POWERHOUSE ENERGY GROUP PLC
COMPANY NUMBER: 03934451
Annual Report and Financial Statements
For The Year Ended 31 December 2019
Directors
COMPANY INFORMATION
William Cameron Davies (Chairman)
David John Ryan (Chief Executive Officer)
Nigel Brent Fitzpatrick (Director)
James John Pryn Greenstreet (Director)
Myles Kitcher (Director)
Company secretary
Nigel Brent Fitzpatrick
Company number
03934451
Registered office
Website
Bankers
Nominated Adviser
Registrar
Auditor
15 Victoria Mews
Mill Field Road
Cottingley Business Park
Bingley BD16 1PY
www.powerhouseenergy.net
HSBC
79 Piccadilly
London W1J 8EU
WH Ireland
24 Martin Lane
London EC4R 0DR
Neville Registrars Limited
Neville House, Steelpark Road
Halesowen B62 8HD
Jeffreys Henry LLP
Finsgate 5-7
Cranwood Street
London EC1V 9EE
Forward-looking statements
This report includes forward-looking statements. Whilst these forward-looking statements are made in good
faith, they are based upon the information available to Powerhouse Energy Group PLC at the date of this
report and upon current expectations, projections, market conditions and assumptions about future events.
These forward-looking statements are subject to risks, uncertainties and assumptions about the Company
and should be treated with an appropriate degree of caution.
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CONTENTS
HIGHLIGHTS ..................................................................................................................... 4
CHAIRMAN’S STATEMENT ............................................................................................. 6
STRATEGIC REPORT ....................................................................................................... 7
DIRECTORS’ REPORT ................................................................................................... 27
CORPORATE GOVERNANCE REPORT ........................................................................ 33
REMUNERATION COMMITTEE REPORT ..................................................................... 38
REPORT OF THE AUDIT COMMITTEE ......................................................................... 40
STATEMENT OF DIRECTORS’ RESPONSIBILITIES .................................................... 41
INDEPENDENT AUDITOR’S REPORT ........................................................................... 42
STATEMENT OF COMPREHENSIVE INCOME ............................................................. 47
STATEMENT OF FINANCIAL POSITION ....................................................................... 48
STATEMENT OF CASHFLOWS ..................................................................................... 49
STATEMENT OF CHANGES IN EQUITY ....................................................................... 50
NOTES TO THE ACCOUNTS ......................................................................................... 51
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HIGHLIGHTS
HIGHLIGHTS
Commercial Activities
• Collaboration contract signed with Peel to develop Distributed Modular Generation (DMG®) at Protos
and ten further sites. Peel have committed that the DMG process will be the key component and a
cornerstone of their “Plastic Parks”.
• The relationship with Peel for the development of multiple sites across the UK has added to the value
proposition for end customers of the DMG Technology.
•
In December 2019 a heads of terms was entered into for an all paper acquisition based on a 60:40
valuation premise of the UK development partner Waste2Tricity Limited (W2T). Post year end, in June
2020, Company entered into a binding agreement and issued the Circular to shareholders setting out
the logic behind the acquisition of W2T.
• Financing for pipeline of projects led by Peel Environmental and Waste2Tricity (W2T).
•
Initiated tenders for the project engineering definition phase and potential EPC execution with a number
of quality assured delivery contractors for the first application project at Protos.
• Continued negotiation with major overseas energy and engineering companies for exclusive regional
representation in a number of international regions.
Progress to First Commercial Operation
• Contract announced for initial engineering programme for first DMG application enacted by W2T.
• Contracts were signed introducing Peel into the development at a site on Peel's Protos Energy Park in
Cheshire as a waste plastic processing facility generating electricity and hydrogen.
• Engineering scope for Protos increased to accommodate production of up to 2 tpd of hydrogen from
35 tonnes of regenerated plastic waste feedstock.
• Planning submission completed by Peel for Protos Energy Park in Cheshire, followed by successful
community engagement meetings and council briefings.
• Post year-end, in March 2020 grant of planning permission by Cheshire West and Cheshire Council.
• Post year-end saw the announcement of the commercial terms for Protos and future projects under the
Peel Collaboration Agreement resulting in Peel agreeing to act as the developer of Protos and ten further
DMG sites in the UK.
• Company will receive an annual license fee of £500,000 for each DMG plant that Peel develops.
• Post year-end Peel agreed an Option to enter into an exclusive agreement for the development of DMG
Technology in the UK, once W2T has been acquired by the Company. On exercise of the option, the
Company will be due £500,000 as a one-off fee.
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HIGHLIGHTS
Technology Development
• Engineering development continued and the DMG waste regeneration design capacity of generic
equipment increased to 40 tonnes per day.
• Continued activity in technology risk management allowing removal of significant technology risk items
through engineering activities with component suppliers.
• The laboratory scale unit became operational and added to Research Demonstrator capability with the
Company broadening capability of third party feedstock trialing, laboratory services and consulting
services.
Organisation and Growth
• Appointment of David Ryan as CEO, with strategic focus on activities associated with first application
and necessary early commercial priorities.
• Post year end Powerhouse announced the appointment of Myles Kitcher from Peel, as a non-executive
director of the Company.
Financial Performance
• Company has continued its focus on prudent cash management during the year with a strategy to
avoid dilution via new equity raises.
• Aligned to this strategy the Company undertook a wide operational review to reduce monthly overheads
by more than 25% and primarily focus on the immediate development programme.
• All Directors waived salary payments from April 2019 to extend the Company’s cash through the entire
first application project period.
• Engineering contractors and service providers demonstrated their commitment to Powerhouse though
accepting fees in equity.
• Research and Development grants and VAT refunds helped keep cash flow positive during the year.
• Post year end, Powerhouse has received £100,000 from engineering work and expects income arising
from contracts in hand to be of the order of £60,000, related to Protos project work.
• Post year end, the exercise of warrants issued in 2018 has enhanced cash by circa £285,000.
Dr. Cameron Davies, Chairman of Powerhouse Energy PLC, said
“2019 has been a transformative year for Powerhouse with the first commercial plant using our DMG technology
now under development. It is gratifying to see a British technology company with a truly global application move
into its commercial phase while helping to resolve a major problem in today’s world, namely the need to reduce
the volume of waste plastic and simultaneously producing hydrogen in the community to progress the
expansion of the hydrogen economy.
The Board is enthusiastic about the prospects for the business as we move forward with Peel, our exclusive
development partner in the UK, and also create a robust sustainable base of international licensing revenue
through the establishment of similar relationships with blue-chip industrial partners across multiple overseas
markets.”
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CHAIRMAN’S STATEMENT
CHAIRMAN’S STATEMENT
I am pleased to present Powerhouse Energy Group’s 2019 Annual Report, which demonstrates the significant
progress we have made under the leadership of our new Chief Executive Officer, David Ryan.
Our team has focused its efforts on getting the first commercial scale distributed modular generation (DMG®)
plant built in the recently established low carbon energy and hydrogen cluster in the North West of England.
The plant will use Powerhouse’s groundbreaking DMG technology to produce syngas, electricity and hydrogen
from unrecyclable plastic waste. This plant will , subject to financing, be built at PeeI L&P Environmental’s Protos
Energy Park where, in March 2020, Cheshire West and Chester Council granted planning permission for
Powerhouse’s first plastics to hydrogen facility.
Post year end, Peel Environmental agreed to enter an exclusive agreement for the roll out of DMG technology
in the UK with a ten-site pipeline to follow Protos. As a condition of this arrangement, Powerhouse has to
acquire Waste2Tricity Limited (W2T) which had the exclusive rights to the distribution of DMG technology in the
UK. Powerhouse will then have the rights to licence and develop plants which will make important contributions
to the efforts by wider society to reverse the damage being caused to the oceans and rivers by unrecyclable
plastic waste. At this time of global uncertainty, we believe an important role of business is to seek innovative
solutions and create opportunities to reduce environmental harm profitably.
Our relationship with Peel and its associated contracts gives clarity of the delivery of the DMG process to it’s
end customers in the energy, waste management and financial communities. Peel’s strategy for “Plastic Parks”
across the UK is aligned to our own ambitions and we look forward to delivering this exciting vision together.
Our DMG technology has seen continuing and substantial interest internationally and we are carefully filtering
potential opportunities to engage exclusively with experienced project developers and maximize our future
licensing revenues.
I would like to thank our CEO and our team for their hard work during the year paving the way for future rapid
growth of the Company as new plants are rolled out to meet the increasing demand for Powerhouse’s plastic
waste to energy technology, engineering services and licensing.
I would also like to thank our shareholders who have been very supportive of our efforts to keep expenditure on
a tight rein in order to concentrate on building the first of many DMG plants.
In conclusion, 2019 was a year of significant progress for the Company against a background where the role of
hydrogen, in the UK Government’s ambition to achieve net zero carbon emissions by 2050, has been
emphasised as one important step towards fuel cell powered heavy goods transport.
Dr Cameron Davies
Non-Executive Chairman
29 June 2020
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STRATEGIC REPORT
STRATEGIC REPORT
The strategic report section addresses the Directors’ management of the Company and contains certain
forward-looking statements. These statements are made by the Directors in good faith based on the information
available to them up to the time of the report preparation and approval and such statements should be treated
with caution as they address uncertainties.
Business Strategy
Powerhouse Energy Group PLC (“Powerhouse” or ‘the Company”) designs, delivers and licenses Distributed
Modular Generation (DMG®) technology, a proprietary design which converts calorific waste streams into
synthetic gas (syn-gas), a valuable intermediate product a that can be used for power generation and as a
source of hydrogen for fuel cell vehicles.
The process converts non-recyclable waste plastic or end of life tyres to produce clean syn-gas into these ‘end
of waste’ products:
• Hydrogen
• Electrical power and heat
• Natural gas replacement
• Chemical feedstocks.
Powerhouse Energy will license the proprietary control systems with associated paid services for specific client
feedstock analysis and laboratory services, engineering during project development, and then operational
support services when projects are in operation.
Growth Through Partnership
In the United Kingdom Powerhouse Energy will be partnered by Peel Environmental as the exclusive
development partner and revenues will be principally from operating licenses, with project services paid for under
contracted fees arrangements.
For international sales, Powerhouse anticipates securing international exclusivity contracts with major energy
and waste management companies resulting in license fees and sales revenues being paid on a country-by-
country basis.
In the longer term, Powerhouse will endeavour to increase its portion of project revenues potentially expanding
licensing, engineering and management services into manufacturing and delivery with local partners, such
expansion will be prudent in line with financial capability.
Testing, Laboratory and Customer Field Trial Services
At our Thornton Energy Park facility, the Company carries out feedstock testing on the Research Demonstrator
and associated laboratory equipment to undertake analytical services for potential customers. The results can
be used in chemical engineering modelling carried out by Powerhouse. In the longer term and appropriate to
the Company’s growth, the testing capability will be extended to use a broader range of waste feedstocks and
of potential products from the process.
Acquisition of Waste2Tricity
On 26 June 2020 Powerhouse issued a Circular describing the proposed acquisition of Waste2Tricity. The non-
cash transaction uses Powerhouse shares to acquire the whole of the issued share capital of W2T, which has
been Powerhouse’s project developer and marketing company both in the UK and internationally. The all paper
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STRATEGIC REPORT
acquisition is based on a valuation ratio of 60% Powerhouse to 40% W2T, with the vast majority of Powerhouse
shares issued in exchange for W2T shares locked into a no-sale agreement for a minimum of a year. The
acquisition is subject to approval of a waiver of the obligation of the Concert Party to make a Rule 9 offer under
the Takeover Code and is described in the Circular and is to be voted on at the EGM to be held on 14 July
2020.
The Board’s Independent Directors unanimously recommended that the acquisition be approved by
Shareholders. David Ryan, the Company’s CEO, has a conflict of interest in this deal and has been absented
from the Board’s decision making and voting on this.
Post the acquisition of W2T, 87.5% of the Powerhouse shares issued to W2T shareholders will be locked down
against sale for one year and, post completion, with an Orderly Market Agreement in place for two more years.
A relationship agreement with the largest incoming shareholding family will be signed as part of the deal.
Following completion of the Acquisition, W2T will commence the winding up of its international subsidiary in
Thailand and will itself be fully subsumed into Powerhouse with the intention that wind up proceedings for W2T
can commenced by the end of 2020 or soon thereafter.
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STRATEGIC REPORT
OUR PRODUCT
The commercial DMG unit is currently marketed in nominal 25 tonnes per day (tpd) and 40 tpd waste plastic
processing sizes, to generate up to 3.8MW of electricity, export 3.4MW of electricity and produce up to 2 tonnes
of hydrogen. DMG takes waste plastics that cannot be recycled and regenerates them into clean energy that
can be separated into hydrogen for delivery either as clean fuel for fuel cell transport or as a feedstock in other
applications in the chemicals and plastics industries.
Design Development
The design of the DMG generic process that had been completed in 2018 was further refined and updated to
meet customer needs through 2019. These activities resulted in a further update of the already announced 25
tpd model of the DMG and increased to allow Powerhouse to offer 25 tpd and 40 tpd plants.
The increased throughput to 40 tpd of mixed non-recyclable feedstock will typically generate up to 3.8MWe of
electrical power, exporting 3.4 MWe or alternatively export 2 tonnes of road-fuel vehicle quality hydrogen per
day whilst also exporting at least 2MWe of electricity.
The design development will continue in response to customer requests for alternative waste feedstock models
and alternatives recovering materials from residue from specific feedstocks.
Technology Risk Management
Powerhouse Energy has instigated a detailed and comprehensive engineering and technology risk management
programme that has continued through the design phase since completion of the generic design and the DNV-
GL technology review. The programme, termed the Technology Risk Management Programme includes review
items suggested by DNV-GL and Powerhouse’s internally generated technical risk assessments – each of which
have specific activities planned to address the risk and will be resolved in the upcoming Protos development.
During the summer of 2019 as part of the Technology Risk Management Programme, at the instigation of one
of the key component manufacturers, Powerhouse acted as a consultant to an analogous biomass plant
enduring some start-up difficulties related to gas processing to help it optimise its bio-waste pyrolysis operation.
As a result of this specific operating experience, Powerhouse has acquired additional physical data to build into
the chemical engineering models developed for the process.
These research, engineering and operational experiences have helped in the assessment, removal, mitigation
and reduction of the level of risk and, as a result of the knowledge and experience gained, particular risks have
been mitigated or removed risk items. The work programme in 2019 removed major risks and provided
mitigation measures for the significant risk items and DNV-GL queries. The Technology Risk Management
Programme will be further validated by engineering contractors and DNV-GL through 2020.
As the Company proceeds through the Protos development, the Technology Risk Management Programme will
be reviewed by the Powerhouse Board, and individual risks addressed through engineering studies allowing the
register to be continuously updated. In parallel, DNV GL will be engaged to assess any risks in the Engineering
Definition arising from the Engineering Procurement and Construction Management Contractors work
programme. The Technology Risk Management Programme has a contingent/fallback suite of actions and these
are costed and built into the Company business plan.
Intellectual Property Management
The first stage of patent work has been filed and the family of patent work completed, and statements of
invention and claims initiated that are under scrutiny. These current patents under review cover the novel
configuration of the equipment, and the operating parameters of this equipment. Further patent applications will
arise from the detailed design and control system definition in hand for the first application of the DMG
technology.
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STRATEGIC REPORT
The most important IP remains the chemical engineering model of the process to create the clean gas – and
Powerhouse maintain strict protocols to ensure this information is protected as secret, including limited access
to process control on the system.
The key programming, control and maintenance of the systems will be maintained within a non-accessible black
box which is updated by Powerhouse, under licence, under strict access protocols using firmware and
programmes that have been demonstrated proven to resistance from remote access in accordance with military
standard specifications. The control algorithms will be retained with control equipment that remain under the
ownership of the Company. In the longer term the control system manufacture is planned to be undertaken by
PowerHouse providing additional means of protecting the functional and operational knowledge.
A further stage of IP protection work in terms of extending patent suite aligned to the engineering design is
planned through 2020 and budgeted within the Company Business Plan.
The Company has registered DMG® as a registered Brand name, for the Distributed Modular Generation
technology.
Regulatory & Planning Landscape
The DMG system is compatible with carbon capture and storage (capture from flue gas and the gas engine
exhaust) which will allow further incremental carbon dioxide reductions in future. This potential add-on feature
will ‘future proof’ the low emissions nature of DMG as the offset emissions from electricity generation are forecast
to decline as the carbon intensity of the electricity grid falls.
The premise for the application of DMG in the UK is that all process plants are able to be regulated outside the
specific conditions of the Industrial Emissions Directive (IED) Chapter IV ‘Incineration and Co-Incineration’ and
as such meet the IED Article 42(1) requirements that allow all advanced thermal conversion processes to be
regulated under the Medium Combustion Plant Directive (MCPD) should they be able to demonstrate that the
impacts arising from the combustion of cleaned syn-gas are ‘as clean as natural gas’.
It is assumed that the first DMG project will be considered as an EPR S5.1a Schedule 13A activity and is
regulated as a Small Waste Incineration Process by the local authority. This will continue until the process can
be demonstrated to produce syngas that has been cleaned to the extent that it can meet the IED Article 42(1)
requirements.
For the first DMG development at the Protos site, the intent is that until the gas has been proven to meet the
quality criteria the plant will be considered as an EPR S5.1a Schedule 13A activity and permits will be applied
for to the local authority.
Future Product Developments
The Company will develop a product development catalogue and the best opportunities will be identified from
the initial new product screening programme and development programmes tabled and included in future plans.
The current strategic route of hydrogen economy related technologies, equipment and services will be followed.
Customer’s Value Proposition
Powerhouse customers will have differing internal drivers for the application of DMG. Most customers procuring
DMG systems, whether operators or developers will require favourable commercial returns for their investment.
Powerhouse maintains several commercial revenue models for customers that provide robust demonstration of
the monetization benefits of DMG facilities over their 25 year lifecycle. These financial models are adapted and
shared with customers during the pre-sales studies and we also present the key aspects of a typical revenue
model for a UK application of DMG technology.
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STRATEGIC REPORT
Customer’s Waste Plastics Revenues
The market for waste plastics in the UK demands a price for processing waste plastic that is not recycled, this
represents more than 70% of the plastic currently in the waste streams. The alternative end destinations for
these plastics is either incineration at costs up to £100 per tonne, or landfill at c.£130 per tonne. Operators of
the DMG facilities accepting non-recyclable plastic is diverted from incineration or landfill can therefore expect
to receive a gate fee for plastic received in the region of c.£80 per tonne and the Company and Peel will
undertake further evaluation of these customer revenues in future months.
Customer’s Hydrogen Sales
The hydrogen market in the UK is not well developed, hydrogen supplies are scarce and thus the current price
of distributed hydrogen is high at £10-£12/kg. The UK government, via its Department for Business, Energy and
Industrial Strategy (“BEIS”), is targeting a “production cost” for hydrogen below £5/kg, but distribution costs
could add significantly to this. Peel undertook its own detailed studies with consultants on the potential of the
hydrogen market concluding that a sale price of £7-8/kg can be assumed for DMG hydrogen, with the
expectation that this could be higher in the earlier years and falling in real terms over time as the technology is
refined. Powerhouse will undertake further independent research into this market position through 2020.
Customer’s Electricity Sales
Current and forecast wholesale and retail electricity prices vary tremendously with many industries paying
variable rates with supply demands. Electrical power from DMG facilities can be used on site by customers or
sold directly to local businesses saving costs on relatively expensive national grid pricing. A flat wholesale price
of £50/MWh is an indicative assumption for the 25-year lifecycle period.
Customer’s Heat Sales
Where the customer or neighbouring businesses have a need for heat or cooling, then heat recovery and heat
export systems from the DMG plant may be included providing another potential revenue stream.
License Fees to Powerhouse
Along with these customer benefits assumptions above, these customer financial models include an annual
license fee to Powerhouse of £500,000.
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STRATEGIC REPORT
MARKET CONTEXT
Hydrogen Market
The Company is committed to supporting the development of a hydrogen economy, primarily through the
product development strategy to produce low cost hydrogen through its new proprietary technology.
Powerhouse’s DMG hydrogen technology is the first move in this strategy to facilitate the adoption of fuel cell
heavy goods transportation, and in the longer term, flexing of the national grid gas specifications to enable DMG
produced gasses as well as bio-gas to be added.
Hydrogen for Fuel Cell Electric Vehicles
Hydrogen will play an increasing role in moving the global economy away from a hydrocarbon centered one and
towards the planned electric vehicle transport future, particularly for heavy goods vehicles and public service
vehicles such as trains and buses. Many experts and government departments expect that hydrogen will
become one of the major sources of energy consumption and storage over the coming decades. The DMG
technology development has been focused on a solution to the lack of availability of distributed hydrogen.
Peel L&P, who have the Option to become the UK exclusive project developer of waste plastic to hydrogen
units, are committed to developing the nascent UK hydrogen for fuel cell electric vehicle (“FCEV”) market
specifically for truck and bus fleets.
The UK, EU and the UK, Japan, South Korea, have introduced statutory legislation and regulations aimed at
decarbonising road transport and there are various initiatives in place to build a hydrogen refueling infrastructure
to support fuel cell electric vehicles. The UK government has identified hydrogen fuel cell electric vehicles as a
key component to meet net zero emissions targets by 2050.
Powerhouse and Peel will endeavour to make sure that the UK Government understands that the DMG waste
to hydrogen offers an alternative method of hydrogen production and that as the minimum, hydrogen from
plastics has parity with distributed electrolysis in terms of any plans for subsidy and tax loading. Energy from
Waste facilities in UK are exempt from Carbon Taxes, probably as they have a public health function. The DMG
technology is an Energy from Waste process and therefore our customers would be treated in the same manner
as conventional Energy from Waste operations. The companies also stress the beneficial impact of DMG
technology as a solution to end of life, unrecyclable plastics
Hydrogen for Industrial Feedstocks
Hydrogen is used as a feedstock in several large industries such as the refining and chemicals. Powerhouse’s
technology for hydrogen production does not support major refinery consumers but is suitable for medium sized
facilities. DMG plants are able to meet a nascent demand for a technology that can produce power and hydrogen
on a local scale while cleaning up non-recyclable waste plastic and reducing landfill volumes simultaneously.
Interest has been shown from the developing world, most notably Asia and Africa, where waste to power
solutions such as DMG will not only help clean up contaminated plastic waste but substitute for diesel power
generation in creating a source of distributed electricity for off grid communities.
Powerhouse is an active member of the UK Hydrogen and Fuel Cell association and Peel is a leading member
of the North West Hydrogen Alliance.
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STRATEGIC REPORT
Waste Plastic Market
Powerhouse’s DMG technology is an innovative method for handling end of life plastics and the Company has
continued to experience significant interest in the product to handle this waste plastic.
UK Waste Plastic Market
In the domestic market, the 2019 ‘WRAP’ report estimates that 2.4Mtonnes of plastic packaging was placed
on the UK market. The amount of plastic packaging collected by UK local authorities is estimated to have
increased by 10% since 2014 and almost all local authorities collect plastic bottles, with around four out of five
collecting at least some types of pots, tubs and trays (PTTs), but only 10% accepting all types of plastic film. All
the non-recyclable plastic materials can be regenerated to energy and hydrogen in DMG plants.
The route for ‘recycling’ by export has been closed as China and other governments have banned the import of
plastics and other waste materials The loss of these historic export markets mean that domestic recycling must
increase significantly in order to meet Government set stretched targets.
Investment in increased plastics recycling infrastructure must be able to weather economic volatility and be
adaptable to changes in market need.
Peel estimates in the locale of Protos that 800,000 tonnes per annum of non-recyclable plastics arising from the
residual waste stream is going to either landfill disposal or inefficient incineration facilities. This is sufficient
feedstock for 60 DMG units within two hours of the Protos site alone, if material is redirected from landfill.
Powerhouse and Peel are engaging in discussions with major consumer goods producers, all of whom are
following developments on Protos with interest.
International Waste Plastic Markets
There is a global consensus towards reducing waste and increasing sustainable energy sources. Powerhouse
has reviewed several international market practices and while all have their own not dissimilar approaches to the
UK, the single theme that they have in common is that non-recyclable plastic waste is a growing problem for all.
So, Powerhouse expects similar customer uptake in those markets. Powerhouse’s engagement in international
markets will rely on experienced local partners either as project developers and asset owners, or alternatively,
through industrial partners engaging with Powerhouse in the design, delivery and operation of DMG plants.
As an example, Powerhouse is currently engaged in a feasibility study with a utility company for applications in
Spain. There is currently less than a 20% recycling rate in Spain with no gate fee for plastic, so the market is not
yet established for the recycling of plastics. Thus, plastic in the waste stream is going direct to landfill or in some
instances to incinerators, yet the government is moving to ban incineration. There is evidence of some of the
waste being exported and this route will be banned in the future. This represents an opportunity for our Spanish
partner and Powerhouse to become part of a recycling revolution in waste treatment using the DMG technology.
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STRATEGIC REPORT
SALES
Peel Partnership for UK
Strategic Setting
At an early stage, the Powerhouse Board identified that a key success factor for DMG technology would be the
development of partnerships with suitably resourced companies which share its vision for clean energy from
previously untreatable plastic waste. In 2019, Powerhouse successfully completed its alignment with a major
development partner for the UK in Peel Environmental (www.peelenvironmental.co.uk). The belief shown by Peel
in not just our technology but also in how it could transform the provision of clean energy and power at its
industrial sites across the UK has greatly encouraged the Company as it had to clearly meet the exacting quality,
technical and commercial thresholds that Peel requires of its partners.
The Board believes that this collaboration with Peel will be significantly beneficial as Peel’s size and standing will
help move Powerhouse away from any perceptions of being a small standalone technical IP business and
towards a business with enabling and innovative green technology that one of the largest industrial site
landowners and developers in the UK is keen to develop projects with. Under the terms of the agreements, Peel
will seek the project funding for the already announced 11 projects and for the pipeline of projects to follow.
Background to Peel Partnership
The Peel Group is one of the leading infrastructure, transport and real estate investors in the UK, with collective
investments owned and under management of more than £5 billion. Established by the current chairman, John
Whittaker, the Peel Group has grown through an ethos of long-term investment in visionary regeneration
projects, primarily in the North of England. The Group is family-owned, and its principal investments encompass
land and property, transport and logistics, energy, retail and leisure.
Peel has a corporate commitment to sustainable targets and was the first property company to achieve Net
Zero Carbon status using the UK Green Building Council’s 2019 definition for buildings in the UK.
Peel L&P Environmental, a division of Peel L&P, is an experienced partner for Powerhouse in the waste and
energy sectors and the Board concluded that a collaboration with the Peel group offered a significant strategic
advantage compared to seeking project developers.
Peel has spent the last three years working closely with Powerhouse, reviewing the technology in parallel with
its industrial and local authority client base. In 2019 they engaged an internationally recognised independent
engineering consultancy, to formally undertake a due diligence review of the technology and subsequently the
independent consultancy undertook a study to demonstrate that the DMG process is fully compliant with the
legislative emission levels for operation in UK and throughout the European Union.
Peel plans to replicate the Protos development model throughout the UK and other sites are already in pre-
planning for application later in 2020. Peel will incorporate the DMG application into its” Plastic Parks” vision and
will develop the process for the local provision of hydrogen.
Peel’s targets for shared facilities are local authorities with their waste management pressures and also blue-
chip industrials.
Peel’s ‘Plastic Parks’ vision foresees a nationwide implementation of developments where non-recyclable waste
plastics are recycled and regenerated. These parks are intended to each have a Powerhouse DMG plant to
divert plastic from landfill and produce hydrogen and clean power. Peel’s plans involve bringing together
potential counterparties for waste management, power generation and hydrogen production with a net negative
CO2 contribution for each site.
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STRATEGIC REPORT
The two companies’ relationship was strengthened post year end when the Peel L&P Environmental Managing
Director, Myles Kitcher, joined the Powerhouse Board of directors.
Peel Collaboration Agreement
In the second half of 2019, Powerhouse announced that it had entered into a Collaboration Agreement (“CA”)
with Peel Environmental to develop an initial minimum of eleven sites in the UK for DMG facilities, including the
first full scale commercial site application at Protos Energy Park in Cheshire. Subject to the W2T acquisition, the
collaboration will see Peel initially develop the Protos Energy Park followed by at least ten further DMG sites.
Post year end, the specific commercial terms for the Protos project and subsequent projects were defined in a
supplemental commercial agreement, under which the Company will receive engineering fees during the delivery
of each project and, subsequent to successful commissioning, will also receive £500,000 per annum license fee
per project.
Peel Option for Exclusivity for DMG In Plastics to Hydrogen Applications
Post year-end in March 2020, Powerhouse and Peel agreed an Option to enter into an exclusive agreement for
the development of DMG Technology in the UK, once W2T has been acquired by the Company. On exercise
of the option, the Company will be due £500,000 as a one-off fee for granting Peel exclusive rights to develop
the DMG plants in the UK and Peel will lead the development and the funding strategy for all future UK projects.
Peel will establish special purpose investment vehicles to fund each project with an anticipated total capital
commitment of circa, £200m, to meet the agreed pipeline of 11 initial projects.
The UK exclusivity deal is dependent on the Powerhouse acquisition of Waste2Tricity Limited.
After the proposed acquisition, and when Peel exercise the option, Powerhouse will receive a one-off fee of
£500,000. This arrangement will allow Peel to lead the consultation with various potential clients for UK based
DMG plants. Powerhouse will receive an annual license fee of £500,000 for each DMG plant developed, payable
when the unit becomes operational with potential additional fees earned by the Company from engineering
services that may be delivered on the projects.
The Board believes that the positive engagement between Powerhouse and Peel and their close strategic fit will
result in an effective and sustainable roll out of DMG technology across the UK.
Pipeline of UK Prospects
The pipeline of prospects developed by Powerhouse over the last twelve months has now been transferred to
Peel which is integrating these potential clients into the roll out programme. These prospective clients include
international waste companies, local authorities, and companies in the plastics and consumer goods production
sectors. These are now being further developed by Peel with pre-project planning activities on the next intended
sites already underway.
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STRATEGIC REPORT
International Sales
The international business development activities will focus on developing regional and territory-by-territory
partnership agreements to roll out DMG technology. Powerhouse will continue these international business
development activities by marketing DMG to potential industrial partners, by building relationships, reviewing
project opportunities and signing exclusive marketing agreements.
Strong interest has been expressed in DMG development partnerships internationally.
In Europe commercial feasibility assessments are being undertaken for the Iberian peninsula and project specific
studies are underway in Greece.
In Australia the Company has a target project pipeline and Oceania Engineering Services are targeting the
initiation of engineering studies for the first Australian project.
In Thailand where considerable prior work has been carried out, Powerhouse proposes to negotiate a new
marketing agreement with a local entity paying for exclusivity of delivery in Thailand and focused on rolling out
DMG technology in that country.
In Japan a series of potential partner Memorandums of Understanding have been developed and specific
technical due diligence undertaken, with Toyota Tsusho and Itochu completing their exploratory due diligence
in 2020. However potential Japanese partners have indicated that investment decisions will only be made
subsequent to the commissioning of the first operational plant.
Noting this, the Company has focused through 2019 on the delivery of the first operational project. Wider
business development activities will be initiated through second half of 2020 to secure partners for developments
internationally and enable rapid roll out to meet the expected demand.
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STRATEGIC REPORT
PROJECT PROGRESS
Protos Project – Ellesmere Port
The first application of the Powerhouse DMG technology is to be built at the Protos Site, a Peel L&P energy park
development on a 54-hectare site known as ‘Protos’ near Ellesmere Port, Cheshire, England. The site is the first
development by Peel L&P under the Collaboration Agreement.
The planning permission for the application was submitted in September 2019 and, on 3 March 2020, the
Cheshire West and Chester planning committee approved the planning application for the DMG Technology to
be utilised on the Protos Site.
Contractor Selection Process
Powerhouse spent much of 2019 engaging with the contractor community with a view to identifying interested
Engineering Procurement and Construction (EPC) Contractors who could deliver the DMG facilities, in the UK
and internationally.
The contracts familiarisation included various contractors undertaking their own technical due diligence of the
DMG technology and ultimately a tender for the Protos Engineering Definition and outline execution
consideration for Protos.
The final contractor selection list of six quality assured, financially capable and experienced contractors was
transferred to Peel. Relationships with contractors who are not selected by Peel will continue to be developed
for international projects.
Protos Engineering Progress
In the second half of 2019, Peel engaged project development consultants to deliver the development of the
DMG plant at Protos on Peel’s behalf. The consultants will oversee the overall site and engineering works
including civil engineering design, groundworks and buildings as well as being the contracting party on behalf of
Peel.
As part of this scope they have appointed an engineering contractor, with extensive international experience,
to undertake the engineering definition for the Protos site to address all aspects of the facility design, seek
equipment costs and hence allow all contract costs to be finalised. Formal announcement of consultancies and
contractors will be made by Peel in due course. the energy and infrastructure sectors.
Through the first half of 2020 Powerhouse has been working extensively with Peel their appointed project
management consultants and the plant engineering contractor on the engineering definition stage. Powerhouse
is responsible for validation and direction of the design to ensure the Protos project meets the design criteria. At
the end of the engineering definition phase Peel will be in a position to place costed execution contracts, allowing
funders and investors to complete their activities to financial close.
Protos Execution Through to Operation
The execution phase of the project is currently being planned with specific roles and responsibilities for all
aspects of the construction, commissioning and operation to be finalized. Powerhouse expects to receive fees
from its involvement in commissioning including overseeing the training of the operational staff during this phase.
Powerhouse expects to undertake an ongoing remote and onsite monitoring and periodic servicing role in
operations with the expectation that this will be an inbuilt requirement of the license agreement with Peel’s
special purpose vehicle (SPV) for which Powerhouse will receive £500,000 in annual fees.
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STRATEGIC REPORT
FINANCE
Financial Strategy
The Company chose to follow a strategy to minimise new equity raises for 2019, wherever practical, and to
closely manage cash and activities with the primary focus being placed on securing the delivery of the first DMG
plant. In order to achieve this, the Company undertook an operational review to reduce monthly overhead by
over 25%.
As part of this strategy and in order to progress the necessary technology risk management activities, as well
as the pre-contract projects work, engineering contractors and service providers were asked and agreed to take
some of their payments in Powerhouse equity. This demonstration of faith in the Company by service consultants
engendered a shared belief in the technology and garnered a collegiate team structure. To underline their
support of this strategy, the Powerhouse directors deferred any salary payments due from April 2019 to extend
finances through the entire first application project period.
Financial Position
The Company ended the financial year with a cash balance of £103,580. The prudent management of cash as
is required in such a nascent technology company will continue throughout 2020 in managing expenditure
against income and available cash.
Post year end, Powerhouse expects income arising from contracts to be of the order of £160,000, related to
Protos project work, research and development services, and the exercise of warrants issued in 2018 which will
bring in an additional circa £285,000.
The Company has carefully managed its research and development activities and in 2019 applied for £195,708
in R&D tax credits for its 2018 activities. These amounts have been received post year end.
Financial Performance
The Company entered its first commercial contract for revenues in 2019, with invoices raised, and settled, in
2020 for £100,000 after performance obligations were completed.
Post year end the Company can look forward to executing further engineering services on the Protos
development thus generating revenues and, subject to the successful completion of the acquisition of W2T,
Powerhouse and Peel should complete the exclusivity Agreement with Peel securing the associated fee
arrangements presented in the revenue model to be followed in future years.
Fundraises
The Company chose to minimise new cash raises while finalizing the Peel situation and the first project, and
hence no fundraises were made in 2019. The Company raised £3.4M in 2018.
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STRATEGIC REPORT
ORGANISATIONAL DEVELOPMENT
Organisational Development Strategy
The Company intends to expand its operational teams in a phased manner, aligned to project progress including
the Protos project development and other subsequent projects, with teams set up to maintain and develop the
delivery and supply chain relationships necessary to enable it to deliver and provide licensing support to multiple
projects simultaneously. Powerhouse plans to invest prudently in operational personnel, management systems
and equipment to ensure the required delivery of the services but will not look to increase staffing levels until
demonstrably necessary for the growth of the business.
Board Strengthening
In February 2019, the Group’s Chief Executive Officer, Keith Allaun, resigned from his role and we were pleased
to appoint David Ryan as Chief Executive Officer. We thank Keith for his service and wish him well in his new
endeavours.
David brings 39 years of experience in energy and international capital-intensive project delivery, together with
successfully leading the founding, growth, and ultimately sale of an engineering business to an international
contracting buyer. He is committed to delivering Powerhouse’s high-quality waste to hydrogen DMG technology
to meet customer requirements in a way that will maximise shareholder value. He is setting up business
management systems aligned to the development of Powerhouse as a customer focused, revenue generating
company delivering quality services that will lead to Powerhouse becoming a profitable technical delivery
organisation.
Post year end, and in recognition of their strategic importance of Peel L&P to the development of Powerhouse
in UK, we were pleased to welcome Myles Kitcher, Managing Director, Natural Resources & Energy, Peel L&P
Holdings, to the Board in a non-executive role. Myles brings his extensive experience from sustainable industrial
property development and management to lead the Protos project roll-out in the UK.
Following the proposed acquisition of W2T, it is anticipated that current chairman of W2T, Timothy Yeo, will join
the Powerhouse Board as a non- executive director. Mr. Yeo has wide experience in government, serving in the
Environment and Health Departments, and subsequently as Shadow Secretary of State for Trade and Industry
in the Shadow Cabinet. He is currently the chairman of the New Nuclear Watch Institute, Honorary Ambassador
of Foreign Investment Promotion for South Korea and since 2007 has been a non-executive director of Getlink
SE, operator of the Channel Tunnel.
Advisory Panel
Powerhouse also announces it has dissolved its Advisory Panel, established in May 2017, with immediate effect
and the Company would like to thank each panel member for offering their input pro-bono during its existence.
It is anticipated that a Technical Advisory Committee with a focus on reclaimed hydrogen energy technology will
be established in due course, made up of staff and industry specialists. In the meantime, with the Company in
project focus, staff and expert external consultant input is directed at project management and technology risk
management as described above.
Personnel
The management of Powerhouse is conscious that the Company’s plans will demand a staffing plan to grow
the business. Powerhouse operates with a close team made up of specialist experts and consultancy personnel
to address specific activities. The team has shown dedication to the Company strategy by deferring fees and
payments.
This staffing strategy has enabled the Company to professionally manage its necessary functions without
incurring large fixed costs at this stage.
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STRATEGIC REPORT
The staffing plan to be implemented will address the timely recruitment of well qualified younger professionals
into engineering, business development, operations and finance roles. The individuals will only be recruited as
budget allows and, in a fashion, that the individuals can be provided with a corporate alignment and training
programme in order for them to become part of the future operational management team.
Management Systems
In the coming months the Company’s management and IT systems will be enhanced as they begin to address
the delivery of engineering and operational support for projects. Powerhouse anticipates it will achieve ISO 9001
and 14001 for these systems as part of the requirement to have repeatable quality assured process systems.
Offices & Research Facilities
Powerhouse currently operates out of the Thornton Energy Centre, near Chester in North West England where
the laboratory facilities and research demonstrator, the principal test-bed for the underlying engineering and
testing, are located. The Thornton office will also serve as a project support office for Protos. At the appropriate
time, the Company will consider moving to dedicated business premises, however, such a move will only be
initiated when the demands of budget, personnel, systems and customer interfaces can all be satisfied by a
single location, and will not be as a result of any decision based around image perception.
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STRATEGIC REPORT
CORPORATE SOCIAL RESPONSIBILITY
Our Commitment
The strategy of Powerhouse is based on sound ethical and environmental principles by addressing two of
society’s most pressing problems, the eradication of unrecyclable plastic waste and the production of clean
hydrogen energy for fuel cell vehicles such as buses and trucks with the resultant improved air quality around
our communities.
Consistent with the Company’s commitment to operating with an inclusive, transparent and respectful culture.
Powerhouse places particular emphasis on operating to the highest ethical and environmental standards.
The Company’s objectives include observing the highest level of health and safety standards, developing its staff
to their highest potential and being a good corporate citizen in the countries of operations.
The Company directors take personal ownership of maintaining high standards of business conduct throughout
the organisation and for delivering these Corporate Social Responsibilities.
Stakeholder Engagement
The Board is mindful of the duties of directors under S.172 of the Companies Act 2006. The directors act in a
way they consider, in good faith, to be most likely to promote the success of the Company for the benefit of its
shareholders. In doing so, they each have regard to a range of matters when making decisions for the long-term
success of the Company. The directors promote a culture within Powerhouse of treating everyone fairly and with
respect and this extends to all principal stakeholders including shareholders, employees, consultants, suppliers,
customers and the communities where it is active.
Environment Policies
As it moves into an operating environment the Company will redefine its commitments to the environment and
to sustainable growth in new policies to be issued in the near future.
Staff
Powerhouse will commence strengthening its operational engineering and administration team through 2020. It
is fully committed to promoting a working environment of equal opportunities for all without discrimination or
harassment and regardless of part-time working, gender, sexual orientation, age, race, ethnicity, nationality,
religion or disability.
The Company will report against this commitment in future annual reports.
Health Safety and Environment
The health and wellbeing of its staff and associates is considered in the evolving working practices as the
Company grows. Our commitment covers the ways in which work is carried out from offices, home, laboratories,
R&D facilities and operational sites.
The Company’s research and development activities were delivered HSE incident free through 2019 and
continued incident free performance is a key performance indicator for 2020.
The Product Emissions in Operation
The Company is committed to developing technology for projects with as emissions that are safe and low
meeting all environmental and regulatory requirements.
The application of the Company’s technology in waste to hydrogen plants produces residues are in two forms,
solids and hydrocarbon paste. The ash like residue is generally inert material and proven as such on Protos and
will be sold for use in road fill. Typically, the output is around 3-4 tonnes per day from 40 tonnes but varies with
the type of customer feedstock. The gas clean up residue is a hydrocarbon rich paste that is generally taken by
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STRATEGIC REPORT
road tarmac type producers and, specifically for the first project may be directed to nearby Stanlow refinery and
added to its processing capability.
Local Community Engagement
In 2019 Powerhouse supported Peel with involvement in the local community forums for the Protos plant as well
as the planning permission consultation process.
Throughout the planned site works at Protos, and other projects as they come to fruition, Powerhouse will fully
engage with local communities to inform and educate them on the DMG technology and listen to their concerns.
Industry and Educational Engagement
Our close relationship with the University of Chester has included our ongoing student sponsorship, involvement
in mentoring and career events.
Wider afield Powerhouse demonstrates commitment to future engineers and technical specialists providing
support and presentation to students at universities and professional bodies.
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STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTANTIES
The Company is subject to various operational risks and the following issues are particularly relevant to the
Company’s business activities:
Business Risk
Technology Risk
The Company is running a detailed Technology Risk Management Programme derived from its own test and
design activities and informed by the DNV GL Technical Assurance process. The strategy of selecting mainly
proven components with extensive operating hours in similar service in other plants significantly reduces the risk
profile for its DMG system.
As described in the Product section above, through 2019 Powerhouse continued to address the remaining
identified technical risks. These will be worked through under the detailed design and commissioning period of
the DMG at Protos. Powerhouse will also engage DNV-GL to provide independent technical assurance validation
in accordance with the second stage of the DNV-GL Technology Validation process.
Research and Development Activity Risks
The Powerhouse research and development equipment has been subject to formal design and functional safety
reviews with all activities being subject to risk assessments in accordance with the Company Health & Safety
Management processes.
Powerhouse operates its research and development laboratory equipment and testing programmes to the best
industry standards and in line with the high demands expected by the Company Health & Safety Management
procedures. The Company’s operating systems will be revised as it moves towards construction, commissioning
and operation.
Manufacturing
The current execution route for the delivery of DMG plant and componentry in the UK will rely on proven delivery
contractors undertaking procurement through their quality assured vendor selection systems. These systems
will monitor all vendors including any specific vendors selected by Powerhouse. All equipment and components
will be subject to detailed technical validation in the engineering phase and factory acceptance test programmes
prior to release with detailed component proving pre-commissioning and commissioning phases to fall under
the control of the Engineering Procurement and Construction Management contractor.
Execution Risk
The DMG design has been completed to minimise construction risk by the use of skidded components with
limited hook up demands.
The execution strategy for Protos is reliant on experienced design and construction contractors delivering the
process, under guidance of an experienced management team. The quality will further be assured to meet
specification by Powerhouse validating and undertaking quality assurance surveillance through the execution.
The Company has undertaken a contractor familiarisation exercise to be able to align contractors with the other
DMG processes as and when new orders arise.
Regulatory Risks
The Company aided Peel in its preparation of planning permission material. The rapid and uncontroversial
approval of the planning application provides comfort that planning permission for other DMG plants, with their
low visual and environmental impacts, will be forthcoming. Powerhouse is already engaged with developing the
planning and permits for two further sites in Ellesmere Port.
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STRATEGIC REPORT
In the UK, the application of the DMG once on a dedicated site does not require an Environment Agency permit,
but instead a permit granted by the relevant Local Authority.
In undertaking the various air quality assessments necessary for permit application, the international independent
consultancy Fichtner has demonstrated that the DMG process is fully compliant with the appropriate legislative
emission levels for operation in the UK and throughout the European Union.
From the overseas project screening and feasibility studies the Company has gained confidence that planning
and permitting for projects can be achieved in a timely fashion and specific locations will be desktop tested
through 2020 arising from studies for Spain and Australia.
Competition Risk
There are a number of large scale waste gasification companies in operation, however few are active in or able
to cope with black/grey plastics and rubber, or are targeting the market of smaller throughput, distributed,
multiple sites where Powerhouse is active. The Company considers that, for a competitor to achieve the
operating parameters and accumulated data that require considerable trial and error over many thousands of
hours of operation and as such represents a significant barrier to entry.
There are also a number of active plastics to liquid companies, many using specific feedstocks, and the
application of these processes is currently seen as complementary to the DMG process as this technology can
accept the waste plastics rejected by these plants, incinerators or plastics recyclers.
Market Adoption Risk
The Company acknowledges that it currently does not have the depth of operation to deliver multiple projects
on a worldwide basis and is mitigating this risk by engaging in these current markets through regional industrial
partnerships.
There is significant interest in the DMG process worldwide, and the Company considers that the adoption of the
technology is wholly dependent on Powerhouse demonstrating successful operation in the early plants.
Potential waste operator customers are being pushed into technologies such as DMG by the regulatory drive of
international authorities to reduce landfilling via taxes and charges resulting in the waste feedstock having an
inherent cost.
The DMG cost of production of hydrogen is attractive for hydrogen customers and market adoption will be
dependent on the international take-up of hydrogen, mainly in the HGV FCEV market.
IP Protection Risk
As described in the Product section above, Powerhouse is adopting a dual route of IP protection via a family of
patents and maintaining secrecy over the control algorithms and chemical engineering models for the process.
The Company has undertaken the necessary checks to ensure freedom to operate within the process areas
addressed by the DMG technology.
Staffing Risks
The Company has put in place staff retention measures including training, employee share option schemes and
other measures. The management has extensive links into the UK and international energy professional
community and will use these links to secure staff through coming growth period.
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STRATEGIC REPORT
Financial Risk
- Cashflow risk
The Company manages its cash to ensure creditors are paid in a timely way and in avoiding, where possible,
long term spend commitments. Cashflow forecasts are produced regularly to monitor planned forward spend
and to assess funding needs in the short, mid and long term. The Company has managed, and will continue to
manage, outgoings and operating costs within budget and during 2019 project engineering operating costs
have been covered by revenues ultimately received for engineering services.
The Company’s current cash balances are aligned with contracted service and post year end cash inflows from
R&D tax credits, warrant exercises and Peel’s Exclusivity fees are expected to meet all outstanding costs
associated with the proposed acquisition of W2T and also the Company’s planned expenditure and ongoing
costs into the fourth quarter of 2020. Further revenues are expected through the year from operations.
When appropriate, the Company will consider the introduction of new equity capital or other sources of funding.
Other financial risks are considered as follows:
- Foreign Currency Risk
The execution of the first project does not expose the company to any foreign currency risk. The Company does
not hold any cash in foreign currencies and there are not yet any planned international projects, therefore foreign
currency value fluctuations are insignificant. When international contracts begin to be considered, the Board
would examine the likely exposures of each such situation and determine what action to take to mitigate such
risks.
- Interest Rate Risk
The Company does not have any corporate or project related debt outstanding and deposit rates are currently
negligible, so the Board considers that there is currently no significant risk of any exposure to interest rate
variations.
- Other Financial Risks
The Company considers price risk, liquidity risk and credit risk to be negligible in relation to their performance
and financial position at this early stage of its development. Prior to entering into collaboration arrangements
with the likes of Peel, or outsourced service providers to Powerhouse, the Board are cognizant of the fact that,
prior to agreeing to allow the Company to enter into such arrangements, it is incumbent on them to ensure that
they take a view on the standing and ability to deliver of any such partners and associates so as to avoid business
disruption.
External Risks
The Company is subject to various risks originating from external events including political, economic, legal,
business and financial conditions. The assessment of these risks, their evaluation and mitigation are essential
parts of the Company’s planning and internal control system.
The following risk factors, which are not exhaustive, are particularly relevant to our current business activities:
COVID-19
The Company has not been significantly affected by the global pandemic to date as the majority of work planned
has been desk engineering.
The R&D facilities at Thornton Science Park were temporarily closed in March 2020 in line with government
guidelines. Fortunately, Powerhouse did not have any pressing activities and the Company has moved its
research activities, feedstock testing and customer trialing services into the third quarter 2020 under revised
operating protocols.
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STRATEGIC REPORT
The Protos project has been largely unaffected by the pandemic as the majority of ongoing work is desktop-
based Engineering. However, it is expected that construction working practices will need to be updated to reflect
government guidelines.
The company and contractor staff have undertaken certificated training on Coronavirus Covid-19 measures to
follow and social distancing requirements.
The Contractors will be building into their delivery programmes the necessary safety precautions inherent in their
Covid-19 safe operating practices to deliver Protos and these will be confirmed at contract award.
Political Risk - Brexit
The Company is not subject to the various serious implications as a result of Brexit. The main risk the Company
may face as a result of Brexit is the increase in potential tariffs when trying to obtain equipment or licenses.
Regulatory Risk
The Company observes various changes in new governments’ regulations within different geographies diligently
to ensure that any regulatory changes are followed to mitigate any significant risks. This puts the Company in a
position to adapt developing projects to keep up to date with the different necessary regulations.
I look forward to the next exciting year in the development of Powerhouse as it grows to become a profitable
and growing Company.
David Ryan
Chief Executive Officer
29 June 2020
26
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their report together with the audited financial statements for the year ended 31 December
2019 for Powerhouse Energy Group Plc (“Powerhouse Energy” or the “Company”). The financial statements
have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the
European Union and will be laid before the shareholders of the Company at the Annual General Meeting.
Principal Activities
Powerhouse Energy is a company incorporated in England and Wales with company number 03934451. The
Company is a public limited company which trades on the AIM market of the London Stock Exchange. The
address of the registered office is 15 Victoria Mews, Mill Field Road, Cottingley Business Park, Bingley BD16
1PY.
Powerhouse Energy designs, delivers and licenses plastic regeneration processes to generate hydrogen and
electrical energy systems and provides associated customer engineering and testing services.
The Company has a Distributed Modular Generation (“DMG”) product platform for the regeneration of plastic to
power and hydrogen. The Company engineers, sells, licenses and supports operations of the DMG process for
applications in UK and throughout the world.
Business Strategy
The Company Business strategy is described in the Strategic Report.
Business Review
The review of the year and the Directors’ strategy are set out in the Strategic Report.
Key Performance Indicators
At the current stage of corporate and technology development the Directors consider that performance is
measured against the commercialisation and business development milestone activities reported in the Strategic
Report.
Review of Future Developments
The Board intends to continue its corporate development strategies as described in the Chairman’s Statement
and the Strategic Report.
Management of Capital
The Company manages its capital according to Budgets with the aim of ensuring it can continue as a going
concern. Capital sources include debt and equity instruments.
Board members review cash balances available for ongoing spend on a weekly basis against Budget and income
forecasts in assessing needs forward and timing for any future equity raises.
Subsidiaries
The Company’s only UK subsidiary is non-trading and not material. There are also long-term restrictions on the
operations of the Company’s subsidiaries in the US and Switzerland. With these restrictions in place, the
Company is also unable to exert control over the subsidiaries. As such the Company has claimed exemptions
27
DIRECTORS’ REPORT
applicable to it under Companies Act section 405 (2) and 405 (3b) and IFRS 10 to not present any Consolidated
financial statements for the year ended 31 December 2019.
Results and Dividends for the Year
The Company financial statements for the year ended 31 December 2019 are set out on pages 47 – 69. The
Company loss for the year after taxation amounted to £1,510,226 (2018: Loss of £2,350,638). The net liabilities
of the Company are £12,982 (2018 assets: £804,102) with the movement in the year set out in the Statement
of Changes in Equity.
The Company has not paid a dividend during the year ended 31 December 2019 (2018: £nil) and the Directors
do not recommend the payment of a dividend at 31 December 2019 (2018: £nil).
Research and Development
Research and development related costs incurred during the year, relating to the DMG product, amounted to
£419,333 (2018: £673,299). This excludes amounts expended on client projects that are expected to be
recovered.
Financial Risk
Financial risk management and exposure are set out in the Strategic Report.
Events after the Reporting Period
There have been no significant events since the balance sheet date other than those discussed in this Directors’
Report, the Strategic Report and note 25 to the Company financial statements.
Directors
The Directors who held office during the period and up to the date of the Annual Report are as follows:
Dr Cameron Davies
Keith Allaun (resigned 1 February 2019)
David Ryan
Brent Fitzpatrick
James Greenstreet
Post year end Myles Kitcher was appointed as a Non-Executive Director on 18 March 2020.
Company Secretary
Brent Fitzpatrick
28
DIRECTORS’ REPORT
A brief biography of the current Directors can be found below:
Executive Director:
David Ryan, Chief Executive Officer
David Ryan has had a 39 year Professional Engineering career solely within the energy industry, he brings a
breadth of project experience and has run major energy projects, set up and developed a blue chip engineering
company serving energy companies and the investment community and run the international organisation of a
multinational conglomerate. His experience in managing finances and growth of a start up business has been
brought to bear on operational improvements.
Non-Executive Directors:
Dr Cameron Davies, Non-Executive Chairman
Dr Davies is a capable business leader who has successfully grown revenues and profits in a quoted alternative
energy company. As founder, CEO, and Executive Director of AIM-quoted Alkane Energy plc) he led that
company through each phase of its development. He built Alkane from its initial concept to the point of providing
over 160MW of connected power generation, and a successful exit for his shareholders via a c. £60 million sale
to Balfour Beatty Infrastructure Partners in October 2015.
Dr Davies was awarded a PhD in Applied Geochemistry from Imperial College London. During his career Dr
Davies has evaluated numerous gasification technologies and projects. He is a Fellow of the Geological Society
of London, a member of the European Petroleum Negotiators Group and the Petroleum Exploration Society of
Great Britain.
Brent Fitzpatrick, Non-Executive Director
Mr. Fitzpatrick has over 20 years’ experience as a corporate finance consultant. In the last 15 years he has been
instrumental in advising a number of companies on their acquisitions and subsequent flotations.
Mr. Fitzpatrick was Non-Executive Chairman of Global Marine Energy plc- an AIM listed oil services company
and Non-Executive Chairman of Risk Alliance plc, an insurance broker consolidator. Mr. Fitzpatrick is also an
adviser to ECO Capital, a global clean tech fund and is a member of the Audit Committee Institute.
James Greenstreet, Non-Executive Director
Mr. Greenstreet has over 20 years of corporate and structured finance experience. Having started his career at
Arthur Andersen, he joined BAE Systems in 1994 to work in the corporate finance team.
After leaving BAE, Mr. Greenstreet held corporate finance positions at IBM and XL Capital, once more focusing
on asset and lease finance. In 2001 he co-founded Orbis Capital a successful corporate and structured finance
business. Over the past 10 years Mr. Greenstreet has been instrumental in sourcing, structuring, packaging and
managing transactions for a number of high-profile clients across a wide range of sectors.
Myles Kitcher, Non-Executive Director
Myles Kitcher was appointed as a Non-Executive Director on 18 March 2020. Myles is Managing Director of
Powerhouse’s development partner for Protos, Peel L&P Environmental and the leading force behind Protos -
Peel's flagship destination for energy, innovation and industry where the first application of Powerhouse DMG
technology is to be built. Myles is a Chartered Surveyor with extensive experience in both the public and private
sectors managing the development process for a number of large waste infrastructure projects.
Prior to joining the Peel Group, Myles worked for Lancashire County Council where he held senior positions
within the planning and waste management functions of the authority.
All the directors retire in line with the terms of the articles of the Company and being eligible, will offer themselves
for re-election at the Annual General Meeting at the appropriate time.
29
DIRECTORS’ REPORT
Directors’ Service Contracts
Details of the Directors’ service contracts and their respective notice terms are detailed in the Remuneration
Committee report.
Directors’ Interests
The interests of the Directors at 15 June 2020, being the latest practicable date before the publication of the
Annual Report, in the ordinary shares of the Company, together with their interests at 31 December 2019 were
as follows:
Cameron Davies
David Ryan
Brent Fitzpatrick
James Greenstreet
Myles Kitcher
Significant Shareholders
Number of ordinary shares
15 June 2020
31 December 2019
1,200,000
1,200,000
11,075,000
11,075,000
103,459
103,459
1,000,000
1,000,000
-
N/A
As at 15 June 2020, being the latest practicable date before the publication of the Annual Report, the Company
is aware of the following significant interests in its ordinary, voting share capital:
Shareholder name
Hargreaves Lansdown (Nominees) Limited A/C 15942
Hargreaves Lansdown (Nominees) Limited A/C VRA
Hargreaves Lansdown (Nominees) Limited A/C HLNOM
Interactive Investor Services Nominees Limited A/C SMKTISAS
Interactive Investor Services Nominees Limited A/C SMKTNOMS
Barclays Direct Investing Nominees Limited
Pershing Nominees Limited A/C PERNY
Vidacos Nominees Limited A/C CLRLUX
HSDL Nominees Limited A/C MAXI
Vidacos Nominees Limited A/C IGUKCLT
Lawshare Nominees Limited A/C SIPP
Number
242,057,725
190,762,999
186,961,843
123,583,908
110,777,768
101,753,396
83,400,078
83,389,082
69,294,606
66,662,331
62,876,966
%
11.69
9.21
9.03
5.97
5.35
4.91
4.03
4.03
3.35
3.22
3.04
30
DIRECTORS’ REPORT
Corporate Governance
The Company complies with the AIM Rules for Companies, including AIM Rule 26, concerning the disclosure of
information. It also complies with the provisions of the Quoted Companies Alliance Corporate Governance Code
(“QCA Code”). More details are provided in the Corporate Governance Report in this document.
Payment to Suppliers
The Company does not have a standard or code which deals specifically with the payment of suppliers. Total
creditor days for the Company for the year ended 31 December 2019 were 36 days (2018: 15 days).
Risk Management and Principal Risks
The principal risks to the Company, including financial risks and exposures and descriptions of how they are
managed is explained in detail in the Strategic Report on page 7 and in Note 21 to the financial statements.
Going Concern Basis
The financial statements have been prepared on a going concern basis, notwithstanding the Company having
a total comprehensive loss of £1.51m (2018: £2.35m) and net operating cash outflows of £0.72m (2018:
£1.91m). However, the Directors believe the going concern basis to be appropriate for the following reasons:
The Directors have prepared working capital projections which show that, along with cash balances in hand at
31 December 2019, the signed agreements for all Directors and certain contractors to waive any future
remuneration or fees for themselves, fees expected to arise from the commercial contracts agreed or being
negotiated, and support from one of its shareholders, the Company will have sufficient funding to be able to
continue as a going concern.
In relation to the support of one of its shareholders, the Directors have been provided with a letter of support,
where the said shareholder has indicated to the Directors that he intends, for at least 12 months from the date
of the approval of these financial statements, to make available a maximum sum of £700,000. In addition, the
Directors are also of the opinion that they can raise further funds as and when required.
The Directors consider that the above matters should enable the Company to continue in operational existence
for the foreseeable future by meeting its liabilities as they fall due for payment. If the support of shareholders
ceased or the Company was unable to raise further funds it would need to seek alternative finance in order to
be able to remain as a going concern.
The financial statements do not include the adjustments that would result if the Company is unable to continue
as a going concern.
Political and Charitable Donations
The Company has not made any political or charitable donations in the year ended 31 December 2019 (2018:
nil).
Auditors
Jeffreys Henry LLP were re-appointed as auditors at the Company’s 2019 AGM. A resolution is to be proposed
at the 2020 AGM for the re-appointment of Jeffreys Henry LLP as auditors to the Company, at a rate of
remuneration to be determined by the Audit Committee.
Each of the persons being a Director at the date of approval of this report confirms that:
• So far as the Director is aware there is no relevant audit information of which the Company’s auditor is
unaware; and
31
DIRECTORS’ REPORT
• The Director has taken all the steps that he ought to have taken as a Director in order to make himself
aware of any relevant audit information and to establish that the Company’s auditor is aware of that
information.
This confirmation is given, and should be interpreted, in accordance with the provisions of s.418 of the
Companies Act 2006.
Approved by the Board of Directors and signed on behalf of the Board on 29 June 2020.
David Ryan
Director
32
CORPORATE GOVERNANCE REPORT
CORPORATE GOVERNANCE REPORT
Introduction
Since September 2018 all AIM companies have been required to comply with a recognised corporate
governance code and to disclose how the implementation of the governance code has been applied or to explain
any areas of departure from its requirements. Powerhouse carefully reviewed and then resolved to apply the
Quoted Companies Alliance Corporate Governance Code (“QCA Code”) published in April 2018 which is
constructed around 10 broad principles.
We have considered how we apply each principle to the extent that the Board judges these to be appropriate
for our circumstances, and below we provide an explanation of the approach taken in relation to each. Our
compliance with the QCA Code is based on the Company’s current practices and intended governance
improvements.
The QCA Code makes clear it is the prime responsibility of the Chairman to ensure the Company applies the
QCA Code to best advantage of all stakeholders of the Company. This report sets out our approach to the QCA
Code and governance. Our compliance with the 10 principles is also available to view on the Company’s
website: www.powerhouseenergy.net
Under the QCA regulations we have the option to cross refer to disclosures made on the website rather than
repeat them all in this annual report. The principal disclosures such as the Remuneration Committee and
Directors’ report will continued to be included in this annual report. However, for a full assessment of the
Company you are encouraged to review the website for both the regulatory disclosures, and as we progress,
more information on the activities of the Company.
QCA Principles
Principle 1 - Establish a strategy and business model which promote long-term value for
shareholders
Details of the Company’s strategy and business model are set out in the Strategic Report of this document
where we describe progress to date, our commercial partnerships, our DMG development programme and
plans for the future. Key challenges facing the Company and how they will be addressed are set out in the
Strategic Report in the section headed Principal Risks and Uncertainties.
Principle 2 - Seek to understand and meet shareholder needs and expectations
Powerhouse is committed to open communication with all its shareholders. The Company believes it is important
to explain business development and financial results to its shareholders and to ensure that suitable
arrangements are in place so that the issues and concerns of major shareholders are heard and understood.
Copies of the Annual Report and Accounts are issued to all shareholders who have requested them and copies
are available on the Company’s website at www.powerhouseenergy.net. The Company’s interim results are also
made available on the Company’s website. The Company makes full use of its website to provide information
to shareholders, other stakeholders, potential customers, and other interested parties.
Shareholders are given the opportunity to raise questions at the Annual General Meeting (“AGM”) and the
Directors are available both before and after the meeting for further discussion with shareholders. As a matter
of policy, the level of proxy votes (for, against and vote withheld) lodged on each resolution is declared at the
meeting. In the event there were a significant number of votes against a resolution, the directors would seek to
communicate with the shareholder concerned to discuss their issues. In order to comply with best practice and
the Government’s social distancing guidelines relating to Covid-19, the Company is holding its 2020 AGM as a
33
CORPORATE GOVERNANCE REPORT
closed meeting to ensure the safety of staff and shareholders. However, to ensure a level of engagement with
shareholders, the meeting will be available to shareholders to attend, if necessary through electronic means,
and details of how to participate will be set out in the notice of AGM.
The CEO is primarily responsible for shareholder liaison. The Company’s shareholder base is currently largely
comprised of retail shareholders. The CEO attends and presents at shareholder events from time to time where
investors have the opportunity to discuss the Company’s progress and performance. Trading updates and press
releases are issued as appropriate.
The Board receives regular share register analysis reports to monitor the Company’s shareholder base and help
identify the types of investors on the register.
Principle 3 - Take into account wider stakeholder and social responsibilities and their
implications for long-term success
The Company regards its shareholders, employees, industry bodies and regulators, consultants and advisors,
business partners and suppliers as forming part of the wider stakeholder group. The Company recognises the
contribution of each of these stakeholder groups and seeks to build meaningful and mutually beneficial
relationships with them all. Please refer to the Corporate Governance statement on the Company’s website for
further details of its approach to stakeholder management. There are also details of the Company’s approach
to corporate social responsibility in the Strategic Report of this Annual Report and Financial Statements.
Principle 4 - Embed effective risk management, considering both opportunities and threats,
throughout the organisation
Risk assessment and evaluation is an essential part of the Company’s planning and an important aspect of the
Company’s internal control system. The business and management of the Company are the collective
responsibility of the Board. At each Board meeting, the Board considers and reviews the trading performance
of the Group. Matters reserved for the Board’s review and approval include the approval of the annual budget,
major capital expenditure, investment proposals, the interim and annual results and a review of the overall system
of internal control and risk management.
The Board regularly considers the risk register and the mitigation and removal measures on a risk-by-risk basis
focusing on those deemed most critical. The comprehensive risk register is presented on a regular basis to the
Board.
For further details of the Company’s approach to risk and its management, please refer to the Principal Risks
and Uncertainties section of the Strategic Report.
Principle 5 – Maintain the board as a well-functioning, balanced team led by the chair
The Board, chaired by Dr Cameron Davies, comprises one executive and four non-executive directors and it
oversees and implements the Company’s corporate governance programme. The executive director is David
Ryan. The non-executive directors are Dr Cameron Davies, Brent Fitzpatrick, James Greenstreet and Myles
Kitcher.
As chairman, Dr Davies is responsible for the Company’s approach to corporate governance and the application
of the principles of the QCA Code. Dr Davies, Brent Fitzpatrick and James Greenstreet are the Company’s
independent directors and, as such, are independent of management and any business or other relationships
which would interfere with the exercise of their independent judgment.
Each board member commits sufficient time to fulfill their duties and obligations to the Board and the Company.
They attend board meetings and join ad hoc board calls and offer availability for consultation when needed. The
contractual arrangements between the directors and the Company specify the minimum time commitments
34
CORPORATE GOVERNANCE REPORT
which are considered sufficient for the proper discharge of their duties. However, in exceptional circumstances
all board members understand the need to commit additional time.
Board packs include information on business developments, progress and risks faced as well as financial
performance and are circulated ahead of board meetings. Key issues are highlighted and explained, providing
board members with sufficient information to enable a relevant discussion in the board meeting. From time to
time, members of the Company’s senior management present to the Board to update them on issues and
developments.
The Board is supported by its Audit Committee and its Remuneration Committee.
Board and committee meetings
Attendances of Directors at Board and committee meetings convened in 2019, and which they were eligible to
attend, are set out below:
Director
Board Meetings
Attended
Remuneration
Committee
Attended
Audit Committee
Attended
Number of meetings in year
Dr Cameron Davies
Keith Allaun*
David Ryan
Brent Fitzpatrick
James Greenstreet
8
8
0
8
7
4
0
0
N/A
N/A
0
0
*Mr Allaun resigned from the Board on 1 February 2019.
1
1
N/A
N/A
1
1
Principle 6 – Ensure that between them the directors have the necessary up-to-date
experience, skills and capabilities.
The Board comprises one executive director and four non-executive directors, three of whom are independent.
Details of the directors are set out in the Directors’ Report of this Annual Report and Financial Statements.
The Chairman believes that the Board should always have a suitable mix of skills and competencies covering all
essential disciplines bringing a balanced perspective that is beneficial both operationally and strategically.
The nature of the Company’s business requires the Directors to keep their skillset up to date. Periodic advice
on regulatory matters is given by the Company’s professional advisers.
The Board is supported by senior management and by its key partners and professional advisers. The advice
provided to the Board is often commercially sensitive and used by the Board to inform their decisions but typically
will not be disclosed.
The Company Secretary is a non-executive director of the Company and reports directly to the Chairman on
governance matters.
The Board is supported and advised by a Chief Financial Officer, a chartered accountant with extensive
experience, who works closely with the Board and is managing financial procedures and controls.
35
CORPORATE GOVERNANCE REPORT
Principle 7 - Evaluate board performance based on clear and relevant objectives, seeking
continuous improvement
Board performance effectiveness process
The assessment of the Board’s performance has to date been largely focused on the achievement of the
Company’s financial and strategic goals. To date, the Company has not highlighted the processes by which it
evaluates Board performance whilst it has been focusing on commercialising its technology and the
development of revenue generating partnerships. However, as the Company has entered commercial operation
it intends to address this.
Each Board member is subject to a review by the Remuneration Committee based on their professional
contribution as well as their contribution to the performance of the Company.
The terms and conditions of the arrangements, including remuneration are currently set by the entire Board of
Powerhouse. The Board intends to highlight its process of review and progress against Company objectives.
The Board will consider proportionate use of external consultants to carry out this role.
Board appointments and succession planning
- Board appointments
The Remuneration Committee meets as and when necessary to consider the appointment of new directors.
Board members all have appropriate notice periods so that if a board member indicates his intention to step
down, there is sufficient time to appoint a replacement, whether internal or external.
Board appointments are made after consultation with advisers in all cases. The Nomad undertakes due diligence
on all new potential board candidates.
Each director is required to offer themselves for re-election at least once every three years as per the Company’s
articles of association.
- Succession planning
Succession planning has been undertaken to date on an informal basis by the Chief Executive Officer in
consultation with the Board. The Board is satisfied that this is appropriate for this stage in the Company’s
development. The Board will implement a more formal succession planning scheme through 2020.
Principle 8 – Promote a corporate culture that is based on ethical values and behaviours
Consistent with Principle 3 above, the Company operates with an inclusive, transparent and respectful culture.
The Board places particular emphasis on operating to the highest ethical and environmental standards. HS&E
is a specific agenda item at every board meeting.
The Company’ objectives include observing the highest level of health and safety standards, developing our staff
to their highest potential and being a good corporate citizen in our chosen countries of operations.
The Company is committed to employment policies which follow best practice, based on equal opportunities
for all employees, irrespective of ethnic origin, religion, political opinion, gender, marital status, disability, age or
sexual orientation.
Principle 9 – Maintain governance structures and processes that are fit for purpose and
support good decision-making by the board.
The Board is confident that its processes and culture are appropriate for the Company’s current size and
complexity, but is aware that it must continue to review its practices as the Company evolves and grows.
36
CORPORATE GOVERNANCE REPORT
The Chief Executive Officer has overall responsibility for managing the day to day operations of the Company
and the Board as a whole is responsible for implementing the Company’s strategy. Management systems and
procedures will be implemented in 2020 in parallel with project execution and licencing readiness activities.
The Company has established an Audit Committee and a Remuneration Committee with formally delegated
duties and responsibilities.
Audit Committee
The duties of the Audit Committee include reviewing, in draft form, the Company’s annual and half-yearly report
and accounts and providing advice to the board. Members of the Audit Committee are also responsible for
reviewing and supervising the financial reporting process and internal control systems of Powerhouse. The Audit
Committee is comprised of the Non-Executive Directors of the Board.
Remuneration Committee
The Remuneration Committee is responsible for reviewing the scale and structure of the executive Directors’
remuneration and the terms of their service contracts with the Company, including share option schemes and
any bonus arrangements. The terms and conditions of the arrangements, including remuneration, with non-
executive Directors are set by the entire Board of Powerhouse.
AIM Compliance
The Directors believe that compliance with the AIM Rules for Companies is a matter for the Board as a whole.
Therefore, the AIM Compliance Committee which was originally established to ensure procedures, resources
and controls were in place to ensure compliance with the AIM Rules and comprised all members of the Board,
no longer stands as a separate entity. The function of the AIM Compliance Committee is managed by the Board
and the Board continues to consult the Company's Nominated Adviser on an ongoing basis.
The appropriateness of the Company’s governance structures will be reviewed annually in light of further
developments of accepted best practice and the development of the Company.
Principle 10 – Communicate how the company is governed and is performing by maintaining
a dialogue with shareholders and other relevant stakeholders
The Company maintains a regular dialogue with stakeholders including shareholders to enable interested parties
to make informed decisions about the Company and its performance. Regular communication enables the
Board to receive shareholders’ views by various means as set out in Principle 2 above.
The Company regularly releases appropriate price sensitive information regarding its activities and progress to
the market. The Chief Executive Officer and other management team members regularly participate in industry
forums and investor conferences to keep stakeholders apprised of Company developments.
The Board discloses the result of general meetings by way of announcement and discloses the proxy voting
numbers to those attending the meetings. In order to improve transparency, the Board has committed to
announcing proxy voting results in future and disclosing them on the Company’s website. In the event that a
significant portion of voters have voted against a resolution, an explanation of what actions it intends to take to
understand the reasons behind the vote will be included.
Brent Fitzpatrick
Director and Company Secretary
On behalf of the Board
29 June 2020
37
REMUNERATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Introduction
The Remuneration Committee comprises Dr Cameron Davies, Brent Fitzpatrick and James Greenstreet and is
chaired by Brent Fitzpatrick.
The Remuneration Committee is responsible for reviewing the scale and structure of the Executive Directors’
remuneration and the terms of their service contracts with the Company, including share option schemes and
any bonus arrangements. The remuneration of Non-Executive Directors is a matter for the Executive Directors.
No director is involved in any decision as to his or her own remuneration or benefits.
Remuneration Policy
The Remuneration Committee is aware that the remuneration package should be sufficiently competitive to
attract, retain and motivate individuals capable of achieving the Group’s objectives and thereby enhancing
shareholder value.
Service Contracts
William Cameron Davies, Nigel Brent Fitzpatrick and James John Pryn Greenstreet have service contracts which
can be terminated by providing three months’ written notice. Myles Kitcher has a service contract which can be
terminated without provision of notice. David John Ryan has a service contract which can be terminated by
providing six months’ written notice. Prior to his resignation, Robert Keith Allaun held a service contract which
could be terminated by providing six months’ written notice. Mr Allaun resigned from the Company on 1 February
2019.
David John Ryan’s services to 31 March 2019 were provided via Nayr Consultants Limited, an engineering
consultancy.
Basic Salary and Benefits
The remuneration of the Directors of the Company paid for the year or since date of appointment, if later, to 31
December 2019 is:
2019
£
Salary/Fee
2019
£
Pension
2019
£
Share
based
payments
2019
£
Other
benefits
2019
£
Total
2018
£
Total
William Cameron Davies
Robert Keith Allaun*
David John Ryan**
Nigel Brent Fitzpatrick
James John Pryn Greenstreet
50,000*
70,000
133,500*
30,000*
30,000*
-
-
12,750
-
-
12,378
-
12,997
7,426
7,426
-
-
-
-
-
62,378
70,000
159,247
37,426
37,426
80,945
239,842
51,988
59,708
59,708
*The Directors implemented a fee waiver for their services from 1 April 2019 with compensation applying once
certain conditions are met. These are expected to materialize during 2020 and as such the amounts disclosed
above include provision for the expected compensation.
Share options held by the Directors are detailed in note 22 in the Notes to the Accounts. Total remuneration
includes share based payments arising from the issue of options amounting to £40,229 (2018: £195,398) and
details are set out in note 22 in the Notes to the Accounts. There have been no awards of shares to Directors
under long term incentive plans.
38
REMUNERATION COMMITTEE REPORT
Bonus Schemes
All Executive Directors were eligible for consideration of participation in the Company’s previous bonus scheme
although no bonus payments were made. However, a new bonus scheme will be developed in 2020 as the
Company enters a revenue generating and growth period.
No bonuses are payable in respect of the year ended 31 December 2019 (2018: nil).
Share Options
No share options were issued to Directors during the year.
David John Ryan was the highest paid Director in the year. There were no shares received or receivable by him
in respect of qualifying services under long term incentive schemes.
For details of the total number of options outstanding at 31 December 2019 please refer to Note 22 of the Notes
to the Accounts.
Remuneration Committee Meetings and Attendance
Please see the table in the Corporate Governance Report in this document for attendance by the members of
the Remuneration Committee.
On behalf of the Directors of Powerhouse Energy Group plc
Brent Fitzpatrick
Chairman of Remuneration Committee
29 June 2020
39
AUDIT COMMITTEE REPORT
REPORT OF THE AUDIT COMMITTEE
Composition
The Audit Committee, which comprises Dr Cameron Davies, Brent Fitzpatrick and James Greenstreet, with
Brent Fitzpatrick acting as Chairman, determines and examines any matters relating to the financial affairs of the
Group including the terms of engagement of the Group’s auditors and, in consultation with the auditors, the
scope of the audit.
Role and Responsibilities
The Audit Committee is responsible for monitoring the integrity of the Company’s financial statements, reviewing
significant financial reporting issues, reviewing the effectiveness of the Group’s internal control and risk
management systems. In addition, it considers the financial performance, position and prospects of the Group
and the Company and ensures they are properly monitored and reported on. It oversees the relationship with
the Auditor (including advising on their appointment, agreeing the scope of the audit and reviewing the audit
findings).
The Board and the Audit Committee do not consider it appropriate for the current size of the Group to establish
an internal audit function. However, this will be kept under review.
Attendance at Audit Committee Meetings
Please see the table in the Corporate Governance Report in this document for attendance by the members of
the Audit Committee.
Brent Fitzpatrick
Chairman of the Audit Committee
29 June 2020
40
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the
directors are required to prepare group financial statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union (EU) and have also chosen to prepare the Company
financial statements under IFRSs as adopted by the EU. Under company law the directors must not approve
the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company
and of the profit or loss of the company for that period. In preparing these financial statements, International
Accounting Standard 1 requires that directors:
•
select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that
the Company will continue in business;
•
state whether applicable IFRSs as adopted by the European Union have been followed, subject to any
material departures disclosed and explained in the financial statements.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the Companies Act 2006. 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.
Responsibility Statement
We confirm that to the best of our knowledge that:
•
•
•
the financial statements, prepared in accordance with International Financial Reporting Standards, give
a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
the strategic report includes a fair review of the development and performance of the business and the
position of the Company together with a description of the principal risks and uncertainties that it faces;
and
the annual report and financial statements, taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess the Company’s performance, business
model and strategy.
Dr Cameron Davies
Director
On behalf of the Board
29 June 2020
41
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF POWERHOUSE ENERGY GROUP PLC
Opinion
We have audited the financial statements of Powerhouse Energy Group Plc (the ‘Company’) for the year ended
31 December 2019 which comprise the statement of comprehensive income, the statement of financial position,
the statement of cash flows, the statement of changes in equity and notes to the financial statements, including
a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and,
as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
1.
2.
3.
the financial statement give a true and fair view of the state of the Company’s affairs as at 31 December
2019 and of the Company’s loss for the year then ended;
the financial statement have been properly prepared in accordance with IFRSs as adopted by the
European Union;
the financial statement have been prepared in accordance with the requirements of the Companies Act
2006.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the financial statements section of our report. We are independent of the company in accordance with the
ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Conclusions Relating to Going Concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to
report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements
is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may
cast significant doubt about the Company’s ability to continue to adopt the going concern basis of
accounting for a period of at least twelve months from the date when the financial statements are
authorised for issue.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
42
INDEPENDENT AUDITOR’S REPORT
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Going concern assumption
In continuing to apply the going concern basis for the
Annual Report and accounts for the period ended 31
December 2019, the Directors should be satisfied that
they have a reasonable expectation that the Company
will continue in operational existence for the foreseeable
future, being at least twelve months from the date of
issue of the accounts. In reaching this conclusion, the
future prospects of the Company must be considered.
At 31 December 2019 the Company’s cash balance is
£104k. The going concern assumption is dependent
upon the growth of the current business and future
capital raises.
Correct calculation of share-based payments
The share-based payment charge recognised in profit or
loss for the year is £693,142 (2018: £553,959).
All share-based payments are equity-settled and are
made up of share issues, share option issues and share
warrant issues.
These share based payments have been reviewed for
the purpose of calculating an appropriate share based
payment charge. The fair value of services was used to
value share-based payments where the fair value of
services may be directly calculated. Where the fair value
of services may not be directly calculated, the Black-
Scholes model was used.
The vesting period of share options and warrants are
fixed.
Exemption from preparing consolidated
financial statements
The Company has claimed exemptions applicable to it
under Companies Act section 405 (2) and 405 (3b) and
IFRS 10 to not present any Consolidated financial
statements for the year ended 31 December 2019. This
is on the basis that the Company’s only UK subsidiary is
non-trading and not material and there being long-term
restrictions on the operations of the Company’s
subsidiaries in the US and Switzerland.
Our audit procedures:
We obtained and reviewed the Directors’ assessment
and cash flow forecasts, including challenging the
liquidity position and discussed with the Directors about
their future fund raising plan.
We reviewed the basis and reasonableness of the key
assumptions and assessed the sensitivities of the
underlying assumptions, specifically focusing on the
assumptions of operating costs reduction and impact of
future fund raise.
We reviewed documentation in respect of potential
liability waivers and letter of support and assessed the
impacts on the Company’s liquidity.
Overall we were satisfied that the Company remained
able to meet its obligations as they fell due for at least
twelve months from the date of approval of the financial
statements.
to estimate
Our audit procedures:
We have understood and assessed the methodology
utilised
the Company’s share-based
payment charge calculations and checked that the
the provision was mathematically
calculation of
accurate.
Our audit procedures:
We have reviewed and discussed with the Directors
applicable legislation and accounting standard and
assessed that based on the Directors’ explanation, the
Company satisfies the conditions under Companies Act
section 405 (2) and 405 (3b) and IFRS 10 to not present
any Consolidated financial statements for the year.
We also verified via third party sources that these
conditions were in effect during and as at the year end.
43
INDEPENDENT AUDITOR’S REPORT
Our Application of Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds
for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit
and the nature, timing and extent of our audit procedures on the individual financial statement line items and
disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgment, we determined materiality for the financial statements as a whole as
follows:
Overall
materiality
How we
determined it
Rationale for
benchmark
applied
2019
Company financial statements
2018
Company financial statements
£12,000
£26,000
2.5% of gross assets
We believe that as the Company has
not yet made any revenue since
incorporation as it continues to develop
its DMG Waste-to-Energy System,
gross assets is the most appropriate
benchmark,
line with generally
in
accepted auditing benchmarks.
The average of 10% of loss before
tax and 2.5% of gross assets
We believe that loss before tax is the
primary measure used by
the
the
assessing
shareholders
performance of the Company, and is
a
auditing
generally
benchmark.
accepted
in
We agreed with the management that we would report to them misstatements identified during our audit above
£600 (2018: £1,300) as well as misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
An Overview of the Scope of our Audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements. In particular, we looked at where the directors made subjective judgments, for example in
respect of significant accounting estimates that involved making assumptions and considering future events that
are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal
controls, including evaluating whether there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
How we Tailored the Audit Scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on
the financial statements as a whole, taking into account the structure of the Company, the accounting processes
and controls, and the industry in which they operate.
We performed an audit of the financial information of Powerhouse Energy Group PLC. Our engagement team
performed all audit procedures.
44
INDEPENDENT AUDITOR’S REPORT
Other Information
The directors are responsible for the other information. The other information comprises the information included
in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the
financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Opinions on Other Matters Prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
Matters on Which We are Required to Report by Exception
In the light of the knowledge and understanding of the Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the Company, or returns adequate for our audit
have not been received from branches not visited by us; or
the Company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the directors’ responsibilities statement set out on page 41, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations,
or have no realistic alternative but to do so.
45
INDEPENDENT AUDITOR’S REPORT
Auditor’s Responsibilities for The Audit of The Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were
of most significance in the audit of the financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Use of this Report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company
and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Mark Tenzer (Senior Statutory Auditor)
For and on behalf of Jeffreys Henry LLP
Chartered Accountants
Statutory Auditor
Finsgate
5-7 Cranwood Street
London EC1V 9EE
29 June 2020
46
STATEMENT OF COMPREHENSIVE INCOME
For The Year Ended 31 December 2019
Revenue
Administrative expenses
Operating loss
Net finance costs
Loss before taxation
Income tax credit
Total comprehensive loss
Loss per share from continuing operations (pence)
Diluted loss per share from continuing operations (pence)
Note
31 December
2019
£
31 December
2018
£
2
4
5
6
7
7
-
(1,705,184)
-
(2,495,256)
(1,705,184)
(2,495,256)
(750)
(178)
(1,705,934)
(2,495,434)
195,708
144,796
(1,510,226)
(2,350,638)
(0.08)
(0.15)
not applicable not applicable
The notes numbered 1 to 26 are an integral part of the financial information.
47
STATEMENT OF FINANCIAL POSITION
As At 31 December 2019
ASSETS
Non-current assets
Intangible fixed assets
Tangible fixed assets
Investments
Total non-current assets
Current Assets
Contract costs
Trade and other receivables
Corporation tax recoverable
Cash and cash equivalents
Total current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Loans
Total current liabilities
Net (liabilities)/assets
EQUITY
Share capital
Share premium
Accumulated deficit
Total (deficit)/surplus
Note
2019
£
2018
£
8
9
10
11
12
6
13
14
17
16,514
229
1
16,744
114,418
46,244
195,708
103,580
-
1,679
1
1,680
-
63,996
144,796
840,692
459,950
1,049,484
476,694
1,051,164
(489,676)
-
(247,062)
-
(489,676)
(247,062)
(12,982)
804,102
18
18
19
12,922,727
48,778,651
(61,714,360)
12,395,943
48,773,510
(60,365,351)
(12,982)
804,102
The financial statements of Powerhouse Energy Group Plc, Company number 03934451, were approved by the Board
of Directors and authorised for issue on 29 June 2020 and signed on its behalf by:
David Ryan
Director
The notes numbered 1 to 26 are an integral part of the financial information.
48
STATEMENT OF CASHFLOWS
For The Year Ended 31 December 2019
Cash flows from operating activities
Operating Loss
Adjustments for:
Share based payments
Depreciation
Changes in working capital:
Decrease/(Increase) in contract costs
Decrease/(Increase) in trade and other receivables
Increase/(Decrease) in trade and other payables
Tax credits received
2019
£
2018
£
(1,705,184)
(2,495,256)
693,142
1,450
(114,418)
17,752
242,614
144,796
553,959
1,179
-
24,499
6,206
-
Net cash used in operations
(719,848)
(1,909,413)
Cash flows from investing activities
Purchase of intangible fixed assets
Purchase of tangible fixed assets
Net Cash flows from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Net finance costs
Loans repaid
(16,514)
(16,514)
-
(16,514)
(257)
-
(257)
(257)
-
(750)
-
3,402,469
(178)
(1,402,155)
Net cash flows from financing activities
(750)
2,000,136
Net increase/(decrease) in cash and cash equivalents
(737,112)
90,466
Cash and cash equivalents at beginning of year
840,692
750,226
Cash and cash equivalents at end of year
103,580
840,692
The notes numbered 1 to 26 are an integral part of the financial information.
49
STATEMENT OF CHANGES IN EQUITY
For The Year Ended 31 December 2019
Ordinary
Share
capital
£
Share
premium
£
Deferred
shares
(0.5p)
£
Deferred
shares
(4.5p)
£
Deferred
shares
(4.0p)
£
Accumulated
deficit
£
Total
£
Balance at 1 January 2018
Transactions with equity parties:
- Share issue
- Share issue
- Share issue
- Share issue in lieu of services
- Share issue
- Share issue
- Share issue in lieu of services
- Share issue
- Share issue in lieu of services
- Share issue – exercise options
- Share issue
- Share issue
- Roundings
- Share based payments
Total comprehensive loss
Balance at 31 December 2018
Transactions with equity parties:
- Share issue in lieu of services
- Share issue in lieu of services
- Share issue in lieu of services
Share based payments
Total comprehensive loss
Balance at 31 December 2019
5,684,357 48,681,792 1,942,483 781,808 389,494
(58,281,622)
(801,688)
1,078,432
323,723
576,277
89,474
494,035
100,000
62,525
30,000
60,000
83,333
650,000
50,000
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,282,158 48,773,510 1,942,483 781,808 389,494
-
-
-
20,526
-
-
1,475
-
-
69,717
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
145,695
192,408
188,681
-
-
-
-
-
-
-
9,808,942 48,778,651 1,942,483 781,808 389,494
1,874
3,267
-
-
-
-
-
-
-
-
-
-
-
-
-
- 1,078,432
- 323,723
- 576,277
- 110,000
- 494,035
- 100,000
64,000
-
30,000
-
-
60,000
- 153,050
- 650,000
50,000
-
2
-
266,909 266,909
(2,350,638) (2,350,638)
(60,365,351) 804,102
- 147,569
- 195,675
- 188,681
161,217 161,217
(1,510,226) (1,510,226)
(12,982)
(61,714,360)
The following describes the nature and purpose of each reserve within equity:
Share premium
Amount subscribed for share capital in excess of nominal value
Accumulated deficit Accumulated deficit represents the cumulative losses of the company and all other net gains and
losses and transactions with shareholders not recognised elsewhere
The notes 1 to 26 are an integral part of the financial information.
50
Notes to the Accounts for the Year Ended 31 December 2019
NOTES TO THE ACCOUNTS
For The Year Ended 31 December 2019
1. ACCOUNTING POLICIES
Powerhouse Energy Group PLC is a Company incorporated in England and Wales. The Company is a public
limited company quoted on the AIM market of the London Stock Exchange. The address of the registered
office is 15 Victoria Mews, Mill Field Road, Cottingley Business Park, Bingley BD16 1PY. The principal activity
of the Company is to continue the development and commercial delivery of the Distributed Modular
Generation (DMG) technology, a proprietary design which converts calorific waste streams into synthetic gas
(syn-gas). The following accounting policies have been applied consistently in dealing with items which are
considered material in relation to the financial information.
Basis of preparation
1.1.
This financial information is for the year ended 31 December 2019 and has been prepared in accordance with
International Financial Reporting Standards (“IFRS”) adopted for use by the European Union and the
Companies Act 2006. These accounting policies and methods of computation are consistent with the prior
year, unless otherwise stated.
The Company’s only UK subsidiary is non-trading and not material. There are also long-term restrictions on
the operations of the Company’s subsidiaries in the US and Switzerland. With these restrictions in place, the
Company is also unable to exert control over the subsidiaries. As such the Company has claimed exemptions
applicable to it under Companies Act section 405 (2) and 405 (3b) and IFRS 10 to not present any
Consolidated financial statements for the year ended 31 December 2019.
Judgements and estimates
1.2.
The preparation of financial statements in conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies and reported amounts in the financial
statements.
Areas involving a higher degree of judgements or complexity, or areas where assumptions or estimates are
significant to the financial statements such as the impairment of investments, share based payments (share
options and warrants) and going concern are disclosed within the relevant notes.
Going concern
1.3.
The financial statements have been prepared on a going concern basis, notwithstanding the Company having
a total comprehensive loss of £1.51m (2018: £2.35m) and net operating cash outflows of £0.72m (2018:
1.91m). However, the Directors believe the going concern basis to be appropriate for the following reasons:
The Directors have prepared working capital projections which show that, along with cash balances in hand
at 31 December 2019, the signed agreements for all Directors and certain contractors to waive any future
remuneration or fees for themselves, fees expected to arise from the commercial contracts agreed or being
negotiated, and support from one of its shareholders, the Company will have sufficient funding to be able to
continue as a going concern.
In relation to the support of one of its shareholders, the Directors have been provided with a letter of support,
where the said shareholder has indicated to the Directors that he intends, for at least 12 months from the
date of the approval of these financial statements, to make available a maximum sum of £700,000. In addition,
the Directors are also of the opinion that they can raise further funds as and when required.
The Directors consider that the above matters should enable the Company to continue in operational
existence for the foreseeable future by meeting its liabilities as they fall due for payment. If the support of
shareholders ceased or the Company was unable to raise further funds it would need to seek alternative
finance in order to be able to remain as a going concern.
The financial statements do not include the adjustments that would result if the Company is unable to
continue as a going concern.
51
Notes to the Accounts for the Year Ended 31 December 2019
Foreign currency translation
1.4.
The financial information is presented in sterling which is the Company’s functional currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are revalued
to the exchange rate at date of settlement or at reporting dates (as appropriate). Exchange gains and losses
resulting from such revaluations are recognised in the Statement of Comprehensive Income.
Foreign exchange gains and losses are presented in the Statement of Comprehensive Income within
administrative expenses.
1.5. Revenue
The Company provides engineering services for the application of the DMG Technology, the intellectual
property which the Company owns. Revenue from providing services is recognised in the accounting period
in which services are rendered. For fixed-price contracts, revenue is recognised based on the actual service
provided to the end of the reporting period as a proportion of the total services to be provided to the extent
to which the customer receives the benefits. This is determined based on the actual labour hours spent
relative to the total expected labour hours.
Where contracts include multiple performance obligations as specified by the work scope, the transaction
price will be allocated to each performance obligation based on estimated expected cost plus margin.
Estimates of revenues, costs or extent of progress toward completion of services are revised if circumstances
change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in
the period in which the circumstances that give rise to the revision become known by management.
In case of fixed-price contracts, the customer pays the fixed amount based on a payment schedule. If the
services rendered by the Company exceed the payment, a contract asset is recognised. If the payments
exceed the services rendered, a contract liability is recognised.
If a contract includes an hourly fee, revenue is recognised in the amount to which the Company has a right
to invoice.
1.6. Leases
The Company leases property under rental contracts for a 12 month fixed period. Rentals payable under the
leases are charged in the profit and loss account on a straight line basis over the lease term.
1.7. Finance expenses
The effective interest method is a method of calculating the amortised cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of the financial liability, or, where
appropriate, a shorter period, to the net carrying amount on initial recognition.
Income tax expense
1.8.
The tax expense for the period comprises current and deferred tax.
UK corporation tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws
that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the
balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a
right to pay less tax in the future have occurred at the balance sheet date. Temporary differences are
differences between the Company's taxable profits and its results as stated in the financial statements that
arise from the inclusion of gains and losses in tax assessments in periods different from those in which they
are recognised in the financial statements.
52
Notes to the Accounts for the Year Ended 31 December 2019
A net deferred tax asset is regarded as recoverable and therefore recognised only to the extent that, on the
basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable
profits from which the future reversal of the underlying temporary differences can be deducted.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the
temporary differences are expected to reverse, based on tax rates and laws that have been enacted or
substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.
1.9. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Cost represents the cost of
acquisition or construction, including the direct cost of financing the acquisition or construction until the asset
comes into use.
Depreciation on property, plant and equipment is provided to allocate the cost less the residual value by
equal instalments over their estimated useful economic lives of 3 years, once the asset is complete.
The expected useful lives and residual values of property, plant and equipment are reviewed on an annual
basis and, if necessary, changes in useful life or residual value are accounted for prospectively.
1.10. Intangible assets
Costs associated with patent applications are capitalised in the year of spend and amortised over their
estimated useful lives commencing from the date of patent approval.
1.11. Other non-current assets
Other non-current assets represent investments in subsidiaries. The investments are carried at cost less
accumulated impairment. Cost was determined using the fair value of shares issued to acquire the
investment.
1.12. Financial assets
The Company classifies financial assets as loans and receivables within current assets, except for maturities
greater than 12 months after the balance sheet date. These are classified as noncurrent assets. Assets are
initially recognised at fair value plus transaction costs. Loans and receivables are subsequently carried at
amortised cost using the effective interest rate method.
1.13. Contract costs
The Company recognises costs incurred in fulfilling contracts with customers that are directly associated with
the contract as an asset if those costs are expected to be recoverable. Contract costs are amortised on a
basis consistent with the transfer of goods and services to which the asset relates.
1.14. Trade and other receivables
Trade receivables are initially recognised at fair value. Subsequently they are carried at amortised cost less
any provision for impairment.
1.15. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits and are recognised and subsequently
carried at fair value.
1.16. Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course
of business from suppliers. Trade and other payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
1.17. Financial liabilities
Loans are financial obligations arising from funding received and used to support the operational costs of the
Company. These are initially recognised at fair value. Loans are subsequently carried at amortised cost using
the effective interest method.
53
Notes to the Accounts for the Year Ended 31 December 2019
1.18. Adoption of new and revised standards
(i) New and amended standards adopted by the Company
New and amended standards for the current period and effective from 1 January 2019 have been applied by
the Company, including:
• Annual Improvements to IFRS Standards 2015–2017 Cycle
• Prepayment Features with Negative Compensation (Amendments to IFRS 9)
• Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)
• Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)
•
IFRS 16 'Leases'
There are no transition adjustments relating to the adoption of these standards.
(ii) Standards issued but not yet effective
There were a number of standards and interpretations which were in issue at 31 December 2019 but were
not effective at 31 December 2019 and have not been adopted for these Financial Statements. The Directors
have assessed the full impact of these accounting changes on the Company. To the extent that they may be
applicable, the Directors have concluded that none of these pronouncements will cause material adjustments
to the Company’s financial statements. They may result in consequential changes to the accounting policies
and other note disclosures. The new standards will not be early adopted by the Company and will be
incorporated in the preparation of the Company financial statements from the effective dates noted below.
Effective from 1 January 2020:
• Definition of a Business (Amendments to IFRS 3)
• Definition of Material (Amendments to IAS 1 and IAS 8)
• Amendments to References to the Conceptual Framework in IFRS Standards
Effective from 1 January 2021:
•
IFRS 17 ‘Insurance Contracts’
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a
material impact on the Company.
1.19. Impairment
(i) Impairment review
At each balance sheet date, the carrying amounts of assets are reviewed to determine whether there is any
indication that those assets have suffered an impairment loss. An impairment loss is recognised whenever
the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses
recognised in respect of cash generating units are allocated first to reduce the carrying amount of any
goodwill allocated to cash generating units and then to reduce the carrying amount of the other assets in the
unit on a pro-rata basis. A cash generating unit is the group of assets identified on acquisition that generate
cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The
recoverable amount of assets or cash generating units is the greater of their fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset. For an asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the cash generating unit to which the asset belongs.
(ii) Reversals of impairments
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is
reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss
had been recognised.
54
Notes to the Accounts for the Year Ended 31 December 2019
1.20. Share based payments
Share based payments are made to employees and third parties and all are equity settled.
(i) Third party provision of services
a) Via issue of shares
Contractors receive remuneration in the form of share-based payments, whereby services are provided and
settled by the issue of shares. The cost of equity settled transactions is determined at the fair value of the
services provided, based upon invoiced amounts or formal agreements in place with suppliers.
b) Via issues of share warrants
The Company also issues share warrants to third parties in relation to services provided by suppliers. The
cost of equity settled transactions is determined at the fair value of the services provided, based upon
invoiced amounts or formal agreements in place with suppliers. Where no fair value of services can be directly
obtained, the fair value at the grant date is determined using the Black and Scholes valuation model. At each
reporting date the Company revises its estimates of the number of options that are likely to be exercised with
any adjustment recognised in the income statement.
(ii) Directors and employees
c) Via issues of share options
The Company has issued share options to Directors and employees through approved and unapproved
option plans. The fair value of options issued is determined at the date of grant and is recognised as an
expense in the Income Statement. The fair value at the grant date is determined using the Black and Scholes
valuation model. At each reporting date the Company revises its estimates of the number of options that are
likely to be exercised with any adjustment recognised in the income statement.
Where share-based payments give rise to the issue of new share capital, the proceeds received by the
Company are credited to share capital and share premium when the share entitlements are exercised.
1.21. Segmental reporting
An operating segment is a component of the Company:
•
that engages in business activities from which it may earn revenues and incur expenses (including
revenues and expenses relating to transactions with other components of the Company);
• whose operating results are reviewed regularly by the Company’s chief decision maker to make decisions
about resources to be allocated to the segment and assess its performance; and
for which discrete financial information is available.
•
1.22. Research and development
An internally generated intangible asset arising from development is only recognised where all of the following
have been demonstrated: (i) the technical feasibility of completing the asset; (ii) the intention to complete the
asset and the ability to use or sell it; (iii) the availability of resources to complete the asset; and (iv) the ability
to reliably measure the cost attributable to the asset during its development.
In all other instances research and development expenditure is recognised as an expense as incurred.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent
period.
2. Revenue
During the year, the Company has carried out work and incurred costs on a customer contract. As at the year
end, performance obligations requisite for revenue recognition had not yet been satisfied and hence no
revenue has been recognized in these financial statements. The costs associated with the contract are
recognized as a contract costs asset and held on the balance sheet (see note 11).
55
Notes to the Accounts for the Year Ended 31 December 2019
3. Staff costs
Directors’ fees
Wages and salaries
Social security costs
Pensions
Other staff costs
2019
£
313,500
-
40,365
12,750
-
366,615
2018
£
289,711
26,207
29,987
1,026
7,081
354,012
The number of average monthly employees (including Directors not paid via payroll) are as follows:
Management
Research and development
Total
2019
£
4
-
4
2018
£
5
1
6
The total number of employees as at 31 December 2019 (including Directors not paid via payroll) was 4 (2018:
5).
4. Administrative expenses
Included in administrative expenses are:
Lease charges
Research and development costs
Depreciation
Share issue fees
Share based payments
Auditor’s remuneration for audit services:
Fees payable to the Company’s auditor for the audit of the
Company’s annual financial statements
Fees payable to the Company’s auditor and their associates for
other services:
Non-audit fees paid to auditors
Taxation advisory and compliance services
2019
£
17,480
419,333
1,450
-
693,142
2018
£
16,989
673,299
1,179
116,218
553,959
20,000
20,000
1,000
1,000
19,571
14,480
There are no other fees paid to the Company’s auditor other than those disclosed above.
5. Net finance costs
Bank and other interest payable
Interest receivable
6.
Income tax and deferred tax
2019
£
945
(195)
750
2018
£
178
-
178
As the Company incurred a loss, no current tax is payable (2018: £nil). In addition, as there is no certainty
about future profits from which accumulated tax losses could be utilised, accordingly no deferred tax asset
56
Notes to the Accounts for the Year Ended 31 December 2019
has been recognised. The Company has submitted a claim for research and development tax credits relating
to the 2019 tax year and amounting to £195,708 (2018: £144,796) which has been recognised in the accounts.
Accumulated tax losses amount to an estimated £11 million (2018: £9.5 million) and reflect tax losses
submitted in tax returns and arising during the period less any relief taken for research and development
credits. The tax credit rate is lower (2018: lower) than the standard rate of tax. Differences are explained
below.
Current tax
Loss before taxation
Tax credit at standard UK corporation tax rate of 19% (2018: 19%)
Effects of:
Expenses not deductible for tax purposes
Research and development tax credits claimed
Deferred tax asset not recognised
Income tax credit
7. Loss per share
Total comprehensive loss (£)
2019
£
2018
£
1,705,934
2,495,434
324,128
474,132
(7,644)
195,708
(316,484)
-
144,796
(474,132)
195,708
144,796
2019
2018
(1,510,226)
(2,350,638)
Weighted average number of shares
1,900,547,410
1,541,719,887
Loss per share in pence
Diluted loss per share in pence
(0.15)
not applicable not applicable
(0.08)
As at 31 December 2019 and 2018, the share options and warrants in issue are not considered to have any
dilutive effect in accordance with IAS 33.
Shares issued since the year end are disclosed in note 25.
8.
Intangible fixed assets
Cost
At 1 January 2019
Additions
At 31 December 2019
Accumulated amortisation
At 1 January 2019
Charge for the year
At 31 December 2019
Carrying amount
At 31 December 2019
At 31 December 2018
57
Patent costs
£
-
16,514
16,514
-
-
-
16,514
-
Notes to the Accounts for the Year Ended 31 December 2019
9. Tangible fixed assets
Cost
At 1 January 2019
Additions
At 31 December 2019
Accumulated depreciation
At 1 January 2019
Charge for the year
At 31 December 2019
Carrying amount
At 31 December 2019
At 31 December 2018
10. Investments
Property, plant
and equipment
£
6,868
-
6,868
5,189
1,450
6,639
229
1,679
Investments relate to costs of investments in subsidiary undertakings, namely in Powerhouse Energy, Inc,
Pyromex AG and Powerhouse Energy UK Limited. Powerhouse Energy, Inc. is incorporated in California in
the United States of America and the Company holds 100 per cent of the common stock and voting rights of
the subsidiary. Pyromex AG is based in Zug, Switzerland and the Company holds 100 per cent of the shares
and voting rights of the subsidiary. Powerhouse Energy UK Limited is a wholly owned UK based dormant
company.
Investment - Cost
Accumulated impairment
2019
£
2018
£
48,947,155
(48,947,154)
48,947,155
(48,947,154)
1
1
The registered address of Powerhouse Energy Inc is 145 N Sierra Madre Blvd Pasadena, CA 91107, USA.
The registered address of Pyromex AG is Chollerstrasse 3, CH-6300, Zug, Switzerland.
The registered address of Powerhouse Energy UK Limited is 15 Victoria Mews, Mill Field Road, Cottingley
Business Park, Bingley BD16 1PY.
11. Contract costs
Contract costs
2019
£
114,418
114,418
2018
£
-
-
58
Notes to the Accounts for the Year Ended 31 December 2019
Contract costs assets relate to costs arising on engineering contracts where the Company has not yet completed
performance obligations which are typically met by the submission of reports, the transfer of data or on longer
contracts via the completion of milestones in accordance with the relevant contract.
Revenue is expected to be recognised and be settled in full in relation to the contact costs assets during the
next 12 months.
12. Trade and other receivables
Other receivables
Prepayments and accrued income
13. Cash and cash equivalents
Cash balances
14. Trade and other payables
Trade payables
Other creditors and accruals
Other taxes
2019
£
23,410
22,834
46,244
2018
£
31,288
32,708
63,996
2019
£
2018
£
103,580
840,692
103,580
840,692
2019
£
98,660
391,016
-
489,676
2018
£
74,053
157,907
15,102
247,062
Capital commitments not accrued for at the year end amounted to £nil (2018: £Nil).
15. Financial assets and financial liabilities
Financial assets
Financial assets at amortised cost:
- Other financial assets at amortised cost
- Cash and cash equivalents
Financial liabilities
Liabilities at amortised cost
- Trade and other payables
2019
£
356,370
103,580
459,950
2018
£
208,792
840,692
1,049,484
2019
£
2018
£
489,676
247,062
489,676
247,062
59
Notes to the Accounts for the Year Ended 31 December 2019
16. Leases
Future minimum rentals payable under non-cancellable leases are as follows:
Amounts payable:
Within one year
17. Loans
At 1 January
New loans raised
Loans repaid
Interest expense
Interest paid
Loans classified as:
Current
Non-current
2019
£
1,429
2018
£
1,429
1,429
1,429
2019
£
2018
£
-
-
-
-
-
-
-
-
1,402,155
-
(1,402,155)
-
-
-
-
-
18. Share capital & share premium
(i) Number of shares
0.5 p Ordinary
shares
0.5 p Deferred
shares
4.5 p Deferred
shares
4.0 p Deferred
shares
Shares at 1 January 2018
1,136,872,014
388,496,747
17,373,523
9,737,353
Issue of shares
719,559,607
-
-
-
Shares at 31 December 2018
1,856,431,621
388,496,747
17,373,523
9,737,353
Issue of shares
105,356,804
-
-
-
Shares at 31 December 2019
1,961,788,425
388,496,747
17,373,523
9,737,353
60
Notes to the Accounts for the Year Ended 31 December 2019
(ii) Value in £
0.5 p Ordinary
shares
0.5 p
Deferred
shares
4.5 p
Deferred
shares
4.0 p
Deferred
shares
Share Capital
Share
Premium
£
£
£
£
£
£
At 1 January 2018
5,684,357
1,942,483
781,808
389,494
8,798,142 48,681,792
Issue of shares
3,597,801
-
-
-
3,597,801
91,718
At 31 December 2018
9,282,158
1,942,483
781,808
389,494
12,395,943 48,773,510
Issue of shares
526,784
-
-
-
526,784
5,141
At 31 December 2019
9,808,942
1,942,483
781,808
389,494
12,922,727 48,778,651
All ordinary shares of the Company rank pari-passu in all respects.
None of the deferred shares carry any voting rights or any entitlement to attend general meetings of the
Company. They carry only a right to participate in any return of capital once an amount of £100 has been paid
in respect of each ordinary share.
On 5 February and 25 April 2018, the Company issued 215,686,275 and 64,744,645 ordinary shares of 0.5p
respectively at the agreed price of 0.5p in final settlement of the outstanding loan balance due to Hillgrove of
£1,402,155.
On 25 April 2018 the Company issued 115,255,355 ordinary shares of 0.5p each at a price of 0.5p amounting to
£576,277 before issue costs.
On 23 May 2018 and 14 June 2018, the Company issued 10,000,000 and 7,894,737 ordinary shares of 0.5p each
at a price of 0.5p and 0.76p respectively in settlement of services provided.
On 13 July 2018 the Company issued 98,907,004 ordinary shares of 0.5p each at a price of 0.5p each amounting
to £494,035 before issue costs.
On 3 August 2018 the Company issued 20,000,000 ordinary shares of 0.5p each at a price of 0.5p each
amounting to £100,000 before issue costs.
On 14 August 2018 the Company issued 797,607 and 11,707,317 ordinary shares of 0.5p each at a price of
0.5015p and 0.5125p each respectively in settlement of services provided.
On 17 August 2018 the Company issued 6,000,000 ordinary shares of 0.5p each at a price of 0.5p each
amounting to £30,000 before issue costs.
On 22 October 2018 the Company issued 12,000,000 ordinary shares of 0.5p each at a price of 0.5p each in
settlement of services provided.
On 26 October 2018 the Company issued 16,666,667 ordinary shares of 0.5p each at a price of 0.6p each
amounting to £100,000 before issue costs.
On 10 December 2018 the Company issued 130,000,000 ordinary shares of 0.5p each at a price of 0.5p each
amounting to £650,000 before issue costs.
On 14 December 2018 the Company issued 10,000,000 ordinary shares of 0.5p each at a price of 0.5p each
amounting to £50,000 before issue costs.
61
Notes to the Accounts for the Year Ended 31 December 2019
On 1 April 2019 the Company issued 23,023,750, 4,306,802 and 1,808.333 ordinary shares of 0.5p each at prices
of 0.5p, 0.5015p and 0.6p each respectively in settlement of services provided.
On 15 July 2019 the Company issued 35,215,000 and 3,266,667 ordinary shares of 0.5p each at prices of 0.5p
and 0.6p each respectively in settlement of services provided.
On 21 November 2019 the Company issued 37,736,252 ordinary shares of 0.5p each at a price of 0.5p each in
settlement of services provided.
19. Accumulated deficit
As at 1 January
Loss for the year
Share based payments
At 31 December
20. Share based payments
2019
£
2018
£
(60,365,351)
(1,510,226)
161,217
(58,281,622)
(2,350,638)
266,909
(61,714,360)
(60,365,351)
The expense recognized for share based payments during the year is shown in the following table:
Share based payment charge recognised in Profit or Loss
Expense arising from equity-settled share-based payment transactions:
- Share options for Directors and employees
- Warrants for third party services
- Shares issued for third party services
Total share based payment charge in Income Statement
Other share based payment movement
Exercise of share options for Directors and employees
Shares issued for third party services
Total share based payment
2019
£
2018
£
40,229
-
652,913
693,142
168,399
33,885
351,675
553,959
-
(531,925)
161,217
(53,050)
(234,000)
266,909
The was one modification made in 2018 for an award of warrants as disclosed in note 20.2. for the warrants
awarded for third party services on 4 July 2017.
The were no liabilities recognised in relation to share based payment transactions.
20.1 Share options for Directors and employees
The Company has put in place various options schemes for Directors and employees as follows:
On 8 December 2014, the Company granted 11,000,000 options over ordinary shares to the Board, under the
Powerhouse Energy Group plc Unapproved Share Option Plan 2011. The options may be exercised between
the grant date and the tenth anniversary of the grant date and will lapse if not exercised during that period.
On 7 March 2016, the Company granted 15,000,000 options over ordinary shares to the Board, under the
Powerhouse Energy Group plc Unapproved Share Option Plan 2011. The options may be exercised between
the grant date and the fifth anniversary of the grant date and will lapse if not exercised during that period.
On 6 March 2018, the Company granted 32,100,000 options over ordinary shares to employees, including a
Board member, under the Powerhouse Energy Group PLC 2018 EMI Option Scheme. The options vest to the
employees over a period of 24 months and are exercisable between the relevant vesting dates and the tenth
62
Notes to the Accounts for the Year Ended 31 December 2019
anniversary of the grant date and will lapse if not exercised during that period. These options had all been
exercised or forfeited by 31 December 2019.
On 6 March 2018, the Company granted 60,000,000 options over ordinary shares to Board members (apart from
Robert Keith Allaun who was awarded share options under the Powerhouse Energy Group PLC 2018 EMI Option
Scheme as explained above), under the Powerhouse Energy Group PLC 2018 non-employee Share Option Plan.
The options vest to the Board members over a period of 24 months and are exercisable between the relevant
vesting dates and the tenth anniversary of the grant date and will lapse if not exercised during that period.
The movement of share options in the year are as follows:
Outstanding at 1 January
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at 31 December
2019
Number
99,333,333
-
(24,333,333)
-
75,000,000
2019
WAEP(pence)
0.83
-
1.03
-
0.77
2018
Number
26,000,000
92,100,000
(2,100,000)
(16,666,667)*
99,333,333
Exercisable at 31 December
67,083,333
0.79
60,583,329
*The weighted average share price at the date of exercise of these options was 0.44p.
2018
WAEP (pence)
1.49
0.6
0.6
0.6
0.83
0.98
The weighted average remaining contractual life for the share options outstanding as at 31 December 2019 was
7.1 years (2018: 7.8 years)
No share options were granted during the year. The weighted average fair value of share options granted in 2018
was 0.32p.
The range of exercise prices for options outstanding at the year end was 0.6p to 2.5p (2018: 0.6p to 2.5p).
The number of options outstanding at 31 December 2019 are as follows:
Exercised
Forfeited
At 31 Dec
2019
Exercise
price
Exercise
period
Granted
Share
price on
grant
11,000,000
1.875p
15,000,000
0.55p
-
-
(5,000,000)
6,000,000
2.5p
(6,000,000)
9,000,000
0.75p
32,100,000
0.57p
(16,666,667)
(15,433,333)
-
0.6p
60,000,000
0.57p
-
-
60,000,000
0.6p
Total
118,100,000
(16,666,667)
(26,433,333)
75,000,000
No share options expired in the year.
63
9 Dec 2014
until 8 Dec
2024
8 Mar 2016
until
7 Mar 2021
7 Mar 2018
until
6 Mar 2028
7 Mar 2018
until
6 Mar 2028
Date of
grant
8 Dec
2014
7 Mar
2016
6 Mar
2018
6 Mar
2018
Notes to the Accounts for the Year Ended 31 December 2019
The estimated fair value of the options issued was calculated by applying the Black-Scholes option pricing
model. The assumptions used in the calculation were as follows:
8 December 2014
7 March 2016
6 March 2018
Options in issue 31 December 2019
Exercise price
Expected volatility
Contractual life
Risk free rate
Estimated fair value of each option
6,000,000
2.5p
127.56%
10 years
2%
1.79p
9,000,000
0.55p
127.56%
5 years
2%
0.45p
60,000,000
0.6p
70.00%**
10 years
1.49%
0.32p*
* the calculation applies a 25% discount for small companies
** expected future volatility of 70% based on historic volatility and the volatilities of similar sized companies.
20.2 Warrants for third party services
The Company has issued warrants in respect of services provided by consultants as part of their service
arrangements. It has also issued warrants to participating shareholders in respect of certain fund raises. No
share based payment charge is recognised for warrants issued to participating shareholders as they are outside
of the scope of IFRS 2.
Details of warrants which have been issued are as follows:
On 4 July 2017, the Company granted 5,000,000 warrants to a consultant. The options may be exercised
between the grant date and the third anniversary of the grant date and will lapse if not exercised during that
period. At the date of grant the share price was 0.85p and the warrants have an exercise price of 1p per share.
During 2018, the Board approved a reduction in the exercise price to 0.5p. The impact of the modification of the
exercise price has been recognised in the share based payment charge for the year. The incremental fair value
resulting from this was £14,268 as measured using the Black-Scholes model. They adjusted inputs are as
disclosed below.
On 13 July 2018 and 3 August 2018, the Company granted one warrant for every two shares subscribed for to
subscribers in fund raises confirmed on those dates. The July grant also included warrants granted to the
Company’s broker as part of its service arrangement in relation to the fund raise. Warrants of 54,343,852 (of
which 4,940,350 were granted to the company’s broker) and 10,000,000 respectively were granted. The options
may be exercised between the grant date and the second anniversary of the grant date and will lapse if not
exercised during that period. At the date of grant the share price was 0.44p and 0.31p respectively, and the
warrants have an exercise price of 0.5p per share.
On 10 December 2018, the Company granted 7,800,000 to the Company’s broker as part of its service
arrangement in relation to the fund raise arising on that date. The options may be exercised between the grant
date and the second anniversary of the grant date and will lapse if not exercised during that period. At the date
of grant the share price was 0.57p and the warrants have an exercise price of 0.5p per share.
Warrants in respect of services provided:
The movement of warrants issued for share based payments in the year are as follows:
Outstanding at 1 January
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at 31 December
2019
Number
17,740,350
-
-
-
17,740,350
2019
WAEP (pence)
0.5
-
-
-
0.5
2018
Number
5,000,000
12,740,350
-
-
17,740,350
2018
WAEP (pence)
1*
0.5
-
-
0.5
Exercisable at 31 December
17,740,350
0.5
17,740,350
0.5
* The exercise price of all the outstanding warrants outstanding at 1 January 2018 was modified in the year as explained
above.
64
Notes to the Accounts for the Year Ended 31 December 2019
The weighted average remaining contractual life for the share warrants outstanding as at 31 December 2019
was 0.7 years (2018: 1.7 years)
No share warrants were granted during the year. The weighted average fair value of share warrants granted in
2018 was 0.15p.
The exercise price for warrants outstanding at the year end was 0.5p (2018: 0.5p).
The number of warrants, which have been included for share based payment purposes, outstanding at 31
December 2019 are as follows:
Date of grant
Granted
Share
price on
grant
4 July 2017
5,000,000
0.85p
13 July 2018
4,940,350
0.44p
10 Dec 2018
7,800,000
0.57p
Total
17,740,350
Exercised Forfeited
At 31 Dec
2018
Exercise
price
Exercise period
-
-
-
-
-
-
-
-
5,000,000
0.5p
4,940,350
0.5p
7,800,000
0.5p
5 July 2017 until
4 July 2020
14 July 2018 until
13 July 2020
11 Dec 2018 until
10 Dec 2020
17,740,350
The Company is required to assess the fair value of instruments issued in respect of services received, with such
value charged to the Income Statement. The estimated fair value of the warrants issued during the year was
calculated by applying the Black-Scholes option pricing model. The assumptions used in the calculation were
as follows:
Warrants issued for services
4 July 2017
13 July 2018
10 Dec 2018
In issue 31 December 2019
Exercise price
Expected volatility***
Contractual life
Risk free rate
Estimated fair value of each option*
5,000,000
0.5p**
70.00%
3 years
1.31%
0.39p**
4,940,350
0.5p
70.00%
2 years
1.27%
0.11p
7,800,000
0.5p
70.00%
2 years
1.27%
0.18p
* the calculation applies a 25% reduction for small companies
** after modification of exercise price as explained above
*** expected future volatility of 70% based on historic volatility and the volatilities of similar sized companies
Warrants issued to participating shareholders
Warrants issued to participating shareholders are outside the scope of IFRS 2 and no share based payment
charges have been recognised on them. On initial recognition the warrants’ cost was deducted from equity as it
represents the cost of shares issued to investors. As the agreements had a fixed-for-fixed requirement, they are
also recognised as equity at the same time. As such, there is nil net impact on equity and has not been included
in the statement of changes in equity.
65
Notes to the Accounts for the Year Ended 31 December 2019
The number of warrants issued to participating shareholders, which have not been included for share based
payment purposes, outstanding at 31 December 2019 are as follows:
Date of grant
Granted
Share
price on
grant
Exercised
Forfeited
At 31 Dec
2019
Exercise
price
Exercise
period
13 July 2018
49,403,502
0.44p
-
3 Aug 2018
10,000,000
0.31p
(10,000,000)
Total
59,403,502
(10,000,000)
-
-
-
49,403,502
0.5p
14 July 2018
until
13 July 2020
-
0.5p
-
49,403,502
The estimated fair value of the warrants issued was calculated by applying the Black-Scholes option pricing
model. The assumptions used in the calculation were as follows:
Warrants issued to participating
shareholders
13 July 2018
In issue 31 December 2019
Exercise price
Expected volatility**
Contractual life
Risk free rate
Estimated fair value of each
option*
49,403,502
0.5p
70.00%
2 years
1.27%
0.11p
* the calculation applies a 25% reduction for small companies
** expected future volatility of 70% based on historic volatility and the volatilities of similar sized companies
All warrants
The number of all warrants outstanding at 31 December 2019 are as follows:
Date of grant
Granted Share price
Exercised Forfeited
on grant
4 July 2017
5,000,000
0.85p
13 July 2018
54,343,852
0.44p
-
-
3 Aug 2018
10,000,000
0.31p
(10,000,000)
10 Dec 2018
7,800,000
0.57p
-
-
-
-
-
At 31 Dec
2019
Exercise
price
Exercise period
5,000,000
0.5p
5 July 2017 until
4 July 2020
54,343,852
0.5p
14 July 2018
until
13 July 2020
-
0.5p
-
7,800,000
0.5p
11 Dec 2018
until 10 Dec
2020
Total
77,143,852
(10,000,000)
-
67,143,852
20.3 Share issue third party services
The Company issued shares to settle services to some of its service providers. The fair value of the share based
payments charge were based on invoiced amounts or amounts agreed to be paid under a formal agreement of
the Company.
66
Notes to the Accounts for the Year Ended 31 December 2019
21. Material risks
The Company is subject to various risks relating to political, economic, legal, social, industry, business and
financial conditions. Risk assessment and evaluation is an essential part of the Company’s planning and an
important aspect of the Company’s internal control system. The Company’s approach to these risks is
detailed in the Strategic Report.
Requirement for further funds
In assessing the going concern, the Directors have reviewed cash flow forecasts for 12 months following the
date of these accounts. The current cash reserves and funding plans forward are considered sufficient to
enable the Company to meet its liabilities as they fall due. Please refer to note 1.3 for further information
regarding going concern.
22. Directors’ remuneration and share interests
The Directors who held office at 31 December 2019 had the following interests, including any interests of a
connected party in the ordinary shares of the Company:
William Cameron Davies
David John Ryan
James John Pryn Greenstreet
Nigel Brent Fitzpatrick
Number of ordinary
shares of 0.5p each
Percentage of
voting rights
1,200,000
11,075,000
1,000,000
103,459
<0.1
0.56
<0.1
<0.1
The remuneration of the Directors of the Company paid or payable for the year or since date of appointment, if
later, to 31 December 2019 is:
2019
£
Salary/Fee
2019
£
Pension
2019
£
Share
based
payments
2019
£
Other
Benefits
2019
£
Total
2018
£
Total
William Cameron Davies*
Robert Keith Allaun
Nigel Brent Fitzpatrick*
James John Pryn Greenstreet*
David John Ryan*
50,000*
70,000
30,000*
30,000*
133,500*
-
-
-
-
12,750
12,378
-
7,426
7,426
12,997
-
-
-
-
-
62,378
70,000
37,426
37,426
159,247
80,945
239,842
59,708
59,708
51,988
*The Directors implemented a fee waiver for their services from 1 April 2019 with compensation applying once
certain conditions are met. These are expected to materialize during 2020 and as such the amounts disclosed
above include provision for the expected compensation.
Total remuneration includes share based payments arising from the issue of options amounting to £40,229
(2018: £195,398). There have been no awards of shares to Directors under long term incentive plans during
the year.
William Cameron Davies, Nigel Brent Fitzpatrick and James John Pryn Greenstreet have service contracts
which can be terminated by providing three months’ written notice. David John Ryan has a service contract
which can be terminated by providing six months’ written notice. Prior to his resignation, Robert Keith Allaun
held a service contract which could be terminated by providing six months’ written notice.
Robert Keith Allaun’s services amounting to £Nil (2018: £11,250) were provided via Critical Point Solutions
Limited and relate wholly to his services as a Director of the Company. He was employed directly by the
Company for his 2019 services and for the remainder of his 2018 services. Mr Allaun resigned from the
Company on 1 February 2019.
67
Notes to the Accounts for the Year Ended 31 December 2019
David John Ryan’s service contract commenced on 1 February 2019 with payments applying from 1 April
2019. His services to 31 March 2019 were provided via Nayr Consultants Limited, an engineering consultancy.
Details of amounts paid are provided in Note 23 Related Parties. This does not include any amount for
services as a Director of the Company.
Share options held by the Directors who served during the year are as follows:
Options at
1/1/19
Forfeited Exercised Options at
31/12/19
Exercise
price
Earliest and latest
date of exercise
Options granted 8 Dec 2014
William Cameron Davies
Robert Keith Allaun
Nigel Brent Fitzpatrick
James John Pryn Greenstreet
David John Ryan
-
5,000,000
3,000,000
3,000,000
-
-
(5,000,000)
-
-
-
-
-
-
-
-
-
-
3,000,000
3,000,000
-
-
2.5p
2.5p
2.5p
-
-
9/12/14 - 8/12/24
9/12/14 - 8/12/24
9/12/14 – 8/12/24
-
Options granted 7 March
2016
William Cameron Davies
Robert Keith Allaun
Nigel Brent Fitzpatrick
James John Pryn Greenstreet
David John Ryan
Options granted 6 March 2018
Options at
1/1/19
Forfeited Exercised Options at
31/12/19
Exercise
price
Earliest and latest
date of exercise
-
6,000,000
5,000,000
4,000,000
-
-
(6,000,000)
-
-
-
-
-
-
-
-
-
-
5,000,000
4,000,000
-
-
0.75p
0.75p
0.75p
-
-
8/3/16 – 7/3/21
8/3/16 – 7/3/21
8/3/16 – 7/3/21
-
Options at
1/1/19
Forfeited Exercised Options at
31/12/19
Exercise
price
Earliest and latest
date of exercise
William Cameron Davies
Robert Keith Allaun
Nigel Brent Fitzpatrick
James John Pryn Greenstreet
David John Ryan
15,000,000
13,333,333
12,000,000
12,000,000
21,000,000
-
(13,333,333)
-
-
-
- 15,000,000
-
-
- 12,000,000
- 12,000,000
- 21,000,000
0.6p
0.6p
0.6p
0.6p
0.6p
1/10/18 – 6/3/28
7/3/18 – 6/3/28
7/3/18 – 6/3/28
7/3/18 – 6/3/28
7/3/18 – 6/3/28
Highest Paid Director
David John Ryan was the highest paid Director in the year. There were no shares received or receivable by him
in respect of qualifying services under long term incentive schemes.
23. Related parties
Nayr Consultants Limited, an engineering consultancy services company, wholly owned by David John Ryan
and his associates, provided engineering services to the Company during the year amounting to £56,000 (2018:
£154,133). Amounts outstanding at year end for services provided and included in creditors and accruals
amounted to £Nil (2018: £31,000).
Engsolve Limited, an engineering solutions company, is a related party due to a Director’s family member being
part of its key management personnel. Engsolve provided engineering services to the Company during the year
amounting to £239,137 (2018: £361,187). Amounts outstanding at year end for services provided and included
in these accounts amounted to £26,449 (2018: £6,614).
Transactions with other related parties were conducted on an arms’ length basis and amounted to £nil (2018:
£nil).
24. Segmental reporting
The Company comprises a single operating segment being a development company operating solely within the
United Kingdom. As such the statement of comprehensive income and the statement of financial position may
68
Notes to the Accounts for the Year Ended 31 December 2019
be used as a report on the segment. No revenue has been generated up to the reporting date of these accounts
as the equipment was being developed and tested.
25. Events after the reporting period
On 29 January 2020, the Company issued 52,228,139 ordinary shares of 0.5p each in the Company (“Ordinary
Shares”) to various service providers for the settlement of fees. Of these new Ordinary Shares, 47,732,518 were
issued at 0.5p and 4,495,621 were issued at 0.717p in accordance with terms agreed.
On 29 January 2020, the Company issued 5,500,000 ordinary shares of 0.5p each in the Company (“Ordinary
Shares”) further to the exercise of warrants for proceeds amounting to £27,500.
On 28 February 2020, the Company issued 25,440,350 ordinary shares of 0.5p each in the Company (“Ordinary
Shares”) further to the exercise of warrants for proceeds amounting to £127,202.
On 19 March 2020, the Company issued 3,750,000 ordinary shares of 0.5p each in the Company (“Ordinary
Shares”) further to the exercise of warrants for proceeds amounting to £18,750.
On 7 April 2020, the Company issued 7,800,000 ordinary shares of 0.5p each in the Company (“Ordinary Shares”)
further to the exercise of warrants for proceeds amounting to £39,000.
On 16 April 2020, the Company issued 2,500,000 ordinary shares of 0.5p each in the Company (“Ordinary
Shares”) further to the exercise of warrants for proceeds amounting to £12,500.
On 22 April 2020, the Company issued 5,500,000 ordinary shares of 0.5p each in the Company (“Ordinary
Shares”) further to the exercise of warrants for proceeds amounting to £27,500.
On 27 May 2020, the Company issued 4,100,000 ordinary shares of 0.5p each in the Company (“Ordinary
Shares”) further to the exercise of warrants for proceeds amounting to £20,500.
On 9 June 2020, the Company issued 2,003,502 ordinary shares of 0.5p each in the Company (“Ordinary
Shares”) further to the exercise of warrants for proceeds amounting to £10,017.
On 23 June 2020, the Company issued 1,750,000 ordinary shares of 0.5p each in the Company (“Ordinary
Shares”) further to the exercise of warrants for proceeds amounting to £8,750.
On 26 June 2020, the Directors of the Company issued a circular to shareholders detailing the proposed
acquisition of the whole of the share capital of Waste2tricity Limited on a share for share basis. The acquisition
is subject to approval of a waiver of the obligation of the Concert Party to make a Rule 9 offer under the
Takeover Code. The issue is planned to be voted on at a General Meeting to be held on 14 July 2020.
If approved, the transaction would result in the issue of 1,437,440,277 shares in the Company to Waste2tricity
Limited shareholders. Waste2tricity Limited has operated as the project developer of the Company’s
technology and holds certain UK development rights. Following discussions with commercial and funding
parties, the Directors consider the acquisition in the interest of the Company in order to facilitate the
commercial roll out of the Company technology.
As the two companies have been working closely together for a number of years, the transaction is not
expected to significantly impact how Powerhouse operates going forward except in respect of the positive
impact the transaction is expected to have on forward roll out of the technology.
In March 2020, an outbreak of Covid-19 caused widespread disruption to the global economy. We have not
yet seen a material disruption to our business as a result of the Covid-19 outbreak, however events are rapidly
evolving and the Company is closely monitoring the situation as it develops.
26. Ultimate controlling party
There is no controlling party of the Company.
69
Perivan 259195