REACT Energy plc
Annual Report and Accounts 2016
1
REACT Energy plc
Contents
Chairman and Chief Executive’s Report.....................................................
3
Directors ............................................................................................................. 9
Advisors and other information ...................................................................
Directors’ Report ..............................................................................................
Statement of the Directors’ Responsibilities...............................................
Corporate Governance Report .................................................... ...... .........
Independent Auditors’ Report..........................................................................
Consolidated statement of profit or loss .....................................................
Consolidated statement of other comprehensive income ......................
Consolidated statement of financial position..............................................
Consolidated statement of changes in equity.............................................
Consolidated statement of cash flows..........................................................
Company statement of financial position....................................................
Company statement of changes in equity...................................................
Company statement of cash flows................................................................
Notes to the consolidated financial statements..........................................
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REACT Energy plc
Chairman and Chief Executive’s Report
The Company presents the 2016 Annual Report, which gives an update on the activities of the Company over the 2016
financial period as well as updating on recent activities, including, as announced on 12 December 2016, an increase in
amount and extension of an existing loan facility with EBIOSS to cover working capital requirements of the Company.
EBIOSS is an industrial engineering group and is involved in the engineering, construction, project
development and operation of waste-to-synthesis gas plants. It operates at an international level and owns a
state of the art technology and differential positioning in designing and construction of waste gasification
power plants with power capacity from 500 kilowatts (“kWs”) to 10 megawatts (“MWs”). EBIOSS has
developed its own technology, the EQTEC Gasifier Technology (EGT) by which different types of waste are
transformed into synthesis gas. This leading technology on waste gasification has made possible the design
construction and/or operation of waste gasification plants in Spain, France, Germany, India, Italy and Bulgaria
among other countries, for third party international energy groups and for use by EBIOSS itself. EBIOSS is
quoted on Mercado Alternativo Bursátil (“MAB”), the alternative market of the Spanish Stock Exchanges.
Whilst the Company continues to execute on its strategy, general market conditions continue to impact investment
sentiment. As a result of this ongoing uncertainty, and to ensure that the Company continues to have in place the
necessary resources to meet this dynamic business environment, the Board continuously reviews the Company’s
strategy, cost base and financing structures to ensure it is well positioned and appropriately capitalised to take advantage
of opportunities that present in the sector in which it operates.
During the financial year in question the Company also:
Exited the Examinership process in July 2015
Recommenced trading of the Company’s shares on AIM
Secured a €750,000 loan facility in January from EBIOSS which the Company has now fully utilised.
Secured £1m in funding by way of a Secured Loan facility with EcoFinance (GLI) Limited which
included a refinancing of a number of existing debt facilities with Altair Group Investment Limited.
Entered into an agreement in December with EBIOSS to purchase its EGT technology with a power
output of 4MW, which NBL will use in the repowering of the Newry Biomass gasification project
The gasification equipment purchased from EBIOSS cost €4.963 million (subsequently increased to
€5.150 million and will form part of an Engineer, Procure and Construct (“EPC”) contract to be
signed between NBL and EQTEC Iberia (“EQTEC”), a subsidiary of EBIOSS, in respect of the
Newry Project. REACT has granted EQTEC exclusivity to provide gasification technology as part of
EPC contracts for its biomass gasification project pipeline in the UK
NBL applied and received confirmation from The Office of Gas and Electricity Markets (“Ofgem”)
that they have been granted an extension to 31 March 2018 for the Renewables Obligation (“RO”)
registration of the Newry Project
Gained planning approval for the construction and operation of an energy recovery facility using EGT
at Clay Cross in Derbyshire by Clay Cross Biomass Limited a company in which REACT has a 90%
interest, subject to finalising a Section 106 agreement pursuant to the conditions set out in the report
by the planning authorities
Continued to operate its wind turbine at Pluckanes and three biomass heat projects in the UK
Post period end:
In October 2016, signed conditional heads of agreement with several parties to potentially fund,
through a combination of equity and debt, the circa £11.2 million repowering of the NBL 4MW
biomass gasification project using EGT
It was announced on 12 December 2016 that the terms of the working capital facility with EBIOSS
had been amended by agreement between that parties such that the amount of the facility was
increased by €600,000 to €1,350,000 and the repayment date of the increased facility was extended to 7
January 2018. The increased facility is to cover the working capital requirements of the Company.
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REACT Energy plc
Chairman and Chief Executive’s Report - continued
Current Trading and Prospects
The Company is a clean energy project developer and operator. The Company seeks to take projects from
“Greenfield” (greenfield land) stage to “Shovel Ready” stage (projects where planning and development is
advanced enough that, given sufficient funding, construction can begin within a very short time frame) with
turnkey construction contracts and financial packages in place. Debt and equity partners are then sought to
fund the construction phase in return for a share of the project equity.
The Company develops and builds projects currently using wood and waste wood as the sustainable fuel
source. The core focus has been on converting biomass or wood into clean electricity and heat. This was based
primarily on the technology available to convert the fuel into power and the level of government subsidies
available specifically for biomass fuel and the relevant conversion technology.
In reporting its interim results for the six months to 31 December 2015, the Company stated that the political
and regulatory environment within the UK continued to be challenging, with a lack of direction and continued
changes to the long-term support mechanisms available for renewable energy projects developed under the
Electricity Market Review (EMR), with the introduction of Contracts for Difference (CfD) in place of the
Renewables Obligation (RO) regime. As part of its ongoing cooperation and collaboration with EBIOSS
Energy, the Company has reviewed its strategy for developing and operating clean energy power plants in the
UK.
Overview of the UK Renewable Energy Market
The UK developed its renewable energy sector based on the Renewables Obligation (RO), a quota scheme that
led to the only publicly subsidised electricity investments in the UK after the 1989 privatisation era. In 2010,
the UK government also introduced the Feed in Tariff (FIT) scheme for supporting small scale low-carbon
installations up to a maximum capacity of 5MW.
Post 2014, the UK’s electricity sector is governed by the Electricity Market Reform (EMR). Based on the
EMR, all electricity investments are publicly subsidised with the fossil-fuel sectors receiving subsidies by way of
the capacity market and the renewable energy sector by way of the Contracts for Difference (CfDs) scheme.
Having announced the closing of the RO Scheme, the last projects under the RO Scheme, which needed
confirmation of a “grace period” from Ofgem, must be completed before 31 March 2018. The UK
Government published, in November 2016, a draft of the Budget Notice ahead of the CfD allocation round
opening in April 2017. This set an overall budget for total support payments for projects delivered in the two
years from the middle of 2021 to 2023 and also set out strike prices for the various less well established
technologies including advance conversion technologies, such as advanced gasification.
Overview of the UK Energy from Waste Market
The UK has, over the past ten years, seen a transformation in its management of household waste. This has
been most marked within local authorities as they make the transition from landfill to recycling / composting
and energy recovery. The waste market is now moving towards what is termed ‘merchant’ projects. These are
projects which utilise private, specialist fuel supply such as refuse derived fuel (RDF), municipal solid waste
(MSW), commercial and industrial waste and waste wood. RDF or solid recovered fuel / specified recovered
fuel (SRF) is a fuel produced by shredding and dehydrating municipal solid waste (MSW) with a waste
converter technology. In addition, these merchant projects tend to utilise new advanced conversion
technologies and include specialist sub sectors, like advanced gasification.
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REACT Energy plc
Chairman and Chief Executive’s Report - continued
Gasification is a process that converts organic or fossil based carbonaceous materials at elevated temperatures
with controlled amounts of oxygen into carbon monoxide, hydrogen, carbon dioxide and methane. It is a well-
known technology, and its advanced use with mixed waste feedstock is continually evolving. By its nature
“energy from waste” bridges two sectors both of which are evolving. It has its roots firmly in waste
management but is becoming of increasing importance to energy generation.
Waste management is changing to be much less about how society get rid of things it no longer wants and
more about managing discarded resources back into the economy. Likewise, energy generation is evolving to
make best use of renewables, novel fuels and different energy outputs always with an eye to energy security.
The need to meet 2020 landfill diversion targets for biodegradable waste has been a major driver for waste
policy and infrastructure development in the UK over the last ten years. The landfill tax is a key instrument to
meeting the target along with other policies and initiatives. There are wider societal and environmental benefits
associated with energy generation and use that will drive energy policy and impact on energy from waste.
Energy from waste in particular has the potential to deliver low carbon energy in a cost-effective way and as a
non-intermittent source helps provide energy security.
The term ‘energy from waste’ (commonly abbreviated to EfW) covers a range of different processes and
technologies and describes a number of treatment processes and technologies used to generate a usable form
of energy and which also reduce the solid volume of residual waste. This energy can be in the form of
electricity, heating and/or cooling or a combination of these forms. Conversion treatments are processes
which convert residual waste or RDF/SRF into a more useable form of energy such as heat or electricity.
These processes include gasification such as the EGT.
By choosing the right location, the right technology and the right processing, energy from waste can help to
deliver much needed long-term affordable, low carbon and secure energy.
The EGT can operate economically over a wider range of scales and is therefore potentially more flexible and
has the potential to generate much greater efficiencies through a range of outputs.
The UK faces a potential energy gap, with the margin of supply over demand expected to diminish to very-thin
levels from 2015 onwards. The scheduled closure of old nuclear facilities has not been matched by the
construction of replacement new-build nuclear sites and/or other power station facilities.
Local Authority managed waste going for combustion with energy recovery rose 13% to 5.5 million tonnes in
2012/13 and has more than doubled in the last ten years. A 2010 survey found only 2% of commercial and
industrial waste was combusted with energy recovery in England. In 2012, 24 Energy from Waste plants
operating in England were treating almost 4 million tonnes of residual MSW and SRF. In 2010, the
combustion of the biodegradable component of MSW provided 6.2% of the UK’s total renewable electricity
generation and 4.7% of total combined renewable heat and electricity generation. Waste derived renewable
electricity from thermal combustion in England is forecast to grow from the current 1.2 terrawatt hours
(“TWh”) to between 3.1TWh and 3.6TWh by 2020.
REACT and EBIOSS Energy have entered into mutually beneficial business arrangements over the last year
with the objective of working closer together to avail of opportunities initially in the UK EfW market.
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REACT Energy plc
Chairman and Chief Executive’s Report - continued
Current project portfolio
Newry
As noted above, NBL entered into an agreement with EBIOSS Energy to purchase its EGT, with a power
output of 4MW, which NBL will use in the repowering of the Newry biomass plant. The equipment has been
delivered and is currently on site in Newry.
Once financial close on the repowering of the Newry biomass plant is achieved, the Company expects that the
plant will be able to again export electricity to the grid within 15 months (i.e. pre 31 March 2018).
NBL applied and received confirmation from Ofgem that they have granted an extension to 31 March 2018
for the RO registration of the Newry biomass plant, at which point the plant will need to have been repowered
and commissioned, which the Company intends it will have been.
The Company announced on 11 October 2016 that it has signed conditional heads of agreement with several
parties to potentially fund, through a combination of equity and debt, the repowering of the plant. The heads
of agreement envisage a total investment of up to £11.2 million to be made both directly, and indirectly
through REACT, into NBL.
The terms of the heads of agreement between the parties are legally binding, however, are subject to the
completion of, inter alia, legal, financial and technical due diligence, which has commenced and is expected to
be completed shortly. The terms therefore may change from that set out in the heads of agreement. There can
be no guarantee that definitive agreements will be concluded on the terms currently envisaged or at all, or on
the timetable envisaged.
If it was not possible to reach agreement with the parties, the Company, in partnership with EBIOSS Energy
and its subsidiary EQTEC, using their combined resources, would commission the project to a basic level to
ensure that the ROCs are registered for the plant by 31 March 2018. In this scenario, the plant having been
commissioned to basic standards, would be refinanced with third party funders and completed in full.
Enfield, London
The Enfield Biomass project is a 12MW biomass gasification project located in Enfield, London. The project
has secured full planning and permitting approval and is ready to construct. The Company obtained an
updated planning permission for converting 60,000 tonnes per annum of Grade C wood waste in January
2014. An environmental permit was received April 2012.
As part of the Examinership process, the Company ceased to pursue the legal action, which was announced on
the 3 June 2015, in relation to the Enfield Biomass Limited property lease agreement and has agreed to the
revocation of the existing lease on that site. The site has currently been put up for sale by the existing landlord.
The Company intends to open discussions with a new owner in relation to the future of this site and further
updates will be made as and when appropriate.
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REACT Energy plc
Chairman and Chief Executive’s Report - continued
Clay Cross
On 12 April 2016, the Company announced that the Regulatory Planning Committee of Derbyshire County
Council (the "Committee") voted in favour, on 11 April 2016, to approve the construction and operation of an
energy recovery facility at Clay Cross Facility in Derbyshire (the "Clay Cross Facility") by Clay Cross Biomass
Limited ("Clay Cross Biomass"), a company in which REACT has a 90% interest, subject to finalising an
agreement under Section 106 of the Town and Country Planning Act 1990 pursuant to the conditions set out
in the report to the Committee.
Clay Cross Biomass anticipates utilising the EGT, the same technology that the Company is installing at Newry
Biomass, to power the plant as part of the EPC contract for the construction of the Clay Cross Facility. Once
commissioned, the Clay Cross Facility is expected to convert approximately 80,000 tonnes per annum of
construction and demolition (C&D) waste wood, which is currently sent to landfill, to generate up to 12MW of
electrical energy, sufficient to provide electricity for over 18,000 homes, and up to 14MW of thermal energy
per annum.
The Company is currently in preliminary discussions to secure finance for the construction of the Clay Cross
Facility and estimates that it will take approximately 18 months from obtaining finance to the final
commissioning of the plant. The expected cost to develop the Clay Cross Facility is approximately £50 million.
Biomass Heat
The Company owns 30% of a special purpose vehicle (“SPV”) set up with Equitix ESI Finance Limited
(“Equitix”) and receives development and on-going management fees from it. The SPV currently operates
three biomass heat projects in the UK.
Renewable Heat Incentive (RHI) is the primary incentive scheme in operation for these projects. The
digression in RHI tariffs for boilers below 200kw range is impeding progress on projects within the pipeline
and represents a continuing challenge to completion of project financing.
Wind Electricity Generation
In Ireland, the Company is currently operating a cash generating 800kW Enercon wind turbine in Pluckanes,
County Cork. This plant was financed by company equity and bank debt provided by AIB Bank plc and has a
15-year Power Purchase Agreement with Viridian Energy Limited.
The Company is advancing the project pipeline with the intention to finance a number of small-scale projects
together via company equity and bank financing, thereby creating a small-scale wind portfolio. The return on
capital employed for each project will be assessed to ensure an adequate return. The Company is also working
on creating a master supply agreement with a turbine manufacturer arising from wind measurement and site
analysis.
Future strategy
The overall business strategy of the Group is to focus on taking advantage of the significant opportunities in
the Energy from Waste Market in the UK.
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REACT Energy plc
Chairman and Chief Executive’s Report - continued
Financial position
FY 2016 Financials
• Loss of €1.540 million versus a profit of €5.319 million in 2015 (€0.091 million loss related to
continuing operations in 2015)
• Loss for the year includes net foreign exchange losses of €0.164 million and interest costs of
€0.603 million
• Loss per share of 0.015 cents versus a profit of 0.173 cents in 2015
• At 30 June 2016, total cash and cash equivalents were €0.324 million versus €0.211 million in
2015
Post FY 2016 Financials
• Further drawdown of €175,000 on loan facility from EBIOSS together with an increase in
facility size from €750,00 to €1,350,000 and extension of the term to 7 January 2018
Outlook
After what has been a very tough 18 months for everyone, thanks to the major support of the Company’s
existing stakeholders and new investor EBIOSS, the Company now has the potential to take advantage of the
opportunities presenting themselves in the UK Energy from Waste market and in turn advance its pipeline of
projects throughout the UK.
The Company looks forward to updating its shareholders in the future on further developments as the
Company further builds its position in the Energy from Waste market.
Dermot O’Connell
Chairman
Gerry Madden
Chief Executive
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REACT Energy plc
Directors
Dermot O’Connell, Non-Executive Chairman
Dermot O'Connell is a former director of REACT’s largest shareholder, Farmer Business Developments plc. He
joined the Board as a Non-Executive Director in March 2011 and was appointed as Non-Executive Chairman in
October 2011.
Gerry Madden, CEO
Gerry Madden has been in the role of Chief Executive of REACT Energy plc since March 2011, having previously
joined the company in May 2007 as Finance Director. He previously set up and operated a corporate finance practice
between 1998 and 2007, advising UK and Irish companies on corporate finance activities and business strategy. During
this period he also acted as a Non-Executive Director for companies in the technology, healthcare, retail and renewable
energy sectors. He originally worked for 16 years with international accountants KPMG and was auditor and adviser to
listed companies, multinationals and private companies operating in Ireland and internationally. He is a Fellow of the
Institute of Chartered Accountants in Ireland and is a graduate of University College Cork.
Brendan Halpin, Executive Director and Company Secretary
Brendan Halpin joined the Group in February 2006 as Financial Controller and joined the Board as Executive Director
in March 2011. Brendan is a Fellow of the Institute of Chartered Accountants in Ireland, having qualified as an
accountant with PricewaterhouseCoopers in 1998. His current responsibilities include inter alia, finance management,
project management and treasury functions.
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REACT Energy plc
Advisors and other information
Nominated & Financial Adviser and Broker
Strand Hanson Limited
26 Mount Row, Mayfair,
London W1K 3SQ,
United Kingdom.
Auditors
Grant Thornton,
Chartered Accountants and Statutory Audit Firm,
Molyneux House, Bride Street,
Dublin 8, Ireland.
Bankers
Bank of Ireland,
32 South Mall, Cork,
Ireland
Allied Irish Banks,
Main Street, Carrigaline,
Co. Cork, Ireland
Solicitors
McEvoy Corporate Law
33 Fitzwilliam Square, Dublin 2,
Ireland.
Registrar
Capita Corporate Registrars plc,
2 Grand Canal Square, Dublin 2,
Ireland.
Registered Office
Building 1000, City Gate,
Mahon, Cork,
Ireland.
Company Registration Number
462861
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REACT Energy plc
Directors’ Report
The directors present their annual report and the audited financial statements of the company and its subsidiaries,
collectively known as ‘the Group’ for the financial year ended 30 June 2016.
Principal Activities
The principal activities of the Company and the Group are to identify, develop, build, own and operate power
plants in the UK and Ireland using clean energy technologies. The Group’s business strategy remains one of
focusing the Group’s resources on delivering projects to financial closure and managing the implementation and
operation of those projects. The intention is to retain a long-term income stream linked to profits generated by
projects in addition to receiving a development fee from third parties in exchange for project equity. The Group
has projects at an advanced stage that are ready to be developed, and the development of these projects can be
enabled by strategic partnerships and funding provided from existing and third party investors.
Review of Business and Future Developments and Key Performance Indicators
A review of the Group’s business and future developments and key performance indicators is contained in the
Chairman and Chief Executive’s Report on pages 3 to 8.
Results and Dividends
The results for the year are set out on page 21. No dividends have been proposed by the directors (2015: €Nil).
Principal Risks and Uncertainties
The Group has a risk management structure in place, which is designed to identify, manage and mitigate business
risk. Risk assessment and evaluation is an essential part of the Group’s internal control system.
Information about the financial risk management objectives and policies of the Group, along with exposure of
the Group to credit risk, liquidity risk and market risk, are disclosed in Note 5 of the notes to the consolidated
financial statements.
The Group is exposed to a number of other risks and uncertainties. These break into three categories:
1. General risks impacting the business.
2. Project development related risk.
3. Going concern – this is discussed in Note 3 of the financial statements.
General Risks
Electricity market
The Group’s plans are exposed to electricity market price risk through variations in the wholesale price of
electricity. The Group manages this risk by entering into long term power purchase agreements.
Legislative risk
The Group is exposed to adverse changes in legislation that may impact the income for renewable energy power
plants. The directors monitor possible changes to legislation and where possible engage in the consultation
process to safeguard the Group’s interests. Projected project revenues could be affected by changes to the
renewable legislation including for example; the number of Renewable Obligation Certificates awarded per MWh
of generation under the Renewable Obligation or price received under the Feed in Tariff Contract for Difference
(FiT CfD). Any negative changes to these projected revenues could impact the ability of the Group to secure
debt and equity for projects.
11
REACT Energy plc
Directors’ Report – continued
Principal Risks and Uncertainties - continued
Liquidity
The cash requirements of the Group are forecast by the Board annually in advance and reviewed monthly by
management, enabling the Group’s cash requirements to be anticipated. The cash forecast includes assumptions
with respect to working capital, development spend and the timing of planning consents and financial close of
projects. Significant delays in these expected timings may lead to a requirement for additional cash and impinge
on going concern.
Project development risks
Site evaluation and procurement
Securing sites for the development of renewable energy power plants is a key requirement in further developing
the business. This relies upon the ability of the Group to locate, evaluate, select, develop and realise appropriate
opportunities, and to be able to negotiate and complete land agreements and related access/connection
agreements at a cost that allows profitable projects to be developed.
The Group manages these risks by continually reviewing a large number of sites in the UK and Ireland such that
it is not focused on any one particular landowner or location.
Planning and development consent
Once a site is secured, a planning and development consent is sought, together with any other necessary permits
to allow a renewable energy power plant to be constructed and operated. During this stage of the process the
Group is exposed to the following specific risks:
consents may be subjected to delays beyond the Group’s control, which may subsequently cause the
project to be delayed or aborted. There are no guarantees that any or all of the necessary consents will
be granted;
consents granted may be subject to conditions that affect the economic or operational viability of the
proposed project. These could in turn impact the Group’s ability to raise project finance, or reduce the
value of a project in the case of a sale;
delays or onerous planning conditions may lead to unforeseen costs which the Group may need to raise
finance for; and
legislative changes may influence the acceptability of the site or the economic viability of the project.
The Group manages these risks through securing sites on which it believes it can secure planning and
development consent, employing suitably qualified and significantly experienced staff to manage the consenting
process and ensure compliance with the latest legislation, as well as ensuring maximum engagement of local
authorities and interested stakeholders from a very early stage.
The Group has significant experience of securing planning consents for renewable energy power plants and
knowledge of the important criteria involved. The Group uses this experience when selecting sites for
development.
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REACT Energy plc
Directors’ Report – continued
Principal Risks and Uncertainties - continued
Contract negotiation
This stage of the development process involves the negotiation of contracts for the construction of the
renewable energy plant, the sale of electricity and related products produced by the plant, the procurement of
fuel for the plant and the operation of the plant. This stage begins during the early stages of the planning and
development and concludes at the point of financial close. During this stage the Group is exposed to the
following specific risks in addition to those outlined above:
the ability to secure fixed price contracts for the construction of each power plant with the required level
of guarantees that allow project finance to be secured; and
significant changes to inflation impacting the costs of building and operating renewable energy power
plants and therefore the profitability of renewable energy power plants.
The Group manages these risks through soliciting bids from a number of different suppliers for the equipment
required to construct the plant and any other materials or equipment required to ensure the plant can operate
profitably.
Financial close
This stage relates to the crystallisation of the project into the construction stage. This may involve either the
sale of the project, in whole or part, or securing project finance enabling the project to be constructed.
During this stage the Group is exposed to the additional risks:
the general availability of finance to fund the construction of power plants, and the level of lending
that can be secured;
changes to interest rates which may impact the cost of financing power projects;
the ability to secure equity on acceptable terms for the construction of projects once debt is in place;
and
depressed market for the sale of projects, leading to low prices or no willing buyers.
It is the Board’s view that once the project has planning and development consent, these risks are mitigated by
the potential to sell a project for at least its book value.
The Group has experience in negotiating financial arrangements for power plants and understands the contract
structures required to secure project finance. Additionally the Group has relationships with a number of project
finance banks, utility and large industrial companies allowing project finance or sale discussions to be initiated.
Construction
This stage is reached once financing, both debt and equity, is secure and all project contracts are entered into.
During this stage the Group is exposed to the following specific risks:
cost overruns by contractors or claims made may result in a need for additional equity or debt funding;
delays to the construction programme leading to higher than planned interest charges during the
construction programme and may delay the commencement of operating cash flows to fund the
Group’s on-going activities;
failure of the completed plant to operate as planned; and
supplier insolvency.
13
REACT Energy plc
Directors’ Report – continued
Principal Risks and Uncertainties - continued
The Group seeks to mitigate these risks through the negotiation of fixed price contracts with reputable
contractors and by ensuring the financial plans include adequate levels of contingency to accommodate cost
overruns. Additionally, the Group seeks to appoint an owner’s engineer with significant experience to oversee
the project programme once construction commences.
Going Concern
The directors have assessed going concern. See Note 3 for further details.
Directors
The following directors held office during the financial year:
Dermot O’Connell
Gerard Madden
Brendan Halpin
Edward Barrett (resigned 15 January 2016)
Directors’ and Secretary’s Interests in Shares
The directors and secretary of REACT Energy plc who held office at 30 June 2016 had the following interests in
the shares of the Company:
Number of
Ordinary
Shares at
30 June 2016
1,142,910
817,140
570,109
Number of
‘A’ Ordinary
Shares at
30 June 2016
3,261,873
14,926,161
-
Number of
Ordinary
Shares
at 1 July 2015
320,776
1,533
-
Number of
‘A’ Ordinary
Shares at
1 July 2015
3,261,873
14,926,161
-
Brendan Halpin
Gerry Madden
Dermot O’Connell
Remuneration Committee Report
The Group’s policy on senior executive remuneration is designed to attract and retain people of the highest
calibre who can bring their experience and independent views to the policy, strategic decisions and governance
of the Group.
In setting remuneration levels the Remuneration Committee takes into consideration the remuneration practices
of other companies of similar size and scope. A key philosophy is that staff must be properly rewarded and
motivated to perform in the best interests of the shareholders. Details of directors’ remuneration are included in
Note 27 of the notes to the consolidated financial statements.
14
REACT Energy plc
Directors’ Report – continued
Accounting Records
The directors believe that they have complied with the requirements of Sections 281 to 285 of the Companies
Act, 2016 with regard to the keeping of accounting records by employing persons with appropriate expertise and
by providing adequate resources to the financial function. The accounting records are held at the Company's
business address at Building 1000, City Gate, Mahon, Cork.
Subsequent Events
Details of events occurring since 30 June 2016 which impact on the Group are included in Note 31.
Disclosure of information to auditors
Each of the persons who are directors at the time when this Directors' report is approved has confirmed that:
so far as that director is aware, there is no relevant audit information of which the Company's auditors
are unaware, and
that director has taken all the steps that ought to have been taken as a director in order to be aware of
any relevant audit information and to establish that the Company's auditors are aware of that
information.
Directors’ compliance statement
To ensure that the company achieved material compliance with its relevant obligations, the directors confirm
that they have:
drawn up a compliance policy statement setting out the company's policies respecting compliance by the
company with its relevant obligations.
put in place appropriate arrangements and structures that are designed to secure material compliance
with the company's relevant obligations.
conduct a review, during the financial year, of the arrangements and structures, referred to above.
Auditors
The auditors, Grant Thornton, Chartered Accountants and Statutory Audit Firm, continue in office in accordance with
Section 383(2) of the Companies Act, 2014.
Approved by the Board on 22 December 2016.
.
Dermot O’Connell
Chairman
Gerry Madden
Director
15
REACT Energy plc
Statement of the Directors’ Responsibilities
The directors are responsible for preparing the Directors' Report and the financial statements in accordance with
applicable Irish law and regulations.
Irish company law requires the directors to prepare financial statements for each financial year. Under that law
the directors have elected to prepare the financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. Under company law, the directors must not
approve the financial statements unless they are satisfied that they give a true and fair view of the assets,
liabilities and financial position of the Company as at the financial year end date and of the profit or loss of the
Company for the financial year and otherwise comply with the Companies Act, 2014.
In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgments and accounting estimates that are reasonable and prudent;
state whether the financial statements have been prepared in accordance with applicable accounting
standards, identify those standards, and note the effect and the reasons for any material departure from
those standards; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
The directors are responsible for ensuring that the Company keeps or causes to be kept adequate accounting
records which correctly explain and record the transactions of the Company, enable at all times the assets,
liabilities, financial position and profit or loss of the Company to be determined with reasonable accuracy, enable
them to ensure that the financial statements and Directors’ Report comply with the Companies Act 2014 and
enable the financial statements to be audited. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Legislation in Ireland governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Dermot O’Connell
Chairman
Date: 22 December 2016
Gerry Madden
Director
16
REACT Energy plc
Corporate Governance Report
The Company is not subject to the Combined UK Corporate Governance Code applicable to companies with
full listing on the London Stock Exchange. The Company does however intend, so far as is practicable and
desirable, given the size and nature of the business, to follow the recommendations on corporate governance for
AIM companies (the ‘QCA Guidelines’) issued by the Quoted Companies Alliance (‘QCA’).
The Board
The board of directors of the Company is responsible to shareholders for leadership in all aspects of the
business. The board comprises three members. One independent non-executive director contributes individual
experience from a diverse background. Two executive directors are responsible for the implementation of all
board decisions and oversee the management of the Group on a day-to-day basis.
In accordance with the articles of association, one-third of directors retire by rotation each year. Each director
must be subject to re-election at least every three years.
Role of the Board
The Company has adopted a schedule of matters reserved for consideration by the whole board, including, for
example: approval of the Group’s long-term objectives and commercial strategy; approval of the annual
operating and capital expenditure budgets of the Group (and any material changes thereto); changes relating to
the Group’s structure; major changes to the Group’s corporate structure; approval of the Group’s annual report
and accounts; approval of the dividend policy; major capital projects; changes to the structure, size and
composition of the board; determination of the remuneration for the directors, the Company Secretary and
executive management; division of responsibilities between the Chairman, the Chief Executive and other
executives of the board; and the making of political donations or political expenditure.
The Board is also responsible for ensuring maintenance of sound systems of internal control and risk
management and the directors confirm that they continually review the effectiveness of the system of internal
control, covering all material controls including financial, operational and compliance controls and risk
management.
In accordance with QCA Guidelines, the board has established audit and remuneration committees, as described
below, and utilises other committees as necessary in order to ensure effective governance.
Audit Committee
The Company’s Audit Committee previously comprised Dermot O’Connell as the Chairman and Edward
Barrett. The Audit Committee currently consists of Dermot O’Connell and will continue to do so until board
numbers are increased. The Audit Committee meet at least two times a year at appropriate times in the reporting
and audit cycle and otherwise as required. The Finance Director normally attends meetings of the Committee and
the Chief Executive Officer attends as necessary. The external auditors are invited to attend meetings of the
Audit Committee on a regular basis.
17
REACT Energy plc
Corporate Governance Report
Audit Committee - continued
The terms of reference for the Audit Committee include the following responsibilities:
Monitoring the integrity of the reported financial performance of the Group, including its preliminary
results announcement, annual report and interim report;
Reviewing the effectiveness of the Group’s internal financial controls;
Making recommendations to the board on the appointment and removal of the external auditors and the
audit fee; and
Monitoring the objectivity and independence of the external auditors.
Remuneration Committee
The Company’s Remuneration Committee previously comprised Edward Barrett as the Chairman and Dermot
O’Connell. The Remuneration Committee currently consists of Dermot O’Connell and will continue to do so
until board numbers are increased. The role of the Remuneration Committee is to review the performance of the
executive directors and other senior executives and to set the scale and structure of their remuneration, including
the implementation of any bonus arrangements, with due regard to the interests of Ordinary Shareholders. The
Remuneration Committee also administers and establishes performance targets for share incentive schemes and
determines the allocation of share incentives to employees.
Nomination committee
The Company does not have a nomination committee. Any appointments to the Board are considered by the
Board as a whole.
In considering the appointment of a new director, the Board identifies the characteristics, qualities, skills and
experience that it believes would complement the overall balance and composition of the Board.
Relations with Shareholders
The Company believes that effective communication with shareholders is of utmost importance. It has an
established cycle for communicating trading results at the interim and year end stages and, as appropriate, of
providing business updates via the Regulatory News Service and press releases.
The Company makes information available through regulatory announcements and its interim and annual
reports. Copies of all such communications can be found on the Company website, www.reactenergyplc.com.
The board has adopted a code for dealings in the Company’s securities by directors and applicable employees,
which conforms to the requirement of the AIM Rules (Share Dealing Code). The Company will be responsible
for taking all proper and reasonable steps to ensure compliance by the directors and applicable employees with
the Share Dealing Code and the AIM Rules. The Company complies with the corporate governance obligations
applicable to Irish registered public companies whose shares are quoted on the AIM market of the London Stock
Exchange.
18
REACT Energy plc
Consolidated statement of profit or loss
for the financial year ended 30 June 2016
Revenue
Cost of sales
Gross profit
Operating expenses
Administrative expenses
Share of fair value of previously held equity interest in Newry
Biomass Limited
Impairment of property, plant and equipment
Foreign currency losses/(gains)
Operating (loss)/profit
Finance costs
Finance income
Loss before taxation
Income tax credit
Loss for the year from continuing operations
Profit arising from the derecognition of discontinued operations
Profit for the year on discontinued operations
Net profit for the year from discontinued operations
(Loss)/profit for the year
(Loss)/profit attributable to:
Owners of the company
Non-controlling interest
Basic (loss)/earnings per share:
From continuing operations
From continuing and discontinued operations
Diluted (loss)/earnings per share:
From continuing operations
From continuing and discontinued operations
Notes
8
9
10
28
16
11
11
13
14
29
29
29
15
15
15
15
2016
€
246,864
-
246,864
2015
€
279,966
(10,145)
269,821
(712,468)
(2,293,489)
-
(307,759)
(163,721)
(937,084)
(602,975)
15
(1,540,044)
2,335,810
(336,532)
218,518
194,128
(285,342)
-
(91,214)
-
-
(1,540,044)
(91,214)
-
-
-
(1,540,044)
5,307,258
103,375
5,410,633
5,319,419
(1,041,035)
(499,009)
5,320,045
(626)
(1,540,044)
5,319,419
2016
€ per share
2015
€ per share
(0.015)
(0.015)
(0.015)
(0.015)
(0.003)
0.173
(0.003)
0.069
The notes on pages 29 to 75 form part of these financial statements.
21
REACT Energy plc
Consolidated statement of other comprehensive income
for the financial year ended 30 June 2016
(Loss)/Profit for the financial year
(1,540,044)
5,319,419
2016
€
2015
€
Other comprehensive income and expense
Items that may be reclassified
subsequently to profit or loss
Exchange differences arising on retranslation
of foreign operations
(603,466)
(683,068)
(603,466)
(683,068)
Total comprehensive income and expense for the year
(2,143,510)
4,636,351
Attributable to:
Owners of the company
Non-controlling interests
(1,327,723)
(815,787)
4,592,909
43,442
(2,143,510)
4,636,351
The notes on pages 29 to 75 form part of these financial statements.
22
REACT Energy plc
Consolidated statement of financial position
At 30 June 2016
ASSETS
Non-current assets
Property, plant and equipment
Investments in joint ventures
Financial assets
Total non-current assets
Current assets
Amounts due under construction contracts
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Retained earnings – deficit
Deficit attributable to the owners of the company
Non-controlling interests
Total equity
Non-current liabilities
Borrowings
Total non-current liabilities
Current liabilities
Trade and other payables
Borrowings
Total current liabilities
Total equity and liabilities
Notes
16
17
17
19
20
21
22
22
23
2016
€
10,799,870
-
-
2015
€
7,201,844
-
-
10,799,870
7,201,844
150,847
158,029
324,195
150,847
141,799
211,346
633,071
503,992
11,432,941
7,705,836
17,453,246
21,863,190
(40,139,172)
13,006,149
20,713,637
(38,811,449)
(822,736)
1,639,780
(5,091,663)
2,455,567
817,044
(2,636,096)
24
3,379,621
-
3,379,621
-
25
24
5,425,146
1,811,130
4,440,615
5,901,317
7,236,276
10,341,932
11,432,941
7,705,836
The financial statements were approved by the Board of Directors on 22 December 2016 and signed on
its behalf by:
Dermot O’Connell
Chairman
Gerry Madden
Director
The notes on pages 29 to 75 form part of these financial statements.
23
REACT Energy plc
Consolidated statement of changes in equity
for the financial year ended 30 June 2016
Balance at 1 July 2014
Fair value recognised on non-controlling interests in Newry
Biomass Limited (Note 28)
Profit/(loss) for the financial year
Unrealised foreign exchange losses
Balance at 30 June 2015
Conversion of debt into equity under examinership
settlement (Notes 22,24)
Issue of equity under rights of equity kicker (Notes 22,24)
Share issue costs
Loss for the financial year
Unrealised foreign exchange losses
Share
capital
€
13,006,149
-
-
-
Share
premium
€
20,713,637
-
-
-
Retained
earnings
€
(43,404,358)
-
5,320,045
(727,136)
Deficit
attributable to
equity holders
of the parent
€
(9,684,572)
Non-
controlling
interests
€
-
Total
€
(9,684,572)
-
5,320,045
(727,136)
2,412,125
(626)
44,068
2,412,125
5,319,419
(683,068)
13,006,149
20,713,637
(38,811,449)
(5,091,663)
2,455,567
(2,636,096)
3,747,097
700,000
-
-
-
1,977,634
(700,000)
(128,081)
-
-
-
-
-
(1,041,035)
(286,688)
5,724,731
-
(128,081)
(1,041,035)
(286,688)
-
-
-
(499,009)
(316,778)
5,724,731
-
(128,081)
(1,540,044)
(603,466)
Balance at 30 June 2016
17,453,246
21,863,190
(40,139,172)
(822,736)
1,639,780
817,044
The notes on pages 29 to 75 form part of these financial statements.
24
REACT Energy plc
Consolidated statement of cash flows
for the financial year ended 30 June 2016
Cash flows from operating activities
(Loss)/profit for the financial year
Adjustments for:
Depreciation of property, plant and equipment
Profit on disposal of property, plant and equipment
Share of fair value of previously held equity interest in Newry Biomass
Limited
Impairment of property, plant and equipment
Impairment of amounts due from customers under construction contracts
Unrealised foreign exchange movements
Increase in provision for impairment of trade and other receivables
Gain on de-recognition of subsidiary undertakings
Operating cash flows before working capital changes
Decrease/(Increase) in:
Amounts due from customers under construction contracts
Trade and other receivables
(Decrease)/increase in:
Amounts due to customers under construction contracts
Trade and other payables
Cash used in operating activities
Finance costs
Finance income
Income taxes (paid)/refunded
Net cash used in operating activities
Cash flows from investing activities
Additions to property, plant and equipment
Proceeds from sale of property, plant and equipment
Interest received
Net cash inflow from acquisition of subsidiaries
Net cash inflow on derecognition of subsidiaries
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayments of borrowings
Loan issue costs
Share issue costs
Interest paid
Net cash generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Notes
2016
€
2015
€
16
16
28
29
(1,540,044)
5,319,419
73,272
-
78,607
(5,576)
-
307,759
(1,246)
(583,265)
-
-
(2,335,810)
336,532
26,777
(334,659)
34,423
(5,307,258)
(1,743,524)
(2,187,545)
-
134,273
-
155,891
(55,963)
(147,189)
(129,197)
1,479,741
(1,453,360)
602,975
(15)
(6)
(1,040,153)
285,342
-
2,705
(850,406)
(752,106)
(311,490)
-
15
-
-
(425,882)
277,707
-
(1)
165,991
(311,475)
17,815
2,101,631
(15,000)
(484,476)
(128,081)
(199,885)
444,052
(18,750)
-
-
(47,181)
1,274,189
378,121
112,308
(356,170)
211,341
567,511
Cash and cash equivalents at the end of the financial year
21
323,649
211,341
Cash flows for discontinued operations are set out in Note 29 of the financial statements.
The notes on pages 29 to 75 form part of these financial statements.
25
REACT Energy plc
Company statement of financial position
At 30 June 2016
ASSETS
Non-current assets
Investment in subsidiary undertakings
Total non-current assets
Current assets
Trade and other receivables
Cash and bank balances
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Retained earnings - deficit
Notes
2016
€
2015
€
17
1,772,676
2,382,505
1,772,676
2,382,505
20
21
454,806
191,927
34,620
69,839
646,733
104,459
2,419,409
2,486,964
22
22
17,453,246
40,797,270
(59,936,851)
13,006,149
39,647,716
(56,330,844)
Deficit attributable to the owners of the company
(1,686,335)
(3,676,979)
Non-current liabilities
Borrowings
24
3,379,621
-
Total non-current liabilities
3,379,621
-
Current liabilities
Borrowings
Trade and other payables
Total current liabilities
Total equity and liabilities
24
25
589,880
136,243
4,391,855
1,772,088
726,123
6,163,943
2,419,409
2,486,964
The financial statements were approved by the Board of Directors on 22 December 2016 and signed on
its behalf by:
Dermot O’Connell
Chairman
Gerry Madden
Director
The notes on pages 29 to 75 form part of these financial statements.
26
REACT Energy plc
Company statement of changes in equity
for the financial year ended 30 June 2016
Share capital
€
Share
premium
€
Retained
earnings
€
Total
€
Balance at 1 July 2014
13,006,149
39,647,716
(53,911,572)
(1,257,707)
Loss for the financial year (Note 32)
-
-
(2,419,272)
(2,419,272)
Balance at 30 June 2015
13,006,149
39,647,716
(56,330,844)
(3,676,979)
Conversion of debt into equity under
examinership settlement (Notes 22,24)
3,747,097
1,977,634
Issue of equity under rights of equity kicker
(Notes 22,24)
Share issue costs
700,000
(700,000)
-
(128,080)
-
-
-
5,724,731
-
(128,080)
Loss for the financial year (Note 32)
-
-
(3,606,007)
(3,606,007)
Balance at 30 June 2016
17,453,246
40,797,270
(59,936,851)
(1,686,335)
The notes on pages 29 to 75 form part of these financial statements.
27
REACT Energy plc
Company statement of cash flows
for the financial year ended 30 June 2016
Cash flows from operating activities
Loss before taxation
Adjustments for:
Finance costs
Provision for impairment of investment in subsidiaries
Provision for impairment of trade and other receivables
Foreign currency losses arising from retranslation of
borrowings
Notes
2016
€
2015
€
(3,606,007)
(2,419,272)
559,675
2,445,939
269,906
211,653
166,400
270,407
(298,517)
(13,190)
Operating cash flows before working capital changes
(629,004)
(1,784,002)
(Increase) in trade and other receivables
Increase/(decrease) in trade and other payables
(371,583)
(314,873)
(383,944)
1,214,752
Net cash used in operating activities
(1,315,460)
(953,194)
Cash flows from financing activities
Proceeds from borrowings
Funds advanced to inter-company loans
Repayment of inter-company loan
Share issue costs
Loan issue costs
Interest paid
2,101,631
-
104,194
(128,081)
(484,476)
(156,261)
444,052
(62,815)
-
-
-
-
Net cash generated from financing activities
1,437,007
381,237
Net increase/(decrease) in cash and cash equivalents
121,547
(571,957)
Cash and cash equivalents at the beginning of the financial
year
69,834
641,791
Cash and cash equivalents at the end of the financial year
21
191,381
69,834
The notes on pages 29 to 75 form part of these financial statements.
28
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
1. GENERAL INFORMATION
REACT Energy plc (“the Company”) was incorporated in Ireland on 2 October 2008. The address of its
registered office and principal place of business is Building 1000, City Gate, Mahon, Cork, Republic of
Ireland.
These financial statements for the financial year ended 30 June 2016 consolidate the individual financial
statements of the Company and its subsidiaries (together referred to as ‘the Group’).
On 20 October 2008 the Company’s shares were admitted to trading on the London Stock Exchange’s
AIM market.
The principal activity of the Group is to identify, develop, build, own and operate renewable energy
electricity and heat generating power plants in the UK and Ireland. The Group focuses on both large and
small scale projects, providing flexibility to maximise existing land positions while diversifying
development and technology risks.
2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRSs)
The following new and revised Standards and Interpretations have not been adopted by the Group,
whether endorsed by the European Union or not. The Group is currently analysing the practical
consequences of the new Standards and the effects of applying them to the financial statements. The
related standards and interpretations are:
IFRS 9 Financial Instruments and subsequent amendments (effective for annual periods beginning on or after
1 January 2018, not yet endorsed by the European Union);
IFRS 15 Revenue from Contracts with Customers and subsequent clarifications
IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 ‘Revenue’, IAS 11
‘Construction Contracts’, and several revenue-related Interpretations. The new standard establishes a
control-based revenue recognition model and provides additional guidance in many areas not covered in
detail under existing IFRSs, including how to account for arrangements with multiple performance
obligations, variable pricing, customer refund rights, supplier repurchase options, and other common
complexities. IFRS 15 is effective for reporting periods beginning on or after 1 January 2018.
IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019, not yet endorsed by the
European Union);
Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations (effective for annual periods
beginning on or after 1 January 2016, endorsed by the European Union on 24 November 2015)
Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation
(effective for annual periods beginning on or after 1 January 2016, endorsed by the European Union on 2
December 2015)
29
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRSs) - continued
Amendments to IAS 27 Equity Method in Separate Financial Statements (effective for annual periods beginning
on or after 1 January 2016, endorsed by the European Union on 18 December 2015)
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture (effective on a prospective basis to a sale or contribution of assets occurring in annual periods
beginning on or after 1 January 2016, not yet endorsed by the European Union)
Annual Improvements to IFRSs 2012-2014 Cycle (effective for annual periods beginning on or after 1 January
2016, endorsed by the European Union on 15 December 2015)
Amendments to IAS 1 Disclosure Initiative (effective for annual periods beginning on or after 1 January
2016, endorsed by the European Union on 18 December 2015)
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities: Applying the Consolidation Exception
(effective for annual periods beginning on or after 1 January 2016; endorsed by the European Union on 22
September 2016).
Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants (effective for annual periods beginning on or
after 1 January 2016; endorsed by the European Union on 23 November 2015)
Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses (effective for annual periods
beginning on or after 1 January 2017, not yet endorsed by the European Union)
Amendments to IAS 7 Disclosure Initiative (effective for annual periods beginning on or after 1 January
2017, not yet endorsed by the European Union)
Amendments to IFRS 2 Classification and Measurement of Share-Based Payment Transactions (effective for annual
periods beginning on or after 1 January 2018; not yet endorsed by the European Union).
Amendments to IFRS 4 Applying IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance Contracts’ (effective for
annual periods beginning on or after 1 January 2018; not yet endorsed by the European Union).
The Group has not assessed the impact of the adoption of these standards and interpretations on its
financial statements on initial adoption.
30
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES
Basis of Preparation and Going Concern
The Group’s consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union (‘EU’) and effective at 30 June
2016 for all periods presented as issued by the International Accounting Standards Board.
The consolidated financial statements are prepared under the historical cost convention except for
certain financial assets and financial liabilities which are measured at fair value. The principal accounting
policies set out below have been applied consistently by the parent company and by all of the
Company’s subsidiaries to all periods presented in these consolidated financial statements.
The financial statements of the parent company, REACT Energy plc have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the European Union (‘EU’)
effective at 30 June 2016 for all periods presented as issued by the International Accounting Standards
Board and Irish Statute comprising the Companies Act, 2015.
The Group incurred a loss of €1,540,044 (2015: profit of €5,319,419) during the year, and had net
current liabilities of €6,603,205 (2015: €9,837,940) and net assets of €817,044 (2015: net liabilities of
€2,636,096) at 30 June 2016.
Development of, and revenue generation from, the principal assets of the Company will require additional
financing which is expected to be sourced in due course.
The Company also announced on 12 December 2016 that a €750,000 loan facility secured in January
2016 from EBIOSS has now been fully utilised. It was also announced that the terms of the facility had
been amended by agreement between that parties such that the amount of the facility was increased by
€600,000 to €1,350,000 and the repayment date of the increased facility was extended to 7 January 2018.
The increased facility is to cover the working capital requirements of the Company.
The Directors have given careful consideration to the appropriateness of the going concern basis in the
preparation of the financial statements. The validity of the going concern basis is dependent upon
additional financing being obtained for the development of, and revenue generation from, the principal
assets of the Company and to provide ongoing general working capital. As no definite funding has been
received on a number of developments of the Group, a material uncertainty exists in relation to the
Company and the Group’s ability to continue as a going concern.
The Directors believe that progress towards securing finance has been made. The Directors have a
reasonable expectation that the Company will source this finance and the Group will have adequate
resources to continue in operational existence for the foreseeable future. For these reasons the Directors
continue to adopt the going concern basis of accounting in preparing the financial statements. The
financial statements do not include any adjustments that would result if the Group was unable to
continue as a going concern.
The Group continues to invest capital in developing and expanding its portfolio of clean energy projects.
The nature of the Group’s development programme means that the timing of funds generated from
developments is difficult to predict. Management have prepared financial forecasts to estimate the likely
cash requirements of the Group over the next 12 months. The forecasts include certain assumptions
with regard to the costs of ongoing development projects, overheads and the timing and amount of any
funds generated from developments. The forecasts indicate that during this period the Group will
require additional funds to continue with its activities and its planned development program.
31
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Basis of Preparation and Going Concern - continued
Whilst the strategy is to build, own and operate plants, once a site has been secured and planning and
permitting obtained the Group would be in a position, if it so chose, to monetise the value of the
project.
Basis of consolidation
The Group financial statements consolidate those of the parent company and all of its subsidiaries as of
30 June 2016. All subsidiaries have a reporting date of 30 June.
All transactions and balances between Group companies are eliminated on consolidation, including
unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-
group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a
Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted
where necessary to ensure consistency with the accounting policies adopted by the Group.
Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year
are recognised from the effective date of acquisition, or up to the effective date of disposal, as
applicable. The Group attributes total comprehensive income or loss of subsidiaries between the owners
of the parent and the non-controlling interests based on their respective ownership interests.
Business combinations
The Group applies the acquisition method in accounting for business combinations. The consideration
transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date
fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which
includes the fair value of any asset or liability arising from a contingent consideration arrangement.
Acquisition costs are expensed as incurred. Assets acquired and liabilities assumed are generally
measured at their acquisition-date fair values.
Step Acquisitions
Business combination achieved in stages is accounted for using acquisition method at acquisition date.
The components of a business combination, including previously held investments are remeasured at fair
value at acquisition date and a gain or loss is recognised in the consolidated statement of profit or loss.
32
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Investments in associates and joint ventures
Investments in associates and joint ventures are accounted for using the equity method. The carrying
amount of the investment in associates and joint ventures is increased or decreased to recognise the
Group’s share of the profit or loss and other comprehensive income of the associate and joint venture,
adjusted where necessary to ensure consistency with the accounting policies of the Group. When the
Group’s share of losses on an associate or a joint venture exceeds the Group’s interest in that associate
or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net
investment in the associate or joint venture), the Group discontinues recognising its share of future
losses. Additional losses are recognised only to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the associate or joint venture.
Unrealised gains and losses on transactions between the Group and its associates and joint ventures are
eliminated to the extent of the Group’s interest in those entities. Where unrealised losses are eliminated,
the underlying asset is also tested for impairment.
Foreign currency translation
Functional and presentation currency
The consolidated financial statements are presented in Euro, which is also the functional currency of the
parent company.
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional currency of the respective Group entity,
using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign
exchange gains and losses resulting from the settlement of such transactions and from the
remeasurement of monetary items denominated in foreign currency at year-end exchange rates are
recognised in profit or loss.
Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using
the exchange rates at the transaction date), except for non-monetary items measured at fair value which
are translated using the exchange rates at the date when fair value was determined.
Foreign operations
In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a
functional currency other than Euro are translated into Euro upon consolidation. The functional
currency of the entities in the Group has remained unchanged during the reporting period.
On consolidation, assets and liabilities have been translated into Euro at the closing rate at the reporting
date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated
as assets and liabilities of the foreign entity and translated into Euro at the closing rate. Income and
expenses have been translated into Euro at the average rate over the reporting period. Exchange
differences are charged or credited to other comprehensive income and recognised in the currency
translation reserve in equity. On disposal of a foreign operation, the related cumulative translation
differences recognised in equity are reclassified to profit or loss and are recognised as part of the gain or
loss on disposal.
33
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Segment reporting
The Group has one operating segment: the power generation segment. In identifying this operating
segment, management generally follows the Group’s service lines representing its main products and
services.
Each operating segment is managed separately as each requires different technologies, marketing
approaches and other resources. All inter-segment transfers are carried out at arm’s length prices based
on prices charged to unrelated customers in standalone sales of identical goods or services.
For management purposes, the Group uses the same measurement policies as those used in its financial
statements. In addition, corporate assets which are not directly attributable to the business activities of
any operating segment are not allocated to a segment. This primarily applies to the Group’s central
administration costs and directors salaries.
Revenue
Revenue arises from the sale of goods and the rendering of services. It is measured at the fair value of
consideration received or receivable, excluding sales taxes, and reduced by any rebates and trade
discounts allowed. The Group applies the revenue recognition criteria set out below to each separately
identifiable component of the sales transaction. The consideration received from these multiple-
component transactions is allocated to each separately identifiable component in proportion to its
relative fair value.
Rendering of services
The Group generates revenues from after-sales service and maintenance, consulting, and construction
contracts for renewable energy systems. Consideration received for these services is initially deferred,
included in other payables, and is recognised as revenue in the period when the service is performed. In
recognising after-sales service and maintenance revenues, the Group determines the stage of completion
by considering both the nature and timing of the services provided and its customer’s pattern of
consumption of those services, based on historical experience. Where the promised services are
characterised by an indeterminate number of acts over a specified period of time, revenue is recognised
on a straight-line basis. Revenue from consulting services is recognised when the services are provided
by reference to the contract’s stage of completion at the reporting date in the same way as construction
contracts for renewable energy systems described below.
Construction contracts for renewable energy systems
Construction contracts for renewable energy systems specify a fixed price for the design, development
and installation of biomass systems. When the outcome can be assessed reliably, contract revenue and
associated costs are recognised by reference to the stage of completion of the contract activity at the
reporting date. Contract revenue is measured at the fair value of consideration received or receivable.
When the Group cannot measure the outcome of a contract reliably, revenue is recognised only to the
extent of contract costs that have been incurred and are recoverable. Contract costs are recognised in the
period in which they are incurred. In either situation, when it is probable that total contract costs will
exceed total contract revenue, the expected loss is recognised immediately in profit or loss.
A construction contract’s stage of completion is assessed by management by comparing costs incurred
to date with the total costs estimated for the contract (a procedure sometimes referred to as the cost-to-
cost method). Only those costs that reflect work performed are included in costs incurred to date. The
gross amount due from customers for contract work is presented within trade and other receivables for
all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds
progress billings. The gross amount due to customers for contract work is presented within other
liabilities for all contracts in progress for which progress billings exceed costs incurred plus recognised
profits (less recognised losses).
34
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Revenue - continued
Interest and dividends
Interest income and expenses are reported on an accrual basis using the effective interest method.
Dividends, other than those from investments in associates and joint ventures, are recognised at the time
the right to receive payment is established.
Operating expenses
Operating expenses are recognised in profit or loss upon utilisation of the service or as incurred.
Expenditure for warranties is recognised when the Group incurs an obligation, which is typically when
the related goods are sold.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset
are capitalised during the period of time that is necessary to complete and prepare the asset for its
intended use or sale. Other borrowing costs are expensed in the period in which they are incurred and
reported in finance costs.
Profit or loss from discontinued operations
A discontinued operation is a component of the Group that either has been disposed of, or is classified
as held for sale. Profit or loss from discontinued operations comprises the post-tax profit or loss of
discontinued operations and the post-tax gain or loss resulting from the measurement and disposal of
assets classified as held for sale.
Goodwill
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 below for a description of impairment testing procedures.
Non-controlling interests
Non-controlling interests that are present ownership interest and entitle their holders to a proportionate
share of the entity’s net assets in the event of a liquidation may be initially measured either at fair value
of at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s
identifiable net assets. Other types of non-controlling interests are measured at fair value, or, when
applicable, on the basis specified in another IFRS.
Property, plant and equipment
Land and buildings and plant and equipment are initially recognised at acquisition cost or manufacturing
cost, including any costs directly attributable to bringing the assets to the location and condition
necessary for them to be capable of operating in the manner intended by the Group’s management.
Leasehold buildings, plant and equipment are subsequently measured at cost less accumulated
depreciation and impairment losses. Depreciation is recognised on a straight-line basis to write down the
cost less estimated residual value of leasehold buildings and plant and equipment. The following useful
lives are applied:
• Leasehold buildings: 5-50 years
• Office equipment: 2-5 years
• Wind Turbine: 20 years
• Heat boilers: 15-20 years
Material residual value estimates and estimates of useful life are updated as required, but at least annually.
35
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Property, plant and equipment - continued
Gains or losses arising on the disposal of property, plant and equipment are determined as the difference
between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss
within other income or other expenses.
Leased assets
Finance leases
Management applies judgment in considering the substance of a lease agreement and whether it transfers
substantially all the risks and rewards incidental to ownership of the leased asset. Key factors considered
include the length of the lease term in relation to the economic life of the asset, the present value of the
minimum lease payments in relation to the asset’s fair value, and whether the Group obtains ownership
of the asset at the end of the lease term.
For leases of land and buildings, the minimum lease payments are first allocated to each component
based on the relative fair values of the respective lease interests. Each component is then evaluated
separately for possible treatment as a finance lease, taking into consideration the fact that land normally
has an indefinite economic life. The interest element of lease payments is charged to profit or loss, as
finance costs over the period of the lease.
Operating leases
All other leases are treated as operating leases. Where the Group is a lessee, payments on operating lease
agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs,
such as maintenance and insurance, are expensed as incurred.
Impairment testing of goodwill and property, plant and equipment
For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely
independent cash inflows (cash-generating units). As a result, some assets are tested individually for
impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-
generating units that are expected to benefit from synergies of a related business combination and
represent the lowest level within the Group at which management monitors goodwill. Cash-generating
units to which goodwill has been allocated (determined by the Group’s management as equivalent to its
operating segments) are tested for impairment at least annually. All other individual assets or cash-
generating units are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s (or cash-generating unit’s) carrying
amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value-
in-use. To determine the value-in-use, management estimates expected future cash flows from each
cash-generating unit and determines a suitable discount rate in order to calculate the present value of
those cash flows. The data used for impairment testing procedures are directly linked to the Group’s
latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset
enhancements. Discount factors are determined individually for each cash-generating unit and reflect
current market assessments of the time value of money and asset-specific risk factors.
Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to
that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the
cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for
indications that an impairment loss previously recognised may no longer exist. An impairment loss is
reversed if the asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount.
36
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Financial instruments
Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognised when the Group becomes a party to the
contractual provisions of the financial instrument and are measured initially at fair value adjusted for
transaction costs, except for those carried at fair value through profit or loss which are measured initially
at fair value. Subsequent measurement of financial assets and financial liabilities is described below.
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset
expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial
liability is derecognised when it is extinguished, discharged, cancelled or expires.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement financial assets, other than those designated and effective
as hedging instruments, are classified into the following categories upon initial recognition:
•
•
•
•
loans and receivables
financial assets at fair value through profit or loss (FVTPL)
held-to-maturity (HTM) investments
available-for-sale (AFS) financial assets.
All financial assets except for those at FVTPL are reviewed for impairment at least at each reporting date
to identify whether there is any objective evidence that a financial asset or a group of financial assets is
impaired. Different criteria to determine impairment are applied for each category of financial assets,
which are described below.
All income and expenses relating to financial assets that are recognised in profit or loss are presented
within finance costs, finance income or other financial items, except for impairment of trade receivables
which is presented within other expenses.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. After initial recognition, these are measured at amortised cost using the
effective interest method, less provision for impairment. Discounting is omitted where the effect of
discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall
into this category of financial instruments.
Individually significant receivables are considered for impairment when they are past due or when other
objective evidence is received that a specific counterparty will default. Receivables that are not
considered to be individually impaired are reviewed for impairment in groups, which are determined by
reference to the industry and region of the counterparty and other shared credit risk characteristics. The
impairment loss estimate is then based on recent historical counterparty default rates for each identified
group.
Financial assets at FVTPL
Financial assets at FVTPL include financial assets that are either classified as held for trading or that
meet certain conditions and are designated at FVTPL upon initial recognition. All derivative financial
instruments fall into this category, except for those designated and effective as hedging instruments, for
which the hedge accounting requirements apply.
37
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Financial instruments - continued
Financial assets at FVTPL - continued
Assets in this category are measured at fair value with gains or losses recognised in profit or loss. The
fair values of financial assets in this category are determined by reference to active market transactions or
using a valuation technique where no active market exists.
HTM investments
HTM investments are non-derivative financial assets with fixed or determinable payments and fixed
maturity other than loans and receivables. Investments are classified as HTM if the Group has the
intention and ability to hold them until maturity.
HTM investments are measured subsequently at amortised cost using the effective interest method. If
there is objective evidence that the investment is impaired, determined by reference to external credit
ratings, the financial asset is measured at the present value of estimated future cash flows. Any changes
in the carrying amount of the investment, including impairment losses, are recognised in profit or loss.
AFS financial assets
AFS financial assets are non-derivative financial assets that are either designated to this category or do
not qualify for inclusion in any of the other categories of financial assets.
All AFS financial assets are measured at fair value. Gains and losses are recognised in other
comprehensive income and reported within the AFS reserve within equity, except for interest and
dividend income, impairment losses and foreign exchange differences on monetary assets, which are
recognised in profit or loss. When the asset is disposed of or is determined to be impaired, the
cumulative gain or loss recognised in other comprehensive income is reclassified from the equity reserve
to profit or loss. Interest calculated using the effective interest method and dividends are recognised in
profit or loss within finance income.
Reversals of impairment losses for AFS debt securities are recognised in profit or loss if the reversal can
be objectively related to an event occurring after the impairment loss was recognised. For AFS equity
investments impairment reversals are not recognised in profit loss and any subsequent increase in fair
value is recognised in other comprehensive income.
Classification and subsequent measurement of financial liabilities
The Group’s financial liabilities include borrowings, trade and other payables and derivative financial
instruments.
Financial liabilities are measured subsequently at amortised cost using the effective interest method
except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair
value with gains or losses recognised in profit or loss (other than derivative financial instruments that are
designated and effective as hedging instruments).
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in
profit or loss are included within finance costs or finance income.
Derivative financial instruments and hedge accounting
Derivative financial instruments are accounted for at FVTPL except for derivatives designated as
hedging instruments in cash flow hedge relationships, which require a specific accounting treatment. To
qualify for hedge accounting, the hedging relationship must meet several strict conditions with respect to
documentation, probability of occurrence of the hedged transaction and hedge effectiveness.
38
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Financial instruments - continued
Derivative financial instruments and hedge accounting - continued
All derivative financial instruments used for hedge accounting are recognised initially at fair value and
reported subsequently at fair value in the statement of financial position.
To the extent that the hedge is effective, changes in the fair value of derivatives designated as hedging
instruments in cash flow hedges are recognised in other comprehensive income and included within the
cash flow hedge reserve in equity. Any ineffectiveness in the hedge relationship is recognised
immediately in profit or loss.
At the time the hedged item affects profit or loss, any gain or loss previously recognised in other
comprehensive income is reclassified from equity to profit or loss and presented as a reclassification
adjustment within other comprehensive income. However, if a non-financial asset or liability is
recognised as a result of the hedged transaction, the gains and losses previously recognised in other
comprehensive income are included in the initial measurement of the hedged item.
If a forecast transaction is no longer expected to occur, any related gain or loss recognised in other
comprehensive income is transferred immediately to profit or loss. If the hedging relationship ceases to
meet the effectiveness conditions, hedge accounting is discontinued and the related gain or loss is held in
the equity reserve until the forecast transaction occurs.
Fair values
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on
the degree to which inputs to the fair value measurements are observable and the significance of the
inputs to the fair value measurement in its entirety, which are described as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: valuation techniques for which the lowest level of inputs which have a significant effect on the
recorded fair value are observable, either directly or indirectly
Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the
recorded fair value are not based on observable market data
Income taxes
Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not
recognised in other comprehensive income or directly in equity.
Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively
enacted by the end of the reporting period. Deferred income taxes are calculated using the liability
method.
Deferred tax assets are recognised to the extent that it is probable that the underlying tax loss or
deductible temporary difference will be utilised against future taxable income. This is assessed based on
the Group’s forecast of future operating results, adjusted for significant non-taxable income and
expenses and specific limits on the use of any unused tax loss or credit.
Deferred tax liabilities are generally recognised in full, although IAS 12 ‘Income Taxes’ specifies limited
exemptions. As a result of these exemptions the Group does not recognise deferred tax on temporary
differences relating to goodwill, or to its investments in subsidiaries.
39
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term,
highly liquid investments maturing within 90 days from the date of acquisition that are readily
convertible into known amounts of cash and which are subject to an insignificant risk of changes in
value.
Non-current assets and liabilities classified as held for sale and discontinued operations
Non-current assets classified as held for sale are presented separately and measured at the lower of their
carrying amounts immediately prior to their classification as held for sale and their fair value less costs to
sell. However, some held for sale assets such as financial assets or deferred tax assets, continue to be
measured in accordance with the Group’s relevant accounting policy for those assets. Once classified as
held for sale, the assets are not subject to depreciation or amortisation.
Any profit or loss arising from the sale or remeasurement of discontinued operations is presented as part
of a single line item, profit or loss from discontinued operations.
Equity, reserves and dividend payments
Share capital represents the nominal (par) value of shares that have been issued. Share premium includes
any premiums received on issue of share capital. Any transaction costs associated with the issuing of
shares are deducted from share premium, net of any related income tax benefits.
Other components of equity
Other components of equity include a reserve for deferred consideration on the acquisition of
businesses by the Group.
Retained earnings include all current and prior period retained profits. All transactions with owners of
the parent are recorded separately within equity. Dividend distributions payable to equity shareholders
are included in other liabilities when the dividends have been approved in a general meeting prior to the
reporting date.
Share-based payments
All goods and services received in exchange for the grant of any share-based payment are measured at
their fair values.
Where employees are rewarded using share-based payments, the fair value of employees’ services is
determined indirectly by reference to the fair value of the equity instruments granted. This fair value is
appraised at the grant date and excludes the impact of non-market vesting conditions (for example
profitability and sales growth targets and performance conditions). All share-based remuneration is
ultimately recognised as an expense in profit or loss with a corresponding credit to retained earnings. If
vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based
on the best available estimate of the number of share options expected to vest.
Non-market vesting conditions are included in assumptions about the number of options that are
expected to become exercisable. Estimates are subsequently revised if there is any indication that the
number of share options expected to vest differs from previous estimates. Any adjustment to cumulative
share-based compensation resulting from a revision is recognised in the current period. The number of
vested options ultimately exercised by holders does not impact the expense recorded in any period.
Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs,
are allocated to share capital up to the nominal (or par) value of the shares issued with any excess being
recorded as share premium.
40
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
3.
STATEMENT OF ACCOUNTING POLICIES - continued
Provisions, contingent assets and contingent liabilities
Provisions for legal disputes, onerous contracts or other claims are recognised when the Group has a
present legal or constructive obligation as a result of a past event, it is probable that an outflow of
economic resources will be required from the Group and amounts can be estimated reliably. Timing or
amount of the outflow may still be uncertain.
Restructuring provisions are recognised only if a detailed formal plan for the restructuring exists and
management has either communicated the plan’s main features to those affected or started
implementation. Provisions are not recognised for future operating losses.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on
the most reliable evidence available at the reporting date, including the risks and uncertainties associated
with the present obligation. Where there are a number of similar obligations, the likelihood that an
outflow will be required in settlement is determined by considering the class of obligations as a whole.
Provisions are discounted to their present values, where the time value of money is material.
Any reimbursement that the Group is virtually certain to collect from a third party with respect to the
obligation is recognised as a separate asset. However, this asset may not exceed the amount of the
related provision.
No liability is recognised if an outflow of economic resources as a result of present obligations is not
probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.
4.
SIGNIFICANT MANAGEMENT JUDGEMENT IN APPLYING ACCOUNTING POLICIES
AND ESTIMATION UNCERTAINTY
When preparing the financial statements, management makes a number of judgements, estimates and
assumptions about the recognition and measurement of assets, liabilities, income and expenses.
Significant management judgements
The following are significant management judgements in applying the accounting policies of the Group
that have the most significant effect on the financial statements.
Going concern
As described in the basis of preparation and going concern in Note 3 above, the validity of the going
concern basis is dependent upon the Company sourcing finance required to develop projects. After
making enquiries and considering the matters referred to in Note 3, the Directors have a reasonable
expectation that the Company will source this financing and the Group will have adequate resources to
continue in operational existence for the foreseeable future. For these reasons the Directors continue to
adopt the going concern basis of accounting in preparing the financial statements.
Determination of functional currency
The determination of a company’s functional currency often requires significant judgement where the
primary economic environment on which it operates may not be clear. The Company’s financial
statements are presented in Euro, the primary economic environment of the Company.
Control assessment in a business combination.
As disclosed in Note 18, the Group owns 50.02% of the voting rights in Newry Biomass Limited. One
other company owns the remaining voting rights. Management has reassessed its involvement in Newry
Biomass Limited in accordance with IFRS 10’s revised control definition and guidance and has
concluded that it has control of Newry Biomass Limited.
41
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
4.
SIGNIFICANT MANAGEMENT
POLICIES AND ESTIMATION UNCERTAINTY - continued
JUDGEMENT
IN APPLYING ACCOUNTING
Estimation uncertainty
Information about estimates and assumptions that have the most significant effect on recognition and
measurement of assets, liabilities, income and expenses is provided below. Actual results may be
substantially different.
Impairment of goodwill and non-financial assets
Determining whether goodwill and non-financial assets are impaired requires an estimation of the value
in use of the cash generating units to which the assets have been allocated. The value in use calculation
requires the directors to estimate the future cash flows to arise from the cash-generating unit and a
suitable discount rate in order to calculate present value. Where the actual cash flows are less than
expected, a material impairment may arise. The total property, plant and equipment impairment during
the year as included in Note 16 amounted to €307,759 (2015: €336,532).
Recoverability of amounts due under construction contracts
The directors considered the recoverability of the Group’s balances due under construction contracts
which is included in the balance sheet at 30 June 2016 at €150,847 (2015: €150,847). The directors have
reviewed the relevant costs incurred to date and expected costs for completion. They have also been in
contact with the ultimate beneficiaries of the construction contracts and have considered the ability of
these customers to have the relevant facilities available to pay for these contracts. Based on these
reviews, the directors are satisfied with the recoverability of balances due under construction contracts at
the balance sheet date.
Provision for impairment of financial assets
Determining whether the carrying value of financial assets has been impaired requires an estimation of
the value in use of the investment in subsidiaries and joint venture vehicles. The value in use calculation
requires the directors to estimate the future cash flows expected to arrive from these vehicles and a
suitable discount rate in order to calculate present value. After reviewing these calculations, the directors
are satisfied that a net impairment cost of €Nil (2015: €Nil) should be recognised in the group accounts
and €2,711,584 (2015: €166,400) should be recognised in the Company accounts of REACT Energy plc.
Details of this impairment are set out in Note 17.
Allowances for impairment of trade receivables
The Group estimates the allowance for doubtful trade receivables based on assessment of specific
accounts where the Group has objective evidence comprising default in payment terms or significant
financial difficulty that certain customers are unable to meet their financial obligations. In these cases,
judgment used was based on the best available facts and circumstances including but not limited to, the
length of relationship. At 30 June 2016, provisions for doubtful debts amounted to €Nil which
represents 0% of trade receivables at that date (2015: € Nil– 0%).
Deferred tax assets
Deferred tax is recognised based on differences between the carrying value of assets and liabilities and
the tax value of assets and liabilities. Deferred tax assets are only recognised to the extent that the Group
estimates that future taxable profits will be available to offset them.
42
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
4.
SIGNIFICANT MANAGEMENT
POLICIES AND ESTIMATION UNCERTAINTY - continued
JUDGEMENT
IN APPLYING ACCOUNTING
Estimation uncertainty - continued
Useful lives of depreciable assets
The annual depreciation charge depends primarily on the estimated lives of each type of asset and, in
certain circumstances, estimates of fair values and residual values. The directors annually review these
asset lives and adjust them as necessary to reflect current thinking on remaining lives in light of
technological change, prospective economic utilisation and physical condition of the assets concerned.
Changes in asset lives can have significant impact on depreciation charges for the period. It is not
practical to quantify the impact of changes in asset lives on an overall basis, as asset lives are individually
determined, and there are a significant number of asset lives in use. The impact of any change would
vary significantly depending on the individual changes in assets and the classes of assets impacted.
Fair value measurement
Management uses valuation techniques to determine the fair value of financial instruments (where active
market quotes are not available) and non-financial assets. This involves developing estimates and
assumptions consistent with how market participants would price the instrument. Management bases its
assumptions on observable data as far as possible but this is not always available. In that case
management uses the best information available. Estimated fair values may vary from the actual prices
that would be achieved in an arm’s length transaction at the reporting date.
The following table shows the Levels within the hierarchy of financial assets and liabilities measured at
fair value on a recurring basis at year-end.
30 June 2016
Financial assets
Amounts due from customers under
construction contracts
Trade and other receivables
Cash and cash equivalents
Financial liabilities
Trade and other payables
Investor loans
BES Shares
Bank overdrafts
Bank borrowings
Level 1
€
Level 2
€
Level 3
€
Total
€
-
150,847
-
324,195
-
-
-
(546)
-
323,649
158,029
-
(5,425,146)
(3,968,955)
(105,000)
-
(1,116,250)
(10,306,475)
-
-
-
-
-
-
-
-
-
150,847
158,029
324,195
(5,425,146)
(3,968,955)
(105,000)
(546)
(1,116,250)
(9,982,826)
43
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
4.
SIGNIFICANT MANAGEMENT
POLICIES AND ESTIMATION UNCERTAINTY - continued
JUDGEMENT
IN APPLYING ACCOUNTING
Fair value measurement-continued
30 June 2015
Financial assets
Amounts due from customers under
construction contracts
Trade and other receivables
Cash and cash equivalents
Financial liabilities
Trade and other payables
Investor loans
BES Shares
Bank overdrafts
Bank borrowings
5.
FINANCIAL RISK MANAGEMENT
Level 1
€
Level 2
€
Level 3
€
Total
€
-
150,847
-
211,346
141,799
-
-
-
-
(5)
-
211,341
(4,440,615)
(4,665,062)
(105,000)
-
(1,131,250)
(10,049,281)
-
-
-
-
-
-
-
-
-
150,847
141,799
211,346
(4,440,615)
(4,665,062)
(105,000)
(5)
(1,131,250)
(9,837,940)
Financial risk management objectives and policies
The Group’s activities expose it to a variety of financial risks: credit risk, liquidity risk, interest rate risk and
foreign currency exchange risk.
The Group’s financial risk management programme aims to manage the Group’s exposure to the
aforementioned risks in order to minimise the potential adverse effects on the financial performance of
the Group. The Group seeks to minimise the effects of these risks by monitoring the working capital
position, cash flows and interest rate exposure of the Group. There is close involvement by members of
the Board of Directors in the day-to-day running of the business.
Many of the Group’s transactions are carried out in Pounds Sterling. The Group’s exposure to price risk
is not a significant risk as the Company does not currently hold a portfolio of securities which may be
materially impacted by a decline in market values.
Credit risk
The Group’s maximum exposure to credit risk is represented by the balance sheet amount of each
financial asset:
Amounts due from customers under construction contracts
Trade and other receivables
Cash and cash equivalents
2016
€
150,847
158,029
324,195
2015
€
150,847
141,799
211,346
The Group’s credit risk is primarily attributable to its amounts due from customers under construction
contracts and to its trade and other receivables.
44
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
5.
FINANCIAL RISK MANAGEMENT - continued
The amounts due from customers under construction contracts represents the total costs incurred to date
on the Group’s projects less recognised losses to date. These customers are jointly controlled entities in
which the Group is a 50% partner. The directors of the Group are in constant contact with the other
partners of the jointly controlled entities. The Group’s exposure to credit risk arises from the failure of
the ultimate customer to raise the appropriate finance, with a maximum exposure equal to the carrying
amount of the related costs.
The Group has adopted procedures in extending credit terms to customers and in monitoring its credit
risk. The Group’s exposure to credit risk arises from defaulting customers, with a maximum exposure
equal to the carrying amount of the related receivables. Provisions are made for impairment of trade
receivables when there is default of payment terms and significant financial difficulty. On-going credit
evaluation is performed on the financial condition of accounts receivable at operating unit level at least on
a monthly basis.
The Group does not have significant risk exposure to any single counterparty. Concentration of credit risk
to any other counterparty did not exceed 5% of gross monetary assets at any time during the financial
year. The Group defines counterparties as having similar characteristics if they are related parties.
Exposure to credit risk on cash deposits and liquid funds is monitored by directors. Cash held on deposit
is with financial institutions in the Ba rating category of Moody’s. The directors are of the opinion that the
likelihood of default by a counter party leading to material loss is minimal.
Liquidity risk
The Group’s liquidity is managed by ensuring that sufficient facilities are available for the Group’s
operations from diverse funding sources. The Group uses cash flow forecasts to regularly monitor the
funding requirements of the Group. The Group’s operations are funded by cash generated from financing
activities, borrowings from banks and investors and proceeds from the issuance of ordinary share capital.
The table below details the maturity of the Group’s liabilities as at 30 June 2016:
Trade and other payables
Investor loans
BES Shares
Bank overdrafts
Bank borrowings
Notes
25
24
24
24
24
Up to 1
year
€
1 – 5
years
€
After 5
years
€
5,425,146
589,334
105,000
546
1,116,250
-
3,379,621
-
-
-
7,236,276
3,379,621
-
-
-
-
-
-
Total
€
5,425,146
3,968,955
105,000
546
1,116,250
10,615,897
45
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
5.
FINANCIAL RISK MANAGEMENT - continued
Liquidity risk - continued
The table below details the maturity of the Group’s liabilities as at 30 June 2015:
Trade and other payables
Investor loans
BES Shares
Bank overdrafts
Bank borrowings
Up to 1 year 1 – 5 years
Notes
25
24
24
24
24
€
4,440,615
4,665,062
105,000
5
1,131,250
10,341,932
€
-
-
-
-
-
-
After 5
years
€
-
-
-
-
-
Total
€
4,440,615
4,665,062
105,000
55
1,131,250
-
10,341,932
Interest rate risk
The primary source of the Group’s interest rate risk relates to bank loans and other debt instruments.
The interest rates on these assets and liabilities are disclosed above.
Bank borrowings and other debt instruments amounted to €5,190,751 and €5,901,317 in 2016 and 2015,
respectively.
The interest rate risk is managed by the Group by maintaining an appropriate mix of fixed and floating
rate borrowings. The Group does not engage in hedging activities. Bank loans and certain debt
instruments are arranged at floating rates which are mainly based upon EURIBOR and the prime lending
rate of financial institutions thus exposing the Group to cash flow interest rate risk. The other remaining
debt instruments were arranged at fixed interest rates and expose the Group to a fixed cash outflow.
These bank loans and debt instruments are mostly medium-term to long-term in nature. Interest rates on
loans received from investors and shareholders are fixed in some cases while others are a fixed percentage
greater than current prime lending rates. ‘Medium-term’ refers to bank loans and debt instruments
repayable between 2 and 5 years and ‘long-term’ to bank loans repayable after more than 5 years.
The sensitivity analysis below has been determined based on the exposure to interest rates for non-
derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is
prepared assuming that the amount of the liability outstanding at the end of the year was outstanding for
the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to
key management personnel and represents management’s assessment of the reasonably possible changes
in interest rates.
If interest rates have been 50 basis points higher/lower and all other variables were held constant, the
Group’s loss for the year ended 30 June 2016 would increase/decrease by €5,584 (2015: decrease/increase
by €5,656). This is mainly attributable to the Group’s exposure to interest rates on its variable rate
borrowings. The Group’s sensitivity to interest rates has decreased during the current year mainly due to
the reduction in variable rate debt instruments.
Foreign exchange risk
The Group is exposed to future changes in the Sterling relative to the Euro. These risks are managed by
monthly review of Sterling denominated monetary assets and monetary liabilities and assessment of the
potential exchange rate fluctuation exposure. The Group’s exposure to foreign exchange risk is not actively
managed. Management will reassess their strategy to foreign exchange risk in the future.
46
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
5.
FINANCIAL RISK MANAGEMENT - continued
Foreign exchange risk - continued
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities
at the end of the reporting period are as follows:
Sterling
Liabilities
Assets
2016
€
3,622,703
2015
€
4,548,122
2016
€
74,909
2015
€
131,880
The following table details the Group’s sensitivity to a 10% increase and decrease in the Euro against
Sterling. 10% is the sensitivity rate used when reporting foreign currency risk internally to key
management personnel and represents management’s assessment of the reasonably possible change in
foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the year-end for a 10% change in foreign currency rates.
The sensitivity analysis includes external loans as well as loans to foreign operations within the Group
where the denomination of the loan is in the currency other than the currency of the lender or the
borrower. A positive number below indicates an increase in profit and other equity where the Euro
strengthens 10% against Sterling. For a 10% weakening of the Euro against Sterling, there would be a
comparable impact on the loss and other equity, and the balances below will be negative.
Profit or loss
Sterling Impact
2015
€
446,085
2016
€
358,363
The Group’s sensitivity to foreign currency has increased during the current year mainly due to the rise in
the Euro to sterling exchange rates as a result of the British decision to exit the EU in June 2016.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange
rates and interest rates, which are detailed above. There has been no change to the Group’s exposure to
market risks or the manner in which it manages and measures the risk.
6.
CAPITAL MANAGEMENT POLICIES AND PROCEDURES
The Group manages its capital to ensure that the Group is able to continue as a going concern while
maximising the return to shareholders through the optimisation of the debt and equity balance.
The capital structure of the company consists of financial liabilities, cash and cash equivalents and equity
attributable to the equity holders of the parent company.
The Group’s management reviews the capital structure on a periodic basis. As part of the review,
management considers the cost of capital and risks associated with it. The Group’s overall strategy on
capital risk management is to continue to improve the ratio of debt to equity.
47
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
6.
CAPITAL MANAGEMENT POLICIES AND PROCEDURES - continued
The gearing ratio of the Group for the year presented is as follows:
Debt
Cash and bank balances
Net debt
Equity
Net debt to equity ratio
30 June 2016
30 June 2015
€
5,190,751
(324,195)
4,866,556
(822,736)
€
5,901,317
(211,346)
5,689,971
(5,091,663)
(592%)
(112%)
Debt is defined as financial liabilities and borrowings of the Group while equity includes all capital,
reserves and retained earnings attributable to equity holders of the parent.
The movement in the net debt to equity ratio is as a result of the conversion of €5.8 million of debt into
equity.
7.
SEGMENT INFORMATION
Information reported to the chief operating decision maker for the purposes of resource allocation and
assessment of segment performance focuses on the products and services sold to customers. The Group’s
reportable segment under IFRS 8 Operating Segments are as follows:
Power Generation: Being the development and operation of renewable energy electricity and heat
generating plants;
The chief operating decision maker is the Chief Executive.
48
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
7.
SEGMENT INFORMATION - continued
Information regarding the Group’s reportable segment are presented below.
The following is an analysis of the Group’s revenue and results from continuing operations by reportable
segment:
Segment Revenue
2015
€
2016
€
Segment Profit/(Loss)
2015
€
2016
€
Power Generation
Total from continuing
operations
246,864
246,864
279,966
(9,429)
(257,239)
279,966
(9,429)
(257,239)
Central administration costs and directors’ salaries
Impairment of property, plant and equipment
Share of fair value of previously held equity interest in Newry
Biomass Limited
Foreign currency losses/(gains)
Finance income
Finance costs
Loss before taxation (continuing operations)
(456,175)
(307,759)
(1,766,429)
(336,532)
-
(163,721)
15
(602,975)
(1,540,044)
2,335,810
218,518
-
(285,342)
(91,214)
Revenue reported above represents revenue generated from jointly controlled entities and external
customers. Inter-segment sales for the year amounted to €Nil (2015:€ Nil). Included in revenues in the
Power Generation Segment are revenues of €46,189 (2015: €67,979) which arose from sales to GG Eco
Energy Limited, an associate undertaking of REACT Energy plc. This represents 19% (2015: 24%) of
total revenues in the year.
During 2016, sales to one external customer in the Power Generation segment totaled €200,675 (2015:
€182,371), making up 81% (2015: 65%) of total revenues in the year.
The accounting policies of the reportable segments are the same as the Group’s accounting policies
described in Note 3. Segment profit or loss represents the profit or loss earned by each segment without
allocation of central administration costs and directors’ salaries, other operating income, share of profit or
loss of jointly controlled entities, profit on disposal of jointly controlled entities, interest costs, interest
income and income tax expense. This is the measure reported to the chief operating decision maker for
the purpose of resource allocation and assessment of segment performance.
49
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
7.
SEGMENT INFORMATION - continued
Other segment information:
Depreciation and
amortisation
2016
Additions to non-current
assets
2015
2016
2015
€
73,272
€
78,607
€
5,324,517
€
425,882
Power Generation
In addition to the depreciation and amortisation reported above, impairment losses of €307,759 (2015:
€336,532) were recognised in respect of property, plant and equipment. These impairment losses were
attributable as follows: Power Generation Segment, €307,759 (2015: € 336,532).
The Group operates in two principal geographical areas: Republic of Ireland (country of domicile), and
the United Kingdom. The Group’s revenue from continuing operations from external customers and
information about its non-current assets* by geographical location are detailed below:
Republic of Ireland
United Kingdom
Revenue from Associates and
External Customers
2016
€
200,675
46,189
246,864
Non-current assets*
2015
2016
2015
€
182,371
97,595
€
1,275,144
9,524,726
€
1,344,713
5,857,131
279,966
10,799,870
7,201,844
* Non-current assets excluding goodwill, financial instruments and investment in jointly controlled
entities.
The management information provided to the chief operating decision maker does not include an analysis
by reportable segment of assets and liabilities and accordingly no analysis by reportable segment of total
assets or total liabilities is disclosed.
50
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
8.
REVENUE
An analysis of the Group’s revenue for the year (excluding interest revenue), from continuing operations,
is as follows:
Revenue from the generation of wind income
Revenue from the generation of heat
Revenue from consultancy fees associated with the generation of
heat
9.
COST OF SALES
Opening inventory
Purchases
Closing inventory
10. ADMINISTRATIVE EXPENSES
Employee expenses
Office and operating expenses
Marketing expenses
Professional fees (including release of
accruals)
Depreciation of property, plant &
equipment
Profit on disposal of fixed asset
Travel and subsistence
Provision against other receivables
Other miscellaneous expenses
Examinership and reorganisation costs
Regulatory expenses
2016
€
2015
€
200,675
193
182,371
29,617
45,996
67,978
246,864
279,966
2016
€
-
-
-
2015
€
-
10,145
-
-
10,145
Continuing
2016
2015
Discontinued
2016
2015
€
€
451,423
123,346
1,525
39,431
810,127
105,326
1,392
176,675
73,272
78,607
€
-
-
-
-
-
49,863
40,071
2,897
(150,842)
81,482
(5,576)
82,610
61,200
4,653
834,149
144,326
-
-
-
-
-
-
€
-
34,447
-
-
-
-
-
-
-
-
-
712,468
2,293,489
-
34,447
51
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
11.
FINANCE COSTS AND INCOME
Finance Costs
Interest on loans, bank facilities and overdrafts
Interest on Revenue liabilities
Other interest
Finance Income
Interest receivable on bank deposits
12. EMPLOYEE DATA
Employee costs (including executive directors):
Salaries
Social insurance costs
Pension costs
Average number of employees (including executive directors)
Company
Average number of employees (including executive directors)
13. LOSS BEFORE TAXATION
Loss before taxation is stated after charging/(crediting):
Depreciation of property, plant and equipment (Note 16)
Loss/(gain) on foreign exchange
Directors’ remuneration: for services as directors (Note 27)
for other services (Note 27)
Other redundancy costs
Impairment losses of property, plant and equipment
charged to profit and loss (Note 16)
Auditor’s remuneration:
Audit of group accounts
Tax advisory services
52
2016
€
602,783
192
-
2015
€
285,092
-
250
602,975
285,342
15
-
2016
€
386,000
35,796
-
2015
€
606,954
61,133
2,230
421,796
670,317
No.
No.
3
2
2016
€
73,272
163,721
28,000
335,500
-
5
2
2015
€
78,607
(218,518)
33,000
406,250
100,000
307,759
336,532
2016
€
37,500
10,000
2015
€
37,500
10,000
47,500
47,500
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
14. TAX EXPENSE
Tax expense comprises:
Current tax expense
Deferred tax expense
Adjustment for prior periods
Tax credit
(Loss)/profit before taxation
Applicable tax 12.50% (2015: 12.50%)
Effects of:
2016
€
2015
€
-
-
-
-
-
-
-
-
2016
€
2015
€
(1,540,044)
5,319,419
(192,506)
664,927
Amortisation & depreciation in excess of capital allowances
Expenses not deductible for tax purposes
Non-taxable income
Losses carried forward
Actual tax (credit)/expense
9,826
38,470
-
144,210
9,826
168,420
(956,081)
112,908
-
-
The tax rate used for 2016 and 2015 reconciliation above is the corporate rate of 12.5% payable by
corporate entities in Ireland on taxable profits under tax law in that jurisdiction.
15.
(LOSS)/EARNINGS PER SHARE
Basic (loss)/earnings per share
From continuing operations
From discontinued operations
Total basic (loss)/earnings per share
Diluted (loss)/earnings per share
From continuing operations
From continuing and discontinued operations
2016
€ per share
(0.015)
-
(0.015)
2015
€ per share
(0.003)
0.176
0.173
(0.015)
(0.015)
(0.003)
0.069
53
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
15. EARNINGS/(LOSS) PER SHARE - continued
The loss and weighted average number of ordinary shares used in the calculation of the basic and diluted
loss per share are as follows:
(Loss)/profit for year attributable to equity holders of the parent
Profit for the year from discontinued operations used in the
calculation of basic earnings per share from discontinued
operations
Losses used in the calculation of basic loss per share from
continuing operations
Weighted average number of ordinary shares for
the purposes of basic loss per share
Weighted average number of ordinary shares for
the purposes of diluted loss per share
2016
€
(1,041,035)
2015
€
5,320,045
-
(5,410,633)
(1,041,035)
(90,588)
69,684,580
30,669,522
69,684,580
42,990,834
Dilutive and anti-dilutive potential ordinary shares
The following potential ordinary shares were included in the 2015 diluted earnings per share calculation
but were excluded in 2016 as they were anti-dilutive.
Share warrants in issue
Convertible loans in issue
Total anti-dilutive shares
2016
2015
35,245,833
9,166,667
44,412,500
1,142,248
11,179,064
12,321,312
54
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
16. PROPERTY, PLANT & EQUIPMENT
Leasehold
buildings
€
Office
equipment
€
Wind Turbine
€
Heat
Boilers
€
Construction
in Progress
€
Cost
At 1 July 2014
Additions
Acquisition through business combinations
Disposals
De-recognition on liquidation
Foreign currency adjustment
At 30 June 2015
Additions
Foreign currency adjustment
At 30 June 2016
57,787
-
-
-
(57,787)
-
-
-
-
-
130,286
-
-
-
(130,286)
-
-
166
(16)
1,453,759
-
-
-
-
-
1,453,759
3,565
-
150
1,457,324
Total
€
4,343,683
425,882
5,564,830
(282,734)
(188,073)
363,851
280,934
-
-
(282,734)
-
1,800
2,420,917
425,882
5,564,830
-
-
362,051
-
-
-
-
8,773,680
5,320,786
(1,917,063)
10,227,439
5,324,517
(1,917,079)
12,177,403
13,634,877
55
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
16. PROPERTY, PLANT & EQUIPMENT -
continued
Accumulated depreciation
At 1 July 2014
Depreciation on disposal
De-recognition on liquidation
Impairment
Charge for the year
Foreign currency adjustment
At 30 June 2015
Charge for the year
Impairment
Foreign currency adjustment
At 30 June 2016
Carrying amount
At 30 June 2015
At 30 June 2016
Leasehold
buildings
€
Office
equipment
€
57,787
-
(57,787)
-
-
-
130,286
-
(130,286)
-
-
-
Wind Turbine
€
36,358
-
-
-
72,688
-
109,046
73,134
-
-
182,180
-
138
-
(13)
125
-
25
1,344,713
1,275,144
Heat
Boilers
€
Construction
in Progress
€
Total
€
2,567,385
(10,603)
(188,073)
336,532
78,607
241,747
3,025,595
73,272
307,759
(571,619)
2,338,272
-
-
336,532
-
241,745
2,916,549
-
307,759
(571,606)
2,652,702
2,835,007
5,857,131
7,201,844
9,524,701
10,799,870
4,682
(10,603)
-
-
5,919
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Group carried out a review of the recoverable amount of property held by the Power Generation operating segment at 30 June 2016. The review led to
recognition of an impairment loss of €307,759 (2015: €336,532) in Renewable Energy Solutions segment, which has been recognised in profit or loss. The
recoverable amount of the assets has been determined on the basis of their fair value, less costs to sell.
The impairment losses have been shown separately in the consolidated statement of profit or loss.
56
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
17. FINANCIAL ASSETS
Investment in joint ventures
In 2015 the Group had one material joint venture, Newry Biomass Limited (NBL), in which it owned
50% of the shares. On 8 May 2015, NBL issued a further share to the Group, which lead to the Group
gaining control of NBL (see Note 28) and it is now accounted for as a subsidiary undertaking from that
date onwards. The investment in NBL was accounted for using the equity method in the prior year in
accordance with IAS 28. The carrying amount of the investment in joint ventures is increased or
decreased to recognise the Group’s share of the profit or loss and other comprehensive income. When
the Group’s share of losses on an associate or a joint venture exceeds the Group’s interest in that joint
venture (which includes any long-term interests that, in substance, form part of the Group’s net
investment in the associate or joint venture), the Group discontinues recognising its share of future losses.
Summarised financial information in respect of the Group’s interests in jointly controlled entities is as
follows:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net liabilities
2016
€
-
-
-
-
2015
€
-
3
-
(76)
-
(73)
Group’s share of net liabilities of jointly controlled entities
-
(36)
Carrying balance of investment in joint venture
-
-
Total revenue
Total expenses
Total loss for the year
2016
€
-
-
2015
€
-
(666,335)
-
(666,335)
Group’s share of losses of jointly controlled entities
-
-
The above balance includes the results of NBL for the period to 8 May 2015.
Loan advanced to jointly controlled entities
At 1 July
Additions in year
Eliminated on consolidation
Group
2016
€
-
-
-
2015
€
-
30,459
(30,459)
-
-
As noted above, NBL is now classified as a subsidiary undertaking and the above loan has been eliminated
on consolidation.
57
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
17. FINANCIAL ASSETS - continued
Investment in associate
Details of the Group’s interests in associated undertakings at 30 June 2016 is as follows:
Name of associated
undertaking
Country of
incorporation
Shareholding
Principal activity
GG Eco Energy Limited
United Kingdom
30%
Operator of biomass
heat generating projects
Summarised financial information in respect of the Group’s interests in associated undertakings is as
follows:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net liabilities
2016
€
1,510,448
118,885
(1,670,973)
(460,948)
2015
€
1,826,626
310,867
(2,034,546)
(435,914)
(502,588)
(332,967)
Group’s share of net assets of associated entities
-
-
Total revenue
Total expenses
Total loss for the period
2016
€
2015
€
611,136
(853,828)
536,752
(734,226)
(242,692)
(197,474)
Group’s share of profits of associated undertakings
-
-
The investment in GG Eco Energy Limited is accounted for using the equity method in accordance with
IAS 28.
58
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
17. FINANCIAL ASSETS – continued
Investment in subsidiary undertakings
At beginning and at end of period
Loans to subsidiary undertakings
At 1 July
Loans advanced as part of examinership process
Funds advanced to/(repaid by) subsidiary undertakings
Repayment of examinership loans
Reclassified from trade and other payables
Provision for impairment of investment in subsidiaries
Provision for impairment of intercompany loans related to
examinership
Foreign currency adjustment
At 30 June
Total
Company
2016
€
-
2015
€
-
2,382,505
2,658,304
(8,651)
(95,543)
-
(268,840)
2,497,191
-
62,815
-
(353,517)
(166,400)
(2,442,744)
(452,355)
-
342,416
1,772,676
2,382,505
1,772,676
2,382,505
On 24 July 2015, REACT Energy plc and its related companies exited the examination process. As part of
the Scheme of Arrangement approved by the High Court to allow the exit, the Company issued 37,470,972
new Ordinary Shares to creditors of the Company and related companies through a debt for equity
conversion. This required intercompany loans of €2,658,304 to be issued to certain related companies to
allow for the issue of shares to the creditors of those related companies. These loans are interest-free and
have no fixed date of repayment. These loans were fully provided for at year-end.
59
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
18.
INTERESTS IN SUBSIDIARIES
Details of REACT Energy plc subsidiaries at 30 June 2016 are as follows:
Name
Newry Biomass No. 1 Limited
Country of
incorporation
Republic of Ireland
Shareholding
100%
Principal activity
Investment company
React Biomass Limited
Republic of Ireland
100%
Investment company
Reforce Energy Limited
Republic of Ireland
100%
Pluckanes Windfarm Limited
Republic of Ireland
100%
Grass Door Limited
United Kingdom
100%
Renewable energy
development company
Generation of electricity
through wind
Developer & operator of
biomass heat generating
projects
Newry Biomass Limited
Northern Ireland
50.02%
Energy utility company
Enfield Biomass Limited
United Kingdom
100%
Energy utility company
Moneygorm Wind Turbine
Limited (formerly Reforce
Energy (West) Limited)
Republic of Ireland
100%
Dormant company
React Energy No. 1 Limited
Republic of Ireland
100%
Investment company
Plymouth Biomass Limited
United Kingdom
100%
Energy utility Company
Clay Cross Biomass Limited
United Kingdom
90%
Energy utility company
Altilow Wind Turbine Limited
Republic of Ireland
100%
Generation of electricity
through wind
Kedco Group Holdings USA
Inc.
United States of
America
100%
Dormant company
The shareholding in each company above is equivalent to the proportion of voting power held.
The registered office for all of the above companies is Building 1000, City Gate, Mahon, Cork, except for
Enfield Biomass Limited, Plymouth Biomass Limited and Grass Door Limited, whose registered office is
c/o Origen Capital LLP, 26 Dover Street, London W1S 4LY, England; Newry Biomass Limited, whose
registered office is c/o CGDM, 27 Patrick Street, Newry, Co. Down BT35 8EB, Northern Ireland; Clay
Cross Biomass Limited, whose registered office is Larkfleet House, Southfields Business Park, Falcon
Way, Bourne, Lincolnshire PE10 0FF, England; and Kedco Group Holdings USA Inc., whose registered
office is 2711 Centreville Road Suite 400, Wilmington, DE 19808, USA.
60
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
19. CONSTRUCTION CONTRACTS
Contracts in progress at the balance sheet date:
Construction costs incurred plus recognised
profits less recognised losses to date
Less payments received in advance
Recognised and included in the financial statements
as amounts due:
From customers under construction contracts
To customers under construction contracts
2016
€
2015
€
150,847
-
150,847
-
150,847
150,847
2016
€
150,847
-
2015
€
150,847
-
150,847
150,847
At 30 June 2016, retentions held by customers for contract work amounted to €Nil (2015: €Nil).
Advances received from customers for contract work amounted to €Nil (2015: € Nil).
61
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
20. TRADE AND OTHER RECEIVABLES
Group
Trade receivables
Allowance for impairment of trade receivables
VAT receivable
Payments on account
Prepayments
Corporation tax
Accrued income
Other receivables
2016
€
-
-
2015
€
13,800
-
-
13,800
16,341
37,490
49,683
102
9,745
44,668
81,665
-
44,438
96
-
1,800
158,029
141,799
The following table shows an analysis of trade receivables split between past due and within terms
accounts. Past due is when an account exceeds the agreed terms of trade, which are typically 60 days.
Within terms
Past due more than one month but less than two months
Past due more than two months
2016
€
-
-
-
2015
€
13,800
-
-
-
13,800
Included in the Group’s trade receivables balance are debtors with carrying amount of €Nil (2015: €Nil)
which are past due at year end and for which the Group has not provided.
The Group does not hold any collateral over these balances. No interest is charged on overdue
receivables. The quality of past due not impaired trade receivables is considered good. The carrying
amount of trade receivables approximates to their fair values.
The Group’s policy is to recognise an allowance for doubtful debts of 100% against all receivables over
120 days because historical experience has been that trade receivables that are past due beyond 120 days
are not recoverable. Allowances for doubtful debts are recognised against trade receivables between 60
days and 120 days based on estimated irrecoverable amounts determined by reference to past default
experience of the counterparty and an analysis of the counterparty’s current financial position.
62
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
20. TRADE AND OTHER RECEIVABLES - continued
In determining the recoverability of a trade receivable, the Group considers any changes in the credit
quality of the trade receivable from the date credit was initially granted up to the end of the current
reporting period. The concentration of the credit risk is limited due to the customer base being large and
unrelated, and the fact that no one customer holds balances that exceeds 10% of the gross assets of the
Group. The maximum exposure risk to trade and other receivables at the reporting date by geographic
region, ignoring provisions, is as follows:
Ireland
United Kingdom
2016
€
-
-
-
2015
€
13,800
-
13,800
Other receivables relate to deposits on rental contracts amounting to €2,338 (2015: €1,800) and payments
on account related to shares of €42,330 (2015: €Nil). The aged analysis of other receivables is within
terms.
There is no concentration of credit risk with respect to receivables as disclosed in Note 5 under credit
risk.
Company
Amounts due from subsidiary undertakings
Allowance for impairment of balances
Prepayments
Corporation Tax
VAT Receivable
Other receivables
2016
€
446,143
(51,857)
394,286
10,936
96
4,820
44,668
2015
€
1,131,183
(1,131,183)
-
8,368
96
24,356
1,800
454,806
34,620
The concentration of credit risk in the individual financial statements of REACT Energy plc relates to
amounts due from subsidiary undertakings. The directors have reviewed these balances in the light of the
impairment review carried out on the investments by REACT Energy plc in its subsidiaries.
The directors considered the future cash flows arising from subsidiaries and are satisfied that the
appropriate impairment has been applied to these balances.
63
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
21. CASH AND CASH EQUIVALENTS
For the purposes of the cash flow statement, cash and cash equivalents include cash on hand and in banks
and bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow
statement can be reconciled to the related items in the balance sheet as follows:
Group
Cash and bank balances
Bank overdrafts (Note 24)
Company
Cash and bank balances
Bank overdrafts (Note 24)
22. EQUITY
Share Capital
At 30 June 2015
Ordinary shares of €0.10 each
Deferred ordinary shares of
€0.40 each
Deferred convertible “A”
ordinary shares of €0.01 each
2016
€
324,195
(546)
2015
€
211,346
(5)
323,649
211,341
191,927
(546)
69,839
(5)
191,381
69,834
Authorised
Number
200,000,000
Allotted and
called up
Number
30,669,522
Authorised
€
20,000,000
Allotted and
called up
€
3,066,952
200,000,000
22,370,042
80,000,000
8,948,017
10,000,000,000
99,117,952
100,000,000
991,180
At 30 June 2016
Authorised
Number
Allotted and
called up
Number
Authorised
€
13,006,149
Allotted and
called up
€
Ordinary shares of €0.10 each
200,000,000
75,140,494
20,000,000
7,514,049
Deferred ordinary shares of
€0.40 each
Deferred convertible “A”
ordinary shares of €0.01 each
200,000,000
22,370,042
80,000,000
8,948,017
10,000,000,000
99,117,952
100,000,000
991,180
17,453,246
The holders of the ordinary shares are entitled to receive dividends as declared and are entitled to one
vote per share at meetings of the company. All ordinary shares are fully paid up.
64
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
22. EQUITY-continued
The Company was incorporated on 2 October 2008 with an initial authorised share capital of
€100,000,000 divided into 100,000,000 ordinary shares of €1.00 each of which 38,100 ordinary shares of
€1.00 each fully paid up were issued. On 14 October 2008 the ordinary shares were subdivided so that
each ordinary share had a nominal value of €0.01 each as opposed to the previous nominal value of €1.00
each. On 3 December 2010, the trading denomination of the Company’s ordinary shares of €0.01 each
changed from Euro to pounds sterling. This does not affect the nominal valuation of the shares.
Share Premium
Proceeds received in excess of the nominal value of the shares issued during the year have been included
in share premium, less registration and other regulatory fees.
Company Share Premium
The share premium included in the consolidated and company statement of financial position is different
by €18,934,079 due to the reverse acquisition of the Group which occurred on 13 October 2008. The
reverse acquisition resulted to a reverse acquisition reserve which has been netted off against the share
premium in the consolidated statement of financial position.
Movements in the year to 30 June 2016
On 24 July 2015, as part of the Scheme of Arrangement approved by the High Court in Dublin, the
Company issued 37,470,972 new Ordinary Shares to creditors of the Company and its related companies
to the value of €5,724,731 (giving an effective price per share of £0.11) through a debt for equity
exchange.
On 21 October 2015, as part of an equity kicker attached to the Ecofinance loan (see note 24 below), the
Concert Party exercised its right to be issued shares as part of the Equity Kicker, and the maximum
number of shares, 7,000,000 new Ordinary Shares, was issued as a result.
Share Warrants
The following share warrants were in existence and remain unexercised as at 30 June 2016:
Detail
Number
Grant Date
Expiry Date
Exercise
Price (GBP)
Fair Value
at Grant
Price (GBP)
Origen Capital
Partners LLP re Altair
SLN (Note 24)
Nirvana Capital Ltd re
Ecofinance SLF
(Note 24)
3,150,000
14/07/2015
13/07/2022
£0.10
35,300,000
14/07/2015
13/07/2022
£0.10
£-
£-
38,450,000
23. NON-CONTROLLING INTERESTS
Balance at beginning of year
Share of loss for the year
Non-controlling interest arising on the acquisition of Newry
Biomass Limited (see Note 28)
Unrealised foreign exchange (losses)/gains
2016
€
2,455,567
(499,009)
2015
€
-
(626)
-
(316,778)
2,412,125
44,068
1,639,780
2,455,567
65
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
24. BORROWINGS
Group
Current liabilities
At amortised cost
Bank overdrafts
8% loan facility
Convertible shareholder loan
Secured loan note
9% Loan Note
12% Loan note
15% Shareholder loans
Bank borrowings
Financial liabilities carried at FVTPL
Business Expansion Scheme Shares
Non-current liabilities
At amortised cost
7.5% convertible secured loan note
15% secured loan facility
Company
Current liabilities
Bank overdrafts
8% loan facility
Convertible shareholder loan
Secured loan note
9% Loan Note
Non-current liabilities
7.5% convertible secured loan note
15% secured loan facility
2016
€
2015
€
546
589,334
-
-
-
-
-
1,116,250
1,706,130
105,000
105,000
5
-
1,742,027
2,298,377
351,445
100,098
173,115
1,131,250
5,796,317
105,000
105,000
1,811,130
5,901,317
2,518,259
861,362
3,379,621
€
546
589,334
-
-
-
-
-
-
€
6
-
1,742,027
2,298,377
351,445
589,880
4,391,855
2,518,259
861,362
3,379,621
-
-
-
4
1
3
3
1
1
5
6
3
2
4
3
2
Borrowings at amortised cost
1. Debt dealt with under Scheme of Arrangement
Borrowings of, in aggregate, €2,015,240 at 30 June 2015 were converted to equity on 24 July 2015 as part
of the Scheme of Arrangement announced on 14 July 2015 (see Note 22 above).
2. 15% Secured Loan Note Facility
On 15 July 2015, the Board of REACT announces that it has raised £1,000,000 (before expenses) through
a Secured Loan Facility (“SLF”). EcoFinance, a group which sources finance for renewable energy
projects, has provided the SLF. The SLF is at a fixed rate of 15% per annum, the interest on which will be
paid monthly in arrears. The SLF is for a five-year term and the principal together with any accrued
interest will be repayable by a bullet repayment at the end of the term. The SLF is secured by mortgage
debentures, cross guarantees and share pledges over REACT and its subsidiary companies.
66
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
24. BORROWINGS – continued
2. 15% Secured Loan Note Facility – continued
The carrying amount of the SLF at 30 June 2016 is as follows:
€
Proceeds from the issue of the SLF 1,416,631
Less: Transaction costs (445,519)
Net proceeds 971,112
Accreted transaction costs 91,898
Currency gains on retranslation (201,648)
Carrying amount of SLF at 30 June 2016 861,362
The face value of the SLF at 30 June 2016 is €1,205,945.
3. 7.5% convertible secured loan note
On 24 July 2015, as part of the Scheme of Arrangement announced on 14 July 2015 as approved by the
High Court in Dublin, the existing secured debt held by Altair Group Investment Limited (“Altair” or
“the Secured Creditor”), comprising the 9% Secured Loan Note of £1.5 million issued in 2014 and the
Examinership financing facility of €500,000, was refinanced by way of a new two-year 7.5% £2 million
Convertible Secured Loan Note (“CSLN”), repayable in July 2017, and is secured by the same security
package granted in favour of EcoFinance. This is governed by an inter-creditor deed under which the SLF
security plus interest and costs shall rank in priority to the CSLN security plus interest and costs. Under
the terms of the CSLN, the Secured Creditor has the right to convert up to £1 million into new Ordinary
Shares at £0.10.
The carrying amount of the CSLN at 30 June 2016 is as follows:
€
Amounts rolled up from previous facilities
2,742,430
Additional proceeds issued on CSLN 110,000
Less: Transaction Costs (131,565)
Net Proceeds 2,720,865
Accreted Interest 194,796
Accreted Transaction Costs 63,484
Currency gains on retranslation (460,886)
Carrying amount of CSLN at 30 June 2016 2,518,259
The face value of the CSLN at 30 June 2016, including accrued interest, is €2,586,340.
4. 8% Loan Facility
On 8 January 2016, (subsequently amended in March 2016), the Company announced that it had secured
a €750,000 Facility from EBIOSS. The Company may use the proceeds from the Facility for the
continuing investment in its portfolio of biomass gasification projects in the UK, and for working capital
for the Group.
The key terms of the Facility are as follows:
quantum of €750,000, which may be drawn down in three equal monthly instalments of
€250,000;
interest rate of 8% per annum on outstanding capital balances, which will accrue and be repaid in
full on repayment of the Facility;
67
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
24. BORROWINGS - continued
4. 8% Loan Facility – continued
proceeds from the Facility, which is unsecured, will be, other than in respect of the second
tranche of €250,000, used solely to fund development costs associated with the Company’s
identified biomass gasification projects in the UK;
drawdown of the Facility will be subject to the agreement of the Company and EBIOSS; and
from 7 January 2017, EBIOSS may, at any time, demand that the Company repays the drawn
down proportion of the Facility plus accrued interest. The Company may, at any time, elect to
repay the Facility plus accrued interest.
€575,000 has been drawn down up to 30 June 2016 with respect to the above facility.
5. Bank borrowings
Bank borrowings amounting to €1,116,250 (2015: €1,131,250) at the balance sheet date are secured by a
charge over a wind turbine owned by the Group. Current interest rates are variable and average 4.0% per
annum. All amounts due with respect to this facility are repayable on demand by the bank at any time at
its absolute discretion. However, without prejudice to the Bank’s right to demand immediate payment, the
facility is to be repaid by way of 60 quarterly instalments. The repayment schedule of these instalments is
as follows:
Payable by instalments
Due less than one year
Due between one and five years
Due more than five years
2016
€
86,000
344,000
686,250
2015
€
15,000
344,000
772,250
1,116,250
1,131,250
The directors consider the carrying amount of borrowings approximates to their fair value.
Borrowings at FVTPL
6. BES Shares
As part of the acquisition of Reforce Energy Limited and subsidiaries, the Group took responsibility over
105,000 “B” Ordinary Shares of €1 each issued by Reforce Energy Limited as part of the Business
Expansion Scheme in Ireland. As part of this scheme, Newry Biomass No. 1 Limited entered into a put
and call option agreement, dated 20 December 2012, whereby Newry Biomass No. 1 Limited may be
required to purchase the outstanding “B” Ordinary Shares in Reforce Energy Limited at a price to be
agreed with between Newry Biomass No. 1 Limited and the holders of the “B” Ordinary Shares in
Reforce Energy Limited. The option may be exercised on any date between 1 January 2017 and 31 March
2017. Under the provisions of IAS 32 Financial Instruments: Presentation, these shares have been disclosed as
a financial liability.
68
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
25. TRADE AND OTHER PAYABLES
Group
VAT payable
Trade payables
Other payables
Accruals
Shareholder prepayment
PAYE & social welfare
2016
€
3,459
5,007,611
119,849
277,982
-
16,245
2015
€
69,025
1,844,490
150,106
2,098,851
186,717
91,426
5,425,146
4,440,615
The carrying amount of trade and other payables approximates fair value. All trade and other payables fall
due within one year. Included in trade and other payables at 30 June 2016 is a liability of €5,092,317
related to the purchase of biomass gasifier equipment for the repowering of the Newry Biomass project
(2015: €Nil).
Trade and other creditors are payable at various dates in accordance with the suppliers’ usual and
customary credit terms. Corporation tax and other taxes including social insurance are repayable at various
dates over the coming months in accordance with the applicable statutory provisions.
Company
Trade payables
PAYE & social welfare
Shareholder prepayment
Accruals
2016
€
6,752
14,832
-
114,659
2015
€
180,516
69,343
186,717
1,335,512
136,243
1,772,088
The shareholder prepayment relates to an amount advanced under an irrevocably undertaking to
subscribe £100,000 at the next equity fundraising to be undertaken by the Company. In the current year,
this amount was converted into New Ordinary Shares of REACT energy plc as a result of the Scheme of
Arrangement arising from the Examinership process.
The carrying amount of trade and other payables approximates fair value. All trade and other payables fall
due within one year.
26. DEFERRED TAXATION
A deferred tax asset has not been recognised at the balance sheet date in respect of trading tax losses. Due
to the history of past losses, the company has not recognised any deferred tax asset in respect of tax losses
to be carried forward which are approximately €16.7 million at 30 June 2016.
69
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
27. RELATED PARTY TRANSACTIONS
The Group’s related parties include its joint venture and key management. In addition REACT Energy plc
had a convertible loan in the year ended 30 June 2015 from its main shareholder Farmer Business
Developments plc (“FBD”) on which interest is rolled up.
As part of the Scheme of Arrangement to exit the Examinership process, FBD loan facilities totalling
€1,742,027 were converted into 11,402,360 ordinary shares on 24 July 2015 (see note 24). At 30 June
2016, the balances due to FBD with respect to the loan facilities, including rolled up interest, totalled €Nil
(2015: €1,742,027).
Finance costs recognised in the income statement in respect of loans from related parties amounted to:
Investor loans (Note 24)
Interest from investor loan has been rolled up into the loan balance.
2016
€
2015
€
-
72,147
Transactions with key management personnel
Key management of the Group are the members of REACT Energy plc’s board of directors. Key
management personnel remuneration includes the following expenses:
Fees/
Salary/
Exps
€’000
250
85
-
22
6
363
Other
Pension
Bonus
€’000
€’000
€’000
Gain on
share
options
€’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2016
€’000
2015
€’000
250
85
-
22
6
363
282
90
34
22
11
439
Directors
Gerry Madden
Brendan Halpin
Steve Dalton
Dermot O’Connell
Edward Barrett
Total
At 30 June 2016, directors’ remuneration unpaid (including past directors) amounted to €26,000 (2015:
€420,663). The unpaid directors’ remuneration at 30 June 2015 was settled during the year by way of issue
of shares in REACT Energy plc as part of the Scheme of Arrangement approved by the High Court.
Details of each director’s shareholding that were in office at the year-end are shown in the Directors’
Report.
There were no outstanding balances with related parties at 30 June 2016.
As part of the development of the Enfield Biomass project, the group was contracted to pay development
fee to a number of individuals including B Halpin, a director of the Company, and his close relative. Total
development fee accrued during the year and unpaid at 30 June 2016 amounts to €Nil (2015: €184,168).
As part of the Scheme of Arrangement arising from the Company’s Examinership process, the
development fees payable were converted to new Ordinary Shares in REACT Energy plc at £0.11 per
share.
70
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
27. RELATED PARTY TRANSACTIONS - continued
Transactions with joint ventures
During the year ended 30 June 2016, sales of €Nil was made to jointly controlled entities, namely Newry
Biomass Limited (2015: €136,052). Newry Biomass Limited became a subsidiary of the Group on 8 May
2015.
Transactions with associate undertakings
During the year ended 30 June 2016, sales of €45,996 were made to associate undertakings (2015:
€67,979). In addition, property, plant and equipment were transferred to the associate undertaking in the
year ended 30 June 2015, realising proceeds of €282,734 (2016: €Nil). Included in trade and other payables
at 30 June 2016 is balances of €Nil payable to associate undertakings (2015: €2,741)
28. BUSINESS COMBINATIONS
Assuming control of Newry Biomass Limited
On 8 May 2015, Newry Biomass Limited (“NBL”), a company which previously was under the joint
control of both the Group and its majority shareholder, Farmers Business Developments plc (“FBD”),
issued an additional share to the Group’s subsidiary, Newry Biomass No. 1 Limited. The issue of the
additional share passed the overall control of NBL to the Group from that point onwards.
Under the terms of the Shareholders’ agreement between the Group and FBD, the rights to the share in
profits generated by NBL are calculated by reference to how much capital each shareholder contributes to
the company. FBD is entitled to 50.90% of the economic benefits derived from NBL whereas the Group
is entitled to 49.10% of the economic benefits.
NBL owns the 4MW Biomass advanced gasification project located in Newry, Co. Down, Northern
Ireland. The project is currently on ‘care and maintenance’ pending additional funding required to engage
a new technology provider. The Group took control of NBL to enable it to access the funds required to
engage a new technology provider.
Assets acquired and liabilities recognised at the date of acquisition
Non-current assets
Plant and equipment
Current assets
Trade and other receivables
Current liabilities
Trade and other payable
€
5,564,830
19,560
(836,454)
4,747,936
Previously held equity interests and non-controlling interests
The interest in NBL previously held by the Group as a joint venture was valued at €Nil prior to the
assumption of control. Following the assumption of control, the value of the Group’s previously held
equity interest in NBL was determined as €2,335,810, being the proportionate share of the net assets of
Newry Biomass Limited. The non-controlling interest recognised at the acquisition date was measured by
reference to the non-controlling interest’s proportionate share of the net assets of NBL, amounting to
€2,412,125 (See Note 23).
71
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
28. BUSINESS COMBINATIONS - continued
Consideration transferred
Cash
Goodwill arising on acquisition
Consideration transferred
Plus: Fair value of previous equity interests
Plus: Non-controlling interests
Less: Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Impact of acquisitions on the results of the Group
€
1
€
1
2,335,810
2,412,125
(4,747,936)
-
Included in the loss for the year ended 30 June 2015 is a loss of €1,246 relating to NBL. Revenue for the
period includes €Nil in respect of NBL. Had the acquisition of NBL been effected at 1 July 2014, there
would have been no change in revenue, and the loss for the period from continuing operations of the
Group would have been increased by €669,239 – this includes an impairment cost of €575,263.
The directors of the Group consider these pro-forma numbers to represent an approximate measure of
the performance of the combined group on an annualised basis and to provide a reference point for
comparison in future periods.
29. DISCONTINUED OPERATIONS
On 27 August 2014 the following non-trading and dormant group companies entered into voluntary
liquidation and a liquidator was appointed: Kedco Block Holdings Limited, Kedco Energy Limited,
Granig Trading Limited, Kedco Power Limited and Castle Homes Supplies Limited. From that date these
companies and their respective assets and liabilities are no longer consolidated as part of Group financial
results.
On 29 September 2014, Kedco Fabrication Limited (“KFL”), entered into creditors’ voluntary liquidation
following the appointment of a liquidator to the company. From that date this company and its respective
assets and liabilities are no longer consolidated as part of Group financial results.
The consolidated profit and loss have been restated to classify the profit from the liquidated companies as
discontinued operations.
72
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
29. DISCONTINUED OPERATIONS - continued
The following assets and liabilities were no longer consolidated by the Group as a result of the above
liquidations during the year ended 30 June 2015:
Assets
Investment properties
Trade and other receivables
Cash on hand and at bank
Total assets relating to subsidiaries liquidated
Liabilities
Amounts due to customers under construction contracts
Trade and other payables
Borrowings
Total liabilities relating to subsidiaries liquidated
Gain realised on derecognition of assets and liabilities
relating to liquidated subsidiaries
Revenue
Details of the profit and loss of discontinued operations is analysed as follows:
2016
€
-
-
-
-
-
Cost of sales
Gross profit
Operating costs
Finance costs
Profit/(loss) before tax
Income tax charge
Profit/(loss) on discontinued operations for the period
Profit recognised on de-recognition of subsidiaries
-
-
-
-
Carrying value
at liquidation
€
391,304
522
11,559
403,385
499,220
1,888,502
3,322,921
5,710,643
5,307,258
2015
€
147,552
-
147,552
(34,447)
(9,730)
103,375
-
103,375
5,307,258
Total profit/(loss) for the period
-
5,410,633
Net cash inflow on de-recognition of subsidiaries
Consideration paid in cash
Cash and cash equivalent balances disposed of (liability)
Net cash inflow on de-recognition
€
-
165,991
165,991
73
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
29. DISCONTINUED OPERATIONS – continued
Cash flows from discontinued operations
Net cash inflows from operating activities
Net cash outflows used in financing activities
Net cash inflows/(outflows)
2016
€
-
-
2015
€
11,458
(545)
-
10,913
There was no other disposal of subsidiaries in the year ended 30 June 2016.
30. CONTINGENT LIABILITIES
In the normal course of business, the Group has contingent liabilities arising from various legal
proceedings with third parties, the outcome of which is uncertain. Provision for a liability is made when
the directors believes that it is probable that an outflow of funds will be required to settle the obligation
where it arises from an event prior to the year end. It is the policy of the Group to rigorously defend all
legal actions taken against the Group.
31. EVENTS AFTER THE BALANCE SHEET DATE
Increase and extension of Loan Facility
The Company announced on 12 December 2016 that a €750,000 loan facility secured in January 2016
from EBIOSS has now been fully utilised. It also announced that the terms of the facility had been
amended by agreement between the parties such that the amount of the facility was increased by €600,000
to €1,350,000 and the repayment date of the increased facility was extended to 7 January 2018. The
increased facility is to cover the working capital requirements of the Company.
Project finance Heads of Agreement
On 11 October 2016, the Company announced that it had signed conditional heads of agreement with
several parties to potentially fund, through a combination of debt and equity, the repowering of its 4MW
biomass gasification project located in Newry, Co. Down, Northern Ireland (“Newry Biomass”) and
owned by its 50.02% subsidiary, Newry Biomass Limited (“NBL”).
The Heads of Agreement envisage a total investment of up to £11.2 million to be made both directly and
indirectly through the Company, into NBL, through a combination of debt and equity. If an agreement is
concluded, the equity component of the investment is to be provided by a sub fund of the Ethika Fund
SICAV Plc, a Professional Investor Fund (“Ethika”), and Kyotherm SAS, a France-based equity investor
in biomass, geothermal energy and energy saving projects. Under the terms of the Heads of Agreement,
Ethika is also to procure the debt financing for the repowering.
The terms of the Heads of Agreement between the parties are legally binding, however, are subject to the
completion of, inter alia, legal, financial and technical due diligence, which is currently underway and is
expected to be completed before the end of the calendar year, and therefore may change from that set out
in the Heads of Agreement. There can be no guarantee that definitive agreement will be concluded on the
terms currently envisaged or at all, or on the timetable envisaged.
74
REACT Energy plc
Notes to the consolidated financial statements
for the financial year ended 30 June 2016
31. EVENTS AFTER THE BALANCE SHEET DATE - continued
Project finance Heads of Agreement - continued
There is a possibility that the equity component of the investment may require, inter alia, shareholder
approval; however, this will not be known until the conclusion of the due diligence exercise. In the event
that shareholder approval is required, the Company will prepare and send the necessary documentation to
the shareholders to convene a general meeting of the Company to approve the proposals.
32. COMPANY PROFIT AND LOSS
As a consolidated group income statement is published, a separate income statement for the parent
company is omitted from the group financial statements by virtue of section 304(2) of the Companies
Act, 2014. The Company’s loss for the financial year was €3,606,007 (2015: €2,419,272).
33. APPROVAL OF FINANCIAL STATEMENTS
These consolidated financial statements were approved by the Board of Directors on 22 December 2016.
75