Shop Apotheke Europe Annual Report 2018

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SIMEC ATLANTIS ENERGY LIMITED ANNUAL REPORT 2018 CONTENTS About Us Highlights Chairman’s Statement Chief Executive Officer’s Statement Board of Directors Directors’ Report Corporate Governance Report Audit Committee Report Directors’ Remuneration Report Directors’ Responsibility Statement Independent Auditors’ Report to the Members Financial Statements Notes to the Financial Statements Company Information PAGE 1 2 4 6 8 11 14 22 25 30 32 39 44 85 Subsea video feed and Operations control during Andritz Hydro Hammerfest turbine deployment View of the Uskmouth Power Station stack towards the Wetlands Andritz Hydro Hammerfest 1.5MW tidal turbine prepared for installation Vessel control station during turbine installation, December 2018 Tether monitoring aboard the Seabed Stingray Uskmouth Power Station, view from inside of a cooling tower westward SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 17:35 Page 1 ABOUT US SIMEC Atlantis Energy Limited, formerly known as Atlantis Resources Limited, and its subsidiaries1 is a global developer of sustainable energy projects with more than 1,000MW in various stages of development. This includes the world’s ﬂagship tidal stream project, MeyGen, and the world’s ﬁrst conversion project from coal to 100 per cent waste derived fuel, Uskmouth power station. The Atlantis vision is to become the leading independent power generator in the UK. The core business of Atlantis is the development, ﬁnancing, construction and operation of large scale, sustainable energy projects in the UK, Europe, North America, Asia and emerging markets. Atlantis delivers world class renewable project development strategies and, through its turbine and engineering services division, designs, supplies and maintains tidal turbines and subsea connection equipment. Having established itself as a global leader in the tidal power sector, Atlantis is now using its expertise to create a diversiﬁed portfolio of sustainable generation projects in partnership with the GFG Alliance. The GFG Alliance is a London headquartered international group of businesses combining energy generation, metal manufacturing, engineering, natural resources and ﬁnancial services, working together to deliver a common business strategy. At present the GFG Alliance has global revenues of over US$15 billion and employs more than 14,000 staff across more than 30 countries. Through its forward-looking GREENSTEEL strategy, the GFG Alliance promotes industrial revival based on low-carbon and sustainable production methods. For more information visit the Company’s website at www.simecatlantis.com 1 SIMEC Atlantis Energy Limited is the parent Company of a number of subsidiaries which together comprise a group within the deﬁnition of International Financial Reporting Standard 10, Consolidated Financial Statements, as issued by the International Accounting Standards Board and as adopted by the European Union. TIM CORNELIUS, CHIEF EXECUTIVE OF ATLANTIS, COMMENTED: In many ways, 2018 was a breakthrough year for SIMEC Atlantis. In April, Phase 1A of our ﬂagship MeyGen tidal energy project entered its fully operational phase helping us to grow revenues and, with all four turbines successfully installed, has now delivered over 17 GWh of predictable and sustainable energy to the grid. In June, we completed the acquisition of the 220MW Uskmouth power station. Our ambition is to grow quickly to become the leading independent generator of sustainable energy in the UK and we are making signiﬁcant steps towards achieving that goal: we have commenced work on the world’s ﬁrst conversion of a coal power station to 100 per cent waste derived fuel at Uskmouth; and we are expanding MeyGen with Phase 1B (Project Stroma) through the installation of two additional turbines. Our sustainable energy projects are not just good business, they are making a meaningful contribution towards tackling some of the biggest issues facing society today: climate change and the war on plastics. Low and high pressure water heaters in the turbine hall, Uskmouth Power Station 1 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 2 HIGHLIGHTS FINANCIAL HIGHLIGHTS  The consolidated Group cash position at 31 December 2018 was £9.3 million (2017: £5.6 million), including £2.4 million held in MeyGen Limited (2017: £3.8 million).  The MeyGen project generated revenues of £2.1 million.  Overall Group losses for the year were £24.0 million (2017: £10.6 million). The increase in the year on year loss of £13.4 million reﬂects the signiﬁcant changes in the Group in the period. Increased depreciation expense of £5 million and ﬁnance costs of £1.5 million are the result of MeyGen becoming operational in April and the acquisition of SUP in June. SUP acquisition costs and ﬁnancial results also contributed to the increased loss.  Group total equity at 31 December 2018 of £119.6 million (2017: £60.2 million).  In May 2018, Atlantis raised £5.0 million, before expenses, through a ﬁve year bond with a coupon of 8 per cent, maturing in 2023. In June 2018, Atlantis raised a further £20.0 million before expenses from new and existing shareholders. Funds raised continue to be used for incremental project development activities across the Atlantis portfolio and to secure opportunities for portfolio growth as well as working capital funding for the enlarged Group.  Atlantis completed the sale of its stake in its Canadian joint venture in December 2018. The cash transaction returned C$0.4 million to the Company. OPERATIONAL HIGHLIGHTS  April 2018 saw the ﬂagship MeyGen Phase 1A tidal energy project enter its fully operational phase, with all four turbines successfully installed and delivering power to the grid, resulting in revenue generation. The array has generated over 17 GWh of sustainable energy to date and has exported more electricity to grid than any other tidal project.  In June 2018, SIMEC Atlantis Energy Limited (“Atlantis” or the “Company”) acquired the entire issued share capital of SIMEC Uskmouth Power Limited (“SUP”) from SIMEC UK Energy Holdings Limited (“SIMEC”), a member of the GFG Alliance.  Consideration for the purchase was the issuance by the Company of new shares to SIMEC, such that immediately following the issuance of such shares, SIMEC became a 49.99 per cent shareholder of the Company and Group.  Post-acquisition, Atlantis have commenced the world’s ﬁrst full conversion of a power station from coal to 100 per cent waste derived fuel, which will export 220MW of reliable baseload power to the grid on completion.  In November 2018, the Environmental Planning and Permitting (“EPP”) contract and the Front-End Engineering and Design (“FEED”) contracts were both awarded. The FEED is expected to take approximately 12 months to complete from commencement.  Heads of Terms were signed in November 2018 to sell a 25 per cent shareholding in the SUP conversion project for £32.9 million in cash to leading UK infrastructure fund manager Equitix. The transaction is anticipated to complete post FEED. 2 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 3  The Company agreed terms in November 2018 for its collaboration with Development Agency for Normandy (AD Normandie Développement), the regional agency for economic development in Normandy and regional investment fund Normandie Participations, for the purpose of developing a phased large-scale tidal power project in the Raz Blanchard, Normandy, France, as well as fostering the marine industry and local supply chain in the region more generally.  Atlantis announced in December 2018, that it had signed a €1 million grant agreement with the European Executive Agency for Small and Medium-sized Enterprises via the European Maritime and Fisheries Fund and its Sustainable Blue Economy call for proposals. The grant will provide Atlantis and its supply chain partner, Asturfeito SAU, €1 million in grant funding to support its tidal turbine development programme. POST YEAR END HIGHLIGHTS  Atlantis announced in October 2018, that it had advanced plans to enhance the existing 6MW MeyGen array with the addition of two of the Company’s new tidal turbines. When installed, these new Atlantis turbines, which are capable of generating up to 2MW using more powerful generators and larger rotor diameters, will use a new subsea connection hub and share a single export cable. These innovations will signiﬁcantly reduce project infrastructure costs by removing the requirement for a dedicated export cable for each turbine and should also result in reduced installation costs.  In January 2019, Ian Wakelin joined the Board as an independent non-Executive Director and Chairman of the Audit Committee. Ian was previously Chief Executive Officer of Biffa plc, one of the UK’s largest waste management businesses, and led the IPO of the business in 2016.  In February 2019 Atlantis announced that it had awarded a contract to subsea engineering specialists ETA for the manufacture and delivery of the world’s most advanced subsea tidal turbine connection system which will underpin the MeyGen extension activities known as Project Stroma.  In March 2019, Atlantis raised over £5 million, before expenses, through an equity fundraising to secure funding for the acquisition of GHR. As a result of the revised transaction the net proceeds will be used for the Company’s general corporate purposes.  In May 2019, Atlantis announced that its turbine and engineering services division will enter into a Technology Partnership and Preferred Supplier Agreement (“TPPSA”) with GE Energy Power Conversion UK Ltd (“GE”), a global leader in power conversion, to deliver the world’s largest single rotor tidal turbine, the AR2000. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 3 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 4 CHAIRMAN’S STATEMENT Chairman John Neill 2018 was perhaps the most transformative year for our Group since our 2014 initial public offering, reﬂected not least in our change of name to SIMEC Atlantis Energy Limited following the reverse takeover of SIMEC Uskmouth Power Limited. This acquisition and the ensuing relationship with the SIMEC Group (part of the GFG Alliance) have added scale and momentum to our transition to a diversiﬁed, sustainable energy company. We entered 2019 with the announcement of our intention to acquire the Green Highland Renewables (“GHR”) Group of companies from the GFG Alliance. Having assessed the available ﬁnancing options for the Group to purchase GHR, it was determined that an alternative transaction structure would be in the interests of shareholders and we will provide further information in the near future. We have also continued our quest for geographic diversity, including through the formation of our new joint venture, Normandie Hydrolienne, which will be focused on the development of tidal energy projects to exploit the vast resources of the tides along the northern French coast. Around the world, scientists are tracking the impacts of climate change, which is in turn forcing governments to act. The UK government has put moving to a cleaner, greener economy at the heart of its Industrial Strategy and is leading the world by introducing a bill in June 2019 to commit the government to a net zero emissions target. This means moving away from using conventional coal and gas-ﬁred power to electricity generated from renewable sources such as tidal power, and achieving the ambitious aim of a carbon neutral economy by 2050. Generation continues from our ﬂagship MeyGen project, which formally completed its construction phase in 2018 and has now produced more than 17 GWh of electricity, representing generation equivalent to the average annual consumption of some 5,500 UK households. This is more than any other tidal stream project in the world and demonstrates the pivotal position we have established in this sector. We are now proceeding with plans for the addition of two new turbines at the site together with a subsea hub, which is designed to permit connection of multiple turbines into a single subsea cable, allowing us to signiﬁcantly reduce the balance of plant costs in future projects. This phase of the development is known as Project Stroma and, as part of the proposed funding package, we are investigating opportunities for replacement of the existing ﬁnance package to reﬂect the increasing maturity of the project. Project Stroma has already been awarded €16.8 million of revenue support funding from the European Commission’s NER300 fund, which uses proceeds from the sale of carbon credits to support renewable energy and carbon capture projects. South Wales is home to the 220MW Uskmouth power station conversion project, which represents one of the most exciting sustainable energy projects currently under development in the UK. Upon completion of the conversion from a coal ﬁred power station, the plant is intended to deliver up to 220MW of baseload power to the grid by drawing solely on a fuel created from waste destined for landﬁll. In November 2018, the environmental planning and permitting contract and the Front-End Engineering and Design (“FEED”) contract were awarded. In the same month, we were pleased to sign a Heads of Terms with leading UK infrastructure fund manager Equitix for the sale, subject to contract, of a 25 per cent stake in the project following completion of the FEED. This agreement implies a valuation for our 100 per cent stake of over £130 million. Across the English Channel, northern France presents further opportunity for growth through the remarkable tidal resources of Normandy. Here we have entered into a collaboration with the regional agency for economic development and the regional investment fund, Normandie Participations, to form a joint venture company called Normandie Hydrolienne. This vehicle is dedicated to the development of tidal energy in the fast ﬂowing Raz Blanchard, whose waters, together with those of neighbouring Alderney, could host up to 2GW of tidal turbines. Whilst these projects will take time to come to operational fruition, early planning is essential to enable us to carry forward the momentum gained recently in Scotland across to France. Finally, on a global scale, we continue to seek out supply opportunities in Asia, Australia and North America for our marine energy technologies and services, including our new AR2000 tidal turbine and our range of engineering and project delivery skills across the sustainable energy spectrum. 4 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 5 CHAIRMAN’S STATEMENT The overall loss for the year reﬂects the development investment we continue to make in our ﬂagship tidal energy and waste to energy projects, with consistent revenue generation from power sales expected as they come online over the next 24 months. I would like to take this opportunity to express my thanks to all our colleagues, shareholders and stakeholders for their continuing commitment and support for the Company, which is highly appreciated and valued. ANNUAL GENERAL MEETING Our Annual General Meeting will be held on Friday 26 July 2019. Details of the resolutions to be proposed are set out in a separate Notice of Annual General Meeting, which accompanies this report for shareholders receiving hard copy documents, and which is available at www.simecatlantis.com for those who elected to receive documents electronically. John Neill Chairman 27 June 2019 ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 5 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 6 CHIEF EXECUTIVE OFFICER’S STATEMENT Chief Executive Officer Timothy Cornelius In our 2017 Annual Report, I outlined our ambition to build a diversiﬁed portfolio of development and operational assets that could allow SIMEC Atlantis to quickly grow into one of the largest generators of sustainable energy in the UK. Since then, we have made a signiﬁcant step towards that goal with the addition of the world leading Uskmouth waste-to-energy conversion project. Waste-to-energy complements our marine energy division and its operation of the ﬂagship Meygen project, which has recently surpassed a world record 17GWh of predictable electricity generation exported to the grid in Scotland. We are passionate about what we do at Atlantis. The ocean is the ﬁnal frontier and offers a virtually limitless source of abundant energy. However, plastic waste threatens fragile marine ecosystems and energy mixes are changing faster than anyone could have previously anticipated, away from hydrocarbons in favour of renewable energy. When it was designed and built in the 1950s in the Welsh city of Newport, the Uskmouth power station was intended to be run on the area’s abundant local coal supply. Now, under an ambitious scheme for conversion, the plant is being repurposed to run on another abundant resource: waste. A successful conversion at Uskmouth could form the blueprint for other power stations destined to be decommissioned, providing instead an extended period of valuable service in compliance with up-to-date emissions regulations and with materially lower levels of CO2 emissions. This project is expected to help the transition of the local economy and workforce in Newport from a historic reliance on coal to a new, sustainable future, while at the same time providing an economically viable alternative to landﬁll of waste and addressing the issue of non-recyclable plastics. The converted Uskmouth plant is intended to enter commercial operations in 2021 and will use pellets made from equal proportions of waste biogenic material, such as paper and cardboard, and other forms of waste, such as plastic. These pellets will be supplied by a joint venture set up between the GFG Alliance and N+P Group BV, a Dutch recycling group. Unlike traditional waste incinerators, the primary purpose of the Uskmouth power station is the generation and sale of electricity, rather than the disposal of waste and the receipt of the associated fees from the producers of that waste. Rather than charging fees for waste disposal, the Uskmouth power station will buy fuel pellets, which are created from waste streams that are carefully processed to ensure strict adherence to an agreed speciﬁcation and high caloriﬁc value relative to raw waste. This is economically viable because of the high fuel quality and high efficiency of power station conversion, coupled with a low fuel price. The project is governed by Best available techniques Reference documents (“BREFs”) developed under the Industrial Emissions Directive and will adhere to all the applicable criteria set out within this legislation. As approximately 50 per cent of the energy pellets will be made up of biogenic derived waste, this component is treated as carbon dioxide neutral because of its net-zero lifecycle emissions. Overall, we consider the conversion to be a sustainable approach, allowing an extension of the useful life of an otherwise redundant power station asset and the recovery of useful and high-quality energy from materials that could otherwise end up either in landﬁll or being incinerated in less efficient facilities. The conversion is a function of the circular economy, kicking into action to address the twin issues of waste repurposing and the need for dispatchable power, and is a great contribution towards the diversiﬁcation of the Group’s renewable energy portfolio. These strides towards our goal have been made alongside continued development of our tidal energy business, in particular the record-breaking achievements at MeyGen and the future plans for Project Stroma, which will result in the deployment of two new turbines at the site. None of this would have been possible without our people. What started over a decade ago as a small team of talented engineers has now grown to nearly 100 innovative, tenacious and dedicated experts with a passion for what we are doing. As we continue to seek new opportunities to be pioneers in the ﬁeld of sustainable energy, I do not underestimate the importance and value of our people. Their commitment and dedication are unwavering, creating value for the business on a daily basis. They are a source of inspiration for our executive management team. I would also be unable to deliver this positive outlook for the year ahead 6 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 7 CHIEF EXECUTIVE OFFICER’S STATEMENT without the loyalty, belief and support of our shareholders, investors, government stakeholders and technology and construction partners. Thank you to everyone who has been part of the Atlantis journey so far and welcome to the next exciting chapter! 2018 PERFORMANCE The Group recorded a loss after tax of £24.0 million for the year ended 31 December 2018, compared with a £10.6 million loss in the prior year. This year on year movement is attributable to the MeyGen Phase 1A project entering its operational phase at the end of Q1 2018, and the acquisition of SUP in June 2018. These reﬂect the Group’s continued investment in the development of energy projects. Revenue of £2.2 million for the year (2017: £0.3 million), includes an increase of £1.8 million from power sales from the Meygen Phase 1A project. Other income of £0.9 million (2017: £3.0 million) includes liquidated damages of £0.9 million awarded in 2018 (2017: £1.8 million). The prior year also included £1.1 million of grant income. The Group’s closing net asset balance was £119.6 million (2017: £60.2 million), the increase is mainly in relation to the acquisition of SUP, consolidating £53.4 million of net assets on the date of acquisition. In May 2018, Atlantis raised £5.0 million, before expenses, through a ﬁve year bond with a coupon of 8 per cent, maturing in 2023. In June 2018, Atlantis raised a further £20.0 million before expenses from new and existing shareholders. Funds raised continue to be used for incremental project development activities across the Atlantis portfolio and to secure opportunities for portfolio growth as well as working capital funding for the enlarged Group. Post year-end, the Company raised £5 million, before expenses, through an equity fundraising to secure funding for the acquisition of GHR. As a result of the revised transaction the net proceeds will be used for the Company’s general corporate purposes. for the expenses Total year were £24.3 million (2017: £12.8 million). The increase of £11.5 million relates to power generation operating costs at MeyGen, the current running costs at SUP, depreciation of £5.4 million on these projects assets and one off acquisition costs of £3.6 million for SUP. Timothy James Cornelius Chief Executive Officer 27 June 2019 ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 7 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 8 BOARD OF DIRECTORS JOHN MITCHELL NEILL CBE, Non-Executive Chairman John Neill became a Director and non-Executive Chairman of the Company on 11 December 2013. John joined the Unipart group of companies from General Motors in 1974 and set out to establish a more independent and broad based role for what was then British Leyland’s Parts Division. In 1987, he led the management buyout of the Company, of which he remains the Chairman and CEO. He has served as a non-Executive Director of Rolls-Royce plc, a Director of the Court of the Bank of England and a non-Executive Director of the Royal Mail and Charter International plc. TIMOTHY JAMES CORNELIUS, Chief Executive Officer Timothy Cornelius became Chief Executive Officer of the Company in 2006 and joined the Board on 11 December 2013. Prior to joining the Company, Timothy worked in the subsea, offshore construction and oil and gas sectors with Submarine Escape and Rescue Service (Australia), Subsea Offshore, Halliburton Subsea and Subsea 7. He remains a certiﬁed submersible engineer and subsea ROV pilot and has experience in the power generation and shipping sectors. Timothy has a BSc in Marine Biology from Flinders University and an MBA from Bond University. ANDREW LUKE DAGLEY, Chief Financial Officer Andrew Dagley joined the Company in early 2014 from IFM Investors, a global fund manager with over A$100 billion under management, having previously worked with a range of superannuation infrastructure investors, renewable energy project developers and Flinders Corporate Finance, a boutique investment bank. Andrew has been the Chief Financial Officer of Atlantis since 3 August 2017 and has over 13 years of experience in infrastructure investment with an emphasis on renewable energy, having worked on a range of wind, solar, hydroelectric and biomass projects in Australia, Brazil, Chile, China, India and the UK. He has a Bachelor of Commerce (Hons) Finance from the University of Melbourne. MARK EDWARD MONCKTON ELBORNE, Non-Executive Director Mark Elborne was President and Chief Executive Officer at GE UK and Ireland, General Electric Company, from 2009 until his recent retirement in 2018. Mark’s key focus was leading GE’s businesses in the energy, aviation, oil and gas and healthcare sectors. Mark joined GE in 2004 as Executive Vice President and General Counsel of GE Insurance Solutions. From 2006 to 2009, he was General Counsel and Head of Regulatory in EMEA. Mark was a partner at CMS Cameron McKenna (now CMS Cameron McKenna Nabarro Olswang LLP) from 1988 to 2004. He qualiﬁed as a solicitor in 1983 after gaining a degree in History and Politics from the University of Exeter, and was admitted to the Missouri Bar in 2004. Mark is a Director and Chairman of the Board at GE Pension Trustees Limited and at Alstom Pension Trust Limited. Mark is a nominated Board representative of the Company’s major shareholder, SIMEC, and joined the Board on 15 June 2018. 8 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 9 BOARD OF DIRECTORS GEORGE JAY HAMBRO, Non-Executive Director Jay Hambro is currently Chief Investment Officer of the GFG Alliance and Chief Executive Officer of Mining and Energy at SIMEC. Jay leads the GFG Alliance’s global investment and development programme and sits on the Strategy Board. After graduating in business management, Jay worked in resource ﬁnance with NM Rothschild & Sons, HSBC, and latterly with Petropavlovsk plc group. In 2016, he assumed the position at the GFG Alliance. Jay has held a number of other board positions and recently stood down from a non-Executive Directorship of Cellmark AB. He is a Fellow of the Institute of Material, Mining and Metallurgy and a Liveryman of the Worshipful Company of Goldsmiths. Jay is a nominated Board representative of the Company’s major shareholder, SIMEC, and joined the Board on 15 June 2018. IAN RAYMOND WAKELIN, Non-Executive Director Ian Wakelin joined the Board on 22 January 2019. Ian was previously Chief Executive Officer of Biffa plc, one of the UK’s largest waste management businesses, and led the IPO of the business in 2016. He was previously co-founder and Chief Executive Officer of Greenstar UK, a waste management and recycling business which was acquired by Biffa plc in 2010, and brings signiﬁcant waste management expertise to the Company’s Board of Directors. Ian trained as a Chartered Accountant at Arthur Andersen after graduating with a degree in Accounting and Finance. JOHN ANTHONY CLIFFORD WOODLEY, Non-Executive Director John Woodley joined the Board on 22 September 2008. He was then co-head of the power and gas- related commodity business for Europe and Asia at Morgan Stanley. He founded the very successful US electricity trading operations for Morgan Stanley in New York in 1994, having worked as a power plant operator and then as an industrial marketing engineer in the utility sector. After ten years with Morgan Stanley in New York, John moved to London to help build the electricity and electricity-related energy business outside the US. John is now based in Switzerland and acts as a senior adviser to Morgan Stanley. John has a BSc Eng (Elec) from Wits University, Johannesburg, an MBA from Valdosta State University and an MS in Finance from Georgia State University. The following individuals were on the Board of the Company during the ﬁnancial year end 31 December 2018 and resigned from the office on 20 January 2019: IAN ANTHONY MACDONALD, Former Non-Executive Director Ian Macdonald was appointed to the Board on 11 December 2013 and resigned on 20 January 2019. Ian retired as President of Hong Leong Finance Limited in December 2016 after almost ﬁfteen years in charge of Singapore’s largest ﬁnance company. Ian was formerly the National Manager of Business Finance at Australian Guarantee Corporation Limited, a subsidiary of Australian ﬁnancial giant, Westpac Banking Corporation. Ian is also currently engaged in advisory and non-executive roles in a number of unlisted entities. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 9 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 10 BOARD OF DIRECTORS The following individuals were on the Board of the Company during the ﬁnancial year ended 31 December 2018 and resigned from office on 15 June 2018: DUNCAN STUART BLACK, Former Executive Director Duncan Black joined the Board on 11 December 2013. Duncan was the Group’s Chief Financial Officer from 2012 to 2015, and prior to that had held positions as the Chief Executive Officer of an Asian infrastructure fund, Chief Financial Officer of CLP Holdings’ Australian electricity and gas utility (now Energy Australia), and business development and ﬁnance roles with CLP Holdings Limited and InterGen, focused on power projects in Asia and Australia. MICHAEL ROBERT LLOYD, Former Non-Executive Director Mike Lloyd was appointed to the Board on 11 December 2013. He has more than forty years of experience in engineering, manufacturing and supply chain roles in the electrical machinery and power sectors. His senior leadership roles have included Group Manufacturing Director of Rolls Royce plc, President of Rolls Royce Gas Turbines Operations, Technical Director of GEC Large Machines, Managing Director of Alstom Transport and Chairman of Magnomatics. IAN GEORGE COBBAN, Former Non-Executive Director Ian Cobban was appointed to the Board on 3 August 2015. He has over thirty years of experience in the subsea construction, operations and maintenance industry and is currently Chief Operating Officer of the Global Energy Group. 10 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 11 DIRECTORS’ REPORT The Directors are pleased to present their report and the consolidated audited ﬁnancial statements of the Company and the Group for the year ended 31 December 2018. CORPORATE GOVERNANCE The corporate governance statement on pages 14 to 21 forms part of the Directors’ report. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW During 2018, the focus of the Group was as a global developer of renewable and sustainable energy projects. The Group holds equity positions in a diverse portfolio of power projects in various stages of development, which includes the world’s ﬂagship tidal stream project, MeyGen, and the Uskmouth power station, which is being converted to use waste derived fuel pellets. Further information on the Group’s activities is contained in the Chief Executive Officer’s Statement on pages 6 to 7. On 13 June 2018, shareholders approved a transformational deal to acquire SUP, in consideration for which SIMEC acquired 49.9% of the shares in the Company. The transaction is described in more detail on pages 64 and 65. A review of the business during the year is contained in the Chairman’s Statement and Chief Executive Officer’s Statement on pages 6 to 7. These statements provide insight into the Company’s business model, its strategy and the challenges faced by the Company. Further details can be found on the Company’s website www.simecatlantis.com. DIRECTORS The Directors who served in office during the year ended 31 December 2018 were as follows: John Neill – Independent Non-Executive Chairman Timothy Cornelius – Chief Executive Officer Ian Macdonald – Independent Non-Executive Director – resigned with effect from 20 January 2019 John Woodley – Non-Executive Director Andrew Dagley – Executive Director and Chief Financial Officer – appointed with effect from 15 June 2018 Mark Elborne – Non-Executive Director – appointed with effect from 15 June 2018 Jay Hambro – Non-Executive Director – appointed with effect from 15 June 2018 Duncan Black – Non-Executive Director – resigned with effect from 15 June 2018 Ian Cobban – Independent Non-Executive Director – resigned with effect from 15 June 2018 Michael Lloyd – Independent Non-Executive Director – resigned with effect from 15 June 2018 Their biographies are shown on pages 7 to 9. The Board composition changed in January 2019, when Ian Macdonald resigned from the Board and Ian Wakelin joined as an independent non-Executive Director and Chairman of the Audit Committee. Further detail of the Board changes can be found in the Corporate Governance Report on pages 14 to 21. DIRECTORS’ REMUNERATION The report on Directors’ remuneration is set out on pages 25 to 29. DIRECTORS’ INTERESTS IN SHARES The interests of Directors in shares of the Company are disclosed in the Remuneration Report on pages 25 to 29. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 11 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 12 DIRECTORS’ REPORT ANNUAL GENERAL MEETING The Company’s Annual General Meeting will take place on Friday, 26 July 2019 at 11.00 am at the offices of Ashurst LLP, 1 Duval Square, London Fruit and Wool Exchange, London E1 6PW. This report was approved by the Board on 27 June 2019 and signed on its behalf. By order of the Board of Directors John Neill Timothy Cornelius Chairman of the Board Chief Executive Officer 27 June 2019 12 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 13 December 2018 offshore campaign ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 13 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 14 CORPORATE GOVERNANCE REPORT The Company was incorporated in Singapore under the Singapore Companies Act on 19 December 2005 and has been listed on AIM since 20 February 2014. The Directors recognise the importance of sound corporate governance and the Board is committed to maintaining high standards of corporate governance in line with an effective and efficient approach to management. The Board has taken into consideration the Corporate Governance Code for Small and Mid-Size Quoted Companies produced by the Quoted Companies Alliance (“QCA Code”) and has taken steps to comply with the principles of the QCA Code in so far as they can be applied practically, given the size of the Group, its stage of development, resources, and the nature of its operations. The QCA Code adopts key elements of the UK Corporate Governance Code, as well as other relevant guidelines and tailors these to the needs and particular circumstances of small and mid-size quoted companies on a public market. Further details of the Company’s application of the QCA Code are set out in this report or on the Company’s website. Where we do not comply with the QCA Code, this is set out in further detail on our website. THE BOARD OF DIRECTORS During 2018, the Board comprised seven Directors. Following Board changes on 15 June 2018, the Board comprised of an independent non-Executive Chairman, one independent non-Executive Director, three non-independent non-Executive Directors and two Executive Directors: the Chief Executive Officer and the Chief Financial Officer. The following Directors of the Company were in office during the whole of the year ended 31 December 2018: John Neill – Independent Non-Executive Chairman Timothy Cornelius – Chief Executive Officer Ian Macdonald – Independent Non-Executive Director John Woodley – Non-Executive Director On 15 June 2018, the composition of the Board changed following the acquisition of SUP. The following Directors of the Company were in office from the start of the period to 15 June 2018: Duncan Black – Non-Executive Director Michael Lloyd – Independent Non-Executive Director Ian Cobban – Independent Non-Executive Director The following Directors of the Company were in office from 15 June 2018: Andrew Dagley – Executive Director and Chief Financial Officer Mark Elborne – Non-Executive Director Jay Hambro – Non-Executive Director Subsequent to the year end, the composition of the Board has changed when, on 22 January 2019, Ian Macdonald resigned from the Board, whilst Ian Wakelin joined the Board on that date as an independent non-Executive Director and Chairman of the Audit Committee. As at the date of this report, the reconstituted Board comprises an independent non-Executive Chairman, one independent non-Executive Director, three non-independent non-Executive Directors and two Executive Directors. Director biographies illustrating their relevant skills and experience can be found on pages 8 to 10. THE CHAIRMAN The Chairman, John Neill, is deemed by his fellow Directors to be independent and to have no conﬂicting relationships. The Chairman is responsible for providing leadership for the Board and ensuring its effectiveness in all aspects of its role, ensuring that Directors have sufficient resources available to them to fulﬁl their statutory duties. The Chairman is responsible for running Board meetings, ensuring there is sufficient challenge from Non-Executive Directors and a particular focus on strategic issues. The Chairman promotes a culture of openness and debate by facilitating the effective contribution of Non-Executive Directors in particular, and by encouraging a constructive relationship between Executive and Non-Executive Directors. Board members are encouraged to openly and constructively challenge proposals made by executive management. Board agendas are reviewed and agreed in advance to ensure 14 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 15 CORPORATE GOVERNANCE REPORT each Board meeting utilises the Board’s time most efficiently. The Board and its Committees are provided with information on a timely basis in order to ensure proper assessment can be made of the matters requiring a decision or insight. THE BOARD The Board is collectively responsible for the effective oversight and long-term success of the Company. It has responsibility for formulating, reviewing and approving the strategic direction and governance structure to achieve the long-term success of the Company and deliver shareholder value. In addition to setting the strategy, the Board takes the lead in areas such as ﬁnancial policy and making sure the Company maintains a sound system of internal control. The Board’s responsibilities are set out in a formal schedule of matters reserved for the Board. This schedule is reviewed and updated by the Board where considered appropriate. The Board receives appropriate and timely information prior to each meeting, A formal agenda is produced for each meeting, and Board and Committee members are given a sufficient period of time to review these prior to the meetings taking place. Directors are encouraged to attend all Board meetings and meetings of Committees of which they are members. The Board delegates authority to its Committees to carry out certain tasks on its behalf, so that it can operate efficiently and give an appropriate level of attention and consideration to relevant matters. The composition and role of each Committee is summarised below and on pages 17 to 19. The role of the Chairman and the Chief Executive Officer are separate with a distinct division of responsibilities. Jay Hambro and Mark Elborne are considered Non-Independent Directors as a result of their relationship with SIMEC, the Company’s largest shareholder. John Woodley’s material relationship with the Company’s shareholder, Morgan Stanley, leads to him being designated as a Non-Independent Director. Notwithstanding this designation, the Board has considered his independence and concluded that John discharges his duties in an independent manner. Notwithstanding that John Neill holds options over the Company’s ordinary shares (as detailed on page 24), the Board has considered his independence and has concluded that John has demonstrated the utmost regard for his independence, appropriately challenging the Board during his tenure as Chairman and maintains high standards of corporate governance on the Board. Furthermore, the Board considers that John has not served as a Non-Executive Director for an undue length of time. In accordance with the QCA code, the Board consists of at least two Independent non-Executive Directors. The Board is aware of the other commitments and interests of its Directors and effective procedures are in place to deal with any conﬂicts of interest which may arise. Any changes to these commitments and interests are reported to the Board at the earliest opportunity. Atlantis and SIMEC have entered into a relationship agreement to ensure that the Company can continue to operate independently of the SIMEC Group and the GFG Alliance. As well as the support of the Company Secretary, there is a procedure in place for any Director to take independent professional advice at the Company’s expense in the furtherance of their duties, where considered necessary. BOARD DIVERSITY Whilst our Board is comprised entirely of males, we consider that, as a whole, it is diverse in respect of its range of culture, nationality and international experience. The Nomination Committee is aware that the lack of female representation requires focus and attention. Gender diversity is important to the Board of Directors and the Executive Team and subject to identifying appropriate candidate(s), future vacancies will be ﬁlled by individuals with the best possible credentials, without gender bias. Further information about our approach to equality and inclusion can be found in the Our People section on page 20 and on our website www.simecatlantis.com. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 15 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 16 CORPORATE GOVERNANCE REPORT BOARD OPERATION The Directors meet at regular Board meetings, held at least four times a year, with additional meetings arranged as necessary. During the year to 31 December 2018, the number of scheduled Board meetings attended by each Director was as follows: Attended John Neill 5/5 Timothy Cornelius 5/5 Duncan Black* 2/2 Mike Lloyd* 2/2 Ian Cobban* 2/2 John Woodley 5/5 Ian Macdonald 5/5 Andrew Dagley** 3/3 Mark Elborne** 3/3 Jay Hambro** 3/3 * Resigned with effect from 15 June 2018 ** Appointed with effect from 15 June 2018 Additional Board meetings were also held as required during the year and were attended by those Directors available at the time. The Group has a detailed Delegated Authority Matrix which is reviewed and approved by the Board on at least an annual basis, or more frequently as may be required. The Delegated Authority Matrix provides an overview of the thresholds of approval to which senior management and the subcommittees of the Board can operate. Its intention is to ensure that the day-to-day operation of the business is in accordance with Board approved budgets whilst ensuring that any deviations are appropriately escalated. A third party advises newly appointed Directors of their responsibilities in connection with becoming a director of an AIM company. All Directors, including those newly appointed, receive advice, where applicable, from the Company’s nominated adviser and external lawyers. The Board is considering a formal programme for Directors to receive training on relevant new developments on a more regular basis. Further details will be reported in the 2019 Annual Report. BOARD EVALUATION The Directors are aware that they need to continually monitor and improve performance and recognise that this can be achieved through regular Board evaluation, which provides a valuable feedback mechanism for improving Board effectiveness. Given the changes to the Board during the year under review, the Nomination Committee have agreed to delay the Board evaluation process to the second quarter of 2019. The Board is satisﬁed that all of the current Directors contribute effectively and have the appropriate balance of skills and experience relevant to the leadership and direction of the Company. The Board is also satisﬁed that it has suitable levels of experience and independence to allow the Directors to discharge their duties and responsibilities effectively. The Board further concluded that the Chairman remained independent and his performance was satisfactory, with strong leadership capability. Succession planning will be given consideration by the Nomination Committee. SENIOR INDEPENDENT DIRECTOR The Company has not identiﬁed a Senior Independent Director of the Company in view of the size of the Board, and the Company’s stage of development. 16 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 17 CORPORATE GOVERNANCE REPORT DIRECTORS’ ELECTION/RE-ELECTION Under the Company’s Articles of Association, Directors are required to stand for election at the ﬁrst Annual General Meeting (“AGM”) after their appointment. All Directors thereafter are obliged by the Articles of Association to retire on a rotating basis and are subject to re-election at the AGM, which will be applied at the 2019 AGM. Accordingly, Ian Wakelin will stand for election at the forthcoming AGM. John Neill and John Woodley will stand for re-election at the forthcoming AGM. With regard to those Directors who are offering themselves for election and re-election at the next AGM, the Board believes that they will continue to make effective and important contributions to the Company’s success and that Shareholders should support their election and re-election. BOARD COMMITTEES The Board delegates authority to four Committees, including three Committees recommended by the QCA guidelines: the Nomination Committee, the Remuneration Committee and the Audit Committee, as well as an additional Technology Committee. These Committees operate within a scope and remit deﬁned by speciﬁc terms of reference, as determined by the Board. The Committees’ full terms of reference are available on the Company’s website, www.simecatlantis.com. These terms of reference have been reviewed and updated during 2018. Each Committee is responsible for reviewing the effectiveness of its own terms of reference and for making recommendations to the Board for changes when necessary. Executive Directors are not members of the Board Committees, although they may be invited to attend meetings, with the exception of Timothy Cornelius who was a member of the Nomination Committee in the year under review. Since the year end Ian Wakelin, an independent non-Executive Director, has been appointed to the Nomination Committee and Timothy Cornelius has stood down from the Nomination Committee and Technology Committee. Directors’ attendance at Committee meetings (in their capacity as members of each Committee) held during 2018 is provided in the table below: Audit Remuneration Nomination Technology Committee Committee Committee Committee Member/Committee: Attended Attended Attended Attended John Neill – 3/3 2/2 – Timothy Cornelius – – 2/2 1/3 Duncan Black* 3/3 – – – Mike Lloyd* – 1/1 – 1/1 Ian Cobban* – – – – John Woodley 4/4 3/3 – 3/3 Ian Macdonald 4/4 – – – Mark Elborne** 1/1 2/2 – 2/2 Jay Hambro** – – 2/2 – * Resigned with effect from 15 June 2018 ** Appointed with effect from 15 June 2018 Outside of statutory membership of the above Committees, the Chairman, in agreement with the Chairs of each Committee, encourages all Board Directors to attend any Committee meeting as observers, as appropriate. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 17 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 18 CORPORATE GOVERNANCE REPORT AUDIT COMMITTEE Chairman: Ian Wakelin (Prior to 22 January 2019: Ian Macdonald) Members: Mark Elborne and John Woodley (Prior to 15 June 2018: John Woodley and Duncan Black) The Audit Committee has the primary responsibility for monitoring the quality of internal controls and ensuring that the ﬁnancial performance of the Group is properly measured and reported on. It receives and reviews reports from the Chief Financial Officer and auditor relating to interim and annual accounts, and the accounting and internal control systems in use throughout the Group. The current Chairman of the Audit Committee is a chartered accountant and has held senior positions in other listed companies. The Board is satisﬁed that he has recent and relevant ﬁnancial experience. Throughout the year under review, the Chairman of the Audit Committee was Ian MacDonald, whom the Board considered to have recent and relevant ﬁnancial experience. The Audit Committee is required to meet no fewer than three times a year at appropriate times in the ﬁnancial reporting and audit cycle and whenever otherwise necessary to fulﬁl its responsibilities. The Audit Committee’s role is to assist the Board in discharging its responsibilities with regard to monitoring the integrity of ﬁnancial reporting, overseeing the relationship with the external auditor, making recommendations to the Board regarding the appointment of the external auditor, and reviewing the adequacy and effectiveness of the Company’s internal controls and risk management systems. The ultimate responsibility for reviewing and approving the Annual Report and Accounts and the half-yearly reports remains with the Board. The Audit Committee met four times during the course of 2018 and twice post year end. It has subsequently advised the Board that this Annual Report and Accounts, taken as a whole, is fair, balanced and understandable for shareholders to assess the Company’s performance, strategy and business model. The report from the Audit Committee is set out on pages 22 to 24. REMUNERATION COMMITTEE Chairman: Mark Elborne (Prior to 15 June 2018: John Neill) Members: John Neill and John Woodley (Prior to 15 June 2018: Michael Lloyd and John Woodley) The Remuneration Committee is required to meet at least twice a year and whenever otherwise necessary to fulﬁl its responsibilities. The Remuneration Committee is responsible for reviewing the performance of the Executive Directors and setting the remuneration policy for Executive Directors. The objective of the policy is to attract, retain and motivate executive management of suitable calibre without paying more than necessary, having regard to the views of shareholders and stakeholders. The Remuneration Committee monitors and makes recommendations to the Board on matters relating to the level and structure of executive management remuneration. The Remuneration Committee will also make recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any share option scheme or equity incentive scheme in operation from time to time. The Remuneration Committee met on three occasions during the course of 2018. The Directors’ Remuneration Report from the Remuneration Committee is set out on pages 25 to 29. 18 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 19 CORPORATE GOVERNANCE REPORT NOMINATION COMMITTEE Chairman: John Neill Members: Ian Wakelin and Jay Hambro (Prior to 15 June 2018: Michael Lloyd and John Woodley; prior to 22 January 2019: Timothy Cornelius) The Nomination Committee is required to meet at least twice a year and whenever otherwise necessary to fulﬁl its responsibilities. The role of the Nomination Committee is to assist the Board in determining its own composition, and that of the Committees of the Board. It is also responsible for periodically reviewing the Board’s structure and identifying potential candidates to be appointed as directors as the need arises. The Nomination Committee is responsible for evaluating the balance of skills, knowledge, experience and diversity of the Board and keeps under review the leadership needs of the Company. It makes appropriate recommendations to the Board on such matters. The Nomination Committee met twice during the year. No external consultants were engaged during this period. The Nomination Committee is mindful of the need to maintain an appropriate balance of skills, experience and personalities to shape the direction of the Company going forward. Building a diverse Board that is reﬂective of our Company as a whole is one of the factors that will be taken into consideration when appointing new directors. An evaluation of the effectiveness and performance of the Board and its Committees will be carried out on an annual basis with leadership from the Nomination Committee. TECHNOLOGY COMMITTEE Chairman: John Woodley (Prior to 15 June 2018: Michael Lloyd) Members: Mark Elborne (Prior to 15 June 2018: John Woodley and Ian Cobban; prior to December 2018: Timothy Cornelius) The Technology Committee is responsible for monitoring the integrity of the regular internal reporting on the status of technology development within the Company and for sanctioning the external reporting of key technology milestones. The Technology Committee also keeps under review the adequacy and effectiveness of the Company’s internal engineering, internal management controls and risk management systems and ensures that core technology is being developed to plan and within agreed risk parameters. The Technology Committee met three times during the year. DISCLOSURE AND ETHICS COMMITTEES In addition to the formal Committees of the Board, the Company has established a Disclosure Committee, which is chaired by Timothy Cornelius and its other members are Andrew Dagley and Jay Hambro. On an ad hoc basis, the role of this Committee is to determine, in accordance with the Company’s disclosure policy, whether speciﬁed information is inside or price sensitive information that should be disclosed to the market, as well as to monitor the Group’s procedures for communicating with the market, review the Company’s arrangements for the control of inside information, assess training needs regarding the control of inside information, and various other speciﬁed matters. Since the year end, the Company has also established an Ethics Committee, which is chaired by Mark Elborne, other members are the Group Legal Counsel, and Head of Human Resources. This is not a formal Committee of the Board. Its primary responsibility is the ongoing review of the Company’s Business Ethics Policy and also to support the business in creating a culture of compliance. The Company’s Business Ethics Policy was created to provide a framework and guidance on its approach to achieving and maintaining good business behaviour by means of sound ethical conduct. It serves to ensure that all employees are aware of their individual and collective responsibilities with regards to the Company’s ethics, and to emphasise employees’ and customers’ expectations of being treated fairly and in accordance with good business practices. The Company is committed to protecting employees, business partners and suppliers from illegal or damaging actions by individuals, either knowingly, or unknowingly. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 19 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 20 CORPORATE GOVERNANCE REPORT INTERNAL CONTROLS AND RISK MANAGEMENT The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. With the active involvement of the executive management team, it approves all aspects of the overall risk management framework, including the strategic direction of the business, annual budgets and business plans, the risk management policy and delegations of authority. There is an agreed risk tolerance, which is reﬂected in the Group’s strategy, and risk management activities are geared towards achieving business plans whilst safeguarding the Group’s assets. This system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement, loss and the prevention and detection of fraud and other irregularities. The Group’s system of internal control includes an on-going process of identifying, monitoring and managing risks by executive management, who ensure that adequate systems, processes and controls are in place. Reports are provided by management to the Audit Committee on internal control and risk management policies, and the Board monitors risk exposures, risk management activities and the effectiveness of controls. In particular, Health and Safety (“H&S”) has been identiﬁed as a key area of risk to the business. The Company maintains a CEO Safety Committee to monitor the systems used by the Company to manage H&S across all aspects of the business, as well as promoting strategic health, safety and environment issues throughout the Company. The Group’s internal ﬁnancial control procedures and monitoring systems include:  ﬁnancial policies and approval procedures with proper authorisation level and segregation of duties for ﬁnancial management;  maintenance policies and approval procedures with proper authorisation level and segregation of duties for ﬁnancial management;  an annual budgetary process to set the appropriate target for monitoring the progress of the Group;  a detailed monthly ﬁnancial reporting system that reports on operating results, cash ﬂows, assets and liabilities;  reporting on any non-compliance with internal ﬁnancial controls and procedures; and  review of the audit ﬁndings report issued by the external auditor. In addition, the Board carries out an assessment of the principal risks facing the Company, as maintained in the Company’s Risk Register. OUR PEOPLE Here at Atlantis we have built up a team of extremely talented and dedicated engineers, project managers, administration and support staff. Our ability to attract and retain staff depends upon the overall deal offered, which includes a dynamic work environment in which staff are challenged and skills developed, an opportunity to make a meaningful contribution in an industry that is striving to make tomorrow better than today, and a competitive salary and beneﬁts package. Having a balanced life is important to us and we are always open to a conversation about how to make our roles work for our people in terms of how, when and where they work. We are proud of the exceptionally high levels of ﬂexibility in working hours and location, including remote working and ﬂexible work patterns, that we offer. Working smart is more important to us than working hard for the sake of it. We also offer an enhanced leave policy to support our people through life events, alongside enhanced pension contributions and support to achieve professional qualiﬁcations. We understand the importance of diversity and make sure it is embedded in our day-to-day activities and wider business strategy. Our goal is to ensure that these commitments, reinforced by the Company’s values of Safety, Environment, Tenacity, Innovation and Respect, are embedded in the day-to-day working practices of all our employees, customers and partners. When it comes to recruitment, we advertise roles on widely available job boards and social media networking platforms and are currently adopting recruitment best practice, such as the introduction of blind CVs. We also word our job descriptions very carefully to avoid indirect discrimination and make sure all who satisfy the key skills and qualiﬁcations for the role are included at the application stage. The Company recognises that it has a role to play in improving underrepresented groups' participation in the sustainable energy and engineering sectors and in addition to the recruitment practices outlined above, we participate throughout the year in STEM-related activities for school children and young adults. Atlantis is proud to support local and nationwide STEM activities, with a particular emphasis on female presence in engineering and STEM-related roles. We want our staff to feel included and heard. We want our staff to have an opportunity to make a valuable contribution to sustainable development. Whilst tackling climate change is everyone’s responsibility, at Atlantis, we provide a platform for people to take meaningful and intelligent action. 20 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 21 CORPORATE GOVERNANCE REPORT STAKEHOLDER AND SOCIAL RESPONSIBILITIES The Directors are aware of the importance of considering the Company’s impact on its wider stakeholders. Where appropriate, the Company endeavours to take account of feedback received from stakeholders. The Company has developed and implemented a Business Ethics Policy which provides a framework and guidance on its approach to achieving and maintaining good business behaviour by means of sound ethical conduct. Oversight of this policy is by the Ethics Committee, see page 19 for further information. SHAREHOLDER ENGAGEMENT The Company is committed to ensuring that there is effective and regular communication with shareholders on matters such as governance and strategy so that the Board understands the views of large shareholders on these issues and that shareholders receive a balanced and consistent view of the Company’s performance. Communication is primarily through the AGM, which provides an opportunity for shareholders to meet and ask questions of Directors and management. The CEO presents a detailed presentation to shareholders at the AGM on the Group’s business, its strategy and any challenges faced. The Company continues its dialogue with investors by periodical public correspondence between the management and the shareholders, via the use of the Company website and social media. A range of corporate information is also available to shareholders, investors and the public on the Company’s website, www.simecatlantis.com. All shareholders will receive a copy of the audited ﬁnancial statements, either via hardcopy or the website. The Company’s Annual Report and Accounts are made available on the Company’s website. The Company’s website is regularly updated and announcements or details of presentations and events are posted onto it. MAJOR SHAREHOLDER AND SHAREHOLDER ARRANGEMENT On 21 May 2018, the Company and SIMEC, which holds 49.9% of the Company’s share capital, entered into a relationship agreement, the principal purpose of which is to ensure that the Company is capable at all times of carrying on its business independently of SIMEC, and its connected persons, and to ensure all transactions and relationships between them and the Group are conducted at arm’s length and on normal commercial terms. The relationship agreement includes restrictions on Board voting rights of the two SIMEC representative Directors on SIMEC related matters. By order of the Board of Directors John Neill Chairman of the Board 27 June 2019 ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 21 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 22 AUDIT COMMITTEE REPORT The Board has delegated responsibility to the Audit Committee to oversee ﬁnancial reporting, including the ﬁnance function, internal control and risk management and the effectiveness of the audit process. The Audit Committee provides independent oversight of both the senior management team and the external auditors. It regularly reports to the Board on the execution of its duties and responsibilities. The Audit Committee comprises three Non-Executive Directors (the “Members”), appointed by the Board. All Members of the Audit Committee are considered to have relevant experience in the industry in which the Company operates. The Board is also satisﬁed that at least one Member of the Audit Committee has recent and relevant ﬁnancial experience. Further details on the Audit Committee’s membership and attendance records can be found in the Corporate Governance Report on page 18. No individual who is not a Member of the Audit Committee is entitled to attend or to vote at its meetings. The Company’s Chief Executive Officer and Chief Financial Officer may attend meetings by invitation and other members of the senior management team attend as required. The audit partner and audit manager from the Company’s external auditor are invited to attend meetings on a regular basis. ROLE OF THE AUDIT COMMITTEE The principal duties of the Audit Committee, which reports its ﬁndings to the Board, are to:  monitor the integrity of the Company’s ﬁnancial reporting and signiﬁcant ﬁnancial accounting policies and judgements;  review the content of the Annual Report and audited ﬁnancial statements where requested by the Board, and advise on whether it is fair, balanced, understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy;  monitor the effectiveness of the Company’s internal controls and risk management framework;  consider annually whether the Company should initiate an internal audit function and make a recommendation to the Board accordingly;  consider and make recommendations to the Board, to be put to shareholders for approval at the Company’s AGM, in relation to the appointment, re-appointment and removal of the Company’s external auditor;  advise the Board on the appointment, terms of engagement and remuneration of the external auditor and monitor their independence and effectiveness;  review the effectiveness of the Company’s systems for the detection of fraud and the prevention of bribery; and  review the adequacy and security of the Company's arrangements for its employees and contractors to raise concerns, in conﬁdence, about possible wrongdoing in ﬁnancial reporting or other matters. The Audit Committee works closely with the Chief Financial Officer and senior management to ensure the Committee is provided with the necessary information it requires to discharge its duties. The Audit Committee’s meeting agendas are based on annual reporting requirements and other ad-hoc issues that arise during the course of the year. 22 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 23 AUDIT COMMITTEE REPORT MATTERS CONSIDERED DURING THE YEAR The Audit Committee met on four occasions during the year and twice post year end until the date of this report. At these meetings, the Audit Committee has considered the following:  Group operational risks;  Internal controls and risk management;  Group tax considerations;  Going concern and cash ﬂow projections;  Financial statements and key assumptions;  Review of the audit plan and fees;  Review of external audit services;  External auditor’s report to the Committee;  The effectiveness of the audit process;  External auditor appointment;  Assessment of the need for an internal audit function; and  Terms of Reference of the Audit Committee. INSIGHTS INTO THE AUDIT COMMITTEE’S ACTIVITIES DURING THE YEAR The Audit Committee has considered the accounting considerations relating to the acquisition of SUP. The Company’s auditor, KPMG, reviewed the Company’s accounting treatment of the SUP acquisition and was satisﬁed with the Company’s assessment, the consideration paid and the assessment and identiﬁcation of other intangible assets. The Audit Committee maintained oversight of the integration of SUP into the Group. The Audit Committee has reviewed, analysed and challenged the signiﬁcant assumptions within the audited ﬁnancial statements with an independent mind-set. It has considered the application of materiality, the auditor’s assessment of risks of material misstatements and how management has been responsive to the audit. No signiﬁcant accounting issues have been identiﬁed during the reporting period. The Audit Committee considers the three most signiﬁcant judgement areas within the 2018 ﬁnancial statements to be the carrying value of tangible and intangible assets, the going concern assumptions and the accounting treatment of the SUP acquisition. The Audit Committee reviewed the Group valuation review of assets undertaken during the year, and related assumptions, and has satisﬁed itself that the parameters and justiﬁcations in respect of the valuations fall within a reasonable range. In relation to going concern, the Audit Committee has considered the ﬁnancial forecasts prepared for the period of more than one year subsequent to the date of signing of the ﬁnancial statements. The Group must operate within its available cash resources to meet its liabilities as they fall due. As set out in Note 2, the Group’s ﬁnancial statements show that this can be achieved. The Audit Committee debated the cash ﬂow forecasts, including the key assumptions and sensitivities, and was satisﬁed that it is appropriate for the Company to prepare the ﬁnancial statements on a going concern basis. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 23 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 24 AUDIT COMMITTEE REPORT AUDIT TENDER During the ﬁrst half of 2019, the Audit Committee conducted an audit tender process. As a result of this process, the Audit Committee recommended the appointment of Ernst & Young LLP (“EY”) as auditor. This recommendation was approved by the Board and a resolution to this effect will be proposed at the AGM. Subject to shareholder approval, EY will succeed KPMG LLP as the Company’s auditor at the end of that meeting. The Audit Committee would like to thank KPMG for their audit work and assistance to the Company. INTERNAL AUDIT FUNCTION The Audit Committee considered the need for an internal audit function and has determined that there is no current need given the limited size of the Company and the Company’s internal controls. It has been agreed that the Audit Committee will consider the need for an internal audit function on at least an annual basis, or more frequently as may be appropriate. AUDITOR OBJECTIVITY AND INDEPENDENCE The Audit Committee monitors and reviews the effectiveness of the external audit process, including a review of the audit plan and the audit results report. The Audit Committee has assessed the performance of the auditor in respect of the 2018 audit. No concerns were raised in respect of the year ended 31 December 2018. The Audit Committee has satisﬁed itself that safeguards were in place to protect the objectivity and independence of the auditor. Following the consideration of the above matters and its detailed review, the Audit Committee was of the opinion that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. TERMS OF REFERENCE The Audit Committee keeps its terms of reference under review and makes recommendations for changes to the Board. The full terms of reference are available on the Company’s website at www.simecatlantis.com. Ian Wakelin Chairman of the Audit Committee 27 June 2019 24 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 25 DIRECTORS’ REMUNERATION REPORT This report includes details of the Directors’ remuneration in 2018. Shareholders will be asked to approve the Directors’ Remuneration Report at the forthcoming AGM. REMUNERATION COMMITTEE The members of the Remuneration Committee and the Remuneration Committee’s role are set out on page 18. REMUNERATION FRAMEWORK The overall aim of the Company’s remuneration framework is to provide appropriate incentives that reﬂect the Company’s performance, culture and values. The Company also attempts to ensure the remuneration guidelines and culture are sustainable, transparent and appropriate. The Company’s framework aims to attract and retain high-performing employees and reward both short-term and long- term contributions to the Company. The Remuneration Committee is satisﬁed that this framework successfully aligns the interests of Executive Directors, senior managers and other employees with the shareholders’ long-term interests, by ensuring that an appropriate proportion of remuneration is directly linked to overall performance, in both the long and short term. In determining the practicalities of the approach, the Remuneration Committee considers a range of internal and external factors and appropriate market comparisons against other companies of a similar size and nature. ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES During and at the end of the ﬁnancial year, neither the Company nor any of its subsidiaries was a party to any arrangement whose purpose was to enable the Directors to acquire beneﬁts by acquiring shares in, or debentures of, the Company or any other body corporate, except as disclosed in this report. DIRECTORS’ INTERESTS IN SHARES According to the Register of Directors’ Shareholdings kept by the Company under Section 164 of the Singapore Companies Act (the “Act”), none of the Directors of the Company holding office at the end of the ﬁnancial year had any interests in the shares or debentures of the Company and its related corporations, except as follows: Shareholdings registered Shareholdings in which Director in the name of Directors are deemed to have an interest At beginning At end of the year/ of the year/ commencement termination At beginning At end Ordinary shares of appointment of appointment of the year of the year John Neill 377,501 377,501 – – Timothy Cornelius 84,041 84,041 992,065(1) 992,065(1) Ian Macdonald 125,020 125,020 – – Andrew Dagley – – – – John Woodley – – – – Mark Elborne – – – – Jay Hambro – – – – (1) Shares held by Languedoc Pte Limited, of which Timothy Cornelius is the sole shareholder. These shares are subject to a charge in favour of Morgan Stanley Capital Group Inc as security for a S$1,500,000 loan to Timothy Cornelius dated 12 November 2008. EXECUTIVE DIRECTORS’ SERVICE CONTRACTS AND PAYMENTS FOR LOSS OF OFFICE The Chief Executive Officer and Chief Financial Officer are employed under a service contract with a ﬁxed period of notice of termination. Their services may be terminated on a maximum of six months’ notice by either party. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 25 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 26 DIRECTORS’ REMUNERATION REPORT NON-EXECUTIVE DIRECTORS’ LETTERS OF APPOINTMENT The Company’s Non-Executive Directors are not committed by service contracts to the Company and are engaged by letters of appointment. These provide for a maximum of three months’ notice of termination by either party at any time, with no pre-determined amounts of compensation. PAYMENTS TO PAST DIRECTORS There have been no payments to past Directors during the year. PAYMENTS FOR LOSS OF OFFICE There have been no payments made to Directors for loss of office during the year. ANNUAL REMUNERATION OF DIRECTORS The table below sets out the annual remuneration of the Directors for the years ended 31 December 2018 and 31 December 2017. This includes any pension and employer’s National Insurance contributions and excludes share-based payments. Annual remuneration 2018 2017 Director £’000 £’000 John Neill 75 75 Timothy Cornelius(1)(6) 434 321 Duncan Black(2)(3) 30 40 Michael Lloyd(3) 27 36 Ian Macdonald(2)(4) 40 40 John Woodley(2) 40 40 Ian Cobban(3) 27 36 Andrew Dagley(2)(6)(7) 164 – Mark Elborne(2)(8) 20 – Jay Hambro(5) – – (1) Timothy Cornelius is employed by Atlantis Operations (UK) Limited (2) Ian Macdonald, John Woodley, Duncan Black. Mark Elborne and Andrew Dagley are all remunerated in Singapore dollars. Figures shown above are Great British Pounds equivalents, converted at the prevailing exchange rate. (3) Duncan Black, Michael Lloyd and Ian Cobban resigned from the Board on 15 June 2018. (4) Ian Macdonald resigned from the Board on 22 January 2019. (5) Jay Hambro is not remunerated by the Company for his services. He was appointed to the Board on 15 June 2018. (6) Includes bonus payments of £100,000 and £50,000 to Timothy Cornelius and Andrew Dagley respectively in relation to the completion of the SUP acquisition. These bonuses were approved by the Remuneration Committee. (7) Andrew Dagley, who was appointed as Chief Financial Officer on 3 August 2017, was appointed to the Board on 15 June 2018. (8) Mark Elborne was appointed to the Board on 15 June 2018. 26 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 27 DIRECTORS’ REMUNERATION REPORT LONG TERM INCENTIVE PLAN (“LTIP”) On 11 December 2013, it was agreed, contingent on admission of the Company’s shares to trading on AIM, that the Company offered certain senior management and Directors options over shares through an LTIP. In 2015, the rules of the LTIP were amended to allow the Board to determine the date on which awards granted under the LTIP can vest. As at the date of this report, there has been no change to vesting dates. The options granted to Directors are shown below: Name Date of grant Ordinary shares Nature of award Exercise price Vesting period John Neill 20 February 2014 1,063,830 Option £0.94 1/3 on each of ﬁrst, second and third anniversary of grant Ian Macdonald 20 February 2014 265,958 Option £0.94 1/3 on each of ﬁrst, second and third anniversary of grant Andrew Dagley 01 June 2016 120,000 Option £0.50 1/3 on each of ﬁrst, second and third anniversary of grant Timothy Cornelius 30 September 2016 1,000,000 Option £0.50 1/3 on 11 Dec 2016, 1/3 on 11 Dec 2017 and 1/3 on 11 Dec 2018 Andrew Dagley 03 August 2017 336,000 Option £0.50 1/3 on each of ﬁrst, second and third anniversary of grant Timothy Cornelius 15 June 2018 300,000 Option £0.35 1/3 on each of ﬁrst, second and third anniversary of grant Andrew Dagley 15 June 2018 150,000 Option £0.35 1/3 on each of ﬁrst, second and third anniversary of grant Vested awards for Directors issued up to December 2016 are exercisable up until the ﬁfth anniversary date of the grant. Awards issues after this date are exercisable up to the tenth anniversary of the date of the grant. During 2018, share options previously awarded to Duncan Black and Michael Lloyd, who served as Directors during the year, were cancelled. Until awards vest or options are exercised, participants have no voting or other rights in the shares subject to the award. Ordinary shares issued or transferred pursuant to the LTIP rank pari passu in all respects with the ordinary shares then in issue except that they will not rank for any dividend or distribution of the Company paid, or made by reference to, a record date falling before the exercise date. The option is not assignable or transferable. COMPANY SHARE OPTION PLAN (“CSOP”) On 10 November 2016, the Company established a Company Share Option Plan to offer share options to employees. Under this programme, holders of the vested options are entitled to purchase shares at the proposed exercise price. The options are fully vested on the third anniversary of the date of the grant, and are exercisable up until the tenth anniversary of the date of the grant. The shares acquired on the exercise of the option shall rank pari passu with all other shares then in issue except that they will not rank for any dividend or distribution of the Company paid, or made by reference to, a record date falling before the exercise date. The option is not assignable or transferable. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 27 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 28 DIRECTORS’ REMUNERATION REPORT SHARE OPTIONS (a) Long Term Incentive Plan Details of the options granted under the LTIP on unissued ordinary shares of the Company are as follows: Date of grant/ Balance at Cancelled/ Balance at Exercise price Exercisable modiﬁcation 01.01.2018 Granted Exercised lapsed 31.12.2018 per share period 20.02.2014 3,031,916 – – (957,447) 2,074,469 £0.940 20.02.2014 to 20.02.2019 01.01.2016 650,000 – – (300,000) 350,000 £0.500 01.01.2016 to 01.01.2026 30.09.2016 700,000 – – – 700,000 £0.500 30.09.2016 to 30.09.2026 05.12.2016 970,000 – – – 970,000 £0.500 05.12.2016 to 05.12.2026 21.12.2017 336,000 – – – 336,000 £0.500 21.12.2017 to 03.08.2020 21.12.2017 300,000 – – – 300,000 £0.50 21.12.2017 to 29.09.2020 15.06.2018 – 621,428 – – 621,428 £0.35 15.06.2018 to 15.06.2028 15.06.2018 – 100,130 – – 100,130 £0.50 15.06.2018 to 15.06.2028 ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– Total 5,987,916 721,558 – (1,257,447) 5,452,027 ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– (b) Company Share Option Plan Details of the options granted under the CSOP on unissued ordinary shares of the Company are as follows: Date of grant/ Balance at Balance at Exercise price Exercisable modiﬁcation 01.01.2018 Granted Exercised Lapsed 31.12.2018 per share period 10.11.2016 371,410 – – (14,285) 357,125 £0.70 11.11.2016 to 11.11.2026 ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– Total 371,410 – – (14,285) 357,125 ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– (c) Other than the above, no option to take up unissued shares of any corporation in the Group was granted and there were no shares of any corporation in the Group issued by virtue of the exercise of an option to take up unissued shares. At the end of the ﬁnancial year, other than the above, there were no unissued shares of any corporation in the Group under option. 28 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 29 DIRECTORS’ REMUNERATION REPORT SHAREHOLDER VOTE AT THE ANNUAL GENERAL MEETING The 2018 Directors’ Remuneration Report will once again be put to an advisory shareholder vote at the 2019 AGM. The 2017 Directors’ Remuneration Report was approved by shareholders at the Company’s AGM held on 20 July 2018. Approved and signed on behalf of the Board. Mark Elborne Chairman of the Remuneration Committee 27 June 2019 ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 29 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 30 DIRECTORS’ RESPONSIBILITY STATEMENT We are pleased to submit this Annual Report to the shareholders of the Company, together with the audited ﬁnancial statements for the ﬁnancial year ended 31 December 2018. In our opinion:  the ﬁnancial statements set out on pages 39 to 84 are drawn up so as to give a true and fair view of the ﬁnancial position and changes in equity of the Group and of the Company as at 31 December 2018 and the ﬁnancial performance and cash ﬂows of the Group for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and International Financial Reporting Standards; and  at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. The Board of Directors has, on the date of this statement, authorised these ﬁnancial statements for issue. On behalf of the Board of Directors John Neill Timothy Cornelius Chairman of the Board Chief Executive Officer 27 June 2019 30 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp001-pp031.qxp 27/06/2019 16:35 Page 31 Unit 3 turbine, Uskmouth Power Station ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 31 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 32 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SIMEC ATLANTIS ENERGY LIMITED KPMG LLP Telephone +65 6213 3388 16 Raffles Quay #22-00 Fax +65 6225 0984 Hong Leong Building Internet www.kpmg.com.sg Singapore 048581 REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the ﬁnancial statements of SIMEC Atlantis Energy Limited (the Company) and its subsidiaries (the Group), which comprise the consolidated statement of ﬁnancial position of the Group and the statement of ﬁnancial position of the Company as at 31 December 2018, the consolidated statement of proﬁt or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash ﬂows of the Group, and the statement of changes in equity for the Company for the year then ended, and notes to the ﬁnancial statements, including a summary of signiﬁcant accounting policies, as set out on FS39 to FS84. In our opinion, the accompanying consolidated ﬁnancial statements of the Group and the statement of ﬁnancial position and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the “Act”), Singapore Financial Reporting Standards (International) (SFRS(I)) and International Financial Reporting Standards (IFRS) so as to give a true and fair view of the consolidated ﬁnancial position of the Group and the ﬁnancial position of the Company as at 31 December 2018 and of the consolidated ﬁnancial performance, consolidated changes in equity and consolidated cash ﬂows of the Group and the changes in equity of the Company for the year ended on that date. Basis for opinion We conducted our audit in accordance with Singapore Standards on Auditing (SSAs). Our responsibilities under those standards are further described in the Auditors’ responsibilities for the audit of the ﬁnancial statements section of our report. We are independent of the Group in accordance with the Accounting and Corporate Regulatory Authority (ACRA) Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities (ACRA Code) together with the ethical requirements that are relevant to our audit of the ﬁnancial statements in Singapore, and we have fulﬁlled our other ethical responsibilities in accordance with these requirements and the ACRA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our audit of the ﬁnancial statements of the current period. 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. The impact of uncertainties due to the UK exiting the European Union on our audit The key audit matter All audits assess and challenge the reasonableness of estimates, in particular as described in intangible assets below, and related disclosures and the appropriateness of the going concern basis of preparation of the ﬁnancial statements (see below). All of these depend on assessments of the future economic environment and the Group’s future prospects and performance. In addition, we are required to consider the other information presented in the Annual Report including the principal risks disclosure and to consider the directors’ statement that the annual report and ﬁnancial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. 32 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 33 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SIMEC ATLANTIS ENERGY LIMITED Brexit is one of the most signiﬁcant economic events for the UK and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. How the matter was addressed in our audit We developed a standardised ﬁrm-wide approach to the consideration of the uncertainties arising from Brexit in planning and performing our audits. Our procedures included:  Our Brexit knowledge – We considered the directors’ assessment of Brexit-related sources of risk for the Group’s business and ﬁnancial resources compared with our own understanding of the risks. We considered the directors’ plans to take action to mitigate the risks.  Sensitivity analysis – When addressing intangible assets and going concern and other areas that depend on forecasts, we compared the directors’ analysis to our assessment of the full range of reasonably possible scenarios resulting from Brexit uncertainty and, where forecast cash ﬂows are required to be discounted, considered adjustments to discount rates for the level of remaining uncertainty.  Assessing transparency – As well as assessing individual disclosures as part of our procedures on intangible assets and going concern we considered all of the Brexit related disclosures together, including those in the strategic report, comparing the overall picture against our understanding of the risks. Our ﬁndings As reported under intangible assets we found the resulting estimates and disclosures in relation to going concern to be acceptable. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit. Acquisition of subsidiary Refer to Note 12 to the ﬁnancial statements The key audit matter On 15 June 2018, the Group acquired the entire share capital of Simec Uskmouth Power Limited (‘SUP’) by way of issuing shares such that the seller, SIMEC UK Energy Holdings Limited (“SIMEC”) became a 49.99% shareholder of the Group. As part of the transaction, a relationship agreement was put in place to govern the interaction between SIMEC and the Group in order to ensure that SIMEC did not gain control of the Group. Given the level of shareholding of SIMEC post acquisition, the directors applied judgement in considering whether this resulted in that company gaining control of the Group and consequently whether the transaction was a reverse takeover. The accounting treatment for the acquisition balance sheet is inherently judgemental and requires the directors to exercise judgement, including in respect of the fair value of assets and liabilities acquired. As these matters involved judgement, there is a risk that the accounting treatment is inappropriate and that the required disclosure in the ﬁnancial statements is inadequate. How the matter was addressed in our audit We assessed the analysis undertaken and supporting papers prepared by management in relation to the consideration of control. We challenged the assumptions made and management’s assessment of the provisions of the relationship agreement between SIMEC and Group and whether they prevented SIMEC from gaining control. We challenged management’s assessment of the fair value of the assets and liabilities of SUP, in particular in relation to the Uskmouth Power Station with reference to both recent valuations and the fair value of the consideration paid. We considered the adequacy of the required disclosures in Note 12 to the ﬁnancial statements with reference to relevant accounting standards. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 33 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 34 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SIMEC ATLANTIS ENERGY LIMITED Our ﬁndings The Group has prepared a detailed control analysis which appropriately includes the relevant considerations from accounting standards. This supports the judgement that SIMEC has not gained control of the Group and as such the acquisition is not a reverse acquisition. The assessment of fair values of the assets and liabilities of SUP at the date of acquisition is adequately supported and appropriate. Overall the results of our work indicate that the accounting for and disclosure of the transaction is appropriate. Going concern basis of accounting Refer to Note 2.1 to the ﬁnancial statements The key audit matter The Group incurred a net loss of £24 million in the year to 31 December 2018. As at 31 December 2018, its current assets exceed its current liabilities by £1.5 million and it had loans and borrowings of £41.6 million, of which £2.8 million is due within 12 months of that date. In order to assess its ability to continue as a going concern, management has prepared cash ﬂow forecasts, including sensitivity analysis for the period up to 31 December 2020. These forecasts which take into account the £5 million of Atlantis consideration shares issued to SIMEC in March 2019 for which payment will be received over the coming months, the availability of a £2 million loan facility from SIMEC, committed income and costs of the Group, demonstrate that it is able to operate within its available cash and funding balances for at least 12 months from the date of the ﬁnancial statements being signed. As this assessment involves consideration of uncertain future events, there is a risk that the judgement is inappropriate and the required disclosure in the ﬁnancial statements is inadequate. How this matter was addressed in our audit We assessed the principles and integrity of the ﬁnancial forecast. We challenged the assertions made by management in relation to the mitigating actions it could take to reduce costs if necessary based on our knowledge of the Group. Additionally, through discussions with management we assessed their intent to take these mitigating actions should the need arise. We reviewed the legal agreement related to the payment of £5 million for consideration shares issued to SIMEC and the facility agreement for the £2 million loan made available by SIMEC. We considered the adequacy of the required disclosures in Note 2.1 to the ﬁnancial statements with reference to the relevant accounting standards. Our ﬁndings The Group has prepared cash ﬂow forecasts which demonstrate that it can meet its liabilities as they fall due for the period of at least 12 months from the date of approval of these ﬁnancial statements, taking certain mitigating actions if necessary. The cash ﬂow forecasts use supportable assumptions and the mitigating actions which can be taken are within the control of the Group. Overall the results of our evaluation indicate that it is appropriate to prepare the ﬁnancial statements on the going concern basis and the disclosures setting out the risks are adequate. Impairment assessment of Intangible Assets and Property, Plant and Equipment (“PPE”) Refer to Notes 10 and 11 to the ﬁnancial statements: Net Book Value £175 million The key audit matter Intangible assets and PPE form 92% of the Group’s total assets and consist of the costs associated with the Uskmouth Power Station, current project under development (MeyGen) together with acquired turbine technology assets and sea bed options. The assets are categorised into cash generating units (“CGUs”). The Group has calculated the carrying value of the Uskmouth Power Station with reference to the fair value of the consideration paid. In assessing the recoverable amount of the MeyGen project under development and the acquired turbine technology assets and sea bed options the Group has used discounted cash ﬂow models to calculate their value in use. Due to the stage of development of the Group’s assets, there is signiﬁcant judgement and estimation involved in preparing the cash ﬂow models. There is a risk of impairment if the value in use is lower than the carrying value of the assets. 34 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 35 How the matter was addressed in our audit We compared the Group’s process for identifying and reviewing the CGUs subject to impairment testing against the requirements of relevant accounting standards. We evaluated the basis and methodology adopted to calculate the carrying value of the Uskmouth Power Station and the value in use of the CGUs. We challenged the assumptions used in the cash ﬂow projections based on our knowledge of the Group and experience of the industry in which it operates. We performed sensitivity analysis to assess the effect of changes in the key assumptions in the cash ﬂow models on the calculated value in use. We considered the adequacy of the required disclosures in Notes 10 and 11 to the ﬁnancial statements with reference to relevant accounting standards. Our ﬁndings The Group has a process for identifying and reviewing the appropriate CGUs for impairment testing which complies with relevant accounting standards. The value in use cash ﬂow models utilise supportable assumptions, albeit the discount rates for certain seabed options are at the lower end of the acceptable range and electricity price assumptions are at the higher end of the acceptable range. The assessment of the value of the Uskmouth Power Station is considered to be appropriate. Overall, based on the results of our evaluation, we concur with management that no impairment allowance is required for intangible assets and PPE. Other information Management is responsible for the other information contained in the annual report. Other information is deﬁned as all information in the annual report other than the ﬁnancial statements and our auditors’ report thereon. We have obtained all other information prior to the date of this auditors’ report. Our opinion on the ﬁnancial statements does not cover the other information and 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, based on the work we have performed on the other information that we obtained prior to the date of this auditors’ report, 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. Responsibilities of management and directors for the ﬁnancial statements Management is responsible for the preparation of ﬁnancial statements that give a true and fair view in accordance with the provisions of the Act, SFRS (I) and IFRS, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair ﬁnancial statements and to maintain accountability of assets. In preparing the ﬁnancial statements, management is responsible for assessing the Group’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 management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. The directors’ responsibilities include overseeing the Group’s ﬁnancial reporting process. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 35 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 36 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SIMEC ATLANTIS ENERGY LIMITED Auditors’ 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 auditors’ 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 SSAs 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. As part of an audit in accordance with SSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the ﬁnancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signiﬁcant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the ﬁnancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the ﬁnancial statements, including the disclosures, and whether the ﬁnancial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the ﬁnancial information of the entities or business activities within the Group to express an opinion on the consolidated ﬁnancial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors 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 the directors 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 the directors, 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 auditors’ 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. 36 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 37 REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiary corporations incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act. The engagement partner on the audit resulting in this independent auditors’ report is Ang Fung Fung. KPMG LLP Public Accountants and Chartered Accountants Singapore 27 June 2019 ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 37 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 38 HEADING 38 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 39 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME YEAR ENDED 31 DECEMBER 2018 2018 2017 Notes £’000 £’000 Revenue 4 2,217 301 Other gains and losses 5 949 2,984 Employee beneﬁts expense 6 (5,562) (4,696) Subcontractor costs (4,396) (1,359) Depreciation and amortisation 10,11 (7,299) (1,878) Acquisition costs (4,173) (600) Research and development – (81) Other operating expenses (2,902) (4,193) –––––––––– –––––––––– Total expenses (24,332) (12,807) –––––––––– –––––––––– Results from operating activities (21,166) (9,522) Finance costs 7 (2,998) (1,617) –––––––––– –––––––––– Loss before tax (24,164) (11,139) –––––––––– –––––––––– Tax credit 8 120 575 –––––––––– –––––––––– Loss for the year 9 (24,044) (10,564) –––––––––– –––––––––– Other comprehensive income Items that are or may be reclassiﬁed subsequently to proﬁt or loss Exchange differences on translation of foreign operations – (6) –––––––––– –––––––––– Total comprehensive income for the year (24,044) (10,570) –––––––––– –––––––––– Loss attributable to: Owners of the Group (22,579) (10,843) Non-controlling interests 12 (1,465) 279 –––––––––– –––––––––– Total comprehensive income attributable to: Owners of the Group (22,579) (10,849) Non-controlling interests 12 (1,465) 279 –––––––––– –––––––––– Loss per share Basic and diluted loss per share 25 (0.09) (0.09) –––––––––– –––––––––– No dividends were proposed or declared in respect of any of the years presented above. The accompanying notes form an integral part of these ﬁnancial statements. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 39 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 40 STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 Group Company 2018 2017 2018 2017 Notes £’000 £’000 £’000 £’000 Assets Property, plant and equipment 10 142,247 66,678 – 5 Intangible assets 11 32,753 34,291 1,829 2,091 Investments 12 – – 63,278 5,369 Loans receivable 13 – 168 12,164 12,282 Trade and other receivables 14 – – 39,432 19,367 –––––––––– –––––––––– –––––––––– –––––––––– Non-current assets 175,000 101,137 116,703 39,114 –––––––––– –––––––––– –––––––––– –––––––––– Trade and other receivables 14 4,156 3,415 700 1,094 Inventory 15 986 – – – Cash and cash equivalents 16 9,267 5,579 5,342 96 –––––––––– –––––––––– –––––––––– –––––––––– Current assets 14,409 8,994 6,042 1,190 –––––––––– –––––––––– –––––––––– –––––––––– Total assets 189,409 110,131 122,745 40,304 –––––––––– –––––––––– –––––––––– –––––––––– Liabilities Trade and other payables 17 8,523 5,212 2,107 1,564 Provisions 18 1,619 2,206 41 291 Loans and borrowings 19 2,765 5,524 130 174 –––––––––– –––––––––– –––––––––– –––––––––– Current liabilities 12,907 12,942 2,278 2,029 –––––––––– –––––––––– –––––––––– –––––––––– Provisions 18 14,282 1,314 – – Loans and borrowings 19 38,855 32,385 377 361 Deferred tax liabilities 20 3,802 3,255 – – –––––––––– –––––––––– –––––––––– –––––––––– Non-current liabilities 56,939 36,954 377 361 –––––––––– –––––––––– –––––––––– –––––––––– Total liabilities 69,846 49,896 2,655 2,390 –––––––––– –––––––––– –––––––––– –––––––––– Net assets 119,563 60,235 120,090 37,914 –––––––––– –––––––––– –––––––––– –––––––––– Equity Share capital 21 178,218 95,030 178,218 95,030 Capital reserve 22 12,665 12,665 – – Translation reserve 23 7,073 7,161 (227) (227) Share option reserve 24 3,224 3,477 3,224 3,477 Accumulated losses (88,479) (66,425) (61,125) (60,366) –––––––––– –––––––––– –––––––––– –––––––––– Total equity attributable to owners of the Company 112,701 51,908 120,090 37,914 Non-controlling interests 12 6,862 8,327 – – –––––––––– –––––––––– –––––––––– –––––––––– Total equity 119,563 60,235 120,090 37,914 –––––––––– –––––––––– –––––––––– –––––––––– The accompanying notes form an integral part of these ﬁnancial statements. 40 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 41 STATEMENTS OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2018 Attributable to owners of the Company Share Non- Share Capital Translation Option option Accumulated controlling capital reserve reserve fee reserve losses Total interest Total Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Group At 1 January 2017 91,220 12,665 7,167 6 3,191 (55,666) 58,583 8,048 66,631 Total comprehensive income for the year Loss for the year – – – – – (10,843) (10,843) 279 (10,564) Other comprehensive income – – (6) – – – (6) – (6) Total comprehensive income for the year – – (6) – – (10,843) (10,849) 279 (10,570) Transactions with owners, recognised directly in equity Issue of ordinary shares 21 3,810 – – – – – 3,810 – 3,810 Recognition of share- based payments 24 – – – – 364 – 364 – 364 Transfer between reserves – – – (6) (78) 84 – – – Total transactions with owners 3,810 – – (6) 286 84 4,174 – 4,174 ––––––– ––––––– ––––––––– –––––––– –––––––– ––––––––––– ––––––– –––––––––– ––––––– At 31 December 2017 95,030 12,665 7,161 – 3,477 (66,425) 51,908 8,327 60,235 ––––––– ––––––– ––––––––– –––––––– –––––––– ––––––––––– ––––––– –––––––––– ––––––– Total comprehensive income for the year Loss for the year – – – – – (22,579) (22,579) (1,465) (24,044) Other comprehensive income – – – – – – – – – Total comprehensive income for the year – – – – – (22,579) (22,579) (1,465) (24,044) Transactions with owners, recognised directly in equity Issue of ordinary shares 21 83,188 – – – – – 83,188 – 83,188 Recognition of share- based payments 24 – – – – 184 – 184 – 184 Transfer between reserves – – (88) – (437) 525 – – – Total transactions with owners 83,188 – (88) – (253) 525 83,372 – 83,372 ––––––– ––––––– ––––––––– –––––––– –––––––– ––––––––––– ––––––– –––––––––– ––––––– At 31 December 2018 178,218 12,665 7,073 – 3,224 (88,479) 112,701 6,862 119,563 ––––––– ––––––– ––––––––– –––––––– –––––––– ––––––––––– ––––––– –––––––––– ––––––– The accompanying notes form an integral part of these ﬁnancial statements. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 41 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 42 STATEMENTS OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2018 Share Share Translation Option option Accumulated capital reserve fee reserve losses Total Notes £’000 £’000 £’000 £’000 £’000 £’000 Company At 1 January 2017 91,220 (227) 6 3,191 (50,952) 43,238 Total comprehensive income for the year Loss for the year – – – – (9,498) (9,498) Total comprehensive income for the year – – – – (9,498) (9,498) ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– Transactions with owners, recognised directly in equity Issue of ordinary shares 21 3,810 – – – – 3,810 Recognition of share-based payments 24 – – – 364 – 364 Transfer between reserves – – (6) (78) 84 – Total transactions with owners 3,810 – (6) 286 84 4,174 ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– At 31 December 2017 95,030 (227) – 3,477 (60,366) 37,914 ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– Total comprehensive income for the year Loss for the year – – – – (1,196) (1,196) Total comprehensive income for the year – – – – (1,196) (1,196) ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– Transactions with owners, recognised directly in equity Issue of ordinary shares 21 83,188 – – – – 83,188 Recognition of share-based payments 24 – – – 184 – 184 Transfer between reserves – – – (437) 437 – Total transactions with owners 83,188 – – (253) 437 83,372 ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– At 31 December 2018 178,218 (227) – 3,224 (61,125) 120,090 ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– The accompanying notes form an integral part of these ﬁnancial statements. 42 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp032-pp043.qxp 27/06/2019 16:36 Page 43 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED 31 DECEMBER 2018 2018 2017 Notes £’000 £’000 Cash ﬂows from operating activities Loss for the year (24,164) (11,139) Adjustments for: Grant income 5 (2) (1,052) Interest income 5 (8) (86) Depreciation of property, plant and equipment 10 5,782 384 Amortisation of intangible asset 11 1,517 1,494 Finance costs 7 2,998 1,617 Share-based payments 6 184 364 Provisions (written back) / made during the year (607) 610 Bad debt provision 13 – 1,040 Net foreign exchange 96 27 –––––––––– –––––––––– Operating cash ﬂows before movements in working capital (14,204) (6,741) Movements in trade and other receivables 1,044 1,734 Movements in trade and other payables (778) (69) –––––––––– –––––––––– Net cash used in operating activities (13,938) (5,076) –––––––––– –––––––––– Cash ﬂows from investing activities Purchase of property, plant and equipment (802) (10,306) Proceeds from grants received – 748 Expenditure on project development – (50) Cash from disposal of joint venture 12 168 – Acquisition of subsidiary, net of cash acquired1 12 57 – –––––––––– –––––––––– Net cash used in investing activities (577) (9,608) –––––––––– –––––––––– Cash ﬂows from ﬁnancing activities Proceeds from grants received 16 3,537 Proceeds from issue of shares 21 20,000 4,050 Share issuance cost 21 (897) (240) Proceeds from borrowings 19 4,970 4,950 Repayment of borrowings 19 (5,192) (2,100) Interest paid 19 (696) (166) Deposits released/(pledged) 864 (132) –––––––––– –––––––––– Net cash from ﬁnancing activities 19,065 9,899 –––––––––– –––––––––– Net increase/(decrease) in cash and cash equivalents 4,550 (4,785) Cash and cash equivalents at 1 January 3,801 8,586 –––––––––– –––––––––– Cash and cash equivalents at 31 December 16 8,351 3,801 –––––––––– –––––––––– The accompanying notes form an integral part of these ﬁnancial statements. 1 As disclosed in Note 12(d) of the ﬁnancial statements, the acquisition of SIMEC Uskmouth Power Limited was settled in the issue of ordinary shares of the Company. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 43 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 44 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 These notes form an integral part of the ﬁnancial statements. The ﬁnancial statements were authorised for issue by the Board of Directors on 27 June 2019. 1. DOMICILE AND ACTIVITIES SIMEC Atlantis Energy Limited (the “Company”) is a company incorporated in Singapore. The Company’s registered office address is 80 Raffles Place, Level 36, Singapore 048624. The principal place of business is Edinburgh Quay 2, 139 Fountainbridge, Edinburgh, EH3 9QG, United Kingdom. The principal activity of the Group is to develop and operate as a global sustainable energy provider. The Company is an inventor, developer, owner, marketer and licensor of technology, intellectual property, trademarks, products and services and an investment holding company. The principal activities of the subsidiaries are disclosed in Note 12 to the ﬁnancial statements. The ﬁnancial statements of the Group as at and for the year ended 31 December 2018 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in an equity- accounted investee. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The ﬁnancial statements have been prepared in accordance with Singapore Financial Reporting Standards (International) (SFRS(I)) and International Financial Reporting Standards (IFRS). SFRS(I)s are issued by the Accounting Standards Council Singapore, which comprise standards and interpretations that are equivalent to IFRS issued by the International Accounting Standards Board. All references to SFRS(I)s and IFRSs are subsequently referred to as IFRS in these ﬁnancial statements unless otherwise speciﬁed. The ﬁnancial statements have been prepared on the historical costs basis except as otherwise disclosed in the accounting policies below. The accounting policies set out below have been applied consistently to all periods presented in these ﬁnancial statements, other than standards applied for the ﬁrst time in 2018. Revised standards The Group has applied the following amendments for the ﬁrst time for the annual period beginning on 1 January 2018:  IFRS 15 Revenue from Contracts with Customers IFRS 15 Revenue from Contracts with Customers replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It also introduces new cost guidance which requires certain costs of obtaining and fulﬁlling contracts to be recognised as separate assets when speciﬁed criteria are met. There are enhanced revenue disclosures. IFRS 15 is effective for annual periods beginning on or after 1 January 2018. The Group adopted IFRS 15 in its ﬁnancial statements using the cumulative effect approach which allows the cumulative effect of applying IFRS 15 to be recognised directly in opening equity at the date of initial application of IFRS 15 with no adjustments to the comparative information. Accordingly, the information presented for 2017 has not been restated, it is presented, as previously reported, under IAS 18 Revenue and related interpretations.  IFRS 9 Financial Instruments IFRS 9 Financial Instruments replaces most of the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018. It includes revised guidance on classiﬁcation and measurement of ﬁnancial instruments, a new expected credit loss model for calculating impairment on ﬁnancial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of ﬁnancial instruments from IAS 39. The Group has used an exemption allowed in IFRS 9 on not restating comparative information from prior periods with respect to classiﬁcation and measurement (including impairment) requirements. Accordingly, the information presented for 2017 does not generally reﬂect the requirements of IFRS 9, but after those of IAS 39 Financial Instruments: Recognition and Measurement. 44 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 45 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued The classiﬁcation and measurement requirements of IFRS 9 did not have an impact on the Group’s ﬁnancial assets or liabilities. The Group’s assessment of the new expected credit loss model for impairment result was immaterial (see Note 2.4). The adoption of these amendments did not have any impact on the current or prior period and is not likely to affect future periods. Foreign currencies The individual ﬁnancial statements of each Group entity are measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated ﬁnancial statements of the Group and the statement of ﬁnancial position and statement of equity of the Company are presented in Great British Pounds (“GBP”), which is the functional currency of the Company, and the presentation currency for the consolidated ﬁnancial statements. Transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period. All exchange differences are recognised in proﬁt or loss. At each reporting date, for presentation purposes, the assets and liabilities of the Group’s entities that do not use GBP as their functional currency are translated into GBP at exchange rates presiding at the reporting date, with gains or losses on retranslation being recognised through the translation reserve. Income and expense transactions are translated at the average exchange rates for the period, where average rates are a reasonable approximation of actual rates. The ﬁnancial statements are presented in GBP (£), rounded to the nearest thousand. Going concern The Company funds its short and medium term funding requirements through a combination of equity and debt. It recently completed an equity raise in March 2019 which raised gross funds of £5.0 million. The proceeds of this fundraising were to be used to fund the acquisition of the Green Highland Renewables portfolio of assets if the transaction completed, the subsequent change to this transaction means that these funds will instead be used for general corporate purposes. Simultaneous to the March 2019 equity raise, £5.0 million of Atlantis consideration shares were issued to SIMEC and payment for these shares will be received over the coming months as required but not later than December 2020. SIMEC have also extended a £2.0 million interest free convertible loan to the Company subject to certain progress targets being met in relation to the SUP conversion, repayable in May 2022. The directors have prepared ﬁnancial forecasts for a period beyond 30 June 2020, including sensitivity analysis. These forecasts, which take into account the ongoing committed costs of the Group, demonstrate that the Company is able to operate within its available cash and funding balances for at least 12 months from the date of the ﬁnancial statements. The forecasts indicate that the Group is projected to operate within its available cash facilities for the forecast period although mitigating action may be required to be taken in advance of periods when cash and cash equivalents available for use are forecast to be limited. While the directors cannot envisage all possible circumstances that may impact the Group in the future, the directors believe that, taking account of the forecasts, sensitised forecasts, future plans and available cash resources, the Group will have sufficient resources to support the Company to meet all ongoing working capital and committed capital expenditure requirements as they fall due. 2.2 Basis of consolidation The consolidated ﬁnancial statements incorporate the ﬁnancial statements of the Company and entities controlled by the Company (its subsidiaries) at the reporting date. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reﬂect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity (capital reserve) and attributed to the owners of the Company. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 45 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 46 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued In the Company’s ﬁnancial statements, investments in subsidiaries are carried at cost less any impairment in net recoverable value that has been recognised in proﬁt or loss. 2.3 Business combinations The acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the acquisition date fair values of assets given, liabilities incurred by the Group to the former owners of the acquiree, and equity interests issued by the Group in exchange for control of the acquiree. Acquisition- related costs are recognised in proﬁt or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classiﬁed. Contingent consideration that is classiﬁed as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classiﬁed as an asset or a liability is remeasured at subsequent reporting dates in accordance with IFRS 7 Financial Instruments: Recognition and Measurement, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in proﬁt or loss. Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in proﬁt or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassiﬁed to proﬁt or loss, where such treatment would be appropriate if that interest were disposed of. The acquiree’s identiﬁable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS are recognised at their fair value at the acquisition date, except that:  deferred tax assets or liabilities and liabilities or assets related to employee beneﬁt arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Beneﬁts respectively;  liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in accordance with IAS 2 Share-based Payment; and  assets (or disposal groups) that are classiﬁed as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill The Group measures goodwill at the acquisition date as:  the consideration transferred; plus  the recognised amount of any non-controlling interests in the acquiree; plus  if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree, over the net recognised amount (generally fair value) of the identiﬁable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in proﬁt or loss. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to beneﬁt from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated ﬁrst to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. 46 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 47 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued On disposal of a subsidiary or the relevant cash generating unit, the attributable amount of goodwill is included in the determination of the proﬁt or loss on disposal. 2.4 Financial instruments Financial assets and ﬁnancial liabilities are recognised on the Group’s statement of ﬁnancial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets All ﬁnancial assets are recognised and de-recognised on the trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value plus transaction costs except for those ﬁnancial assets classiﬁed as at fair value through proﬁt and loss, which are initially measured at fair value. Financial assets comprise of loans and receivables. Loans and receivables Trade and other receivables that have ﬁxed or determinable payments and that are not quoted in an active market are classiﬁed as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method less any allowance for expected credit losses. Interest is recognised by applying the effective interest method, except for short-term receivables where the recognition of interest would be immaterial. In order for a ﬁnancial asset to be classiﬁed and measured at amortised cost or fair value through OCI, it needs to give rise to cash ﬂows that are ‘solely payments of principal and interest’ (“SPPI”) on the principal amount outstanding. This assessment is referred to as the SPPI test and does not give rise to any change in the Group’s accounting from IAS 39. Cash and cash equivalents Cash and cash equivalents are comprised of cash at bank, short-term bank deposits with an original maturity of three months or less and cash on hand. For the purposes of the consolidated statement of cashﬂows, pledged deposits are excluded. Impairment of ﬁnancial assets The adoption of IFRS 9 has fundamentally changed the Group’s accounting for impairment losses for ﬁnancial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (“ECL”) approach. IFRS 9 requires the Group to recognise an allowance for ECLs for ﬁnancial assets measured at amortised cost. ECLs are based on the difference between the contractual cash ﬂows due in accordance with the contract and all the cash ﬂows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash ﬂows will include cash ﬂows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. ECLs are recognised in two stages. For credit exposures for which there has not been a signiﬁcant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a signiﬁcant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). For trade receivables and contract assets, the Group applies a simpliﬁed approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors speciﬁc to the debtors and the economic environment. Additional information about how the Company measures the allowance for impairment is described in Note 26. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 47 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 48 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Derecognition of ﬁnancial assets The Group derecognises a ﬁnancial asset only when the contractual rights to the cash ﬂows from the asset expire, or it transfers the ﬁnancial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred ﬁnancial asset, the Group continues to recognise the ﬁnancial asset and also recognises a collateralised borrowing for the proceeds received. Financial liabilities and equity instruments Classiﬁcation as debt or equity Financial liabilities and equity instruments issued by the Group are classiﬁed according to the substance of the contractual arrangements entered into and the deﬁnitions of a ﬁnancial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. Other ﬁnancial liabilities Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost using the effective interest rate method, with interest expense recognised on an effective yield basis. Loans and borrowings (except for ﬁnancial guarantee contract liabilities) are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for ﬁnance costs (see Note 2.15). Financial guarantee contract liabilities are measured initially at their fair values and, if not designated as fair value through proﬁt and loss, subsequently at the higher of the amount of obligation under the contract recognised as a provision, in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognised less cumulative amortisation, in accordance with IFRS 15. Derecognition of ﬁnancial liabilities The Group derecognises ﬁnancial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. 2.5 Leases Leases are classiﬁed as ﬁnance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classiﬁed as operating leases and are charged to proﬁt or loss on a straight-line basis over the term of the lease. 2.6 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. The cost of self-constructed assets includes:  the cost of materials and direct labour;  any other costs directly attributable to bringing the assets to a working condition for their intended use;  when the Group has an obligation to remove the asset or restore the site, an estimate of the discounted costs of dismantling and removing the items and restoring the site on which they are located; and  capitalised borrowing costs. 48 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 49 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued The Group has acquired a new class of assets, Power Plant, as a result of business combinations. The power plant assets are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and accumulated impairment losses. Revaluations are performed at such regularity on this class of assets so that the carrying amounts do not differ materially from those that would be determined using fair values at the end of the reporting period. Any revaluation increase is recognised in other comprehensive income and accumulated in equity except to the extent that it reverses a revaluation decrease for the same asset previously recognised in proﬁt or loss, in which case the increase is credited to proﬁt or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on the revaluation of such power plant, land and buildings and plant and machinery is recognised in proﬁt or loss to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset. Depreciation of these assets, on the same basis as other assets, commences when the assets are ready for their intended use. Depreciation is charged to the statement of proﬁt or loss using the straight-line method over the estimated useful life of the asset on the following basis: Leasehold improvements – 20% Plant, property and equipment – 4% - 7% Furniture, ﬁxtures and equipment – 25% - 33% Computer equipment and software – 25% - 33% Motor vehicles – 25% Power plant – 4% - 6 % Depreciation methods, useful lives and residual lives are reviewed at each reporting date and adjusted if appropriate. Freehold land is stated at cost, less any subsequent accumulated impairment losses. 2.7 Intangible assets Internally-generated intangible assets - research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. Capitalisation of an internally generated asset is only permitted during the development phase. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic beneﬁts are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The cost of capitalised development activities should include all directly attributable costs necessary to create, produce and prepare an asset for a business purpose in the manner intended by management. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset ﬁrst meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is charged to proﬁt or loss in the period in which it is incurred. Intellectual property Intellectual property is measured initially at purchase cost. Intellectual property is tested for impairment annually, or more frequently when there is an indication that it may be impaired (see below for impairment testing). Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identiﬁed and recognised separately from goodwill. The cost of such intangible assets is their fair value at the acquisition date. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 49 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 50 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Amortisation Subsequent to initial recognition, each class of intangible asset is reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over the expected estimated useful life of that class of asset. Amortisation will begin when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. 2.8 Impairment At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, testing for impairment is undertaken. Intangible assets with indeﬁnite useful lives and intangible assets not yet available for use are tested for impairment annually. 2.9 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of reporting period, taking into account the risks and uncertainties surrounding the obligation. If the effect of the time value of money is material, discounting is applied. 2.10 Share-based payments The Group issues equity-settled share-based payments to certain employees and directors. Equity-settled share-based payments are measured at fair value of the equity instruments (excluding the effect of non market- based vesting conditions) at the date of grant. Details regarding the determination of the fair value of equity-settled share- based transactions are set out in Note 24. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of equity instruments that will eventually vest. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in proﬁt or loss such that the cumulative expense reﬂects the revised estimate, with a corresponding adjustment to the equity-settled employee beneﬁts reserve. Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. 2.11 Government grants Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached to them and the grants will be received. Government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are presented as a deduction from the carrying amount of the related assets and recognised as income over the useful lives of the assets by way of a reduced depreciation or amortisation charge. Other government grants are recognised as income over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate ﬁnancial support to the Group with no future related costs are recognised in proﬁt or loss in the period in which they become receivable. 50 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 51 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued 2.12 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, net of sales related taxes. Consulting fees are recognised in proﬁt or loss in proportion to the stage of completion of the transaction at the reporting date. Revenue for the sale of equipment is recognised when the control of the product are transferred to the customer. Revenue from power generation sales and the associated Renewables Obligation Certiﬁcates (“ROCs”) are recognised based on the quantity of electricity exported and the contracted rate on the date of generation. ROCs are awarded to the Group from Ofgem based on generation of power. These ROCs are sold on receipt of certiﬁcates from Ofgem allowing transfer of title. The amount of revenue recognised on sale is in accordance with a contractual agreement where the pricing is based on Ofgem’s minimum ROC value (the buy-out). 2.13 Retirement beneﬁt obligations Payments to deﬁned contribution retirement beneﬁt plans are charged as an expense when employees have rendered the services entitling them to the contributions. Payments made to state-managed retirement beneﬁt schemes, such as the Singapore Central Provident Fund, are dealt with as payments to deﬁned contribution plans where the Group’s obligations under the plans are equivalent to those arising in a deﬁned contribution retirement beneﬁt plan. 2.14 Income tax Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable proﬁt for the year. Taxable proﬁt differs from proﬁt as reported in the consolidated statement of proﬁt or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group’s liability for current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted in countries where the Company and its subsidiaries operate by the end of the reporting period. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the ﬁnancial statements and the corresponding tax bases used in the computation of taxable proﬁt, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable proﬁts will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable proﬁt nor the accounting proﬁt. Deferred tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable proﬁts against which to utilise the beneﬁts of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable proﬁts will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reﬂects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 51 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 52 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Current and deferred tax are recognised as an expense or income in proﬁt or loss, except when they relate to items credited or debited outside proﬁt or loss (either in other comprehensive income or directly in equity), in which case the tax is also recognised outside proﬁt or loss (either in other comprehensive income or directly in equity, respectively), or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identiﬁable assets, liabilities and contingent liabilities over cost. 2.15 Finance costs and income Finance costs comprise interest expense on borrowings and changes in fair values of derivative liabilities. All borrowing costs are recognised in the proﬁt or loss using the effective interest method, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to be prepared for its intended use or sale. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable. 2.16 Segment reporting The Group is currently focused on generating energy from renewable power generation projects, development of these projects, and in developing its turbines for installation in tidal projects. It currently considers its business as three operating segments; power generation; turbine and engineering services; and project development. 2.17 New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2019, and have not been applied in preparing these ﬁnancial statements. Except as otherwise indicated below, those new standards, amendments to standards, and interpretations are not expected to have a signiﬁcant effect on the ﬁnancial statements of the Group. The Group does not plan to adopt these standards early.  IFRS 16 Leases IFRS 16 eliminates the lessee’s classiﬁcation of leases as either operating leases or ﬁnance leases and introduces a single lessee accounting model. Applying the new model, a lessee is required to recognise right-of-use (ROU) assets and lease liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. The Group intends to apply IFRS 16 initially on 1 January 2019 by applying a practical expedient and using the modiﬁed retrospective approach. Following an initial review of the impact of this standard, the Group expects that a number of operating leases will be recognised on the statement of ﬁnancial position as lease liabilities and ROU assets. The lease charges to the statement of proﬁt or loss will be recognised through amortisation of the asset and unwinding of the discounted value of the ﬁnance lease liability through ﬁnance costs. This differs from the current operating lease charges. A full review of the impact of the standard is in progress. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in Note 2, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. 52 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 53 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY continued In the process of applying the Group’s accounting policies, which are described in Note 2, the critical accounting judgements that will have a signiﬁcant effect on the amounts recognised in the ﬁnancial statements and the key sources of estimation uncertainty at the end of the reporting period that have a signiﬁcant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁnancial year, are discussed below: Recoverability of property, plant and equipment The Group tests its property, plant and equipment related to the MeyGen project, annually for impairment, or more frequently if there are indicators that it might be impaired. The recoverable amount is supported by the estimated value-in-use of the assets. The value-in-use is calculated using a net present value cash ﬂow model which compares the costs of completing the MeyGen project, including ﬁnancing costs, with expected revenues, net of operating and maintenance expenditure, over its operating life. The key assumptions used are the expected capital costs to develop the project, the ﬁnancing structure and cost, forecast operating and maintenance costs, revenue per MWh and the discount rate to calculate present values. The model is based on probability and risk weighted sensitised cash ﬂows using discount rates ranging from 8.5% to 12.5%. Capital and operating and maintenance costs are based upon experience gained from the development and recent fully operational phase of MeyGen 1A. Estimated savings have been factored in to take account of scaling up both the capacity and numbers of the turbines needed for the development of the entire project. These saving are based upon the same principles as those achieved by the more advanced land based and offshore wind industry. The recoverable amount of the Group’s tangible assets was determined to be in excess of the carrying value and accordingly no impairment loss has been recognised. The recoverable amount is most sensitive to changes in capital and operating costs, discount rate and revenue per MWh and adverse movements in excess of 10% in relation to each could result in the carrying value of plant and equipment being impaired. Useful lives of intangible assets The useful lives are based on similar assets in the industry and taking into account anticipated technological changes. Judgement is required to determine the period over which the proprietary technology (to which the intangible assets relate) will continue to have economic value. Amortisation will commence upon the commercialisation of the assets. The Group reviews the useful lives of the intangible assets at the end of each reporting period. Recoverability of intangible assets The Group tests its intangible assets as detailed in note 11 annually for impairment, or more frequently if there are indicators that they might be impaired. The recoverable amount is determined using value-in-use calculations for each separate cash generating unit. The value-in-use is determined by discounting expected future cash ﬂows. The cash ﬂow forecast are based on probability and risk weighted sensitised cash ﬂow forecasts using discount rates ranging from 8.5% to 12.5%. For each seabed option the net present value cash ﬂow model compares the current carrying value of the intangible, plus the costs of developing the related tidal stream energy projects, including ﬁnancing costs, to expected revenues, net of operating and maintenance expenditure over their expected operating life. The key assumptions for the value-in-use calculations are the discount rate, the cost of debt, revenue per MWh, forecast operating and maintenance and capital costs. As is the case for property, plant and equipment, capital and operating and maintenance costs are based upon experience gained from the development and recent fully operational phase of MeyGen 1A. Estimated savings have been factored in to take account of scaling up both the capacity and numbers of the turbines needed for the development of the entire MeyGen project.These saving are based upon the same principles as those achieved by the more advanced land based and offshore wind industry. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 53 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 54 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY continued For the license, turbine technology and intellectual property CGU the value in use is based upon an estimate of cash ﬂows to be generated from forecast turbine sales volumes, sales price and achievable margin. The key assumption is the forecast turbine sales, which is based upon those sales expected to be generated internally and reasonably possible external sales which are estimated from current negotiations and opportunities that the Group is pursuing. The recoverable amount of the Group’s intangible assets was determined to be in excess of the carrying value and accordingly no impairment loss has been recognised. The recoverable amount is most sensitive to changes in capital costs, discount rate and revenue per MWh and adverse movements in excess of 10% in relation to each could result in the carrying value of intangible assets being impaired. Provision for decommissioning costs Provision for decommissioning costs is recognised as an amount equal to the directors’ best estimate of the expenditure required to settle the Group’s obligation. Provisions are determined by discounting the expected future cash ﬂows at a pre-tax rate that reﬂects current market assessment of the time value of money and risk speciﬁc to the liability. The unwinding of the discount is recognised as a ﬁnance cost. Cash Generating Units (“CGU”) During the year, the Group acquired a new CGU through the acquisition of SUP. During the prior year, the Group performed a review of its CGUs based upon the Groups operating structure and economic characteristics of similar assets. The review resulted in two CGUs – Development Costs and Intellectual Property – being combined into a Turbine Technology CGU. Acquisition accounting In reviewing whether the transaction is a business combination, management have determined that control of SUP has been taken through the 100% purchase of share capital. Whilst SIMEC have acquired 49.9% of the Company’s share capital through the issue of consideration and other shares, management do not believe SIMEC have control over the Group due to contractual arrangements in place to maintain the independence of the Company. On this basis the business combination has been accounted for using the acquisition method. When the Group completes a business combination, the fair values of the identiﬁable assets and liabilities acquired, including intangible assets, are recognised at their fair value. The determination of the fair value of acquired assets and liabilities is based, to a considerable extent, on management’s judgment. Managements review of the carrying value of the identiﬁable assets and liabilities acquired, including separately identiﬁable intangible assets resulted in a fair value adjustment of £175k and subsequently no goodwill or bargain purchase price (see Note 12). It is the view of management that the market price consideration for SUP is currently the most appropriate reﬂection of the fair value of the net assets acquired. At each reporting date and as the SUP conversion project moves through the FEED process towards ﬁnancial close, during which it is anticipated that the risk proﬁle of the project will reduce, management will review the valuation of the Power Plant. 4. REVENUE Group 2018 2017 £’000 £’000 Consulting fees Power sales 120 – 2,097 301 –––––––––– –––––––––– 2,217 301 –––––––––– –––––––––– Power sales includes associated revenues from ROCs. 54 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 55 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 5. OTHER GAINS Group 2018 2017 £’000 £’000 Interest income Grant income Other income 8 86 2 1,052 939 1,846 –––––––––– –––––––––– 949 2,984 –––––––––– –––––––––– Other income includes research and development tax credits and liquidated damages income. 6. EMPLOYEE BENEFITS EXPENSE The average number of employees (including executive directors) was: Group 2018 2017 Number Number Average number of employees (including executive directors) 68 48 –––––––––– –––––––––– Their aggregate remuneration comprised: 2018 2017 £’000 £’000 Wages, salaries and other short term beneﬁts Social security costs Share-based payments (Note 24) Contributions to deﬁned contribution plan Other related costs 4,454 3,417 509 391 184 364 347 327 68 197 –––––––––– –––––––––– 5,562 4,696 –––––––––– –––––––––– 7. FINANCE COSTS Group 2018 2017 £’000 £’000 Interest expense arising from: – secured bridging loan from a non-controlling interest – 433 377 62 – loans from a related party 380 49 – long term loans 1,400 619 – secured long term loans 696 166 – long term debentures 145 – Unwinding of discount on decommissioning provision – 288 Other ﬁnance costs –––––––––– –––––––––– 2,998 1,617 –––––––––– –––––––––– ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 55 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 56 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 8. TAX CREDIT Group 2018 2017 £’000 £’000 120 575 –––––––––– –––––––––– Deferred tax credit As a result of the Company’s management and control moving from Singapore to the United Kingdom on 1 January 2016, the Company became tax resident of the United Kingdom and all ﬁling requirements are met in both jurisdictions. In the United Kingdom, the applicable rate of tax is computed at 19% (2017: 19.25%). The standard rate of UK Corporation tax was 20% and reduced to 19% from 1 April 2017. The Finance Act 2016 includes legislation to further reduce the rate from 1 April 2020 to 17%. Singapore domestic income tax is calculated at 17% (2017: 17%) of the estimated assessable loss for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions. Group 2018 2017 £’000 £’000 Reconciliation of effective tax rate Loss before tax (24,164) (11,139) –––––––––– –––––––––– Tax at the domestic rates applicable to losses in the country concerned (4,591) (2,129) 1,263 650 Non-allowable items at rates concerned (45) (77) Non-taxable income at rates concerned 3,373 1,556 Tax effect of deferred tax asset not recognised Tax effect of unwinding deferred tax fair value adjustment 120 – on business combinations (note 20) Tax effect from reduction in tax rate on deferred tax liabilities (Note 20) – 575 –––––––––– –––––––––– 120 575 –––––––––– –––––––––– At the end of the reporting period, the Group has unutilised tax losses of £150.7 million (2017: £95.9 million) available for offset against future proﬁts, including £37.1 million of tax losses available for utilisation at the acquisition date of SUP (note 12). The amount of the Company’s unutilised tax losses available for offset against future proﬁts is £28.0 million (2017: £27.1 million). No deferred tax asset has been recognised due to the unpredictability of future proﬁt streams. Included in the Group and Company losses are £28.0 million (2017: £27.1 million) of losses relating to Singapore corporation tax, which will only be utilised against taxable income realised in Singapore. 56 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 57 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 9. LOSS FOR THE YEAR The following items have been included in arriving at loss for the year: Group 2018 2017 Note £’000 £’000 10 5,782 384 11 1,517 1,494 Depreciation Amortisation of intangibles Auditor’s remuneration – Audit and audit related fees – Non audit fees Share-based payments Bad debt provision Rental expenses Net foreign exchange losses 125 102 312 75 24 184 364 13 – 1,040 686 422 95 27 –––––––––– –––––––––– ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 57 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 58 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 10. PROPERTY, PLANT AND EQUIPMENT Plant, Furniture, Computer Project- Freehold Leasehold property & ﬁxture & Motor equipment under- Power land improvements equipment equipment vehicles and software construction plant Total Group £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2017 20 33 – 84 – 475 62,597 – 63,209 Additions – 87 – 25 – – 5,004 – 5,116 Reimbursed by grants – – – – – – (748) – (748) Disposals – (33) – – – (93) – – (126) Transfers – – 34,065 – – – (34,065) – – –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– At 31 December 2017 20 87 34,065 109 – 382 32,788 – 67,451 –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– Acquisition through business combinations (Note 12) – – – – 12 – – 80,279 80,291 Additions – – – – – 12 236 828 1,076 Reimbursed by grants – – (16) – – – – – (16) Disposals – – – – – (329) – – (329) Transfers – – 33,024 – – – (33,024) – – –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– At 31 December 2018 20 87 67,073 109 12 65 – 81,107 148,473 –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– Accumulated depreciation At 1 January 2017 – 33 – 43 – 439 – – 515 Depreciation for the year – 6 329 30 – 19 – – 384 Disposals – (33) – – – (93) – – (126) –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– At 31 December 2017 – 6 329 73 – 365 – – 773 Depreciation for the year – 9 2,533 24 5 13 – 3,198 5,782 Disposals – – – – – (329) – – (329) –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– At 31 December 2018 – 15 2,862 97 5 49 – 3,198 6,226 –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– Carrying amounts At 1 January 2017 20 – – 41 – 36 62,597 – 62,694 –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– At 31 December 2017 20 81 33,736 36 – 17 32,788 – 66,678 –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– At 31 December 2018 20 72 64,211 12 7 16 – 77,909 142,247 –––––– ––––––––––––– –––––––––– –––––––––– –––––––– –––––––––– ––––––––––– ––––––––––– –––––– 58 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 59 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 10. PROPERTY, PLANT AND EQUIPMENT continued Company Computer equipment and software £’000 Cost At 1 January 2017 Disposals 393 (64) –––––––––– At 31 December 2017 Disposals 329 (329) –––––––––– – –––––––––– At 31 December 2018 Accumulated depreciation At 1 January 2017 Depreciation for year Disposals 383 5 (64) –––––––––– At 31 December 2017 Depreciation for the year Disposals 324 5 (329) –––––––––– – –––––––––– At 31 December 2018 Carrying amounts At 1 January 2017 10 –––––––––– 5 –––––––––– – –––––––––– At 31 December 2018 At 31 December 2017 (a) Project-under-construction Construction costs of the MeyGen project capitalised during the year totalled £0.2 million (2017: £5.0 million). Included in this amount are capitalised borrowing costs amounting to £0.2 million (2017: £1.4 million), which corresponds to an average interest cost on borrowings of 6% (2017: 6%) per annum. Aggregate grants of £13.3 million, comprised of a £10 million grant from the United Kingdom’s Department of Energy and Climate Change, and two grants from Scotland’s Highlands and Islands Enterprise totalling £3.3 million, were awarded for the MeyGen project in August 2014. Grants received where the conditions attached to them have been complied with were recorded as a deduction from the carrying amount of the project-under-construction in accordance with the accounting policy stated in Note 2. (b) Transfers During 2018, the fourth turbine relating to the MeyGen Phase 1A Project reached the operational phase and was therefore transferred to plant, property and equipment from project-under construction (2017: three of the four turbines reached operating phase). Depreciation on these assets commenced in accordance with the accounting policy stated in Note 2. (c) Security At 31 December 2018, assets of subsidiaries with carrying amounts of £64.2 million (2017: £65.5 million) were pledged as security on long term loans (Note 19(e)). (d) Power plant During 2018, the Group acquired the power plant category of ﬁxed assets through acquisition of a subsidiary (Note 12). ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 59 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 60 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 11. INTANGIBLE ASSETS Global Development technology Intellectual Development Seabed Tidal project-in- licence property costs options data progress Total Group £’000 £’000 £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2017 8,223 3,133 14,382 16,368 1,465 1,944 45,515 Additions – – 43 – – 7 50 Reimbursed by grants – – – – – (300) (300) Balance sheet reclassiﬁcation – – – (283) – – (283) Exchange differences – – (9) – – – (9) –––––––––– –––––––––––– ––––––––––––– –––––––– –––––––– –––––––––––– ––––––––– At 31 December 2017 8,223 3,133 14,416 16,085 1,465 1,651 44,973 Transfers – – 1,651 – – (1,651) – Exchange differences – – (42) – – – (42) –––––––––– –––––––––––– ––––––––––––– –––––––– –––––––– –––––––––––– ––––––––– At 31 December 2018 8,223 3,133 16,025 16,085 1,465 – 44,931 –––––––––– –––––––––––– ––––––––––––– –––––––– –––––––– –––––––––––– ––––––––– Accumulated amortisation At 1 January 2017 3,289 229 5,673 – – – 9,191 Amortisation for the year 493 39 962 – – – 1,494 Exchange differences – – (3) – – – (3) –––––––––– –––––––––––– ––––––––––––– –––––––– –––––––– –––––––––––– ––––––––– At 31 December 2017 3,782 268 6,632 – – – 10,682 Amortisation for the year 493 38 986 – – – 1,517 Exchange differences – – (21) – – – (21) –––––––––– –––––––––––– ––––––––––––– –––––––– –––––––– –––––––––––– ––––––––– At 31 December 2018 4,275 306 7,597 – – – 12,178 –––––––––– –––––––––––– ––––––––––––– –––––––– –––––––– –––––––––––– ––––––––– Carrying amounts At 1 January 2017 4,934 2,904 8,709 16,368 1,465 1,944 36,324 –––––––––– –––––––––––– ––––––––––––– –––––––– –––––––– –––––––––––– ––––––––– At 31 December 2017 4,441 2,865 7,784 16,085 1,465 1,651 34,291 –––––––––– –––––––––––– ––––––––––––– –––––––– –––––––– –––––––––––– ––––––––– At 31 December 2018 3,948 2,827 8,428 16,085 1,465 – 32,753 –––––––––– –––––––––––– ––––––––––––– –––––––– –––––––– –––––––––––– ––––––––– 60 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 61 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 11. INTANGIBLE ASSETS continued Company Intellectual Development property costs Total £’000 £’000 £’000 Cost At 1 January 2017, 31 December 2017 and 31 December 2018 573 3,347 3,920 –––––––––– –––––––––– –––––––––– Accumulated amortisation At 1 January 2017 Amortisation for the year 229 1,339 1,568 38 223 261 –––––––––– –––––––––– –––––––––– At 31 December 2017 Amortisation for the year 267 1,562 1,829 39 223 262 –––––––––– –––––––––– –––––––––– 306 1,785 2,091 –––––––––– –––––––––– –––––––––– At 31 December 2018 Carrying amounts At 1 January 2017 344 2,008 2,352 –––––––––– –––––––––– –––––––––– At 31 December 2017 306 1,785 2,091 –––––––––– –––––––––– –––––––––– 267 1,562 1,829 –––––––––– –––––––––– –––––––––– At 31 December 2018 (a) Global technology licence This licence grants the Group an exclusive, perpetual, world-wide licence of the rights to use, deploy and manufacture certain proprietary technology in respect of turbines and related infrastructure used in tidal energy generation. The Group estimated that the technology has a useful life of approximately 15 years. (b) Intellectual property Intellectual property includes technical know-how, international patent applications and registered trademarks of the Company. The Group estimated that the intellectual property costs have a useful life of approximately 15 years. (c) Development costs/Development project-in-progress Development costs include expenditure on planning or designing activities for the production of new or substantially improved tidal turbine products and processes. Upon commercialisation of the Group’s AR1500 turbine, the technology was transferred from Development project-in-process to Development costs and commenced amortisation. The Group estimated that the development costs have a useful life of approximately 15 years. (d) Seabed options Seabed options relate to options that allow the Group to enter into a 25-year lease to use the seabed for development and operation of the tidal stream energy projects. The seabed options will commence amortisation when leases are entered into for these projects. (e) Tidal data Tidal data relates to key information on tidal ﬂows that is crucial to the development of the MeyGen project and little or no obsolescence is expected. The tidal data will be amortised over the life of the project upon commissioning of the project. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 61 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 62 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 12. INVESTMENTS Investments in Subsidiaries Company 2018 £’000 Unquoted equity shares, at cost 5,369 1 January 57,909 Movement –––––––––– 63,278 –––––––––– 31 December Details of the subsidiaries are as follows: Proportion of ownership interest and voting power held Country of incorporation/ registration and 2018 2017 Name of subsidiary Principal activities operation % % Atlantis Turbines Pte. Limited(3) Investment holding Singapore 100 100 Atlantis Energy Pte Limited(1) Dormant Singapore 100 100 Atlantis Licensing Pte Limited(1) Dormant Singapore 100 100 ARC Operations (Singapore) Pte Limited(1)(6) Dormant Singapore – 100 Atlantis Projects Pte. Ltd.(3) Investment holding Singapore 100 100 Atlantis Resources International Pte Limited(1)(6) Dormant Singapore – 100 Atlantis Resources (Gujarat Tidal) Pte Limited(1) Dormant Singapore 50 50 ARC Operations Pty Limited(4) Provision of operational services to the Group Australia 100 100 Current Resources (Cayman) Limited(4)(a) Provision of operational and administrative services to the Group Cayman Islands – 100 Atlantis Resources (Scotland) Limited(5) Provision of project management and consulting services United Kingdom 100 100 Atlantis Ocean Energy plc(5) Financial services United Kingdom 100 100 Atlantis Future Energy plc(5)(7) Financial services United Kingdom 100 N/A SIMEC Uskmouth Power Limited(d)(5) Development of renewable energy generation project United Kingdom 100 N/A Name of subsidiary held by Atlantis Projects Pte. Limited Tidal Power Scotland Limited(5) Investment holding United Kingdom 92 92 Stroma Tidal Power Limited(5) Development of tidal power generation project United Kingdom 100 100 Wide Range Developments Limited(1) Dormant United Kingdom 100 100 62 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 63 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 12. INVESTMENTS continued Proportion of ownership interest and voting power held Country of incorporation/ registration and 2018 2017 Name of subsidiary Principal activities operation % % Name of subsidiary held by Tidal Power Scotland Limited MeyGen Holdings Limited(5) Investment holding United Kingdom 83 83 Islay Holdings Limited(5) Investment holding United Kingdom 100 100 Duncansby Tidal Power Limited(1) Dormant United Kingdom 100 100 Name of subsidiary held by MeyGen Holdings Limited MeyGen PLC(2)(5)(8) Development of tidal power generation project United Kingdom 100 100 Name of subsidiary held by Islay Holdings Limited Islay Tidal Power Limited(5) Development of tidal power generation project United Kingdom 100 100 Name of subsidiary held by Atlantis Turbines Pte Limited Atlantis Operations (UK) Provision of operational Limited(5)(a) services to the Group United Kingdom 100 100 Marine Current Turbines Limited(5) Development of turbines and projects United Kingdom 100 100 Name of subsidiary held by Marine Current Turbines Limited Sea Generation Limited(5) Development of tidal power generation project United Kingdom 100 100 Sea Generation (Wales) Limited(5) Development of tidal power generation project United Kingdom 100 100 Sea Generation (Kyle Rhea) Development of tidal power Limited(5) generation project United Kingdom 100 100 Sea Generation (Brough Ness) Development of tidal power Limited(5) generation project United Kingdom 100 100 (1) Not required to be audited as the subsidiaries are dormant. (2) As at 31 December 2018 and 31 December 2017, shares in MeyGen Limited were pledged as security on long term loans (see Note 19). (3) Audited by KPMG LLP, Singapore. (4) Not required to be audited by law in its country of incorporation. (5) Audited by KPMG LLP, United Kingdom. (6) Companies struck off on 7 May 2018. (7) Incorporated on 26 January 2018. (8) On 14 June 2019, the company re-registered from a private company to a public company. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 63 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 64 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 12. INVESTMENTS continued (a) Transfer of ownership of Atlantis Operations (UK) Limited On 14 December 2017, ownership of Atlantis Operations (UK) Limited (“AOU”) transferred from Current Resources (Cayman) Limited (“CRC”) to Atlantis Turbines Pte Limited (“ATPL”). Both parties to the transaction are wholly owned subsidiaries of the Company. No gain or loss was realised in CRC. CRC was struck off on 30 March 2018. As at 31 December 2017, the investment held by the Company was written down to zero. (b) Share-based payments During the ﬁnancial year, share-based payments granted by the Company to the employing subsidiaries, Atlantis Resources (Scotland) Limited (“ARSL”), Marine Current Turbines Limited (“MCT”) and AOU resulted in an increase to the deemed investments by the Company in those subsidiaries totalling £155,000 (2017: £321,000). (c) Dilution of interest in subsidiaries Tidal Power Scotland Limited (“TPSL”) As at 31 December 2017 and 31 December 2018, Scottish Power Renewables (“SPR”) has an equity investment of 6% of the shareholding in TPSL. In 2016, in exchange for 6% of TPSL shareholding, the Group received the SPR portfolio of tidal projects valued at £6.6 million. The SPR tidal power portfolio, which is recorded as intangible assets, consists of two sites: a 10 MW project at the Sound of Islay in Western Scotland and a 100 MW development at the Ness of Duncansby, Scotland. The project assets include agreements for lease with The Crown Estate for both sites, as well as governmental grid connection offer and construction consents for the Sound of Islay site. The Sound of Islay project has been awarded £17.3 million (€20.7 million) of grant funding from the European Commission’s NER300 fund by way of capital and revenue support. In August 2016, DEME Concessions NV, a member of the DEME Group, (“DEME”) acquired an equity investment of 2% in TPSL, for £2 million cash. DEME Group undertook an active role in the MeyGen Phase 1A installation through DEME’s subsidiary, Geosea NV (“Geosea”), a specialist in complex offshore marine engineering projects. Geosea installed all heavy turbine foundation structures for MeyGen Phase 1A with its jack-up vessel MV “Neptune”. In addition, DEME has certain rights in respect of further equity funding at ﬁnancial close of the Sound of Islay project and Phase 1C of the MeyGen project. The Group retains the remaining 92% shareholding of TPSL. MeyGen Holdings Limited (“MGHL”) As at 31 December 2017 and 31 December 2018, Scottish Enterprise, as administrator of the Renewable Energy Investment Fund, had made an equity investment of £12.1 million in MGHL, while the Company, via Atlantis Projects Pte Ltd (“APPL”) and TPSL, had subscribed for a total of £9.7 million in new shares of MGHL. As a result, Scottish Enterprise has a 16.55% shareholding in MGHL, with APPL retaining the remaining shareholding of 83.45% via TPSL. 64 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 65 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 12. INVESTMENTS continued The following table summarises the information relating to the material non-controlling interest (“NCI”) in MeyGen Limited, based on its ﬁnancial statements prepared in accordance with IFRS, modiﬁed for fair value adjustments on acquisition and differences in the Group’s accounting policies. Group NCI percentage Non-current assets Current assets Non-current liabilities Current liabilities 2018 2017 £’000 £’000 23% 23% 64,072 66,384 3,460 4,870 (34,832) (33,311) (3,627) (2,553) Net assets Net assets attributable to NCI 29,073 35,390 6,753 8,220 Cash ﬂows from operating activities Cash ﬂows used in investing activities Cash ﬂows from ﬁnancing activities (800) 39 (425) (5,630) (228) 748 –––––––––– –––––––––– (1,453) (4,843) –––––––––– –––––––––– Net decrease in cash and cash equivalents 2018 2017 £’000 £’000 (6,317) 1,201 (Loss)/proﬁt for the year –––––––––– –––––––––– (6,317) 1,201 Total comprehensive income –––––––––– –––––––––– Attributable to NCI: (1,465) 279 (Loss)/proﬁt for the year –––––––––– –––––––––– (1,465) 279 Total comprehensive income –––––––––– –––––––––– (d) Acquisition of SIMEC Uskmouth Power Limited (“SUP”) On 15 June 2018, pursuant to a sale and purchase agreement dated 14 December 2017, the Company successfully completed the acquisition of the whole of the issued share capital of SUP, a company incorporated in the United Kingdom, from SIMEC UK Energy Holdings Limited (“SIMEC”), a member of the GFG Alliance. The acquisition was undertaken to create a diversiﬁed renewable energy platform and it is proposed that the 220MW of capacity at the SUP power station in Wales will be converted to use a waste derived energy pellet as fuel. Consideration for the purchase was the issuance by the Company of new shares to SIMEC such that, immediately following the issuance of such shares, SIMEC became a 49.99% shareholder of the Company and Group. On the basis of the Company’s share placing price of 0.35 pence per share, which completed concurrently with the share issue, the fair value of the 152.6 million consideration shares issued was £53.4 million. Additionally, by way of automatic conversion pursuant to the terms of the Sale and Purchase Agreement and the SIMEC Loan Agreement, 30.4 million loan completion shares were issued, giving a total of 183 million new ordinary shares. As a result of the £10.6 million loan completion shares issued to SIMEC, the loan balance due from SUP to SIMEC was reassigned to Atlantis. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 65 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 66 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 12. INVESTMENTS continued The acquisition-related costs amounting to £4.2 million, excluded from the consideration transferred, were included in the cost of investment. £3.6 million of expenses were recognised in the consolidation statement of comprehensive income in 2018. The balance of £0.6 million was incurred during 2017. The acquisition related costs were expensed in the Group consolidated results whilst at Company level they were capitalised in the cost of the investment. The acquired business contributed losses and revenue amounting to £5.5 million and £nil respectively to the Group’s results for the period from 15 June 2018 to 31 December 2018. Had SUP been consolidated from 1 January 2018 the Group’s consolidated loss before tax and consolidated revenue for the year to 31 December 2018 would have been £27.7 million and £2.4 million respectively. A purchase price allocation was conducted to determine the valuation of the acquisition resulting in a fair value adjustment to plant, property and equipment. The fair value of ﬁxed assets was derived by using the Company valuation, based on the market based transaction, and deducting the fair value of other assets and liabilities. The book value of SUP differs from that provisionally disclosed in the Company’s 30 June 2018 Interim results due to unrecorded liabilities of £0.2 million, as a result of the ﬁnal working capital adjustments. No goodwill or bargain purchase price arose on the business combination. The following summarises the identiﬁable assets acquired and liabilities assumed at the acquisition date at their provisional fair value: Non-current assets Property, plant and equipment Current assets Inventory Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Book value before business Fair value combination adjustment Fair value £’000 £’000 £’000 80,116 175 80,291 986 – 986 1,784 – 1,784 57 – 57 (4,166) – (4,166) Non-current liabilities (12,687) – (12,687) Loans and borrowings Provisions (12,840) – (12,840) –––––––––– –––––––––– –––––––––– Total net assets 53,250 175 53,425 –––––––––– –––––––––– Purchase consideration shares issued 53,425 57 Cash held in subsidiary –––––––––– Cash inﬂow on acquisition 57 –––––––––– Investment in joint venture: On 19 December 2018, the Company completed the sale of its 50% interest in Atlantis Operations (Canada) Limited (“AOC”) to its joint venture partner DP Energy. Following completion, AOC will be renamed Rio Fundo Operations Canada Ltd. The transaction returned C$400,000 (£168,000) to the Group. 66 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 67 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 13. LOANS RECEIVABLE Group Company Loans to subsidiaries: – Interest-bearing(a) – Non-interest bearing(b) Loan to joint venture(c) Less expected credit loss Loans receivable 2018 2017 2018 2017 £’000 £’000 £’000 £’000 – – 1,089 1,030 – – 11,075 11,075 –––––––––– –––––––––– –––––––––– –––––––––– – – 12,164 12,105 – 1,208 – 1,217 – (1,040) – (1,040) –––––––––– –––––––––– –––––––––– –––––––––– – 168 12,164 12,282 –––––––––– –––––––––– –––––––––– –––––––––– (a) The Company has provided a loan to MeyGen Limited which is interest-bearing with an interest rate of 12-month LIBOR plus 5% per annum, unsecured and repayable in February 2030. (b) In 2014, the Company extended a loan to APPL, which is interest-free and unsecured. The loan is repayable on demand. Management has no current intention to recall this loan in the foreseeable future. (c) During 2017, a bad debt provision of £1.04 million relating to the loan to joint venture was recognised as an expense in the proﬁt and loss as a result of the decision to exit AOC. The outstanding balance was received on disposal completion (see Note 12). As these balances are, in substance, part of the Company’s net investments in the subsidiaries or joint venture, they are stated at cost less impairment losses, if any. 14. TRADE AND OTHER RECEIVABLES Group Company Trade receivables Deposits Accrued revenue Value added tax recoverable Other receivables Non-trade receivables due from subsidiaries Less: Expected credit loss Financial assets at amortised cost under IFRS 9 Prepayments Non-current Current 2018 2017 2018 2017 £’000 £’000 £’000 £’000 308 352 161 – 1,453 1,824 – 7 399 – – – 493 – 97 14 1,057 979 – 392 – – 39,928 19,863 – – (496) (496) –––––––––– –––––––––– –––––––––– –––––––––– 3,710 3,155 39,690 19,780 446 260 442 681 –––––––––– –––––––––– –––––––––– –––––––––– 4,156 3,415 40,132 20,461 –––––––––– –––––––––– –––––––––– –––––––––– – – 39,432 19,367 4,156 3,415 700 1,094 –––––––––– –––––––––– –––––––––– –––––––––– 4,156 3,415 40,132 20,461 –––––––––– –––––––––– –––––––––– –––––––––– ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 67 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 68 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 14. TRADE AND OTHER RECEIVABLES continued The non-current receivables due from subsidiaries are unsecured, interest-free, and settlement is neither planned nor likely to occur in the foreseeable future. The balances are stated at cost less impairment losses, if any. At the end of the reporting period, the Company had a provision for expected loss allowance of £496,000 (2017: £496,000) in relation to balances receivable from inactive subsidiaries as recovery of the amounts due is not considered probable. No other expected credit loss has been recognised. The Group’s and the Company’s exposure to credit and currency risks are as set out in Note 26. 15. INVENTORY Group Group 2018 2017 £’000 £’000 Inventory acquired on acquisition of a subsidiary (Note 12) 986 – –––––––––– ––––––––––– Inventory acquired as a result of the acquisition of SUP relates to £120k coal stock, and £866k spare parts and consumables. 16. CASH AND CASH EQUIVALENTS Group Company Cash at bank Fixed deposits Cash on hand Cash and cash equivalents in the statements of ﬁnancial position Less: Encumbered deposits Cash and cash equivalents in the statement of cash ﬂows 2018 2017 2018 2017 £’000 £’000 £’000 £’000 8,349 3,800 5,342 96 916 1,778 – – 2 1 – – –––––––––– –––––––––– –––––––––– –––––––––– 9,267 5,579 5,342 96 (916) (1,778) – – –––––––––– –––––––––– –––––––––– –––––––––– 8,351 3,801 5,342 96 –––––––––– –––––––––– –––––––––– –––––––––– The encumbered deposits served as collateral on behalf of MeyGen Limited, in support of the provision of bank guarantees and standby letters of credit as required under the terms of MeyGen’s seabed lease and to secure the MeyGen project’s electricity transmission capacity (Note 30). The Group’s exposure to interest rate risks is described in Note 26. 68 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 69 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 17. TRADE AND OTHER PAYABLES Group Company Trade payables Other payables Accruals Value added tax payable Non-trade payables due to subsidiaries Non-trade payables due to a related party Other ﬁnancial liabilities Advanced receipts 2018 2017 2018 2017 £’000 £’000 £’000 £’000 2,626 1,366 1,065 333 434 395 5 69 375 771 133 659 – 76 – – – – 904 503 994 – – – –––––––––– –––––––––– –––––––––– –––––––––– 4,429 2,608 2,107 1,564 4,094 2,604 – – –––––––––– –––––––––– –––––––––– –––––––––– 8,523 5,212 2,107 1,564 –––––––––– –––––––––– –––––––––– –––––––––– The non-trade balances due to subsidiaries and related parties are unsecured, interest-free and repayable on demand. Trade and other payables include £479,000 relating to property, plant and equipment (2017: £443,000). In January 2017, the European Commission awarded £17.3 million (€20.3 million) in Horizon 2020 grant funding for the DEMOTIDE project, which will design, build and operate a 6MW turbine array, Project Stroma, in the Inner Sound of the Pentland Firth in northern Scotland. The DEMOTIDE project will demonstrate the technical and commercial viability of drilled foundation systems and larger rotor diameter turbines, further de-risking the industry and providing a robust path to signiﬁcant cost reduction in the European tidal power sector. Advanced receipts include deferred grant income of £2.6 million (2017: £2.6 million) and the lease premium of £1.5 million (2017: nil) received as part of the acquisition of SUP (Note 28). The Group’s and the Company’s exposure to currency and liquidity risks related to trade and other payables are described in Note 26. 18. PROVISIONS Group Company At 1 January 2018 Provisions acquired on acquisition of a subsidiary (note 12) Provision made during the year Provision utilised during the year Unwinding of discount on decommissioning provision At 31 December 2018 Non current Current Provision for decommissioning Other Other costs provision Total provision £’000 £’000 £’000 £’000 3,134 386 3,520 291 12,820 20 12,840 – 264 – 264 – (601) (270) (871) (250) 148 – 148 – –––––––––– –––––––––– –––––––––– –––––––––– 15,765 136 15,901 41 –––––––––– –––––––––– –––––––––– –––––––––– 14,282 – 14,282 – 1,483 136 1,619 41 –––––––––– –––––––––– –––––––––– –––––––––– 15,765 136 15,901 41 –––––––––– –––––––––– –––––––––– –––––––––– ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 69 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 70 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 18. PROVISIONS continued Provision for decommissioning costs The provision for decommissioning costs includes the present value of the best estimate of direct costs that may be incurred to remove the turbine foundations from the seabeds including: Sea Generations Limited’s project at Strangford Lough, Northern Ireland; and the MeyGen project located in the Inner Sound of the Pentland Firth. Strangford Lough decommissioning commenced in 2018 and is expected to complete in 2019, and MeyGen is not anticipated until 2043. The Groups testing berth at the European Marine Energy Centre (“EMEC”) in Scotland completed decommissioning in 2018. The provision acquired is the present value of the best estimate of direct costs that may be incurred to restore the site of the SUP power station to a condition that complies with applicable legislation, which is anticipated to take place in approximately 2040. The provision is based upon an estimate of the timing and current cost of this exercise, adjusted for the effects of inﬂation and discounted to present value using an appropriate discount rate. A 5% increase in the estimate of current cost would increase the recorded provision by approximately £0.6 million in each ﬁnancial year, a 0.1% increase in estimated inﬂation would increase the recorded provision by approximately £0.3 million in each ﬁnancial year and a 0.1% increase in discount rate would increase the recorded provision by approximately £0.3 million in each ﬁnancial year. Other provisions The other provision represents short term provisions for spend anticipated to be settled during 2019. 19. LOANS AND BORROWINGS The Group’s and the Company’s total loans and borrowings are as follows: Group Company 2018 2017 2018 2017 Notes £’000 £’000 £’000 £’000 Current loans and borrowings Secured bridging loan from non-controlling interest Secured long term loans Loans from a related party Financial guarantees Non-current loans and borrowings Loan from a subsidiary Loans from a related party Long term loan Secured long term loans Long term debentures Total loans and borrowings (a) – 1,123 – – (e) 738 4,401 – – (c) 2,027 – – – – – 130 174 –––––––––– –––––––––– –––––––––– –––––––––– 2,765 5,524 130 174 –––––––––– –––––––––– –––––––––– –––––––––– (b) – – 377 361 (c) 4,714 4,311 – – (d) 4,665 4,264 – – (e) 20,000 18,860 – – (f) 9,476 4,950 – – –––––––––– –––––––––– –––––––––– –––––––––– 38,855 32,385 377 361 –––––––––– –––––––––– –––––––––– –––––––––– 41,620 37,909 507 535 –––––––––– –––––––––– –––––––––– –––––––––– (a) Secured bridging loan from non-controlling interests Scottish Enterprise, as the administrator of the Renewable Energy Investment Fund, extended a £2 million bridging loan to one of the Company’s wholly owned subsidiaries, which was drawn upon the completion of the acquisition of Marine Current Turbines Limited (“MCT”), with the Company as a guarantor. The loan was denominated in British pounds, with a ﬁxed interest rate of 15% per annum, and was fully settled on 27 April 2018 using proceeds from the bond issue (Note f). 70 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 71 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 19. LOANS AND BORROWINGS continued (b) Loan from a subsidiary The loan from a subsidiary is denominated in British pounds, is interest-bearing with an interest rate of 5.0% per annum, unsecured and is repayable in February 2021. The fair value of the loan at the end of the reporting period was approximately £382,000 (2017: £364,000). (c) Loans from a related party Loans from Morgan Stanley Capital Group Inc. (“MSCGI”) totalling £4,714,000 (2017: £4,311,000) are treated as related party loans, given that MSCGI is a related party of Morgan Stanley Renewables, a shareholder of the Company. The loans from MSCGI are denominated in British pounds, with ﬂoating interest rates in the range of 5.0% to 6.06% per annum, are unsecured and are repayable in February 2021. At the end of the reporting period, the carrying value of the loans approximate their fair value. The loan from SIMEC Group Limited (“SIMEC”) of £2,027,000 (2017: nil) is treated a related party loan, given that SIMEC is a shareholder of the company. The loan was acquired on the acquisition of SUP (see Note 12). The loan is denominated in British pounds, interest free and repayable on 31 December 2019. In the earlier event of a share fundraise the loan is automatically converted into shares in the Company pursuant to compliance with the contractual relationship agreement requiring SIMEC Group to hold 49.9% or less of share capital in issue. (d) Long term loan The loan is denominated in British pounds, with a ﬂoating rate of interest in the range 5.72% to 5.92% per annum (2017: 5.90% to 5.92%), is unsecured and is repayable in February 2021. At the end of the reporting period, the carrying value of the loan approximates its fair value. (e) Secured long term loans Atlantis Resources (Scotland) Limited (“ARSL”) In February 2014, ARSL, a wholly owned subsidiary of the Company, entered into a loan agreement for £2 million with Scottish Enterprise (as administrator of the Renewable Energy Investment Fund) as the lender, with the Company as a guarantor. The loan of £2 million was used to support the development of ARSL’s engineering hub in Scotland and the development of the initial phase of the MeyGen project. The interest rate for the loan was 12.0% per annum, with interest capitalising on 30 June and 31 December of each year and repayable upon maturity of the loan. The loan and interest were fully settled on 3 July 2018. On 28 April 2015, ARSL, with the Company as guarantor, entered into a loan agreement with GEG (Holdings) Ltd to borrow £0.5 million. The loan had a three-year term with interest rate of 4.5% per annum capitalising and not payable until maturity of the loan. These loans were secured on the assets of MCT, AOU and ARSL. The loan and interest were fully settled on 3 July 2018. MeyGen Limited (“MeyGen”) In August 2014, as part of the Phase 1A MeyGen project ﬁnancing, Scottish Enterprise (as administrator of the Renewable Energy Investment Fund) extended a loan of £7.5 million to MeyGen to ﬁnance the construction of the project. The Crown Estate Commissioners committed an investment of £9.8 million to MeyGen, also to ﬁnance the construction of the Phase 1A project, which will be serviced through the payment of “enhanced rent”, with an exit payment at or before the date 10 years from commissioning of Phase 1A of the project. During 2018 enhanced rent payments of £151,000 (2017: nil) were paid. The Scottish Enterprise loan and the Crown Estate investment to MeyGen are denominated in British pounds, and are repayable in the period from 2018 to 2027. The effective interest rates on these loans are in the range of 7% to 7.8% per annum. As at 31 December 2018, the total loans drawn down were £17.3 million (2017: £17.3 million). During 2018 £89,000 (2017: nil) was repaid. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 71 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 72 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 19. LOANS AND BORROWINGS continued The Group’s secured long term loans are secured by way of ﬁxed and ﬂoating charges over the assets of subsidiaries as well as MeyGen Limited’s shares. There was no breach of any loan covenants during the year. At the reporting date, the Company does not consider it probable that a claim will be made against the Company under the guarantees as described above. The Group’s and the Company’s exposures to interest rate, foreign currency and liquidity risks are described in Note 26. (f) Long term debentures On 25 July 2017, the Group, via its subsidiary company Atlantis Ocean Energy PLC, raised £5.0 million through a ﬁve-year bond with a coupon of 8%, payable semi-annually, and maturing in 2022. The bond was offered through Abundance Investment Limited, the provider of a regulated green peer-to-peer investment platform. In the period from April to June 2018, the Group, via its subsidiary company Atlantis Future Energy PLC, raised £5.0 million through a ﬁve-year bond with a coupon of 8%, payable semi-annually, and maturing in 2023. This bond was offered through Abundance Investment Limited. Reconciliation of movements of liabilities to cash ﬂows arising from ﬁnancing activities: Loans and other borrowings 2018 2017 £’000 £’000 Balance as at 1 January Proceeds from borrowings Acquired on acquisition of a subsidiary (Note 12) Repayment of borrowings Interest expense Interest capitalised Interest paid Other 37,909 32,382 4,970 4,950 2,027 – (5,192) (2,100) 2,657 1,329 152 1,433 (696) (166) (207) 81 –––––––––– –––––––––– 41,620 37,909 –––––––––– –––––––––– Balance as at 31 December 20. DEFERRED TAX LIABILITIES Movements in deferred tax liabilities of the Group are as follows: 3,830 (575) –––––––––– 1 January 2017 Effect of reduction in tax rates Group £’000 At 31 December 2017 Unwind historic fair value adjustment As a result of business combinations (Note 12) 3,255 (120) 667 –––––––––– 3,802 –––––––––– At 31 December 2018 72 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 73 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 20. DEFERRED TAX LIABILITIES continued The deferred tax liability was recognised due to the fair valuation of the seabed option and tidal data upon acquisition of MeyGen in 2013 and began unwinding in 2018 when MeyGen Phase 1A entered its operating phase. During 2018, £667,000 was recognised as a result of the acquisition of SUP relating to deferred tax on the revaluation of ﬁxed assets. In 2017, the liability was adjusted to reﬂect the future reduction in corporate tax rates from 20% to 17% as a result of the Finance Act 2016. 21. SHARE CAPITAL Group and Company Number of ordinary shares with no par value ’000 £’000 Issued and paid up during the year: 116,956 91,220 At 1 January 2017 9,000 4,050 Public offerings issued for cash Transaction costs incurred in relation to share issuance – (240) –––––––––– –––––––––– 125,956 95,030 At 31 December 2017 57,143 20,000 Public offerings issued for cash Issued in business combinations (Note 12) 183,099 64,085 Transaction costs incurred in relation to share issuance – (897) –––––––––– –––––––––– 366,198 178,218 –––––––––– –––––––––– At 31 December 2018 On 21 May 2018, the Company raised £20 million, before expenses, through the placing of 57.1 million new ordinary shares at a placing price of 35 pence per share. On 15 June 2018, the Company issued 183 million new ordinary shares at a placing price of 35 pence per share, of which 152.6 million were consideration shares and 30.4 million were loan completion shares, both of which relate to the acquisition of SUP. During the year, £897,000 (2017: £240,000) of expenses were incurred incidental to the issuance of shares. During the prior year, on 24 May 2017, the Company raised £4.1 million, before expenses, through the placing of 9 million new ordinary shares at a placing price of 45 pence per share. 22. CAPITAL RESERVE The capital reserve consists of the difference between the carrying value of net assets transferred to and the consideration received from the non-controlling interest. 23. TRANSLATION RESERVE The translation reserve is comprised of all foreign currency differences arising from the translation of the ﬁnancial statements of foreign operations. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 73 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 74 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 24. SHARE OPTIONS The share option reserve represents the equity-settled share options granted to employees. The reserve is made up of the cumulative value of services received from employees recorded on grant date. The expense for services received will be recognised over the vesting period. Long Term Incentive Plan (“LTIP”) In 2013, the Company approved an LTIP. During the year, 722,000 share options were granted under the LTIP (2017: 636,000). The options outstanding at 31 December 2018 have a weighted average contractual life of 5.2 years (2017: 1.69 years). No options were exercised in 2018 and 2017. Details of the share options outstanding are as follows: Group and Company Weighted Number of average share options exercise price ’000 £ Outstanding at 31 December 2017 Outstanding at 1 January 2017 Granted during the year Cancelled and modiﬁed 5,877 0.740 636 0.500 (525) 0.500 –––––––––– –––––––––– 5,988 0.780 –––––––––– –––––––––– 722 0.371 (1,258) 0.835 –––––––––– –––––––––– 5,452 0.650 –––––––––– –––––––––– 3,275 0.686 –––––––––– –––––––––– Granted during the year Cancelled Outstanding at 31 December 2018 Exercisable at 31 December 2018 Exercisable at 31 December 2017 4,148 0.820 The share options on issue expire between 2019 and 2028. In 2018 £525,000 (2017: £84,000) was transferred from the share option reserve to accumulated losses upon expiry of the share options. Company Share Option Plan (“CSOP”) On 10 November 2016, the Company established a CSOP to offer share options to employees. No share options were granted under the CSOP in the year (2017: nil). The options outstanding at 31 December 2018 have a weighted average contractual life of 7.86 years (2017: 8.86 years). No options were exercised in 2018 and 2017. 74 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 75 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 24. SHARE OPTIONS continued Details of the share options outstanding are as follows: Group and Company Weighted Number of average share options exercise price ’000 £ Outstanding at 1 January 2017 Cancelled 486 0.700 (115) 0.700 –––––––––– –––––––––– 371 0.700 (14) 0.700 –––––––––– –––––––––– 357 0.700 –––––––––– –––––––––– Outstanding at 31 December 2017 Cancelled Outstanding at 31 December 2018 No options were exercisable at 31 December 2018 (2017: none). The fair values for the above share options were calculated using the Black-Scholes pricing model. The inputs into the model for share options granted are as follows: 2018 2017 Fair value of options on date of grant £0.01 ~ £0.11 £0.05 ~ £0.07 Share price £0.36 £0.32 ~ £0.38 Exercise price £0.35 ~ £0.50 £0.50 Expected volatility 41.20% 41.65% ~ 42.14% Expected life 0.5 ~ 3 years 3 years Risk free rate 1.33% 0.75% ~ 1.56% Expected dividend yield 0% 0% Expected volatility was determined by calculating the historical volatility of the Company’s stock. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The Group and the Company recognised total expenses of £184,000 (2017: £364,000), related to equity-settled share-based payment transactions during the year and this is included as part of employee beneﬁts expense (Note 6). ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 75 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 76 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 25. EARNINGS PER SHARE The calculation of earnings per share is based on the loss after tax and on the weighted average number of ordinary shares in issue during each year. Loss Weighted average Loss after tax number of shares per share 2018 £’000 2017 2018 2017 2018 2017 £’000 ’000 ’000 £ £ Basic and diluted (24,044) –––––––––– (10,564) 261,008 122,282 (0.09) (0.09) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Group Weighted average number of ordinary shares 2018 2017 ’000 ’000 125,956 116,956 Issued ordinary shares at 1 January 35,225 5,326 Effect of public offerings issued for cash Effect of shares issued in relation to business combination 99,827 – –––––––––– –––––––––– 261,008 122,282 –––––––––– –––––––––– Weighted average number of shares at end of the year Share options were excluded from the diluted weighted-average number of ordinary shares calculation as their effect would have been anti-dilutive. The average market value of the Company’s shares for the purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding. 26. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT The Group is exposed to various ﬁnancial risks arising in the normal course of business. It has adopted ﬁnancial risk management policies and utilised a variety of techniques to manage its exposure to these risks. (a) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in ﬁnancial loss to the Group. There are no signiﬁcant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each ﬁnancial asset as at the end of the reporting period. Loans and receivables Loans and receivables are detailed in section (d) below. All balances are considered to be recoverable and are not past due. The total expected credit loss (“ECL”) provision relating to loans and receivables for the Group is £nil (2017: £1,040,000) and the Company is £496,000 (2017: £1,536,000). See Notes 13 and 14 for further detail of loans and receivables balances. Cash and cash equivalents The Group held cash of £9.3 million at 31 December 2018 (2017: £5.6 million). Cash at bank is held with banks and ﬁnancial institution counterparties that are licensed in the countries in which the Group operates and that are rated AA- based on Standard & Poor’s ratings. 76 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 77 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 26. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT continued Guarantees At 31 December 2018 and 2017, the Company issued guarantees to a lender in respect of credit facilities granted to a subsidiary (Note 30). (b) Liquidity risk The Group actively manages its operating cash ﬂows and the availability of funding through maintaining sufficient cash and cash equivalents to ﬁnance its activities. Current ﬁnancial liabilities in 2017 and 2018 are repayable on demand or due within one year from the end of the reporting period. Other than certain loans, the remaining ﬁnancial liabilities are non-interest bearing. Analysis of ﬁnancial instruments by remaining contractual maturities The table below summarises the maturity proﬁle of the Group’s and the Company’s ﬁnancial liabilities at the end of the reporting period based on the contractual undiscounted repayment obligations. Contractual cash ﬂows Group Notes Carrying One year Two to Over amount Total or less ﬁve years ﬁve years £’000 £’000 £’000 £’000 £’000 2018 Financial liabilities Trade and other payables Loans from a related party Long term loan Long term debentures Secured long term loans 2017 Financial liabilities Trade and other payables Secured bridging loan from non-controlling interests Loans from a related party Long term loan Long term debentures Secured long term loans 17 4,429 4,429 4,429 – – 19 6,741 7,627 2,027 5,600 – 19 4,665 5,546 – 5,546 – 19 9,476 12,895 794 12,101 – 19 20,738 34,996 738 9,355 24,903 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 46,049 65,493 7,988 32,602 24,903 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 17 2,608 2,608 2,608 – – 19 1,123 1,135 1,135 – – 19 4,311 5,568 – 5,568 – 19 4,264 5,514 – 5,514 – 19 4,950 6,730 396 6,334 – 19 23,261 34,356 5,057 8,460 20,839 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 40,517 55,911 9,196 25,876 20,839 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 77 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 78 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 26. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT continued Contractual cash ﬂows Company Notes Carrying One year Two to Over amount Total or less ﬁve years ﬁve years £’000 £’000 £’000 £’000 £’000 2018 Financial liabilities Trade and other payables Financial guarantees Loan from a subsidiary 2017 Financial liabilities Trade and other payables Financial guarantees Loan from a subsidiary (c) Market risk 17 2,107 2,107 2,107 – – 19 130 3,500 3,500 – – 19 377 423 – 423 – –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 2,614 6,030 5,607 423 – –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 17 1,564 1,564 1,564 – – 19 174 6,500 6,500 – – 19 361 423 – 423 – –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 2,099 8,487 8,064 423 – –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– Currency risk The Group transacts business in various foreign currencies, including the Australian dollar, Euro, United States dollar, Canadian dollar and Singapore dollar, and is hence exposed to foreign exchange risk. At the end of the reporting period, the carrying amounts of monetary assets and monetary liabilities denominated in currencies other than the respective Group entities’ functional currencies are as follows: Group Company Liabilities Assets Liabilities Assets 2018 2017 2018 2017 2018 2017 2018 2017 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Australian dollars 5 3 6 8 – 1 1 3 Euros 312 15 3 288 311 – 1 1 United States dollars 1 95 3 2 – – 3 2 Canadian dollars – – – 177 – – – 177 Singapore dollars 4 56 76 35 4 42 72 31 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– 78 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 79 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 26. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT continued Foreign currency sensitivity The sensitivity rate used when reporting foreign currency risk is 10%, which is the sensitivity rate that represents management’s assessment of the likely potential change in foreign exchange rates. If the relevant foreign currencies were to strengthen by 10% against the functional currency of each Group entity, proﬁt and loss (before tax) and equity will increase (decrease) by: Group Company Equity Proﬁt and loss (before tax) Equity Proﬁt and loss (before tax) 2018 2017 2018 2017 2018 2017 2018 2017 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Australian dollars – – – – – – – – Euros – – 31 27 – – 31 – United States dollars – – – (9) – – – – Canadian dollars – 18 – 18 – – – (18) Singapore dollars – – (7) (2) – – (7) 1 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– If the relevant foreign currency weakens by 10% against the functional currency of each Group entity, the effects on proﬁt and loss and equity will be vice versa. Interest rate risk Interest rate risk arises from the potential change in interest rates that may have an adverse effect on the Group in the current reporting year or in future years. The Group’s exposure to interest rate risk is limited to the effects of ﬂuctuation in bank interest rate on cash and cash equivalents as well as LIBOR rates on certain loans and borrowings. For variable rate ﬁnancial instruments, a change of 100 basis points (bps) in interest rate with all other variables held constant would increase/decrease proﬁt/loss before tax by £84,000 (2017: £13,000). Equity price risk The Group is not exposed to equity price risks as it does not hold any quoted equity investments. Capital management policies and objectives The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balances. The capital structure of the Group and the Company consists of equity attributable to owners of the parent and loans and borrowings amounting to £154.3 million (2017: £89.8 million) and £120.6 million (2017: £38.4 million), respectively. There are no changes in the Group’s approach to capital management during the ﬁnancial year. The Company is not subject to externally imposed capital requirements. Except for one subsidiary that is subject to loan restrictions and dividend distributions, such restrictions are complied with and capital relating to that subsidiary is ring fenced as required by these capital requirements. None of the other subsidiaries are subject to externally imposed capital requirements. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 79 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 80 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 26. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT continued (d) Accounting classiﬁcations and fair values Except as detailed in the following table, the Directors consider that the carrying amounts of the ﬁnancial assets and ﬁnancial liabilities recognised in the consolidated ﬁnancial statements approximate their fair values. The fair values of the ﬁnancial instruments have been determined based on discounted future cash ﬂows using Level 3 hierarchy, which are derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data. 2018 2017 Carrying Fair Carrying Fair value value value value Note £’000 £’000 £’000 £’000 Group Financial Assets Loans receivable Trade and other receivables Cash and cash equivalents Financial assets at amortised cost under IFRS9 Financial liabilities Trade and other payables Secured long term loans Other loans and borrowings Liabilities at amortised cost Company Financial assets Loans receivable Trade and other receivables Cash and cash equivalents Financial assets at amortised cost under IFRS9 Financial liabilities Trade and other payables Loan from a subsidiary Other loans and borrowings Liabilities at amortised cost 13 – 168 14 3,710 3,155 16 9,267 5,579 –––––––––– –––––––––– 12,977 8,902 –––––––––– –––––––––– 17 4,429 2,608 19 20,738 20,023 23,261 23,259 19 20,882 21,387 14,648 14,284 –––––––––– –––––––––– 46,049 40,517 –––––––––– –––––––––– 13 12,164 12,282 14 39,690 19,780 16 5,342 96 –––––––––– –––––––––– 57,196 32,158 –––––––––– –––––––––– 17 2,107 1,564 19 377 382 361 364 19 130 174 –––––––––– –––––––––– 2,614 2,099 –––––––––– –––––––––– Estimating the fair value The following summarises the signiﬁcant methods and assumptions used in estimating the fair values of ﬁnancial instruments of the Group and the Company. 80 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 81 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 26. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT continued Financial assets and liabilities The notional amounts of ﬁnancial assets and liabilities with a maturity of less than one year (including trade and other receivables, cash and cash equivalents, bridging loan from non-controlling interests and trade and other payables) are assumed to approximate their fair values. All other ﬁnancial assets and liabilities are discounted to determine their fair values using the discounted cash ﬂow method which considers the present value of expected payment, discounted using a risk adjusted discount rate. 27. RELATED COMPANY AND RELATED PARTY TRANSACTIONS During the year, Group entities were engaged into the following signiﬁcant transactions with related parties/companies: Group Company Interest income from a joint venture – Atlantis Operations (Canada) Limited Interest income from a subsidiary – MeyGen Limited Service fee income from a subsidiary – Atlantis Resources (Scotland) Limited Service fee expense charged by a subsidiary – ARC Operations Pty Limited Interest expense arising from related party – Morgan Stanley Capital Group Inc. Interest expense arising from a subsidiary – Atlantis Resources (Scotland) Limited Recharge of costs to related party – Severn Power Limited – SIMEC Power 1 Limited – SIMEC Energy Pty Limited – Reimbursement of non-Executive Director fees paid 2018 2017 2018 2017 £’000 £’000 £’000 £’000 – 85 – 85 – – 59 56 – – 166 728 – – – 5 276 255 – – – – 15 16 89 – – – 42 – – – 500 – – – by SIMEC International (UK) Ltd 20 – – – Lease premium charged to a related party – SIMEC Power 1 Limited 1,475 – – – ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 81 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 82 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 27. RELATED COMPANY AND RELATED PARTY TRANSACTIONS continued Compensation of Directors and key management personnel: The remuneration of Directors and other members of key management during the year was as follows: Group 2018 2017 £’000 £’000 Short-term beneﬁts Deﬁned contribution beneﬁts Share based payments 836 562 26 26 75 108 –––––––––– –––––––––– 937 696 –––––––––– –––––––––– 28. OPERATING LEASES Operating leases – lessee At the end of the reporting period, the Group and the Company had outstanding commitments under non-cancellable operating leases, which fall due as follows: Group Company Within one year Between two and ﬁve years More than ﬁve years 2018 2017 2018 2017 £’000 £’000 £’000 £’000 430 434 – 9 878 1,081 – – 6,128 6,268 – – –––––––––– –––––––––– –––––––––– –––––––––– 7,436 7,783 – 9 –––––––––– –––––––––– –––––––––– –––––––––– The Group has various lease agreements for rental of land, seabed, offices and office equipment. The seabed leases typically run for a period of 10 to 25 years and the land lease for 99 years. Office leases are negotiated for a term of between two to ﬁve years. Operating leases – lessor At the end of the reporting period, the Group and the Company had amounts due to it under non-cancellable operating leases, which fall due as follows: Group Company Within one year Between two and ﬁve years More than ﬁve years 2018 2017 2018 2017 £’000 £’000 £’000 £’000 – – – – – – – – 99 – – – –––––––––– –––––––––– –––––––––– –––––––––– 99 – – – –––––––––– –––––––––– –––––––––– –––––––––– One of the subsidiaries of the Group, SUP, leases excess land available at the power station site to a related party, SIMEC Power 1 Limited. The lease is agreed on a 999 year basis and includes a lease premium of £1.5 million, which is recognised in advanced receipts (Note 17). 82 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 83 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 29. COMMITMENTS At 31 December 2018, the Group, through its subsidiary SUP, has entered into contracts relating to the conversion of the Uskmouth power station for £5.3 million (2017: nil), of which £4.9 million relates to FEED. As at the reporting date, £0.9 million had been incurred. At 31 December 2018, the Group had outstanding commitments under contracts for design and subcontractors relating to both tidal and power plant running works for £0.6 million (2017: £0.4 million). 30. CONTINGENT LIABILITIES The Company has guaranteed credit facilities of £3.5 million (2017: £6.5 million) granted to subsidiaries. 31. EVENTS AFTER THE REPORTING PERIOD In March 2019, Atlantis raised over £5 million, before expenses, through an equity fundraising, the net proceeds will be used for the Company’s general corporate purposes. Simultaneously £5 million of Atlantis consideration shares were issued to SIMEC and payment for these shares will be received over the coming months. 32. SEGMENT INFORMATION (a) Operating segments The Group is principally engaged in generating energy from renewable generation projects, development of these projects, as well as turbine and engineering services for the tidal power industry. In addition to the development of power projects, the power generation division currently focuses on the development of the MeyGen tidal energy project, whereas the turbine and engineering services division focuses on the development and delivery of turbines and technology solutions for projects worldwide. The divisions are managed separately because they require different expertise and marketing strategies. The acquisition of SUP in 2018 has been included in the project development segment. The Board of Directors, who are the chief operating decision makers, review internal management reports for each division regularly, in relation to the capital expenditure, resources allocation and funding availability of the three divisions. Other operations include the provision of corporate services which does not meet any of the quantitative thresholds for determining reportable segments in 2018 and 2017. There are varying levels of integration between the power generation and the turbine and engineering services divisions, including the delivery of a turbine from the turbine and engineering services to the power generation division. Information regarding the results of each reportable segment is included below. Unallocated expenditure, assets and liabilities include amounts of a corporate nature as well as corporate and inter-segment elimination, and are not speciﬁcally attributable to a segment. 2018 External revenues Inter-segment revenue Interest revenue Interest expense Depreciation and amortisation Reportable segment loss before tax Reportable segment assets Capital expenditure Reportable segment liabilities Turbine and Power engineering Project generation services development Unallocated Total £’000 £’000 £’000 £’000 £’000 2,097 120 – – 2,217 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– – 2,283 – (2,283) – 8 16 – (16) 8 (1,824) (237) (128) (809) (2,998) (2,533) (740) (3,204) (822) (7,299) (4,623) (6,477) (6,071) (6,993) (24,164) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 69,338 29,887 88,494 1,690 189,409 236 12 828 – 1,076 (33,819) (37,969) (50,650) 52,592 (69,846) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 83 254027 Simec Atlantic Energy pp044-pp084.qxp 27/06/2019 16:37 Page 84 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2018 32. SEGMENT INFORMATION continued 2017 External revenues Interest revenue Interest expense Depreciation and amortisation Reportable segment proﬁt/(loss) before tax Reportable segment assets Capital expenditure Reportable segment liabilities Turbine and Power engineering Project generation services development Unallocated Total £’000 £’000 £’000 £’000 £’000 301 – – – 301 –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– – 16 – 70 86 (378) (835) – (404) (1,617) (332) (726) – (820) (1,878) 1,201 (9,044) (501) (2,795) (11,139) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– 74,099 39,587 8,051 (11,606) 110,131 5,004 162 – – 5,166 (32,919) (32,474) (17,386) 32,883 (49,896) –––––––––– –––––––––– –––––––––– –––––––––– –––––––––– (b) Geographical segments Total segment revenue for the Group is £2,217,000 (2017: £301,000). The Group operations are mostly focused in the United Kingdom, where the activities are focused on development of tidal current power projects. Most of the Group’s assets are located in the United Kingdom. The capital expenditure during the year is primarily related to the development of the projects and the delivery of a tidal turbine to one of the projects. 84 SIMEC ATLANTIS ENERGY LIMITED AND ITS SUBSIDIARIES COMPANY INFORMATION NON-EXECUTIVE DIRECTORS John Mitchell Neill Mark Edward Monckton Elborne George Jay Hambro Ian Raymond Wakelin John Anthony Clifford Woodley EXECUTIVE DIRECTORS Timothy James Cornelius Andrew Luke Dagley REGISTERED OFFICE AND COMPANY NUMBER 80 Raffles Place Level 36 Singapore 048624 Company Number: 200517551R COMPANY SECRETARY Gwendolin Lee Soo Fern c/o 50 Raffles Place #32-01 Singapore Land Tower Singapore 048623 NOMINATED ADVISER AND JOINT BROKER Cantor Fitzgerald Europe One Churchill Place Canary Wharf London E14 5RD JOINT BROKER J.P. Morgan Cazenove 25 Bank Street Canary Wharf London E14 5JP AUDITOR KPMG LLP 16 Raffles Quay #25-00 Hong Leong Building Singapore 048581 REGISTRAR Boardroom Corporate St Advisory Services Pte Ltd 50 Raffles Place #32-01 Singapore Land Tower Singapore 048623 DEPOSITARY Link Market Services Trustees Limited The Registry 34 Beckenham Road Beckenham BR3 4TU GUERNSEY BRANCH REGISTER Link Market Services (Guernsey) Limited Mont Crevelt House Bulwer Avenue St Sampson Guernsey GY2 4LH WEBSITE www.simecatlantis.com Perivan Financial Print 254027 ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 85 (cid:137)(cid:137)(cid:137)(cid:314)(cid:118)(cid:98)(cid:108)(cid:59)(cid:49)(cid:45)(cid:124)(cid:1140)(cid:45)(cid:109)(cid:2462)(cid:118)(cid:314)(cid:49)(cid:111)m (cid:33)(cid:59)(cid:93)(cid:98)(cid:118)(cid:124)(cid:59)(cid:117)(cid:59)(cid:55)(cid:2)(cid:27)(cid:76)(cid:49)(cid:59)(cid:2)(cid:45)(cid:109)(cid:55)(cid:2)(cid:7)(cid:111)(cid:108)(cid:114)(cid:45)(cid:109)(cid:139)(cid:2)(cid:25)(cid:134)(cid:108)(cid:48)(cid:59)(cid:117) (cid:1142)(cid:399)(cid:2)(cid:33)(cid:45)(cid:90)(cid:59)(cid:118)(cid:2)(cid:30)(cid:1140)(cid:45)(cid:49)(cid:59)(cid:311)(cid:2)(cid:21)(cid:59)(cid:136)(cid:59)(cid:1140)(cid:2)(cid:402)(cid:1141)(cid:311)(cid:2)(cid:34)(cid:98)(cid:109)(cid:93)(cid:45)(cid:114)(cid:111)(cid:117)(cid:59)(cid:2)(cid:399)(cid:403)(cid:1142)(cid:1141)(cid:401)(cid:403) (cid:7)(cid:111)(cid:108)(cid:114)(cid:45)(cid:109)(cid:139)(cid:2)(cid:25)(cid:134)(cid:108)(cid:48)(cid:59)(cid:117)(cid:313)(cid:2)(cid:401)(cid:399)(cid:399)(cid:404)(cid:400)(cid:405)(cid:404)(cid:404)(cid:400)(cid:33)(cid:2)

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