclosed in Note 14.
In 2020, Exclusivity of £500,000 was recognised on the acquisition and hive
up of Waste2tricity Limited. An independent fair value assessment is
commissioned by the Directors on the carrying value at each balance sheet date
as explained in note 11. Impairments are made based upon the results of those
assessments.
8. Net finance income/(cost)
2022 2021
£ £
Loan interest receivable 66,388 15,286
Other interest receivable 251 47
Bank and other interest payable (1,191) (4,346)
65,448 (10,987)
9. Income tax and deferred tax
As the Company incurred a loss, no current tax is payable (2021: £nil). In
addition, as there is no certainty about future profits from which accumulated
tax losses could be utilised, accordingly no deferred tax asset has been
recognised. The Company submitted a claim for research and development tax
credits during the year amounting to £166,318 (2021: £135,657) which has
been recognised in the accounts. Accumulated tax losses amount to an estimated
£22.0 million (2021: £17.0 million) and reflect tax losses submitted in tax
returns and arising during the period less any relief taken for research and
development credits. The tax credit rate is lower (2021: lower) than the
standard rate of tax. Differences are explained below.
Current tax 2022 2021
£
£
Loss before taxation 46,353,704 1,996,641
Tax credit at standard UK corporation tax rate of 19% (2019: 19%) 8,807,204 379,362
Effects of:
Goodwill impairment not deductible for tax purposes (7,820,400) -
Expenses not deductible for tax purposes 2,429 (9,837)
Allowable deduction on exercise of share options - 445,750
Research and development tax credits claimed 166,318 135,657
Deferred tax asset not recognised (1,000,526) (824,787)
Income tax credit 155,025 126,145
10. Loss per share
2022 2021
Total comprehensive loss (£) (46,198,679) (1,870,496)
Weighted average number of shares 3,957,414,135 3,918,497
Loss per share in pence (1.17) (0.05)
Diluted loss per share in pence (1.17) (0.05)
For the year ended 31 December 2022, 3,581,355 of the options in issue and
381,100,979 of the warrants in issue were excluded from the diluted loss per
share calculation due to being anti-dilutive.
For the year ended 31 December 2021, 1,062,692 of the options in issue and
9,090,910 of the warrants in issue were excluded from the diluted loss per
share calculation due to being anti-dilutive.
There have been no shares issued in the financial year or since the year end.
11. Intangible fixed assets
Goodwill Exclusivity rights Patent costs Total
£ £ £ £
Cost
At 1 January 2021 57,152,699 500,000 61,752 57,714,451
Additions - hive up of W2T - - - -
Additions - - 39,965 39,965
At 31 December 2021 57,152,699 500,000 101,717 57,754,416
Accumulated amortisation & impairment
At 1 January 2021 14,192,699 - 2,170 14,194,869
Amortisation charge for the year - - 5,049 5,049
At 31 December 2021 14,192,699 - 7,219 14,199,918
Carrying amount
At 31 December 2021 42,960,000 500,000 94,498 43,554,498
Cost
At 1 January 2022 57,152,699 500,000 101,717 57,754,416
Additions - - 117,838 117,838
At 31 December 2022 57,152,699 500,000 219,555 57,872,254
Accumulated amortisation & impairment
At 1 January 2022 14,192,699 - 7,219 14,199,918
Amortisation charge for the year - 10,263 10,263
Impairment charge for the year 40,660,000 500,000 - 41,160,000
At 31 December 2022 54,852,699 500,000 17,482 55,370,181
Carrying amount
At 31 December 2022 2,300,000 - 202,073 2,502,073
Goodwill acquired in 2020 arose on the acquisition and hive up of
Waste2Tricity Limited. It was considered attributable to the Company's DMG™
technology, which is intended to be licensed on a project-by-project basis to
generate income to the Company over the lifetime of each project.
The recoverable amount of goodwill at the balance sheet date was assessed as a
directors' valuation (2021: via independent third-party valuation). The
directors (2021: Valuer) assessed impairment of £40.66m to goodwill (2021:
the valuer assessed goodwill above its carrying value resulting in no
impairment). The directors (2021: valuer) took note of the ICAEW Corporate
Finance Faculty Best Practice Guideline April 2008 and applied a discounted
cashflow approach, supported by the International Private Equity and Venture
Capital Guidelines of December 2018.
The key assumptions made by the directors (2021: valuer) were:
the expected roll out of the technology over 5 years following the delivery of
the Protos project (2021: roll out over 5 years based on probability adjusted
scenarios);
that the roll out will not be significantly impacted by competing technologies
(2021: same assumption);
that the Company and roll out developer construct 5 projects (2021: have the
capability to scale up where necessary to deliver the assumed roll out
pipeline);
the expected operating life of projects from which the Company will earn
licence revenues (2021: same assumption);
the expected licence fees arising per project based upon agreements with Peel
NRE (2021: same assumption);
the expected cost of services to support annual licence fee income estimated
by the Company based upon current draft project agreements (2021: same
assumption);
applying a discount rate to cashflow of 35% (2021: 10%) assessed by review of
market survey reports of discount rates for projects within similar and
competing sectors which was considered to provide a reasonable estimate of a
weighted average cost of capital for a company benefiting from the assumed
roll out.
Changes to the above assumptions would impact the valuation assessment.
The Directors believe that key sensitivities in the valuation are as follows:
(i) In 2022, the directors have assumed a fixed number of 5 projects
and 6 systems to be rolled out. Sensitivity workings with the roll out of 3
projects and 3 systems would decrease the valuation by c£0.8m to £1.5m.
(2021: the valuer assumed a probability adjusted roll out scenario). The
valuer attributed probabilities to different roll out scenarios based upon a
review of information provided by the Company and Peel NRE. This takes account
of expected timelines and the average number of systems expected to be
deployed at each site. The rollout assumptions made by the valuer averages out
at 17.85 systems. Based upon the valuer's assumptions, an incremental system
would increase or decrease the valuation by c £2.3m).
(ii) The discount rate applied to the cashflows. Sensitivity workings
with a discount rate 5% higher at 40% would decrease the valuation by c£0.5m
to £1.8m. (2021: an increase in the discount rate of 1% to 11% would impact
the Valuer's valuation assessment by £4.4m).
(iii) Inflation - an increase in the inflation assumption above that
assumed in the directors (2021: valuer's) model would result in adjustment to
the licence fees and result in an increase the director's (2021: valuer's)
valuation.
The Directors have not accounted for the possibility of any onerous
obligations arising within the service contracts from which licence fees will
be earnt as there is no reason to expect that these will arise at this stage
in the business life cycle.
Exclusivity rights arose on the acquisition and hive up of Waste2Tricity
Limited. They are subject to an Option Agreement between the Company and Peel
NRE. The directors have provided for a full impairment of £500,000 for
exclusivity rights (2021: no impairment is considered to have arisen).
As explained in note 28, the Company acquired the full ownership of Protos
Plastics to Hydrogen No. 1 Ltd (also known as "Protos SPV") from Peel NRE Ltd
for a nominal payment of £1 on 28 April 2023. During the year to 31
December 2022, the company had been in discussions with Peel NRE to enter into
a 50/50 Joint Venture arrangement with Peel NRE. However, this did not
materialise and Peel NRE continued to own 100% of Protos SPV until the Company
finally purchased 100% of the share capital of Protos SPV on 28 April 2023.
The purchase agreement by the Company secures full control of Protos SPV with
an option to lease on the site at Protos Chester, CH2 4RB. This post balance
sheet event, is a material change in business approach for the Company,
allowing the Company to take full responsibility for funding, construction and
operation of a waste to energy site utilising the DMG™ technology. The
directors have opted not to pursue a licencing business model that was
previously part of the reason for the hive up of Waste2Tricity Limited into
the Company in 2020. This has therefore resulted in a non-adjusting post
balance sheet event under IAS 28.
Refer to the CEO section of the Annual Report
12. Tangible fixed assets
Right of use asset Property, plant and equipment Fixtures and Total
Land and buildings fittings
£ £ £ £
Cost
At 1 January 2021 49,250 12,720 - 61,970
Additions - 7,693 1,203 8,896
At 31 December 2021 49,250 20,413 1,203 70,866
Accumulated depreciation
At 1 January 2021 2,052 6,898 - 8,950
Charge for the year 24,625 3,807 392 28,824
At 31 December 2021 26,677 10,705 392 37,774
Carrying amount
At 31 December 2021 22,573 9,708 811 33,092
Cost
At 1 January 2022 49,250 20,413 1,203 70,866
Additions - - 673 673
At 31 December 2022 49,250 20,413 1,876 71,539
Accumulated depreciation
At 1 January 2022 26,677 10,705 392 37,774
Charge for the year 22,573 4,865 532 27,970
At 31 December 2022 49,250 15,570 924 65,744
Carrying amount
At 31 December 2022 - 4,843 952 5,795
13. Investments
2022 2022 2022 2021 2021 2021
£ £ £ £ £ £
Subsidiaries Associates Other Subsidiaries Associates Other
Cost or carrying value at 1 January 48,947,155 140,540 - 48,947,156 49 -
Additions - - - - 99,990 -
Goodwill recognised - - - - - -
Dividends - (1,935) - - - -
Share of associate's net result - 49,033 - - 40,550 -
Transfers - - - - (49) 49
Disposals - - - (1) - -
Cost or carrying value 31 December 48,947,155 187,638 - 48,947,155 140,540 49
Provision at 1 January (48,947,154) - - (48,947,154) - -
Additions - - - - - (49)
Disposals - - - - - -
Accumulated impairment (48,947,154) - (48,947,154) - (49)
Carrying value 1 187,638 - 1 140,540 -
(i) Subsidiaries
Investments relate to costs of investments in subsidiary undertakings, namely
in Powerhouse Energy, Inc, Pyromex AG and Powerhouse Energy UK Limited.
Powerhouse Energy, Inc is incorporated in California in the United States of
America and the Company holds 100 per cent of the common stock and voting
rights of the subsidiary. Pyromex AG is based in Zug, Switzerland and the
Company holds 100 per cent of the shares and voting rights of the subsidiary.
Powerhouse Energy UK Limited is a wholly owned UK based dormant company.
The registered address of Powerhouse Energy Inc is 145 N Sierra Madre Blvd,
Pasadena, CA 91107, USA.
The registered address of Pyromex AG is Chollerstrasse 3, CH-6300, Zug,
Switzerland.
The registered address of Powerhouse Energy UK Limited is 15 Victoria Mews,
Mill Field Road, Cottingley Business Park, Bingley BD16 1PY.
Waste2Tricity Limited, which was acquired in 2020, was incorporated in the UK
and on 1 January 2021 the Company owned 100 per cent of its common stock and
voting rights. It was dissolved on 1 June 2021.
(ii) Acquisition of interest in Engsolve Limited
On 12 August 2021, the Company acquired 48.39% of the share capital of
Engsolve Limited for cash consideration of £99,990. Engsolve Limited is
incorporated and operates in the UK. Summary financial information of Engsolve
Limited at acquisition and balance sheet dates is provided below:
31 Dec 2022 31 Dec 2021
£ £
Summarised balance sheet
Fixed assets 6,221 7,848
Cash and cash equivalents 400,073 317,423
Other current assets 86,632 99,845
Current liabilities (109,457) (138,981)
Net assets 383,469 286,135
Company share 48.39% 48.39%
Share of net assets 185,550 138,452
Summarised Income statement - post acquisition
Revenue 976,182 402,122
Profit from continuing operations 101,334 83,804
Profit from discontinued operations - -
Other comprehensive income - -
Total comprehensive income 101,334 83,804
Company Share of pre-tax profit 60,326 50,062
Company share of tax (11,293) (9,512)
Dividends received 1,935 £nil
The Company incurred advisory costs associated with the acquisition which were
expensed in 2021.
(iii) Other investments
During 2021, the Company's investment in Waste2Tricity International
(Thailand) Limited was transferred into a new Thailand based entity, Altec
Energy Limited ("Altec"). The Company has not taken part in fund raises
investment made by Altec subsequent to its formation. In the previous year's
accounts the interest was identified as being reduced to 33.8% as at 31
December 2021 and to 30.4% since December 2021. We have been recently informed
that the audit of Altec accounts picked up an error in these calculations. The
share holding was in fact 33.5% as at December 2021 and 30.1% since December
2021 (a 0.3% error in the calculation). PHE Due to the passive nature of the
Company's involvement, the interest is held in other investments.
14. Loans receivable
2022 2021
£ £
Loans advanced 2,077,600 1,150,000
Accrued interest 81,674 15,286
Loan provision (2,159,274) -
- 1,165,286
On 12 May 2021, the Company agreed to provide a loan facility for up to £3.8m
to Protos Plastics to Hydrogen No 1 Limited, the Peel NRE special purpose
vehicle and owner of the development of the Protos plant. The loan was to
provide support to the plant construction and to secure long lead time items
and project design services. The loan facility was made available for an
initial 6-month period, accruing interest daily at the Bank of England base
rate plus 2%. The availability period for the facility was subsequently
extended until 28 April 2023 at which point Powerhouse Energy Group Plc
acquired 100% of the share capital of Protos Plastics to Hydrogen No1 Limited
for £1. From October 2022 to the year end, the directors were seeking a 50/50
JV with Peel NRE and there had been other indicators of a change in the risk
profile. The directors in note 11 have assumed a discount rate of 35% for the
project with Peel NRE, due to the change in the risk profile. Accordingly, the
Directors have impaired the loan in full. The Directors have also applied
the same approach to the trade debtor balance of £986,392 which existed
between Powerhouse Energy Group Plc and Protos Plastics to Hydrogen No 1
Limited and have subsequently impaired the trade debtor balance also to £Nil
value at the year end.
15. Trade and other receivables
2022 2021
£ £
Trade receivables - 447,967
Other receivables 342,021 177,513
Prepayments and accrued income 61,226 338,168
403,247 963,648
16. Corporation tax
2022 2021
£ £
Corporation tax recoverable 166,318 155,227
166,318 155,227
17. Cash and cash equivalents
2022 2021
£ £
Cash balances 5,882,897 9,637,460
5,882,897 9,637,460
18. Trade and other payables: amounts falling due within one year
2022 2021
£ £
Trade payables 116,560 144,105
Lease liability 0 23,455
Other creditors and accruals 148,563 238,955
Other taxes 10,677 156,642
Pensions payable 3,506 624
279,306 563,781
19. Financial assets and financial liabilities
Financial assets 2022 2021
£ £
Financial assets at amortised cost:
- Trade receivables - 447,967
- Other financial assets at amortised cost - 1,165,286
- Cash and cash equivalents 5,882,897 9,637,460
5,882,897 11,250,713
Financial liabilities 2022 2021
£ £
Liabilities at amortised cost
- Trade payables 116,560 144,105
- Other creditors 148,563 238,955
- Taxes - VAT & payroll 10,677 156,642
- Pensions payable 3,506 624
- Lease liabilities 0 23,455
279,306 563,781
20. Leases
The Company has leased offices at the location of its research facility for a
duration less than one year. The lease is reflected in the accounts as an
expense on the income statement.
20.1 Amounts recognised in the balance sheet
Right of use assets relate to leased properties that do not meet the
definition of investment property and are presented within tangible fixed
assets per Note 11.
2022 2021
£ £
Right of use assets
Balance at 1 January 22,573 47,198
Additions to right of use assets - -
Depreciation charge for the year (22,573) (24,625)
Balance at 31 December - 22,573
2022 2021
Future minimum rentals payable are as follows: £ £
Amounts payable:
Within one year - 24,310
Later than one year and not later than five years - -
Total gross payments - 24,310
Impact of finance expenses - (855)
Carrying value of liability - 23,455
20.2 Amounts recognised in income statement
2022 2021
£ £
Depreciation charge 22,573 24,625
Interest on lease liabilities 855 2,638
Expenses relating to short term leases 120 -
23,548 27,263
20.3 Amounts recognised in statement of cashflows
2022 2021
£ £
Interest on lease liabilities 855 2,638
Repayment of lease principal 23,455 23,882
Total cash outflow for leases 24,310 26,520
21. Share capital
(i) Number of shares
0.5 p Ordinary 0.5 p Deferred shares 4.5 p Deferred 4.0 p Deferred
shares shares shares
Shares at 1 January 2021 3,715,100,693 388,496,747 17,373,523 9,737,353
Issue of shares 242,313,442 - - -
Shares at 31 December 2021 3,957,414,135 388,496,747 17,373,523 9,737,353
Issue of shares - - - -
Shares at 31 December 2022 3,957,414,135 388,496,747 17,373,523 9,737,353
(ii) Value in £
0.5 p Ordinary shares 0.5 p Deferred shares 4.5 p Deferred shares 4.0 p Deferred shares Share Capital
£ £ £ £ £
At 1 January 2021 18,575,503 1,942,483 781,808 389,494 21,689,288
Issue of shares 1,211,568 - - - 1,211,568
At 31 December 2021 19,787,071 1,942,483 781,808 389,494 22,900,856
Issue of shares - - - - -
At 31 December 2022 19,787,071 1,942,483 781,808 389,494 22,900,856
All ordinary shares of the Company rank pari-passu in all respects.
The deferred shares do not carry any voting rights or any entitlement to
attend general meetings of the Company. They carry only a right to participate
in any return of capital once an amount of £100 has been paid in respect of
each ordinary share.
On 21 January 2021, the Company issued 181,818,182 ordinary shares of 0.5p
each ("Ordinary shares") in the Company at a price of 5.5p each amounting to
£10,000,000 before issue costs. The Company also granted 9,090,910 warrants
to subscribe for Ordinary Shares at the issue price of 5.5p to its broker.
On 26 January 2021, the Company issued 4,895,260 ordinary shares of 0.5p each
in the Company further to the exercise of warrants for proceeds amounting to
£122,382.
On 9 February 2021, the Company issued 6,000,000 ordinary shares of 0.5p each
in the Company further to the exercise of options for proceeds amounting to
£36,000.
On 24 February 2021, the Company issued 1,600,000 ordinary shares of 0.5p each
in the Company further to the exercise of options for proceeds amounting to
£12,000.
On 4 March 2021, the Company issued 6,000,000 ordinary shares of 0.5p each in
the Company further to the exercise of options for proceeds amounting to
£45,000.
On 17 March 2021, the Company issued 500,000 ordinary shares of 0.5p each in
the Company further to the exercise of options for proceeds amounting to
£3,000.
On 19 April 2021, the Company issued 6,000,000 ordinary shares of 0.5p each in
the Company further to the exercise of options for proceeds amounting to
£36,000.
On 22 July 2021, the Company issued 8,000,000 ordinary shares of 0.5p each in
the Company further to the exercise of options for proceeds amounting to
£48,000.
On 19 August 2021, the Company issued 13,500,000 ordinary shares of 0.5p each
in the Company further to the exercise of options for proceeds amounting to
£81,000.
On 7 October 2021, the Company issued 7,000,000 ordinary shares of 0.5p each
in the Company further to the exercise of options for proceeds amounting to
£42,000.
On 9 December 2021, the Company issued 7,000,000 ordinary shares of 0.5p each
in the Company further to the exercise of options for proceeds amounting to
£42,000.
22. Other reserves
Merger relief Share premium account
reserve £
£
As at 1 January 2021 36,117,711 52,592,934
Issue of shares - 9,519,495
Share issue costs - (822,719)
Reserve transfer - goodwill impairment - -
At 31 December 2021 36,117,711 61,291,710
Issue of shares - -
Share issue costs - -
Reserve transfer - goodwill impairment (36,117,711) -
At 31 December 2022 - 61,291,710
23. Accumulated deficit
2022 2021
£ £
As at 1 January (65,224,306) (63,544,097)
Loss for the year (46,198,679) (1,870,496)
Share based payments (18,629) 190,287
Reserve transfer - goodwill impairment 36,117,711 -
At 31 December (75,323,903) (65,224,306)
24. Share based payments
The expense recognized for share-based payments during the year is shown in
the following table:
2022 2021
£ £
Share based payment charge recognised in Income Statement
Expense arising from equity-settled share-based payment transactions:
- Share options for Directors and employees - 34,829
- Shares issued for third party services - -
Total share-based payment charge in Income Statement - 34,829
Share based payment charge recognised in Share Premium Account
Warrants for third party services - 419,138
Total share-based payment charge in Share Premium Account - 419,138
Total share-based payment charges recognised - 453,967
Other share-based payment movement
Exercise of share options by Directors and employees - (186,982)
Exercise of warrants for third party services - (76,698)
Shares option lapsed in Jan 22 (18,629) -
Total share-based payment (18,629) (190,287)
There were no liabilities recognised in relation to share based payment
transactions.
25.1 Share options for Directors and employees
The Company has put in place various options schemes for Directors and
employees as follows:
On 8 December 2014, the Company granted 11,000,000 options over ordinary
shares to the Board. The options may be exercised between the grant date and
the tenth anniversary of the grant date and will lapse if not exercised during
that period.
On 7 March 2016, the Company granted 15,000,000 options over ordinary shares
to the Board. The options may be exercised between the grant date and the
fifth anniversary of the grant date and will lapse if not exercised during
that period.
On 6 March 2018, the Company granted 32,100,000 options over ordinary shares
to employees, including a Board member, under the Powerhouse Energy Group PLC
2018 EMI Option Scheme. The options vest to the employees over a period of 24
months and are exercisable between the relevant vesting dates and the tenth
anniversary of the grant date and will lapse if not exercised during that
period. These options had all been exercised or forfeited by 31 December 2019.
On 6 March 2018, the Company granted 60,000,000 options over ordinary shares
to Board members under the Powerhouse Energy Group PLC 2018 non-employee Share
Option Plan. The options vest to the Board members over a period of 24 months
and are exercisable between the relevant vesting dates and the tenth
anniversary of the grant date and will lapse if not exercised during that
period.
On 23 April 2021, the Company granted 1,773,239 share options in ordinary
shares of 0.5p each in the Company to two Directors of the Company in lieu of
part or all of their fees to which they are entitled. The options have an
exercise price of 6.3p each and lapse 3 years from the date of grant.
The movement of share options in the year are as follows:
2022 2022 2021 2021
Number WAEP (pence) Number WAEP (pence)
Outstanding at 1 January 16,062,692 1.33 75,000,000 0.77
Granted during the year - - 1,773,239 6.3
Forfeited during the year (481,337) 6.3 (5,100,547) 2.55
Exercised during the year - - (55,600,000) 0.62
Outstanding at 31 December 15,581,355 1.13 16,062,692 1.33
Exercisable at 31 December 15,581,355 1.13 16,062,692 1.33
The weighted average remaining contractual life for the share options
outstanding as at 31 December 2022 was 4.4 years (2021: 5.3 years)
No share options were granted during the year (2021: 1,773,239).
The range of exercise prices for options outstanding at the year-end was 0.6p
to 6.3p (2021: 0.6p to 6.3p).
The number of options outstanding at 31 December 2022 and the movements in the
year are as follows:
Date of Granted Share price on grant Exercised Forfeited At 31 Dec Exercise price Exercise period
grant 2022
8 Dec 6,000,000 1.875p - (3,000,000) 3,000,000 2.5p 9 Dec 2014 until 8 Dec 2024
2014
7 Mar 9,000,000 0.55p (7,600,000) (1,400,000) - 0.75p 8 Mar 2016 until
2016 7 Mar 2021
6 Mar 60,000,000 0.57p (48,000,000) - 12,000,000 0.6p 7 Mar 2018 until
2018 8 Dec 24*
22 Apr 1,773,239 5.58p - (1,191,884) 581,355 6.3p 23 Apr 2021 until
2021 22 Apr 2024
Total 76,773,729 (55,600,00) (5,591,884) 15,581,355
*The expiry date of the option granted on 6 March 2018 was adjusted by the
board due to a director leaving the Company in June 2022. The expiry date was
adjusted from 6 Mar 2028 to the 8 Dec 2024. Refer to note 27 in the financial
statements.
The estimated fair value of the options issued was calculated by applying the
Black-Scholes option pricing model. The assumptions used in the calculation
were as follows:
8 December 2014 6 March 2018 22 April 2021
Options in issue 31 December 2022 3,000,000 12,000,000 581,355
Exercise price 2.5p 0.6p 6.3p
Expected volatility 127.56% 70.00%** 214.8%**
Contractual life 10 years 10 years 3 years
Risk free rate 2% 1.49% 0.15%
Estimated fair value of each option 1.79p 0.32p* 3.87p*
* the calculation applies a 25% discount for small companies
** expected volatility based on historic volatility at the point of grant.
25.2 Warrants for third party services
The Company has issued warrants in respect of services provided by consultants
as part of their service arrangements. It has also issued warrants to
participating shareholders in respect of certain fund raises. No share-based
payment charge is recognised for warrants issued to participating shareholders
as they are outside of the scope of IFRS 2.
Details of warrants which have been issued during the year are as follows:
On 15 September 2020, the Company granted 5,395,260 warrants to the Company's
broker as part of its service arrangement in relation to the fund raise
arising on that date. The options may be exercised between the grant date and
the third anniversary of the grant date and will lapse of not exercised during
that period. At the date of grant the share price was 3.3p and the warrants
have an exercise price of 2.5p per share.
On 21 January 2021, the Company granted 9,090,910 warrants to the Company's
broker as part of its service arrangement in relation to the fund raise
arising on that date. The options may be exercised between the grant date and
the third anniversary of the grant date and will lapse of not exercised during
that period. At the date of grant the share price was 8.6p and the warrants
have an exercise price of 5.5p per share.
Warrants in respect of services provided:
The movement of warrants issued for share-based payments in the year are as
follows:
2022 2022 2021 2021
Number WAEP (pence) Number WAEP (pence)
Outstanding at 1 January 9,590,910 5.3 5,395,260 2.5
Granted during the year - - 9,090,910 5.5
Forfeited during the year - - - -
Exercised during the year - - (4,895,260) 2.5
Outstanding at 31 December 9,590,910 5.3 9,590,910 5.3
Exercisable at 31 December 9,590,910 5.3 9,590,910 5.3
The weighted average remaining contractual life for the share warrants
outstanding as at 31 December 2022 was 1.0 years (2021: 2.1 years)
The range of exercise prices for warrants outstanding at the year-end was 2.5p
to 5.5p (2021: 2.5p to 5.5p).
The number of warrants, which have been included for share-based payment
purposes, outstanding at 31 December 2022 and the movements in the year are as
follows:
Date of grant Granted Share price Exercised Forfeited At 31 Dec Exercise Exercise
on grant 2022 Price period
15 Sep 2020 5,395,260 3.3p - - 500,000 2.5p 16 Sep 2020 until 15 Sep 2023
21 Jan 2021 9,090,910 8.6p - - 9,090,910 5.5p 22 Jan 2021 until
21 Jan 2024
Total 14,486,170 - - 9,590,910
The Company is required to assess the fair value of instruments issued in
respect of services received, with such value charged to the Income Statement.
The estimated fair value of the warrants issued during the year was calculated
by applying the Black-Scholes option pricing model. The assumptions used in
the calculation were as follows:
Warrants issued for services 15 Sep 2020 21 Jan 2021
In issue 31 December 2022 500,000 9,090,910
Exercise price 2.5p 5.5p
Expected volatility* 92.10% 161.6%
Contractual life 3 years 3 years
Risk free rate 0.07% (0.07%)
Estimated fair value of each option 1.57p 4.6p
* expected volatility based on historic volatility at the point of grant.
Warrants issued to participating shareholders
Warrants issued to participating shareholders are outside the scope of IFRS 2
and no share-based payment charges have been recognised on them. On initial
recognition the warrants' cost was deducted from equity as it represents the
cost of shares issued to investors. As the agreements had a fixed-for-fixed
requirement, they are also recognised as equity at the same time. As such,
there is £nil net impact on equity and has not been included in the statement
of changes in equity.
The number of warrants issued to participating shareholders, which have not
been included for share-based payment purposes, outstanding at 31 December
2022 and the movements in the year are as follows:
Date of grant Granted Share price on grant Exercised Forfeited At 31 Dec 2022 Exercise price Exercise period
15 Sep 2020 371,510,069 3.3p - - 371,510,069 2.75p 16 Sep 2020 until 15 Sep 2022
Total 371,510,069 - - 371,510,069
The estimated fair value of the warrants issued was calculated by applying the
Black-Scholes option pricing model. The assumptions used in the calculation
were as follows:
Warrants issued to participating shareholders 15 Sep 2020
In issue 31 December 2022 371,510,069
Exercise price 2.75p
Expected volatility* 106.20%
Contractual life 2 years
Risk free rate 0.04%
Estimated fair value of each option 1.46p
* expected volatility based on historic volatility at the point of grant.
All warrants
The number of all warrants outstanding at 31 December 2022 and the movements
in the year are as follows:
Date of Granted Share price on grant As at 1 Jan 2022 Exercised Forfeited At 31 Dec 2021 Exercise price Exercise period
grant
15 Sep 2020 5,395,260 3.3p 500,000 - - 500,000 2.5p 16 Sep 2020 until
15 Sep 2023
15 Sep 2020 371,510,069* 3.3p 371,510,06 - - 371,510,069 2.75p 16 Sep 2020 until29 Apr 2023
21 Jan 2021 9,090,910 8.6p 9,090,910 - - 9,090,910 5.5p 22 Jan 2021 until
21 Jan 2024
Total 385,996,239 381,100,979 - - 381,100,979
*Please see the Post Balance Sheet Event note on Peel warrants
26. Material risks
The Company is subject to various risks relating to political, economic,
legal, social, industry, business and financial conditions. Risk assessment
and evaluation is an essential part of the Company's planning and an important
aspect of the Company's internal control system. The Company's approach to
these risks is detailed in the Strategic Report.
27. Directors' remuneration and share interests
The Directors who held office at 31 December 2022 had the following interests,
including any interests of a connected party in the ordinary shares of the
Company:
Number of ordinary shares Percentage of
of 0.5p each voting rights
Keith Riley 12,128,986 <0.5
The remuneration of the Directors of the Company paid or payable for the year
or since date of appointment, if later, to 31 December 2022 is:
2022 2022 2022 2022 2022 2021
£ £ £ £ £ £
Salary/Fee Pension Share based payments Other Total Total
Tim Yeo 54,000 - - 5,500 59,500 127,944
David Ryan - - - - - 97,996
William Cameron Davies - - - - - 7,500
Paul Emmitt 64,906 2,000 - - 66,906 -
James John Pryn Greenstreet 15,000 - - - 15,000 30,000
Hugh Mcallister 27,232 - - - 27,232 -
Paul Drennan-Durose 251,026 8,714 - - 259,740 -
Gillian Weeks 24,296 - - - 24,296 -
Russell Ward 18,899 - - - 18,899 -
Myles Howard Kitcher 25,667 - - - 25,667 -
Allan Vlah 7,500 - - - 7,500 37,500
Kirsten Gogan - - - - - 23,468
Keith Riley 92,546 - - - 92,546 8,167
Mark Berry - - - - - 17,500
Total 581,072 10,714 - 5,500 597,286 350,075
Total remuneration includes share-based payments arising from the issue of
options amounting to nil in 2022 (2021: £40,000). There have been no awards
of shares to Directors under long term incentive plans during the year.
The Directors' social security costs for the year amounted to £54,026 (2021:
£29,965) resulting in a total remuneration expense of £651,312 (2020:
£380,040).
Prior to their resignations from the Board, Tim Yeo, William Cameron Davies,
James John Pryn Greenstreet, Allan Vlah, Kirsten Gogan and Mark Berry had
service contracts that could be terminated by the provision of three months'
notice. David Ryan had a service contract that could be terminated by the
provision of six months' notice.
Keith Riley has a service contract which can be terminated by providing three
months' written notice.
Rivermill Partners Limited, a company wholly owned by Tim Yeo and his
associates, provided executive corporate management services during the year
the value of which is included in the above remuneration. These services are
contracted for on an annual basis as required.
Share options held by the Directors who served during the year are as follows:
Options at Forfeited Exercised Options at 31/12/22 Exercise price Earliest and latest date of exercise
1/1/22
Options granted 8 Dec 2014
James John Pryn Greenstreet 3,000,000 - - 3,000,000 2.5p 9/12/14 - 8/12/24
Options at Forfeited Exercised Options at 31/12/22 Exercise price Earliest and latest date of exercise
1/1/22
Options granted 6 March 2018
James John Pryn Greenstreet 12,000,000 - - 12,000,000 0.6p 7/3/18 - 8/12/24*
Options granted /1/22 Forfeited or not vested Exercised Options at 31/12/22 Exercise price Earliest and latest date of exercise
Options granted 22 April 2021
Allan Vlah 581,355 - - 581,355 6.3p 23/4/21 - 22/4/24
*On the 29(th) September 2022 the board agreed to align the termination/expiry
dates for both sets of options for James Greenstreet to 8(th) Dec 2024
Highest Paid Director
Paul Drennan-Durose was the highest paid Director in the year. There were no
shares received or receivable by him in respect of qualifying services under
long term incentive schemes.
28. Related parties
Rivermill Partners Limited, a corporate management services company, wholly
owned by Tim Yeo and his associates, was a related party for the 12 month
period after which Tim Yeo was a Director of the Company. During that period,
Rivermill provided executive corporate management services amounting to
£54,000 (2021: £48,000) and the Company agreed a termination settlement of
£5,500.
Engsolve Limited, an engineering solutions company, was a related party until
30 June 2021 due to a Director's family member being part of its key
management personnel, and from 12 August 2021 when the Company acquired 48.39%
of its share capital. Engsolve provided engineering services to the Company
during the year amounting to £596,172 (2021: £621,968). Amounts outstanding
at year end for services provided and included in these accounts amounted to
£31,778 (2021: £41,058).
During 2021 Hydrogen Utopia International entered into an exclusivity
agreement with Powerhouse Energy Group Plc. This exclusivity agreement covered
Hungry, Greece & Poland. During 2022 Hydrogen Utopia International paid
£38,983 for this Exclusivity Agreement (2021 £71,829). This exclusivity
agreement covering Hungary, Greece and Poland ended in March 2022.
Keith Riley was a Non-Executive Director, Interim Chairman and acting Chief
Executive Officer of the Company during 2022. Keith was also an active
director in Engsolve Ltd in 2022. Keith joined Hydrogen Utopia PLC as
Technical Director on 6th January 2022 and resigned on 26th May 2023. Keith
was also a director of HU2021 International UK Ltd from 18th January 2022
until 31st May 23.
Howard White is a shareholder in the Company and also a strategic Consultant
to the Company, having received £60,000.00 for his services in 2022. Howard
White is also an active Board Member and shareholder of Hydrogen Utopia
International.
Hugh McAlister was a Non-Executive Director of the Company during 2022 and
also owned shares in Hydrogen Utopia International.
29. Events after the reporting period
On 16 March 2023 the Company entered into a lease agreement for a building to
house the forthcoming Powerhouse Technology Centre. The lease term is 10 years
with a break option at 5 years, at a rental of £46,000 per annum.
On 21 March 2023, the Company announced it had entered into a Joint Venture
agreement with Hydrogen Utopia International Plc for the proposed joint
development of a non-recyclable plastic waste-to-hydrogen facility site at
Longford, County Longford in the Republic of Ireland. The joint venture is
entered into with equal shareholding by each party and development costs
being contributed on a 50:50 basis. PHE has agreed to pay HUI a non-returnable
payment of up to £400,000 in cash in recognition of HUI's contribution to
identifying the Longford Project, securing the option to lease and progressing
the project. This cash payment comprises an initial payment of £100,000 on
signing the heads of terms and a further payment of £100,000 upon
finalisation of the project documentation between HUI and PHE - principally
comprising a development agreement and a shareholder agreement. PHE has agreed
to make a further payment of £200,000 in cash to HUI once planning permission
has been granted for the Longford Project on the Longford Site.
The Company announced that it had acquired full ownership of Protos Plastics
to Hydrogen No.1 Ltd on 28 April 2023 from Peel NRE Ltd for a nominal payment
of £1. The Protos Plastics to Hydrogen Peel NRE is a special purpose vehicle
and owner of the development of the Protos plant, the first proposed
commercial application of the Company's DMG™ technology. Powerhouse Energy
Group Plc had previously provided a loan facility of £3.8m to support the
Protos plant development and construction. Loans made under the facility at
Dec 22 amounted to £2.159m (incl. Loan interest) and trade debtors amounted
to £1.18m. Due to the acquisition of the Protos SPV by the company the loan
balance of £2.159m and the debtors balance of £1.18m were impaired as at
December 2022.
On 2 May 2023 the Company announced that the subscription and warrant
agreement dated September 2020 made between Peel holdings (IOM) Ltd and the
Company had expired on 29 April 2023. This warrant agreement included
371,510,069 options exercisable at 2.75p.
On 30 May 2023, the Company announced that it had entered into an agreement
with Noage Energy Ltd to act as representative of PHE in Northern Ireland.
PHE paid Noage a fee of £50,000 on entering the agreement. Noage will also
receive a number of success related fees, payable on completion of specified
milestones, giving it the possibility of receiving total fees of £1.725
million for a fully implemented project (including the initial fee).The
Agreement has an initial term of five years, but can be extended for a further
two years on the request of Noage. Under the arrangement, however, all
contractual commitments with third parties will be with PHE directly and Noage
will not be able to give commitments on PHE's behalf.
On 12 August 2021, the Company acquired a 48.39% interest in Engsolve Limited,
an engineering consultancy company incorporated and operating in the UK. On 21
June 2023, the Company completed the acquisition of the entire outstanding
shareholding of Engsolve for a cash consideration of £572,896. The Company
considers this a strategic acquisition as it brings Engineering expertise in
house and enables it to generate a regular income stream through the providing
and development of Engineering Services into the UK market.
30. Ultimate controlling party
There is no controlling party of the Company.
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