Eqtec Regulatory News (EQT)

23 December 2016

REACT Energy plc

("REACT" or the "Company")

Final Results and Notice of AGM

REACT, the renewable energy developer and operator focusing on the production of clean energy in the UK and Ireland, today announces its audited final results for the year ended 30 June 2016. 

The Annual Report is available for viewing on the Company's website www.reactenergyplc.com.

REACT also announces that the Annual General Meeting of the Company will be held at the Cork International Airport Hotel, Cork, on 31 January, 2017 at 11.00 a.m.

The Notice of the AGM is being posted to shareholders today and copies are available on the Company's website www.reactenergyplc.com.

For further information:

About REACT:

REACT Energy plc is committed to operating clean electricity and heat generation plants in the UK and Ireland. The Company seeks to identify, build, own and operate renewable projects and possesses significant knowledge of energy markets, clean technologies, fuel sources, project development, project finance and project delivery. REACT currently has four operational clean energy plants generating revenue from the sale of electricity and heat. The generation of clean electricity and heat from sustainable sources has the potential to address the key energy challenges of energy security and carbon commitment and provide strong returns on capital employed.

The Company is quoted on AIM and trades as REAC. Further information on the Company can be found at www.reactenergyplc.com.

REACT Energy plc

Chairman and Chief Executive's Report

The Company presents the 2016 Annual Report, which gives an update on the activities of the Company over the 2016 financial period as well as updating on recent activities, including, as announced on 12 December 2016, an increase in amount and extension of an existing loan facility with EBIOSS to cover working capital requirements of the Company.

EBIOSS is an industrial engineering group and is involved in the engineering, construction, project development and operation of waste-to-synthesis gas plants. It operates at an international level and owns a state of the art technology and differential positioning in designing and construction of waste gasification power plants with power capacity from 500 kilowatts ("kWs") to 10 megawatts ("MWs"). EBIOSS has developed its own technology, the EQTEC Gasifier Technology (EGT) by which different types of waste are transformed into synthesis gas. This leading technology on waste gasification has made possible the design construction and/or operation of waste gasification plants in Spain, France, Germany, India, Italy and Bulgaria among other countries, for third party international energy groups and for use by EBIOSS itself. EBIOSS is quoted on Mercado Alternativo Bursátil ("MAB"), the alternative market of the Spanish Stock Exchanges.

Whilst the Company continues to execute on its strategy, general market conditions continue to impact investment sentiment. As a result of this ongoing uncertainty, and to ensure that the Company continues to have in place the necessary resources to meet this dynamic business environment, the Board continuously reviews the Company's strategy, cost base and financing structures to ensure it is well positioned and appropriately capitalised to take advantage of opportunities that present in the sector in which it operates.

During the financial year in question the Company also:

· Exited the Examinership process in July 2015

· Recommenced trading of the Company's shares on AIM

· Secured a €750,000 loan facility in January from EBIOSS which the Company has now fully utilised.

· Secured £1m in funding by way of a Secured Loan facility with EcoFinance (GLI) Limited which included a refinancing of a number of existing debt facilities with Altair Group Investment Limited.

· Entered into an agreement in December with EBIOSS to purchase its EGT technology with a power output of 4MW, which NBL will use in the repowering of the Newry Biomass gasification project

· The gasification equipment purchased from EBIOSS cost €4.963 million (subsequently increased to €5.150 million and will form part of an Engineer, Procure and Construct ("EPC") contract to be signed between NBL and EQTEC Iberia ("EQTEC"), a subsidiary of EBIOSS, in respect of the Newry Project. REACT has granted EQTEC exclusivity to provide gasification technology as part of EPC contracts for its biomass gasification project pipeline in the UK

· NBL applied and received confirmation from The Office of Gas and Electricity Markets ("Ofgem") that they have been granted an extension to 31 March 2018 for the Renewables Obligation ("RO") registration of the Newry Project

· Gained planning approval for the construction and operation of an energy recovery facility using EGT at Clay Cross in Derbyshire by Clay Cross Biomass Limited a company in which REACT has a 90% interest, subject to finalising a Section 106 agreement pursuant to the conditions set out in the report by the planning authorities

· Continued to operate its wind turbine at Pluckanes and three biomass heat projects in the UK

Post period end:

· In October 2016, signed conditional heads of agreement with several parties to potentially fund, through a combination of equity and debt, the circa £11.2 million repowering of the NBL 4MW biomass gasification project using EGT

· It was announced on 12 December 2016 that the terms of the working capital facility with EBIOSS had been amended by agreement between that parties such that the amount of the facility was increased by €600,000 to €1,350,000 and the repayment date of the increased facility was extended to 7 January 2018. The increased facility is to cover the working capital requirements of the Company.

REACT Energy plc

Chairman and Chief Executive's Report - continued

Current Trading and Prospects

The Company is a clean energy project developer and operator. The Company seeks to take projects from "Greenfield" (greenfield land) stage to "Shovel Ready" stage (projects where planning and development is advanced enough that, given sufficient funding, construction can begin within a very short time frame) with turnkey construction contracts and financial packages in place. Debt and equity partners are then sought to fund the construction phase in return for a share of the project equity.

The Company develops and builds projects currently using wood and waste wood as the sustainable fuel source. The core focus has been on converting biomass or wood into clean electricity and heat. This was based primarily on the technology available to convert the fuel into power and the level of government subsidies available specifically for biomass fuel and the relevant conversion technology.

In reporting its interim results for the six months to 31 December 2015, the Company stated that the political and regulatory environment within the UK continued to be challenging, with a lack of direction and continued changes to the long-term support mechanisms available for renewable energy projects developed under the Electricity Market Review (EMR), with the introduction of Contracts for Difference (CfD) in place of the Renewables Obligation (RO) regime. As part of its ongoing cooperation and collaboration with EBIOSS Energy, the Company has reviewed its strategy for developing and operating clean energy power plants in the UK.

Overview of the UK Renewable Energy Market

The UK developed its renewable energy sector based on the Renewables Obligation (RO), a quota scheme that led to the only publicly subsidised electricity investments in the UK after the 1989 privatisation era. In 2010, the UK government also introduced the Feed in Tariff (FIT) scheme for supporting small scale low-carbon installations up to a maximum capacity of 5MW.

Post 2014, the UK's electricity sector is governed by the Electricity Market Reform (EMR). Based on the EMR, all electricity investments are publicly subsidised with the fossil-fuel sectors receiving subsidies by way of the capacity market and the renewable energy sector by way of the Contracts for Difference (CfDs) scheme. Having announced the closing of the RO Scheme, the last projects under the RO Scheme, which needed confirmation of a "grace period" from Ofgem, must be completed before 31 March 2018. The UK Government published, in November 2016, a draft of the Budget Notice ahead of the CfD allocation round opening in April 2017. This set an overall budget for total support payments for projects delivered in the two years from the middle of 2021 to 2023 and also set out strike prices for the various less well established technologies including advance conversion technologies, such as advanced gasification.

Overview of the UK Energy from Waste Market

The UK has, over the past ten years, seen a transformation in its management of household waste. This has been most marked within local authorities as they make the transition from landfill to recycling / composting and energy recovery. The waste market is now moving towards what is termed 'merchant' projects. These are projects which utilise private, specialist fuel supply such as refuse derived fuel (RDF), municipal solid waste (MSW), commercial and industrial waste and waste wood. RDF or solid recovered fuel / specified recovered fuel (SRF) is a fuel produced by shredding and dehydrating municipal solid waste (MSW) with a waste converter technology. In addition, these merchant projects tend to utilise new advanced conversion technologies and include specialist sub sectors, like advanced gasification.

REACT Energy plc

Chairman and Chief Executive's Report - continued

Gasification is a process that converts organic or fossil based carbonaceous materials at elevated temperatures with controlled amounts of oxygen into carbon monoxide, hydrogen, carbon dioxide and methane. It is a well-known technology, and its advanced use with mixed waste feedstock is continually evolving. By its nature "energy from waste" bridges two sectors both of which are evolving. It has its roots firmly in waste management but is becoming of increasing importance to energy generation.

Waste management is changing to be much less about how society get rid of things it no longer wants and more about managing discarded resources back into the economy. Likewise, energy generation is evolving to make best use of renewables, novel fuels and different energy outputs always with an eye to energy security. The need to meet 2020 landfill diversion targets for biodegradable waste has been a major driver for waste policy and infrastructure development in the UK over the last ten years. The landfill tax is a key instrument to meeting the target along with other policies and initiatives. There are wider societal and environmental benefits associated with energy generation and use that will drive energy policy and impact on energy from waste. Energy from waste in particular has the potential to deliver low carbon energy in a cost-effective way and as a non-intermittent source helps provide energy security.

The term 'energy from waste' (commonly abbreviated to EfW) covers a range of different processes and technologies and describes a number of treatment processes and technologies used to generate a usable form of energy and which also reduce the solid volume of residual waste. This energy can be in the form of electricity, heating and/or cooling or a combination of these forms. Conversion treatments are processes which convert residual waste or RDF/SRF into a more useable form of energy such as heat or electricity. These processes include gasification such as the EGT.

By choosing the right location, the right technology and the right processing, energy from waste can help to deliver much needed long-term affordable, low carbon and secure energy.

The EGT can operate economically over a wider range of scales and is therefore potentially more flexible and has the potential to generate much greater efficiencies through a range of outputs.

The UK faces a potential energy gap, with the margin of supply over demand expected to diminish to very-thin levels from 2015 onwards. The scheduled closure of old nuclear facilities has not been matched by the construction of replacement new-build nuclear sites and/or other power station facilities.

Local Authority managed waste going for combustion with energy recovery rose 13% to 5.5 million tonnes in 2012/13 and has more than doubled in the last ten years. A 2010 survey found only 2% of commercial and industrial waste was combusted with energy recovery in England. In 2012, 24 Energy from Waste plants operating in England were treating almost 4 million tonnes of residual MSW and SRF. In 2010, the combustion of the biodegradable component of MSW provided 6.2% of the UK's total renewable electricity generation and 4.7% of total combined renewable heat and electricity generation. Waste derived renewable electricity from thermal combustion in England is forecast to grow from the current 1.2 terrawatt hours ("TWh") to between 3.1TWh and 3.6TWh by 2020.

REACT and EBIOSS Energy have entered into mutually beneficial business arrangements over the last year with the objective of working closer together to avail of opportunities initially in the UK EfW market.

REACT Energy plc

Chairman and Chief Executive's Report - continued

Current project portfolio

Newry

As noted above, NBL entered into an agreement with EBIOSS Energy to purchase its EGT, with a power output of 4MW, which NBL will use in the repowering of the Newry biomass plant. The equipment has been delivered and is currently on site in Newry.

Once financial close on the repowering of the Newry biomass plant is achieved, the Company expects that the plant will be able to again export electricity to the grid within 15 months (i.e. pre 31 March 2018).

NBL applied and received confirmation from Ofgem that they have granted an extension to 31 March 2018 for the RO registration of the Newry biomass plant, at which point the plant will need to have been repowered and commissioned, which the Company intends it will have been.

The Company announced on 11 October 2016 that it has signed conditional heads of agreement with several parties to potentially fund, through a combination of equity and debt, the repowering of the plant. The heads of agreement envisage a total investment of up to £11.2 million to be made both directly, and indirectly through REACT, into NBL.

The terms of the heads of agreement between the parties are legally binding, however, are subject to the completion of, inter alia, legal, financial and technical due diligence, which has commenced and is expected to be completed shortly. The terms therefore may change from that set out in the heads of agreement. There can be no guarantee that definitive agreements will be concluded on the terms currently envisaged or at all, or on the timetable envisaged.

If it was not possible to reach agreement with the parties, the Company, in partnership with EBIOSS Energy and its subsidiary EQTEC, using their combined resources, would commission the project to a basic level to ensure that the ROCs are registered for the plant by 31 March 2018. In this scenario, the plant having been commissioned to basic standards, would be refinanced with third party funders and completed in full.

Enfield, London

The Enfield Biomass project is a 12MW biomass gasification project located in Enfield, London. The project has secured full planning and permitting approval and is ready to construct. The Company obtained an updated planning permission for converting 60,000 tonnes per annum of Grade C wood waste in January 2014. An environmental permit was received April 2012.

As part of the Examinership process, the Company ceased to pursue the legal action, which was announced on the 3 June 2015, in relation to the Enfield Biomass Limited property lease agreement and has agreed to the revocation of the existing lease on that site. The site has currently been put up for sale by the existing landlord. The Company intends to open discussions with a new owner in relation to the future of this site and further updates will be made as and when appropriate.

REACT Energy plc

Chairman and Chief Executive's Report - continued

Clay Cross

On 12 April 2016, the Company announced that the Regulatory Planning Committee of Derbyshire County Council (the "Committee") voted in favour, on 11 April 2016, to approve the construction and operation of an energy recovery facility at Clay Cross Facility in Derbyshire (the "Clay Cross Facility") by Clay Cross Biomass Limited ("Clay Cross Biomass"), a company in which REACT has a 90% interest, subject to finalising an agreement under Section 106 of the Town and Country Planning Act 1990 pursuant to the conditions set out in the report to the Committee.

Clay Cross Biomass anticipates utilising the EGT, the same technology that the Company is installing at Newry Biomass, to power the plant as part of the EPC contract for the construction of the Clay Cross Facility. Once commissioned, the Clay Cross Facility is expected to convert approximately 80,000 tonnes per annum of construction and demolition (C&D) waste wood, which is currently sent to landfill, to generate up to 12MW of electrical energy, sufficient to provide electricity for over 18,000 homes, and up to 14MW of thermal energy per annum.

The Company is currently in preliminary discussions to secure finance for the construction of the Clay Cross Facility and estimates that it will take approximately 18 months from obtaining finance to the final commissioning of the plant. The expected cost to develop the Clay Cross Facility is approximately £50 million.

Biomass Heat

The Company owns 30% of a special purpose vehicle ("SPV") set up with Equitix ESI Finance Limited ("Equitix") and receives development and on-going management fees from it. The SPV currently operates three biomass heat projects in the UK.

Renewable Heat Incentive (RHI) is the primary incentive scheme in operation for these projects. The digression in RHI tariffs for boilers below 200kw range is impeding progress on projects within the pipeline and represents a continuing challenge to completion of project financing.

Wind Electricity Generation

In Ireland, the Company is currently operating a cash generating 800kW Enercon wind turbine in Pluckanes, County Cork. This plant was financed by company equity and bank debt provided by AIB Bank plc and has a 15-year Power Purchase Agreement with Viridian Energy Limited.

The Company is advancing the project pipeline with the intention to finance a number of small-scale projects together via company equity and bank financing, thereby creating a small-scale wind portfolio. The return on capital employed for each project will be assessed to ensure an adequate return. The Company is also working on creating a master supply agreement with a turbine manufacturer arising from wind measurement and site analysis.

Future strategy

The overall business strategy of the Group is to focus on taking advantage of the significant opportunities in the Energy from Waste Market in the UK.

REACT Energy plc

Chairman and Chief Executive's Report - continued

Financial position

FY 2016 Financials

• Loss of €1.540 million versus a profit of €5.319 million in 2015 (€0.091 million loss related to continuing operations in 2015)

• Loss for the year includes net foreign exchange losses of €0.164 million and interest costs of €0.603 million


• Loss per share of 0.015 cents versus a profit of 0.173 cents in 2015 


• At 30 June 2016, total cash and cash equivalents were €0.324 million versus €0.211 million in 2015 


Post FY 2016 Financials 


• Further drawdown of €175,000 on loan facility from EBIOSS together with an increase in facility size from €750,00 to €1,350,000 and extension of the term to 7 January 2018

Outlook

After what has been a very tough 18 months for everyone, thanks to the major support of the Company's existing stakeholders and new investor EBIOSS, the Company now has the potential to take advantage of the opportunities presenting themselves in the UK Energy from Waste market and in turn advance its pipeline of projects throughout the UK.

The Company looks forward to updating its shareholders in the future on further developments as the Company further builds its position in the Energy from Waste market.

Dermot O'Connell Gerry Madden

Chairman Chief Executive

REACT Energy plc

Consolidated statement of profit or loss

for the financial year ended 30 June 2016

REACT Energy plc

Consolidated statement of other comprehensive income

for the financial year ended 30 June 2016

REACT Energy plc

Consolidated statement of financial position

At 30 June 2016

REACT Energy plc

Consolidated statement of cash flows

for the financial year ended 30 June 2016

REACT Energy plc

Extract from the notes to the consolidated financial statements

for the financial year ended 30 June 2016

1. Basis of Preparation and Going Concern

The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union ('EU') and effective at 30 June 2016 for all periods presented as issued by the International Accounting Standards Board.

The consolidated financial statements are prepared under the historical cost convention except for certain financial assets and financial liabilities which are measured at fair value. The principal accounting policies set out below have been applied consistently by the parent company and by all of the Company's subsidiaries to all periods presented in these consolidated financial statements.

The financial statements of the parent company, REACT Energy plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union ('EU') effective at 30 June 2016 for all periods presented as issued by the International Accounting Standards Board and Irish Statute comprising the Companies Act, 2015.

The Group incurred a loss of €1,540,044 (2015: profit of €5,319,419) during the year, and had net current liabilities of €6,603,205 (2015: €9,837,940) and net assets of €817,044 (2015: net liabilities of €2,636,096) at 30 June 2016.

Development of, and revenue generation from, the principal assets of the Company will require additional financing which is expected to be sourced in due course.

The Company announced on 12 December 2016 that a €750,000 loan facility secured in January 2016 from EBIOSS has now been fully utilised. It was also announced that the terms of the facility had been amended by agreement between that parties such that the amount of the facility was increased by €600,000 to €1,350,000 and the repayment date of the increased facility was extended to 7 January 2018. The increased facility is to cover the working capital requirements of the Company.

The Directors have given careful consideration to the appropriateness of the going concern basis in the preparation of the financial statements. The validity of the going concern basis is dependent upon additional financing being obtained for the development of, and revenue generation from, the principal assets of the Company and to provide ongoing general working capital. As no definite funding has been received on a number of developments of the Group, a material uncertainty exists in relation to the Company and the Group's ability to continue as a going concern.

The Directors believe that progress towards securing finance has been made. The Directors have a reasonable expectation that the Company will source this financing and the Group will have adequate resources to continue in operational existence for the foreseeable future. For these reasons the Directors continue to adopt the going concern basis of accounting in preparing the financial statements. The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern.

The Group continues to invest capital in developing and expanding its portfolio of clean energy projects. The nature of the Group's development programme means that the timing of funds generated from developments is difficult to predict. Management have prepared financial forecasts to estimate the likely

cash requirements of the Group over the next 12 months. The forecasts include certain assumptions with regard to the costs of ongoing development projects, overheads and the timing and amount of any funds generated from developments. The forecasts indicate that during this period the Group will require additional funds to continue with its activities and its planned development program.

REACT Energy plc

Extract from the notes to the consolidated financial statements

for the financial year ended 30 June 2016

1. Basis of Preparation and Going Concern - continued

Whilst the strategy is to build, own and operate plants, once a site has been secured and planning and permitting obtained the Group would be in a position, if it so chose, to monetise the value of the project.

The loss and weighted average number of ordinary shares used in the calculation of the basic and diluted (loss)/earnings per share are as follows:

Dilutive and anti-dilutive potential ordinary shares

The following potential ordinary shares were included in the 2015 diluted earnings per share calculation but were excluded in 2016 as they were anti-dilutive.

REACT Energy plc

Extract from the notes to the consolidated financial statements

for the financial year ended 30 June 2016

3. EVENTS AFTER THE BALANCE SHEET DATE

Increase and extension of Loan Facility


The Company announced on 12 December 2016 that a €750,000 loan facility secured in January 2016 from EBIOSS has now been fully utilised. It also announced that the terms of the facility had been amended by agreement between the parties such that the amount of the facility was increased by €600,000 to €1,350,000 and the repayment date of the increased facility was extended to 7 January 2018. The increased facility is to cover the working capital requirements of the Company.

Project finance Heads of Agreement

On 11 October 2016, the Company announced that it had signed conditional heads of agreement with several parties to potentially fund, through a combination of debt and equity, the repowering of its 4MW biomass gasification project located in Newry, Co. Down, Northern Ireland ("Newry Biomass") and owned by its 50.02% subsidiary, Newry Biomass Limited ("NBL").

The Heads of Agreement envisage a total investment of up to £11.2 million to be made both directly and indirectly through the Company, into NBL, through a combination of debt and equity. If an agreement is concluded, the equity component of the investment is to be provided by a sub fund of the Ethika Fund SICAV Plc, a Professional Investor Fund ("Ethika"), and Kyotherm SAS, a France-based equity investor in biomass, geothermal energy and energy saving projects. Under the terms of the Heads of Agreement, Ethika is also to procure the debt financing for the repowering.

The terms of the Heads of Agreement between the parties are legally binding, however, are subject to the completion of, inter alia, legal, financial and technical due diligence, which is currently under way and is expected to be completed before the end of the calendar year, and therefore may change from that set out in the Heads of Agreement. There can be no guarantee that definitive agreement will be concluded on the terms currently envisaged or at all, or on the timetable envisaged.

There is a possibility that the equity component of the investment may require, inter alia, shareholder approval; however, this will not be known until the conclusion of the due diligence exercise. In the event that shareholder approval is required, the Company will prepare and send the necessary documentation to the shareholders to convene a general meeting of the Company to approve the proposals.