Active Energy Regulatory News (AEG)

Active Energy Group Plc / EPIC: AEG / Sector: Alternative Energy

25 September 2019

Active Energy Group Plc

('Active Energy', 'AEG', the 'Company' or the 'Group')

Interim Results

Active Energy, the London quoted international biomass based renewable energy business, announces its interim results for the six months to 30 June 2019.

Highlights

·; Strategic focus on the production and commercialisation of CoalSwitch™ in sufficient quantity to accommodate anticipated customer demand

·; Acquired fully permitted large-scale commercial hub located in Lumberton, USA, to provide a centre to develop an integrated Forest-to-Energy supply chain ("Lumberton" or the "Lumberton Site")

o Located in the heart of North America's lumber production region close to the Eastern Seaboard of the United States

o Adjacent to the power plant facility at Lumberton owned by JV partner, Georgia Renewable Power LLC

·; Awarded US$500,000 building re-use and renovation grant in April 2019 from the North Carolina Rural Infrastructure Authority

·; Reconstructing 5 tonne per hour ("tph'") CoalSwitch™ plant utilising existing equipment and facilities from legacy site in Utah

o Plant commissioning on track for the final quarter of 2019

o Intention to scale up to larger production capacities

·; Secured feedstock supplies from local partners to ensure that Lumberton can be supplied with up to 800,000 tonnes per annum for the next five years

·; Continue to make progress in developing alternative biomass pellets utilising CoalSwitch™ in combination with other feedstock options ranging from chicken litter to miscanthus grass

·; Received interest from several potential US commercial customers for CoalSwitch™ and biomass black pellets - testing programme being established to accommodate customer requests

·; Lumberton becoming a source of revenues through ancillary activities at the site

o Lease agreementsalready signed with Tencata Protective Fabrics and Renewable Logistics Systems ("RLS"), providing immediate revenue

·; During 2019, AEG has raised £6.083 million (before expenses) via the further subscription of convertible loan notes by both new and existing investors to execute the Company's growth strategy. Of this, £3.96 million closed prior to the 30 June 2019 and is therefore reflected in the interim financial results.

Chief Executive's Statement

AEG's focus during the period and subsequently has centred on the development of the Company's large-scale commercial hub at Lumberton, North Carolina in the United States for all corporate activities. This strategic asset facilitates the commercial rollout of CoalSwitch™ and new second generation biomass pellets, as well asthe development of complementary lumber related activities at one site. It also allows AEG, for the first time, to assemble on going technical data, which enables commercial partners,including potential licensees, the opportunity to assess the new biomass technologies.

In essence, Lumberton provides the centre the Company has soughtin order to be able to develop an integrated Forest-to-Energy supply chain and enable AEG to become a leading renewable energy company, specialising in second generation biomass products.

Acquiring the 151-acre freehold site with 415,000 square feet of buildings at Lumbertonin March 2019 was a vital step in AEG's development. The Directors believe Lumberton holds several strategic advantages, including its location in the heart of North America's lumber production region and proximity to the Eastern Seaboard of the United States, with its established facilities and proximity to export routes for both biomass and lumber products to Europe and South East Asia. The Lumberton Site has the additional benefit of being adjacent to the power plant facilityowned by our JV partner, Georgia Renewable Power LLC. The fact that Lumberton was already permitted for operations and contained established infrastructure including water treatment facilities, an analysis lab, offices and IT hardware was a further bonus, as was the receipt of a US$500,000 building re-use and renovation grant in April 2019 from the North Carolina Rural Infrastructure Authority.

Our immediate strategic focus is the production and commercialisation of CoalSwitch™ in sufficient quantity to accommodate anticipated customer demand. AEG is working with a series of engineering partners, including Absolute Welding & Consulting as our local partner to reconstruct the 5 tph plant utilising existing equipment and facilities from our legacy site in Utah. In addition, AEG is working with Andritz on plans to scale up the production facilities to larger production capacities. All the equipment has been transferred from Utah to Lumberton. After recent meetings with the Air Quality division of the North Carolina Department of Environment and Natural Resources ("NCDENR"), it has become evident that there is a requirement to modify the existing air permits at Lumberton. As such, AEG is currently working with the NCDENR to finalise both of these permits along with the relevant construction permits. Construction is expected to proceed in October 2019 and despite the small modifications, commissioning of the 5 tph plant remains on track for the final quarter of 2019.

At Lumberton, AEG has already secured feedstock supplies from local partners and ensured that the facility can be supplied with up to 800,000 tonnes per annum for the next five years. Management believe this will be sufficient to accommodate the planned production capacity increases. AEG's current focus is on securing sales and offtake agreements, both in the US and internationally, planning for the expansion of the processing plant facilities up to 50tph and the development of further ancillary products, where CoalSwitch™ is blended with additional materials to produce a biomass-based black pellet fuels.

In line with this, AEG continues to make progress in developing alternative biomass pellets utilising CoalSwitch™ in combination with other feedstock options, ranging from chicken litter to miscanthus grass. These materials create biomass renewable fuels and there is significant interest from commercial partners for these fuels utilising AEG's steam explosion pellet technologies. AEG anticipates that these developments have the potential to increase the range of products available for sale along with overall levels of business activity.

Encouragingly, we have already received interest from several potential US commercial customers for CoalSwitch™ and biomass black pellets. Over and above opportunities presented in North America, Europe remains a natural market for CoalSwitch™ and biomass black pellets, especially as new legislation aimed at limiting the use of coal power is introduced. Prospective customers have ordered and are receiving test samples and a testing programme, producing smaller samples of biomass fuels, is being established to accommodate these requests. Customers include utilities, including Rocky Mountain Power in Utah and a Europe-based biomass trader, as well as agricultural and forestry companies and complementary renewable technology businesses.

In addition to Lumberton being fundamental to our own growth story, it has also become a source of revenue through ancillary activities at the site. In the period, we signed lease agreements with Tencata Protective Fabrics and Renewable Logistics Systems providing an immediate source of revenue. We continue to look for further ways to capitalise on other opportunities from the site including rental income, saw logging activities and partnerships with complementary green technology companiesthat wish to work with AEG on product development and their applications.

In tandem with the progress in Lumberton, AEG is refocussing its attention back to the original opportunities in Newfoundland and Labrador. Cutting Timber Permits were awarded in November 2018 and AEG is assessing how to combine these with introducing the CoalSwitch™ technologies into the Province in the coming months. AEG remains in discussions with local partners regarding these future projects.

In Poland, the Company's joint venture project with Cobant Sp. z.o.o. ('Cobant'), a Polish research, development and environmental waste coal recovery company active in the land reclamation, environmental services and energy sectors, was unsuccessful in its application for a grant to receive EU funding in Q1 2019. The Company has decided to focus on its Lumberton activities to provide CoalSwitch™ product in order to assist Cobant in its future activities.

Financial Review

The overall loss for the six months ended 30 June 2019 was US$1,830,027 (2018: US$1,593,728). The key components are as follows:

• Revenue from contracts with customers were US$99,830 (2018: US$Nil) relating to engineering consultancy services.

• Administration costs were US$1,642,416 (2018: US$1,682,660) for the first six months of 2019. Of this US$238,743 (2017: US$462,064) relates to non-cash share-based payments expenses, as optimisation of these costs was offset by loss on disposal of certain items of plant and equipment.

·; Finance costs were US$290,387 (2018: US$585,178) reflecting ongoing servicing of the Group's Convertible Loan Notes, offset by interest capitalised to tangible and intangible fixed assets and foreign exchange gains.

• Active Energy has recognised an income tax credit on continuing operations of US$2,946 (2018: US$1,222,946). The prior year credit reflects research and development tax refunds associated with development of the Company's PeatSwitch™ and CoalSwitch™ products and processes.

• Loss from discontinued operations was US$Nil (2018: US$548,836). The prior year charge reflects close out of contractual matters associated with Active Energy's former Ukrainian wood chip operations. No further costs are expected to be incurred on these operations,which ceased in 2017.

In addition, during the first half of 2019 Active Energy invested US$3,406,213 in order to acquire the new Lumberton site. Following an independent assessment of this asset, the value on the statement of financial position was subsequently revised to US$4million. In addition AEG invested US$279,488 (2018:US$1,622,908) in its to the CoalSwitch™/PeatSwitch activities and capital expenditure relating to the Forestry and natural resource segment was US$111,638 (2018: US$227,129).

Finally, during the first half of 2019, the Company successfully completed a series of fund raising of £3.96 million before expenses (or US$5.02 million) through the issue of convertible loan notes ('CLNs') to new and existing investors. A further £2.12 million was subscribed for following the end of the reporting period.

Outlook

In summary, the team has made significant progress. We have acquired the Lumberton Site and have a defined plan for the commercialisation of CoalSwitch™ contemporaneously with additional products. Our ambition remains for AEG to become a profitable producer of second-generation biomass fuels, focusing on the pellet market. Our production designs are modular, and we are designing efficient operations that are scalable to increase manufacturing volumes to potential market demands. With first production imminent,the Companyis looking forward to the future with increasing confidence.

I would like to thank all those involved for their hard work and to all shareholders and bondholders for their continued support as we look to build on firm foundations and build a global business that rewards all AEG's stakeholders.

Michael Rowan

Chief Executive Officer

25 September 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND OTHER COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS TO 30 JUNE 2019

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS TO 30 JUNE 2019

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS TO 30 June 2019 (continued)

NOTES FORMING PART OF THE INTERIM REPORT

1. GENERAL INFORMATION AND BASIS OF PRESENTATION

General information

Active Energy Group plc is a company incorporated in England and Wales and quoted on the AIM market of the London Stock Exchange. The address of the registered office is 27-28 Eastcastle Street, London, W1W 8DH. The Group's principal activities are the development and commercialisation of cutting-edge renewable energy and soil replacement products; and the development of timber resources.

Basis of preparation

The financial information in these interim results is that of the holding company and all of its subsidiaries. It has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards as adopted for use in the EU (IFRSs). The accounting policies applied by the Group in this financial information are the same as those applied by the Group in its financial statements for the year ended 31 December 2018 and which will form the basis of the 2019 financial statements, except for a number of new and amended standards which have become effective since the beginning of the previous financial year. These new and amended standards, including the implementation of IFRS16, are not expected to materially affect the Group.

The financial information presented herein does not constitute full statutory accounts under Section 434 of the Companies Act 2006 and was not subject to a formal review by the auditors. The financial information in respect of the year ended 31 December 2018 has been extracted from the statutory accounts which have been delivered to the Registrar of Companies. The Group's Independent Auditor's report on those accounts was unqualified and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006. The auditor's report on those accounts includeda reference to the going concern assumptions detailed in the notes to those accounts, whereby the auditor drew attention to this note by way of emphasis of matter. The auditor did not qualify their report in respect of this matter. The financial information for the half years ended 30 June 2018 and 30 June 2019 is unaudited and the twelve months to 31 December 2018 is audited.

These interim accounts have been prepared in accordance with IAS 34.

Going concern

Historically, the Group's primary revenue generating business segment was the Ukrainian wood fibre business. This was discontinued during 2017 and since then the group has focused its efforts on the CoalSwitch™ business segment. This business segment had not generated significant revenues at the date of signing these financial statements.

The Directors have considered the cash requirements of the business for the following 12 months. As part of this process, they have taken into account existing liabilities, along with detailed operating cash flow requirements. The projections prepared include ongoing running costs of the Group and committed expenditure at the date of publication of this interim report.

The Directors note that the current operational plans involve commencement of production and sale of CoalSwitch and other biomass products in the final quarter of 2019. In addition the Directors have identified a variety of potential sources of funds including issue of additional equity and/or debt, tax credits, rental income, government subsidies and optimisation of existing financing arrangements.

Taking this into account and following a detailed review by the Directors of the Group's cash flow requirements, the directors believe that the Group will have sufficient cash resources to continue to trade for a period of at least 12 months from the date of this report. Consequently, the financial statements have been prepared on a going concern basis.

However, as of the date of signing these financial statements, production and sale of CoalSwitch has not commenced and not all of the potential sources of funds have been finalised and therefore there can be no guarantee that sufficient funds will be received to secure the future of the group. These circumstances indicate the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern.

Basis of consolidation

The financial information incorporates the results of AEG plc and entities controlled by the AEG plc (its subsidiaries). Control is achieved when the Group has power over relevant activities, is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The consolidated interim financial statements present the financial results of AEG plc and its subsidiaries (the Group) as if they formed a single entity. Where necessary, adjustments are made to the results of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

2. SEGMENTALINFORMATION

The Group reports two operating continuing business segments:

·; "Forestry & Natural Resources" denotes the Group's initiatives to secure ownership of the entire timber supply chain from forest to finished product

·; "CoalSwitch™/PeatSwitch"denotes the Group's renewable wood pellet and soil replacement business.

Revenues and costs associated with the Ukrainian Wood Fibre business have been reclassified as discontinued operations.

Factors that management used to identify the Group's reportable segments

The Group's reportable segments are strategic business units that offer different products. During the business development stage they are managed separately because each business operates in different markets and locations. In future these business segments may be combined into single operations and reporting structures will be revisited accordingly. Profits and losses associated with the Ukrainian wood fibre business were reclassified as discontinuing in2017 and have therefore be excluded from the analysis below.

CoalSwitch™/ PeatSwitch revenues in 2019 relate to engineering consultancy services.

Capital expenditure relating to the CoalSwitch™/PeatSwitch segment was US$3,685,701(2018:US$1,622,908) which primarily related the acquisition of the Lumberton Site. Capital expenditure relating to the Forestry and natural resource segmentwas US$111,638 (2018: US$227,129).

Reconciliation of reportable segment profit or loss, assets and liabilities to the Group's corresponding amountsare as follows:

3. LOSS PER SHARE

4. ACQUISITION OF LAND & BUILDINGS

On 27 March 2019 the Company confirmed that it had completed the acquisition of an industrial site in Lumberton, North Carolina and that the site will become the new base for all Active Energy's CoalSwitch™ operations in the US.

The total consideration including fees and ancillary costs was US$3.41 million. Following completion of the acquisition and prior to the publication of this report, AEG Plc commissioned an independent firm of Certified Real Estate Valuers, based in North Carolina, to appraise the value of the Lumberton site. The Real Estate Valuers estimated the value of the site to be US$4.0million.

As a result, and in line with the revaluation model provisions of IAS16, the Company adjusted the value of the Lumberton site on the statement of financial position to reflect this valuation.

5. CONVERTIBLE LOAN NOTES

During the first half of 2019 the Company successfully completed a series of fund raising of £3.96 million before expenses (or $5.02 million) through the issue of convertible loan notes ('CLNs') to new and existing investors. The CLNs have a maturity date of 14 March 2022 and have been listed on the International Securities Exchange. The CLN can be converted into ordinary shares of AEG plc, at any time prior to the Maturity Date, at a strike price of1p. The fair value of the liability component at inception was £0.49 million (or US$0.62 million). This was calculated using a market interest rate for an equivalent instrument without conversion option. The CLN has a coupon rate of 8% and the imputed interest rate applied was 12%.

6. SHARE CAPITAL

7. RECONCILIATION OF LOSS BEFORE TAXATION TO CASH OUTFLOWS FROM OPERATINGACTIVITIES

8. COPIES OF THE INTERIM REPORT

Copies of the interim report will be made available on the Company's website at www.active-energy.com.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

Enquiries& Further Information:

About Active Energy Group:

Active Energy Group plc is a London listed (AIM: AEG) renewable energy company that has developed a proprietary technology which transforms low-cost biomass material into high-value green fuels. Its patented product CoalSwitch™ is the world's only drop-in biomass fuel that can be mixed at any ratio with coal or completely replace coal in existing coal-fired power stations without requiring plant modification.

Active Energy Group's immediate strategic focus is the production and commercialisation of CoalSwitch™ and SuperFuel™, a low emission CoalSwitch™ blend that utilises waste coal fines.