Eqtec Regulatory News (EQT)

15 June 2020

EQTEC plc

("EQTEC", the "Company" or the "Group")

Final Results for the year ended 31 December 2019

EQTEC plc (AIM: EQT), the technology solution company for advanced gasification in waste to energy projects, announces its final results for the year ended 31 December 2019.

Operational and commercial highlights

· Business strategy updated and refined in the year to focus on three key verticals: agri-food and industrial waste streams; recovery of clean energy from biomass; and municipal waste streams.

· Non-contracted tender opportunity pipeline increased four-fold, to over €130 million, between September and December 2019 (FY2018: €30 million), illustrating the impact of the refocus on key verticals and the portfolio strategic partnership approach.

· Framework agreement signed with Phoenix Biomass Energy Inc. to jointly develop biomass gasification power projects in the US, with five projects already under exclusivity, including North Fork and NAPA.

· Acquired a 19.99% ownership of North Fork Community Power LLC ("NFCP") which is developing a 2MW biomass project in North Fork, California for a consideration of US$2.5 million satisfied by the supply of certain items of the existing equipment previously held at EQTEC's Newry site.

· Equipment Sale and Services Contract signed with NFCP, with a sales value of €2.2 million to EQTEC, payable in stages according to a schedule of certain agreed milestones. Post year end, achieved financial close in January 2020 and invoiced and received a first payment of €880,000 and a second payment, in May 2020, of €770,000. EQTEC equipment is expected to be onsite for installation in Q4 2020, with further milestone payment expected in H2 2020.

· NAPA Project SPV relocated to an adjacent site to accommodate a larger 2MW capacity power plant, with planning having already been resubmitted in July 2019. The client is still awaiting amendment of planning permits and construction and installation is intended to start immediately after receipt of the permits.

· Conditional MOU signed with COBRA Instalaciones Y Servicios and Scott Bros. Enterprises Limited to jointly develop the proposed 25MW Billingham Energy waste gasification and power plant ("Billingham"). Subsequently agreed an extension to the MOU and opened discussions with potential co-developers and funders. EQTEC instructed and paid the grid operator to provide a full quotation for the grid connection and initiated technical due diligence with funders and insurance providers.

· Completed c.€155,000 Transports Metropolitans de Barcelona maintenance contract and increased proactive business development activities in this area, leading to a developing pipeline of potential new business for the Group, including further upgrade and maintenance contracts in Spain.

· Exclusivity Agreement signed for the proposed 1.18MW Biomasse31 Project in France.

· David Palumbo and Dr. Yoel Aleman appointed to the Board in August 2019, with David Palumbo taking over the role of CEO in September 2019.

Financial highlights

· Revenues of €1.6 million (2018: €2.2 million).

· Loss for the period including one-off items €3.6 million (2018: €8.2 million).

· Net assets €15.5 million (2018: €11.9 million).

· Agreed to restructure, in aggregate, £2.7 million of its existing debt through a debt for equity swap, resulting in a significant reduction in the Group's debt obligations.

· Two equity fundraises amounting in total to £1,780,500 with new and existing shareholders, together with the issue of new ordinary shares to certain service providers to settle amounts owed, at an agreed price of twice the equity subscription price, thereby strengthening the balance sheet.

· Overall, the Group's gearing remains low, with an improved debt-to-equity ratio of 13% (2018: 38%).

· Implemented a series of cash cost reduction initiatives. In addition, in order to further align senior management interests with shareholders, the executive management team in total agreed to take shares in lieu of 40% of their cash remuneration, until 30 June 2020. Non-Executive Chairman, Ian Pearson, also agreed to a 40% reduction in fees whilst Non-Executive Director, Thomas Quigley, agreed to take shares in lieu of his entire cash remuneration until 30 June 2020.

Post period highlights

· Contracted Q1 2020 revenues already €2.35 million (FY2019: €1.6 million).

· Received £212,500 from the exercise of warrants which were issued to subscribers of the equity placing announced by the Company on 2 December 2019 with an exercise price at a 100% premium to the then subscription price of 0.125p.

· Completed the sale of certain equipment to Movialsa for €300,000 and agreed a collaboration to use its 6MW plant in Spain, which utilises the Group's proprietary gasification technology, as a showcase for the Group's technology, with over 111,000 hours of expected operational availability successfully achieved and externally audited.

· Entered into a MOU with German EPC company, ewerGy GmbH ("ewerGy") (which will operate in Greece via its local partner, Eco Hellas SA), together with Greece based promoter and project developer, Agrigas Energy SA for the development of first advanced gasification plant in Greece.

· Signed a Collaboration Framework Agreement with ewerGy covering the key terms of proposed cooperation for the development of a portfolio of projects in Greece and the Balkan Region with 11 projects identified and under review.

· Awarded a contract for the upgrade of the existing syngas research and development facility at the University of Extremadura in Badajoz, Spain, to test the production of biofuels from syngas using a Fisher-Tropsch process and unit.

· Approval for RDF testing at the University of Lorraine plant in France. Discussions ongoing with a number of stakeholders to create a consortium to carry out a testing programme of UK RDF at the plant.

· Established an Employee Incentive Warrant Pool for all employees which will be used to further incentivise performance and align the interests of employees with those of shareholders.

· Agreed a reprofiling of existing debt plus interest of €2.6 million due to mature on 31 July 2020 to a new maturity on 30 June 2021.

· Agreed an extension for Billingham MOU and opened discussions with potential co-developers and funders. EQTEC has received from Northern Powergrid a full quotation for the grid connection.

COVID-19

· Actions announced on 23 March 2020:

- employees successfully transitioned to working from home, with little disruption and minor loss of efficiency;

- experienced no reduction in Group's design and engineering capability, and the delivery of these services to any of our projects; and

- video conferencing mitigating loss of physical presence with existing and potential new clients.

· Manageable loss of efficiency and levels of disruption expected to continue, as project management controls and internal management systems are re-calibrated.

· No delay in milestone payments and whilst some exposure exists on the supply side with some potential delays at project construction level, all possible steps being taken to mitigate and limit any risk.

Outlook

· High degree of earnings visibility for FY20 on contracted or near contracted sales of technology with FY20 results expected to be significantly weighted to second half.

· Global demand for Group's technology and services remains strong with the waste to energy market forecast to grow with early indications showing demand increasing as more countries and companies seek sustainable Green solutions to waste elimination and energy issues.

· EQTEC is a strong and resilient business, with a proven technology and relatively low-risk business model, providing a good foundation to withstand the challenges of the COVID-19 pandemic and to realise future opportunities as countries seek to implement strategies to meet climate change targets whilst focusing on replacing and building new distributed energy infrastructure for localised resiliency.

· Whilst the impact of COVID-19 for the global economy remains to be quantified, we believe the coronavirus pandemic may influence the pace and nature of climate action positively. Climate action could accelerate the recovery by creating jobs, driving capital formation, and increasing economic resiliency.

David Palumbo, Chief Executive Officer of EQTEC, commented: "The Group has entered 2020 with positive momentum and demand for our services is increasing. The waste to value market is forecast to grow significantly over the next three years. Whilst March 2020 was challenging for the Group operationally, as we transitioned to remote working, our team rose to the challenge and is adapting well to new working routines. The business continues to press ahead throughout this disruption and we are heartened by the level of new enquiries from existing and new geographies in relation to our Advanced Gasification Technology.

"It is still too early to estimate accurately the financial impact of the pandemic on the Group. However, our low-risk business model and the support of our stakeholders, provide firm foundations on which to withstand the challenges.

"Whilst there will inevitably be some impact from the pandemic on the Group's performance in FY20, we remain confident in the Group's strategy and its ability to deliver strong returns for stakeholders in the short and medium term."

The Annual Report and Accounts will shortly be available on the Company's website.

This announcement contains inside information as defined in Article 7 of the EU Market Abuse Regulation No 596/2014 and has been announced in accordance with the Company's obligations under Article 17 of that Regulation.

Enquiries

Notes to Editors

About EQTEC plc

EQTEC is a technology partner with proven proprietary patented technology for waste-to-value applications. EQTEC designs and supply advanced gasification solutions and has a higher efficiency product offering that it is modular and scalable from 2MW to 30MW. Of particular importance is the versatility to process over 50 different types of feedstock, including municipal waste, agricultural waste, biomass and plastics. Our solutions produce a uniquely pure high-quality synthesis gas (syngas), that is capable of being used for the widest applications in energy and biofuels.

EQTEC plc is a globally recognised expert in advance gasification with the overarching proposition to take the carbon rich solid product of waste, and convert into power and high value fuels, to be used in one of three broad applications Waste-to-Energy, Clean Fuels and the Industrial Energy Transition.

The Company is quoted on AIM, bears the Green Economy Mark awarded by the London Stock Exchange and trades as EQT. Further information on the Company can be found at www.eqtecplc.com.

Chairman's Statement

I am very pleased to introduce EQTEC Group's Final Results for 2019.

As we all struggle to look beyond the uncertainty caused by the COVID-19 crisis it is especially important in my view to recognise that in any 'new normal' world there will be a growing need to reduce and eliminate waste and produce clean energy. We have already seen governments developing national green economy plans and many are looking to strengthen these as a way of rebuilding growth in their countries. More will undoubtedly do so as they look again towards delivering on the Paris Agreement and their carbon reduction commitments.

EQTEC's purpose as a company - to help the world reduce waste and generate green energy - is about making a sustainable contribution to delivering on this agenda while at the same time as a publicly quoted company delivering returns for our investors in this growing market.

The strengths of the Group particularly lie in its technology, employees and partnerships, and in its relatively low-risk business model. During the year we worked hard to develop further capabilities in all these areas. We also spent important time as a board and executive team refining the company's strategy and its focus on key target markets or verticals, as David explains in his CEO report.

This is our second year of reporting since the acquisition of the business of Eqtec Iberia, its intellectual property and its world leading Advanced Gasification Technology. We are a now a completely focused waste-to-value company, using our proven proprietary Advanced Gasification Technology to generate safe, green energy from over 50 different kinds of feedstock such as municipal, agricultural and industrial waste, biomass, and plastics.

We collaborate with waste operators, developers, technologists, Engineering, Procurement and Construction (EPC) contractors and capital providers to build sustainable waste elimination and green energy infrastructure. Our revenue comes from licensing and selling our technology, supplying gasification reactors and equipment, and engineering and design services using our unique expertise. We also expect to receive equity returns from projects in which we invest. Our strategy is to create a collaborative ecosystem within the waste-to-value sector through entering into strategic relationships whereby waste operators, developers, technologists, EPC contractors and capital providers collaborate to build sustainable waste elimination and clean energy infrastructure projects.

We were recently proud to be awarded the Green Economy Mark by the London Stock Exchange, and believe we are a good investment opportunity for impact investors who want to generate a measurable environmental impact alongside the potential for financial returns. We want to encourage more long-term impact investors to help us to grow faster and do more to help eliminate waste and generate green energy.

Encouragingly, we saw demand for our Advanced Gasification Technology in a number of markets trending significantly upwards during the year and the Group entered 2020 with its strongest pipeline of customer positions and prospects for a number of years as it continues to move towards sustained profitability.

Supported by the rest of the board our executive management team responded early to the Governmental advice issued on COVID-19, switching rapidly to working from home in Ireland, Spain and the UK so as to safeguard our people, their families and our other stakeholders. Our team have adapted well. People have successfully transitioned to working from home, with little disruption. We have experienced no reduction in our design and engineering capability, and the delivery of these services to any of our projects. We have utilised video conferencing in order to mitigate the loss of physical presence with existing and potential new clients. I would like to thank everyone for their dedication and resilience through this difficult period and also our clients for their support in facilitating the move to remote working.

In terms of the future outlook, while the overall impact from Covid-19 remains uncertain despite the current challenging circumstances, we appear to be maintaining momentum following an increase in commercial enquires and the addition of strategic partnerships in our core geographies. We are continuing to advance our commercial pipeline in the US, and more recently in Greece, as well as advancing discussions with parties that have expressed interest in EQTEC becoming their advanced gasification technology partner.

The Group has a strong management team in place and has consistently demonstrated that it can adapt and respond quickly to changing financial and market conditions. The Board remains confident in its strategy and believes that the Group is well positioned to benefit from the growth of the global waste to value market.

Ian Pearson

Non-Executive Chairman

12 June 2020

Chief Executive's Report

This is my first report as Chief Executive, having been appointed in September 2019. I firmly believe in the potential of the Group's unique and highly compelling Advance Gasification Technology and the ability of a very experienced team of people to ensure that the opportunity from its portfolio of projects will be maximised.

Since my appointment my focus has been on establishing a strong foundation for growth, focusing on increasing sales from a lean organisation, continuing to optimise the capital structure of the Company and establishing new funding structures for project finance.

Our technology and technical capabilities are unquestionable, we have a world class technology that it is proven and executed at commercial scale successfully. We believe that this sets us apart from any competitors within our niche market. Building from this, our main goal from the moment I joined as CEO, was to prove to our partners and to the market that we could attract project funders willing to finance our project pipeline. Reaching financial close in our first project in the USA, North Fork, was a significant milestone for us. The next phase of our journey is to prove the scalability of our business model by identifying more strategic partners whilst taking a portfolio approach. This would enable us to attract more established project funders that in turn, should reduce the cost of capital for a project and the timing required to reach financial close.

The Chairman has explained how we seek to create a collaborative ecosystem within the waste-to-value sector through entering into strategic relationships. We have already entered into a number of key strategic partnerships with leading partners, including Phoenix Energy, COBRA and more recently ewerGy the German EPC Group. We also strengthened our existing development, testing and research relationships with the University of Lorraine in France and the University of Extremadura in Spain. We have a number of further strategic collaborations under consideration. This collaborative approach is already presenting new opportunities to the Group which we believe will continue to expedite our growth strategy.

I am particularly pleased with the progress being made in our three key verticals, in the US, the UK and in Europe and we are focused on building on this progress to become an internationally recognised technology partner for Advanced Gasification across the Globe. Our focus is on:

· Recovery of clean energy from biomass: Focused on biomass energy with projects in the 2 to 5MW scale, particularly in the USA and Europe. We are also exploring the opportunity to licence our technology in South East Asia, following referrals from INNIO Jenbacher, one of our key technology partners.

· Recovery of clean energy from waste streams in agri-food and industrial sectors: Focused on energy recovery for distributed industrial energy transition applications, typically in the 2 to 10MW project scale, particularly in the Mediterranean area.

· Elimination of Municipal Solid Waste ("MSW") and Refuse Derived Fuel ("RDF"): Focused on projects typically in the 5 to 25MW range, particularly in the UK and Ireland.

The Group's strategy is to build a leading position in its chosen markets. Our approach has been to tailor the design of our Advanced Gasification Technology closely on customer requirements and which we feel gives us a commercial and technical edge. Development work is focussed on areas where it is believed that there is the potential for us to be the reference technology partner and present a compelling value proposition to the client.

We continue to build on our growth strategy focusing on maximising the opportunities that we expect to provide a stable base of regular recurring and predictable revenues and profits. We strive for operational excellence so as to achieve a high level of new contract awards and keep our existing clients happy. We have broadened our horizons to achieve scale and geographical coverage.

In our current scale-to-growth phase we believe that focus is the key. This could be a challenge for a company with the in-house technical capabilities and desire we have to constantly innovate with breakthrough technologies to apply in a fast-changing world. We have focused the business in targeted sectors in order to develop a profitable and cash-generative business that is understood by all stakeholders. We have no doubt that each of these markets will grow unquestionably over the next few years based on the increasing drive for improved air quality worldwide, the growth of renewables in the energy mix and the need to decarbonise industrial processes.

We rest assured that once we have proven scalability in these niche sectors, we will have both the financial resilience and growth platform for EQTEC to be particularly positioned to continue to innovate and capture new segments of each market.

Review of Operations

EQTEC is the partner of choice for certain waste operators, EPC contractors and Project Developers looking to eliminate waste in a sustainable profitable manner and produce clean electricity, heat and biofuels.

We provide our world leading Advance Gasification Technology and the technical, operational and development capabilities to make projects happen. We collaborate with strong strategic partners.

This is a summary of the contracts and projects we are currently working on at the date of this report:

· Framework agreement signed with Phoenix Biomass Energy Inc. ("Phoenix") to jointly develop biomass gasification power projects in the US, with five projects already identified, including North Fork and NAPA

· Acquire a 19.99% ownership of North Fork Community Power LLC ("NFCP") which is developing a 2MW biomass project in North Fork, California for a consideration of US$2.5 million satisfied by the supply of certain items of the existing equipment previously held at EQTEC's Newry site

· Equipment Sale and Services Contract signed with NFCP, with a sales value of €2.2 million to EQTEC, payable in stages according to a schedule of certain agreed milestones. Achieved Financial Close and in January 2020 invoiced and received a first payment of €880,000. Detailed engineering has since been completed on the project and a second payment of €770,000 was received in May 2020.

· NAPA Project SPV relocated to an adjacent site to accommodate a larger 2MW capacity power plant, with planning having already been resubmitted in July 2019. The client is still awaiting amendment of planning permits and construction and installation is intended to start immediately after receipt of the permits.

· Conditional MOU signed with COBRA Instalaciones Y Servicios and Scott Bros. Enterprises Limited to jointly develop the proposed 25MW Billingham Energy waste gasification and power plant. Subsequently agreed an extension to the MOU, and opened discussions with potential co-developers and funders. EQTEC has instructed the work to provide a full quotation for the grid connection, paid the initial deposit and initiated technical due diligence with funders and insurance providers.

· Completed c.€155,000 Transports Metropolitans de Barcelona ("TMB") maintenance contract and increased proactive business development activities in this area, leading to a developing pipeline of potential new business for the Group, including further upgrade and maintenance contracts in Spain.

· Exclusivity Agreement signed for the proposed 1.18MW Biomasse31 Project in France.

Post year end

· Entered into the MOU with German EPC company, ewerGy GmbH ("ewerGy") (which will operate in Greece via its local partner, Eco Hellas SA), together with Greece based promoter and project developer, Agrigas Energy SA for the development of first advanced gasification plant in Greece

· Signed a Collaboration Framework Agreement (the "Agreement"), with ewerGy covering the key terms of the proposed cooperation for the development of a portfolio of projects in Greece and the Balkan Region with 11 projects identified and already under review. 

· Awarded a contract for the upgrade of the existing syngas research and development facility at the University of Extremadura in Badajoz, Spain, to testing of the production of biofuels from syngas using a Fisher-Tropsch process and unit.

· Approval for RDF testing at the University of Lorraine plant in France. Discussions ongoing with a number of stakeholders to create a consortium to carry out a testing programme of UK RDF at the plant.

Financial Review

Revenue in the financial year ended 31 December 2019 amounted to €1.7 million (2018: €2.2 million). The Group reported a loss for the financial year of €3.6 million, a decrease on the prior year period loss of €8.2million for 2018. Losses before one off items and interest expensed were €2.6 million for the financial year.

As at 31 December 2019, net assets of the Group stood at €15.5 million (2018: €11.9 million) and the Group had net debt of €2.3 million (2018: €5.5 million) including cash balances of €0.5 million (2018: €0.5 million).

As announced on 28 June 2019, the Group has agreed to restructure €3.16 million of its existing debt through a debt for equity swap, resulting in a significant reduction in the Group's debt obligations. Following the debt for equity swap, the debt plus accrued interest, was payable in full, at the end of July 2020.

Two equity fundraises were successfully completed in July and December amounting in total to £1.8 million (€2 million) from new and existing shareholders together with the issue of new ordinary shares to certain service providers at an agreed price of twice the equity subscription price, thereby strengthening the balance sheet.

The Company identified a series of cash cost reduction initiatives, including cash salary reductions currently agreed through to July 2020, which have been implemented. In order to preserve cash and further align senior managements' interests with shareholders the executive management team in total agreed to take shares in lieu of 40% of their cash remuneration, until 30 June 2020. Non-Executive Chairman, Ian Pearson, also agreed to a 40% reduction in fees whilst Non-Executive Director, Thomas Quigley, agreed to take shares in lieu of his entire cash remuneration until 30 June 2020. None of these shares have yet been issued.

In December 2019 we completed our acquisition of a 19.99% equity interest in North Fork Community Power LLC for the development of a 2 MW biomass project in North Fork, California for a consideration of US$2.5million (€2.2 million) which was satisfied by the supply of certain items of existing equipment held at EQTEC's Newry site.

Subsequent to the year-end we also established an Employee Incentive Warrant Pool for all employees which will be used to incentivise performance and align the interests of employees with those of shareholders

In January 2020 we completed the sale of certain equipment to Movialsa for €0.3 million, and agreed a collaboration to use its 6MW plant in Spain, which utilises the Group's proprietary gasification technology, as a showcase for the Group's technology, with over 111,000 hours of expected operational availability successfully achieved and externally audited.

In the last month we negotiated a reprofiling of existing loans plus interest of €2.7 million as at 1 June 2020 which were due to mature on 31 July 2020 resulting in the extension of the maturity dates to 30 June 2021.

Future plans & Outlook

We have a high degree of earnings visibility for FY20 on contracted or near contracted sales of technology with FY20 results expected to be significantly weighted to second half of the financial year.

Global demand for Group's technology and services remains strong. Early indications show demand increasing as more and more countries and companies seek sustainable Green solutions to waste elimination and energy issues.

The Group continues to advance discussions with regard to a number of ongoing business development initiatives, including:

· Entry into the market in Greece through a strategic partnership with ewerGy for EPC, O&M and business development and exclusivity in relation to its existing pipeline in the agricultural waste sector.

· Project partnerships with potential investors in the USA whilst evaluating feasibility of additional two projects with Phoenix Energy.

· Collaborations with developers in the UK and Ireland in relation to RDF, anaerobic digestion and waste gasification projects.

· Collaboration with a large owner and operator of biomass energy, district heating and energy from waste infrastructure, to develop a portfolio of projects together.

It is apparent to the Board that COVID-19, with the resultant restrictive social and travel practices and associated economic impact will have some inevitable impact on the operations of the Group. It is too early at this stage to be confident in trying to make any accurate overall forecasts of the impact that COVID-19 will have, for example, on employees, customers or growth. However, EQTEC is a strong and resilient business with a proven technology and relatively low-risk business model, providing a good foundation to withstand the challenges of the COVID-19 pandemic. We continue to implement a number of measures to reduce the Group's cash outflows and assist in managing its cash-flow in this period.

The focus of the Board will be on building on the foundation for growth, focusing on increasing sales in the context of a leaner organisation and continuing to solidify the capital structure of the Group. We are also constantly assessing funding requirements including various options/opportunities to establish new funding structures for project finance and attracting the funding to continue with our activities and our planned development programme.

We look forward to keeping shareholders updated on key developments going forward.

David Palumbo

Chief Executive Officer

12 June 2020

Consolidated statement of profit or loss

for the financial year ended 31 December 2019

 The notes form part of these financial statements.  

Consolidated statement of other comprehensive income

for the financial year ended 31 December 2019

The notes form part of these financial statements.

Consolidated statement of financial position

At 31 December 2019

Consolidated statement of financial position

At 31 December 2019 - continued

The financial statements were approved by the Board of Directors on 12 June 2020 and signed on its behalf by:

Ian Pearson David Palumbo

Chairman Director

The notes form part of these financial statements.

Consolidated statement of changes in equity

for the financial year ended 31 December 2019

The notes form part of these financial statements.  

Consolidated statement of cash flows

for the financial year ended 31 December 2019

Consolidated statement of cash flows

for the financial year ended 31 December 2019 - continued

Company statement of financial position

At 31 December 2019

The financial statements were approved by the Board of Directors on 12 June 2020 and signed on its behalf by:

Ian Pearson David Palumbo

Chairman Director

The notes form part of these financial statements.

Company statement of changes in equity

for the financial year ended 31 December 2019

The notes form part of these financial statements.

Company statement of cash flows

for the financial year ended 31 December 2019

The notes form part of these financial statements.

Notes to the consolidated financial statements 

1. GENERAL INFORMATION

EQTEC plc ("the Company") is a company domiciled in Ireland. These financial statements for the financial year ended 31 December 2019 consolidate the individual financial statements of the Company and its subsidiaries (together referred to as 'the Group').

The Group is a waste-to-value group, which uses its proven proprietary Advanced Gasification Technology to generate safe, green energy from over 50 different kinds of feedstock such as municipal, agricultural and industrial waste, biomass, and plastics. The Group collaborates with waste operators, developers, technologists, EPC contractors and capital providers to build sustainable waste elimination and green energy infrastructure.

Revenue comes from licensing and selling its technology, supplying gasification reactors and equipment, and engineering and design services using its unique expertise. The Group also expects to receive equity returns from projects in which we invest.

2. NEW OR REVISED STANDARDS OR INTERPRETATIONS 

Impact of initial application of IFRS 16 Leases

In the current financial year, the Group has applied IFRS 16 (as issued by the IASB in January 2016) that is effective for annual periods that begin on or after 1 January 2019.

IFRS 16 Leases replaces IAS 17 Leases, along with three interpretations (IFRIC 4 Determining whether an arrangement contains a lease, SIC 15 Operating leases - Incentives, and SIC 27 Evaluating the substance of transactions involving the legal form of a lease). The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with all former operating leases except for those identified as low-value or having a remaining lease term of less than 12 months from the date of initial application.

The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated.

For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as lease under IAS 17 and IFRIC 4.

The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being 1 January 2019. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition. Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16.

On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets the Group has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term. For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately before the date of initial application.

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 3%.

The Group has benefited from the use of hindsight for determining the lease term when considering options to extend and terminate leases.

The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at 1 January 2019:

The following is a reconciliation of total operating lease commitments at 31 December 2018 (as disclosed in the financial statements to 31 December 2018) to the lease liabilities recognised at 1 January 2019:

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) - continued

Other new/revised standards and interpretations adopted in 2019

In the current financial year, the Group has applied a number of amendments to IFRS Standards and Interpretations issued by the International Accounting Standards Board (IASB), as adopted by the European Union, that are effective for an annual period that begins on or after 1 January 2019. Their adoption has not had any impact on the disclosures or on the amounts reported in these financial statements.

New and revised IFRS Standards in issue but not yet effective

The following new and revised Standards and Interpretations have not been adopted by the Group, whether endorsed by the European Union or not. The Group is currently analysing the practical consequences of the new Standards and the effects of applying them to the financial statements. The related standards and interpretations are:

The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods.

3. STATEMENT OF ACCOUNTING POLICIES

Statement of Compliance, 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 31 December 2019 for all years presented as issued by the International Accounting Standards Board.

The financial statements of the parent company, EQTEC plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union ('EU') effective at 31 December 2019 for all years presented as issued by the International Accounting Standards Board and Irish Statute comprising the Companies Act 2014.

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 years presented in these consolidated financial statements.

Comparative amounts have been represented where necessary, to present the financial statements on a consistent basis.

The consolidated financial statements are presented in euros and all values are not rounded, except when otherwise indicated.

The Group incurred a loss of €3,561,289 (2018: €8,209,679) during the financial year ended 31 December 2019 and had net current liabilities of €1,953,659 (2018: €2,659,716) and net assets of €15,466,948 (31 December 2018: €11,870,707) at 31 December 2019.

The Group continues to invest capital in developing and expanding its pipeline of waste to energy projects. The nature of the Group's business model means that the sales and project pipeline depend upon counterparties commissioning and financing major projects, the timing of which is subject to many uncertainties and is not under the Group's control. This implies that the timing of funds generated from projects can be difficult to predict.

Since 31 December 2019, the spread of COVID-19 has severely impacted many local economies around the globe. In many countries, businesses are being forced to cease or limit operations for long or indefinite periods of time. Measures taken to contain the spread of the virus, including travel bans, quarantines, social distancing, and closures of non-essential services have triggered significant disruptions to businesses worldwide, resulting in an economic slowdown. Global stock markets have also experienced great volatility and a significant weakening. Governments and central banks have responded with monetary and fiscal interventions to stabilise economic conditions.

The degree of uncertainty associated with the outcome of the COVID-19 crisis increases significantly the further into the future forecasting is undertaken. The nature and condition of the Group and the degree to which it is affected by external factors affect the judgement regarding the outcome of the COVID-19 crisis. Any judgement about the future is based on information at the time at which the judgement is made. Subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made. Management will continually assess the information available at the time of publication. 

The directors had carried out an evaluation of financial forecasts, sensitised to reflect a rational judgement of the level of inherent risk. The forecasts which Management have prepared covering the next 12 months include certain assumptions with regard to required future funding from third parties, such as drawdown of the available Altair loan facility, the costs of business development, overheads and the timing and amount of any funds generated from sales of the Groups technology. The forecasts indicate that during this period the Group will have funds to continue with its activities and its planned development program.

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.

Basis of consolidation

The Group financial statements consolidate those of the parent company and all of its subsidiaries as of 31 December 2019. All subsidiaries have a reporting date of 31 December.

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the financial year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests.

Business combinations

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred, and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values.

Step Acquisitions

Business combination achieved in stages is accounted for using acquisition method at acquisition date. The components of a business combination, including previously held investments are remeasured at fair value at acquisition date and a gain or loss is recognised in the consolidated statement of profit or loss.

Profit or loss from discontinued operations

A discontinued operation is a component of the Group that either has been disposed of or is classified as held for sale. Profit or loss from discontinued operations comprises the post-tax profit or loss of discontinued operations and the post-tax gain or loss resulting from the measurement and disposal of assets classified as held for sale (see also policy on non-current assets and liabilities classified as held for sale and discontinued operations below and Note 31).

Investments in associates and joint ventures

Investments in associates and joint ventures are accounted for using the equity method. The carrying amount of the investment in associates and joint ventures is increased or decreased to recognise the Group's share of the profit or loss and other comprehensive income of the associate and joint venture, adjusted where necessary to ensure consistency with the accounting policies of the Group. When the Group's share of losses on an associate or a joint venture exceeds the Group's interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate or joint venture), the Group discontinues recognising its share of future losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group's interest in those entities. Where unrealised losses are eliminated, the underlying asset is also tested for impairment.

Investments in subsidiaries

Investments in subsidiaries in the Company's statement of financial position are measured at cost less accumulated impairment. When necessary, the entire carrying amount of the investment is tested for impairment by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised to the extent that the recoverable amount of the investment subsequently increases.

Foreign currency translation

Functional and presentation currency

The consolidated financial statements are presented in Euro, which is also the functional currency of the parent company. The Group has subsidiaries in the United Kingdom, whose functional currency is the GBP £.

Foreign currency transactions and balances

Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in profit or loss.

Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

Foreign operations

In the Group's financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than Euro are translated into Euro upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting financial year.

On consolidation, assets and liabilities have been translated into Euro at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into Euro at the closing rate. Income and expenses have been translated into Euro at the average rate over the reporting financial year. Exchange differences are charged or credited to other comprehensive income and recognised in the currency translation reserve in equity. On disposal of a foreign operation, the related cumulative translation differences recognised in equity are reclassified to profit or loss and are recognised as part of the gain or loss on disposal.

Segment reporting

The Group has two operating segments: the power generation segment and the technology sales segment. In identifying these operating segments, management generally follows the Group's service lines representing its main products and services.

Each operating segment is managed separately as each requires different technologies, marketing approaches and other resources. All inter-segment transfers are carried out at arm's length prices based on prices charged to unrelated customers in standalone sales of identical goods or services.

For management purposes, the Group uses the same measurement policies as those used in its financial statements. In addition, corporate assets which are not directly attributable to the business activities of any operating segment are not allocated to a segment. This primarily applies to the Group's central administration costs and directors' salaries.

Revenue

Revenue arises from the rendering of services. Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer. To determine whether to recognise revenue, the Group follows a 5-step process:

1. Identifying the contract with a customer;

2. Identifying the performance obligations;

3. Determining the transaction price;

4. Allocating the transaction price to the performance obligations; and

5. Recognising revenue when/as performance obligation(s) are satisfied.

The Group applies the revenue recognition criteria set out below to each separately identifiable component of the sales transaction. The consideration received from these multiple-component transactions is allocated to each separately identifiable component in proportion to its relative fair value. Revenue is recognised either at a point in time or over time, when the Group satisfies performance obligations by transferring the promised goods or services to its customers.

Rendering of services

The Group generates revenues from after-sales service and maintenance, consulting, and construction contracts for renewable energy systems. Consideration received for these services is initially deferred, included in other payables, and is recognised as revenue in the financial year when the performance obligation is satisfied. In recognising after-sales service and maintenance revenues, the Group determines the stage of completion by considering both the nature and timing of the services provided and its customer's pattern of consumption of those services, based on historical experience. Where the promised services are characterised by an indeterminate number of acts over a specified year of time, revenue is recognised over time.

Revenue from consulting services is recognised when the services are provided by reference to the contract's stage of completion at the reporting date in the same way as construction contracts for renewable energy systems described below.

Revenue - continued

Construction contracts for renewable energy systems

Construction contracts for renewable energy systems specify a fixed price for the design, development and installation of biomass systems. When the outcome can be assessed reliably, contract revenue and associated costs are recognised by reference to the stage of completion of the contract activity at the reporting date. Contract revenue is measured at the fair value of consideration received or receivable and recognised over time on a cost-to-cost method. When the Group cannot measure the outcome of a contract reliably, revenue is recognised only to the extent of contract costs that have been incurred and are recoverable. Contract costs are recognised in the financial year in which they are incurred. In either situation, when it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately in profit or loss.

A construction contract's stage of completion is assessed by management by comparing costs incurred to date with the total costs estimated for the contract (a procedure sometimes referred to as the cost-to-cost method). Only those costs that reflect work performed are included in costs incurred to date. The gross amount due from customers for contract work is presented within trade and other receivables for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings. The gross amount due to customers for contract work is presented within other liabilities for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).

Interest and dividends

Interest income and expenses are reported on an accrual basis using the effective interest method. Dividends, other than those from investments in associates and joint ventures, are recognised at the time the right to receive payment is established.

Operating expenses

Operating expenses are recognised in profit or loss upon utilisation of the service or as incurred. Expenditure for warranties is recognised when the Group incurs an obligation, which is typically when the related goods are sold.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Profit or loss from discontinued operations

A discontinued operation is a component of the Group that either has been disposed of or is classified as held for sale. Profit or loss from discontinued operations comprises the post-tax profit or loss of discontinued operations and the post-tax gain or loss resulting from the measurement and disposal of assets classified as held for sale.

Goodwill

Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. Goodwill is carried at cost less accumulated impairment losses. Goodwill is not amortised but is reviewed for impairment at least annually. Refer below for a description of impairment testing procedures.

Non-controlling interests

Non-controlling interests that are present ownership interest and entitle their holders to a proportionate share of the entity's net assets in the event of a liquidation may be initially measured either at fair value of at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. Other types of non-controlling interests are measured at fair value, or, when applicable, on the basis specified in another IFRS.

Property, plant and equipment

Land and buildings and plant and equipment are initially recognised at acquisition cost or manufacturing cost, including any costs directly attributable to bringing the assets to the location and condition necessary for them to be capable of operating in the manner intended by the Group's management. Leasehold buildings, plant and equipment are subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation is recognised on a straight-line basis to write down the cost less estimated residual value of leasehold buildings and plant and equipment. The following useful lives are applied:

• Leasehold buildings: 5-50 years

• Office equipment: 2-5 years

• Wind Turbine: 20 years

Material residual value estimates and estimates of useful life are updated as required, but at least annually.

Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss within other income or other expenses.

Property, plant and equipment - continued

Construction in progress is stated at cost less any accumulated impairment loss. Cost comprises direct costs of construction as well as interest expense and exchange differences capitalised during the year of construction and installation. Capitalisation of these costs ceases and the asset in course of construction is transferred to fixed assets when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided in respect of payments on account and asset in course of construction until it is fully completed and ready for its intended use.

Leased assets

As described in Note 2, the Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been restated. This means comparative information is still reported under IAS 17 and IFRIC 4.

Accounting policy applicable from 1 January 2019

For any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'. To apply this definition, the Group assesses whether the contract meets three key evaluations which are whether:

• the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group

• the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract

• the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct 'how and for what purpose' the asset is used throughout the period of use.

Measurement and recognition of leases 

At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group's incremental borrowing rate.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term.

On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease liabilities have been included in trade and other payables.

Accounting policy applicable before 1 January 2019

Finance leases

Management applies judgment in considering the substance of a lease agreement and whether it transfers substantially all the risks and rewards incidental to ownership of the leased asset. Key factors considered include the length of the lease term in relation to the economic life of the asset, the present value of the minimum lease payments in relation to the asset's fair value, and whether the Group obtains ownership of the asset at the end of the lease term.

For leases of land and buildings, the minimum lease payments are first allocated to each component based on the relative fair values of the respective lease interests. Each component is then evaluated separately for possible treatment as a finance lease, taking into consideration the fact that land normally has an indefinite economic life. The interest element of lease payments is charged to profit or loss, as finance costs over the year of the lease.

Operating leases

All other leases are treated as operating leases. Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

Impairment testing of goodwill and property, plant and equipment

For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of a related business combination and represent the lowest level within the Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated (determined by the Group's management as equivalent to its operating segments) are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's (or cash-generating unit's) carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect current market assessments of the time value of money and asset-specific risk factors.

Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset's or cash-generating unit's recoverable amount exceeds its carrying amount.

Financial instruments

Recognition, initial measurement and derecognition

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted for transaction costs, except for those carried at fair value through profit or loss which are measured initially at fair value, and trade receivables that do not contain a significant financing component, which are measured at the transaction price in accordance with IFRS 15. Subsequent measurement of financial assets and financial liabilities is described below.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Classification and subsequent measurement of financial assets

For the purpose of subsequent measurement financial assets, other than those designated and effective as hedging instruments, are classified into the following categories upon initial recognition:

• amortised cost

• fair value through profit or loss (FVTPL)

• fair value through other comprehensive income (FVOCI)

In the periods presented, the Group does not have any financial assets categorised as FVTPL or FVOCI.

The classification is determined by both:

· the Group's business model for managing the financial asset; and

· the contractual cash flow characteristics of the financial asset.

All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

Financial assets at amortised cost and impairment

Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated at FVTPL):

· they are held within the business model whose objective is to hold the financial asset and collect its contractual cash flows;

· the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.

After initial recognition, they are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.

Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of the counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group.

In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due and also according to the geographical location of customers.

Financial instruments - continued

Classification and subsequent measurement of financial assets - continued

Financial assets at amortised cost - continued

The expected loss rates are based on the payment profile for sales over the past 48 months before 31 December 2019 and 1 January respectively as well as the corresponding historical credit losses during that period. The historical rates are adjusted to reflect current and forward-looking macroeconomic factors affecting the customer's ability to settle the amount outstanding. The Group has identified gross domestic product (GDP) and unemployment rates in the countries in which the customers are domiciled to be the most relevant factors and accordingly adjusts historical loss rates for expected changes in these factors. However, given the short period exposed to credit risk, the impact of these macroeconomic factors has not been considered significant within the reporting period.

Classification and subsequent measurement of financial liabilities

The Group's financial liabilities include borrowings, trade and other payables and derivative financial instruments.

Financial liabilities are measured subsequently at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments). All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income.

Derivative financial instruments and hedge accounting

Derivative financial instruments are accounted for at FVTPL except for derivatives designated as hedging instruments in cash flow hedge relationships, which require a specific accounting treatment. To qualify for hedge accounting, the hedging relationship must meet several strict conditions with respect to documentation, probability of occurrence of the hedged transaction and hedge effectiveness.

All derivative financial instruments used for hedge accounting are recognised initially at fair value and reported subsequently at fair value in the statement of financial position.

To the extent that the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash flow hedges are recognised in other comprehensive income and included within the cash flow hedge reserve in equity. Any ineffectiveness in the hedge relationship is recognised immediately in profit or loss.

At the time the hedged item affects profit or loss, any gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and presented as a reclassification adjustment within other comprehensive income. However, if a non-financial asset or liability is recognised as a result of the hedged transaction, the gains and losses previously recognised in other comprehensive income are included in the initial measurement of the hedged item.

If a forecast transaction is no longer expected to occur, any related gain or loss recognised in other comprehensive income is transferred immediately to profit or loss. If the hedging relationship ceases to meet the effectiveness conditions, hedge accounting is discontinued, and the related gain or loss is held in the equity reserve until the forecast transaction occurs.

Fair values

For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: valuation techniques for which the lowest level of inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value are not based on observable market data

Income taxes

Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity.

Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting financial year. Deferred income taxes are calculated using the liability method.

Deferred tax assets are recognised to the extent that it is probable that the underlying tax loss or deductible temporary difference will be utilised against future taxable income. This is assessed based on the Group's forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit.

Deferred tax liabilities are generally recognised in full, although IAS 12 'Income Taxes' specifies limited exemptions. As a result of these exemptions the Group does not recognise deferred tax on temporary differences relating to goodwill, or to its investments in subsidiaries.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments maturing within 90 days from the date of acquisition that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Non-current assets and liabilities classified as held for sale and discontinued operations

Non-current assets classified as held for sale are presented separately and measured at the lower of their carrying amounts immediately prior to their classification as held for sale and their fair value less costs to sell. However, some held for sale assets such as financial assets or deferred tax assets, continue to be measured in accordance with the Group's relevant accounting policy for those assets. Once classified as held for sale, the assets are not subject to depreciation or amortisation.

Any profit or loss arising from the sale or remeasurement of discontinued operations is presented as part of a single line item, profit or loss from discontinued operations (See also policy on profit or loss from discontinued operations above).

Equity, reserves and dividend payments

Share capital represents the nominal (par) value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

Retained earnings include all current and prior financial year retained profits. All transactions with owners of the parent are recorded separately within equity. Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.

Share-based payments

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values.

Where employees are rewarded using share-based payments, the fair value of employees' services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example profitability and sales growth targets and performance conditions). All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to retained earnings. If vesting years or other vesting conditions apply, the expense is allocated over the vesting year, based on the best available estimate of the number of share options expected to vest.

Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any adjustment to cumulative share-based compensation resulting from a revision is recognised in the current financial year. The number of vested options ultimately exercised by holders does not impact the expense recorded in any financial year.

Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, are allocated to share capital up to the nominal (or par) value of the shares issued with any excess being recorded as share premium.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average cost method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Short-term employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

Share Warrants

The Group has share warrants outstanding that were issued to loan notes holders as part of the loan agreements. These share warrants are assessed under IAS 32 as instruments settled in an entity's own equity instruments. The classification of this instrument as either a financial liability or equity depends on the substance of the financial instruments rather that its legal form.

Provisions, contingent assets and contingent liabilities

Provisions for legal disputes, onerous contracts or other claims are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain.

Restructuring provisions are recognised only if a detailed formal plan for the restructuring exists and management has either communicated the plan's main features to those affected or started implementation. Provisions are not recognised for future operating losses.

Provisions, contingent assets and contingent liabilities - continued

Any reimbursement that the Group is virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision.

No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.

When preparing the financial statements, management makes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses.

Significant management judgements

The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements.

Going concern

As described in the basis of preparation and going concern in Note 3 above, the validity of the going concern basis is dependent upon the Company sourcing finance required to continue to develop projects. After making enquiries and considering the matters referred to in Note 3, the Directors have a reasonable expectation that the Company will source this financing and the Group will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Control assessment in a business combination.

As disclosed in Note 20, the Group owns 50.02% of the voting rights in Newry Biomass Limited. One other company owns the remaining voting rights. Management has reassessed its involvement in Newry Biomass Limited in accordance with IFRS 10's revised control definition and guidance and has concluded that it has control of Newry Biomass Limited.

Financial Instruments

The Group classifies a financial instrument, or its component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual agreement and the definitions of a financial asset, a financial liability or an equity instrument. The substance of a financial instrument, rather than its legal form, governs its classification in the financial statements.

Revenue

As revenue from construction contracts is recognised over time, the amount of revenue recognised in a reporting period depends on the extent to which the performance obligation has been satisfied. It also requires significant judgment in determining the estimated costs required to complete the promised work when applying the cost-to-cost method.

Assets held for disposal

On 27 March 2017, the Board of Directors announced its decision to dispose the wind turbine segment of the Group consisting of Pluckanes Windfarm Limited, a wholly owned subsidiary of Reforce Energy Limited, are classified as assets held for disposal. The Board considered the subsidiary to meet the criteria to be classified as held for sale at that date for the following reasons:

For more details on the discontinued operation, refer to Note 31.

Leases - Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group 'would have to pay', which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary's functional currency).

Estimation uncertainty

Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.

Impairment of goodwill and non-financial assets

Determining whether goodwill and non-financial assets are impaired requires an estimation of the value in use of the cash generating units to which the assets have been allocated. The value in use calculation requires the directors to estimate the future cash flows to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual cash flows are less than expected, a material impairment may arise. The total property, plant and equipment reversal of impairment charges during the financial year as included in Note 18 amounted to €94,985 (2018: Impairment cost of €2,121,637), while the impairment for goodwill during the financial year as included in Note 19 amounted to €Nil (2018: €1,427,038).

Provision for impairment of financial assets

Determining whether the carrying value of financial assets has been impaired requires an estimation of the value in use of the investment in subsidiaries and joint venture vehicles. The value in use calculation requires the directors to estimate the future cash flows expected to arrive from these vehicles and a suitable discount rate in order to calculate present value. After reviewing these calculations, the directors are satisfied that a net impairment cost of €Nil (2018: €Nil) be recognised in the Group accounts and €1,427,038 (2018: €1,149,432) be recognised in the Company accounts of EQTEC plc. Details of this impairment are set out in Note 20.

Allowances for impairment of trade receivables

The Group estimates the allowance for doubtful trade receivables based on assessment of specific accounts where the Group has objective evidence comprising default in payment terms or significant financial difficulty that certain customers are unable to meet their financial obligations. In these cases, judgment used was based on the best available facts and circumstances including but not limited to, the length of relationship. At 31 December 2019, provisions for doubtful debts amounted to €456,671 which represents 57% of trade receivables at that date (31 December 2018: €306,292- 73%) (see note 24).

Deferred tax assets

Deferred tax is recognised based on differences between the carrying value of assets and liabilities and the tax value of assets and liabilities. Deferred tax assets are only recognised to the extent that the Group estimates that future taxable profits will be available to offset them.

Useful lives of depreciable assets

The annual depreciation charge depends primarily on the estimated lives of each type of asset and, in certain circumstances, estimates of fair values and residual values. The directors annually review these asset lives and adjust them as necessary to reflect current thinking on remaining lives in light of technological change, prospective economic utilisation and physical condition of the assets concerned. Changes in asset lives can have significant impact on depreciation charges for the financial year. It is not practical to quantify the impact of changes in asset lives on an overall basis, as asset lives are individually determined, and there are a significant number of asset lives in use. The impact of any change would vary significantly depending on the individual changes in assets and the classes of assets impacted.

Fair value measurement

Management uses valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. This involves developing estimates and assumptions consistent with how market participants would price the instrument. Management bases its assumptions on observable data as far as possible, but this is not always available. In that case management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date.

5. FINANCIAL RISK MANAGEMENT

Financial risk management objectives and policies

The Group's activities expose it to a variety of financial risks: credit risk, liquidity risk, interest rate risk and foreign currency exchange risk.

The Group's financial risk management programme aims to manage the Group's exposure to the aforementioned risks in order to minimise the potential adverse effects on the financial performance of the Group. The Group seeks to minimise the effects of these risks by monitoring the working capital position, cash flows and interest rate exposure of the Group. There is close involvement by members of the Board of Directors in the day-to-day running of the business.

Many of the Group's transactions are carried out in Pounds Sterling. The Group's exposure to price risk is not a significant risk as the Company does not currently hold a portfolio of securities which may be materially impacted by a decline in market values.

Credit risk

Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The Group is exposed to credit risk from financial assets including cash and cash equivalents held at banks, trade and other receivables.

The Group's maximum exposure to credit risk is represented by the balance sheet amount of each financial asset:

The Group's credit risk is primarily attributable to its trade and other receivables. 

The Group has adopted procedures in extending credit terms to customers and in monitoring its credit risk. The Group's exposure to credit risk arises from defaulting customers, with a maximum exposure equal to the carrying amount of the related receivables. Provisions are made for impairment of trade receivables when there is default of payment terms and significant financial difficulty. On-going credit evaluation is performed on the financial condition of accounts receivable at operating unit level at least on a monthly basis.

The Group does not have significant risk exposure to any single counterparty. Concentration of credit risk to any other counterparty did not exceed 5% of gross monetary assets at any time during the financial year. The Group defines counterparties as having similar characteristics if they are related parties.

Exposure to credit risk on cash deposits and liquid funds is monitored by directors. Cash held on deposit is with financial institutions in the Ba rating category of Moody's. The directors are of the opinion that the likelihood of default by a counter party leading to material loss is minimal. The reconciliation of loss allowance is included in note 24).

Liquidity risk

The Group's liquidity is managed by ensuring that sufficient facilities are available for the Group's operations from diverse funding sources. The Group uses cash flow forecasts to regularly monitor the funding requirements of the Group. The Group's operations are funded by cash generated from financing activities, borrowings from banks and investors and proceeds from the issuance of ordinary share capital.

The table below details the maturity of the Group's liabilities as at 31 December 2019:

The table below details the maturity of the Group's liabilities as at 31 December 2018:

Interest rate risk

The primary source of the Group's interest rate risk relates to bank loans and other debt instruments. The interest rates on these assets and liabilities are disclosed above.  

Bank borrowings and other debt instruments (excluding amounts in the disposal group) amounted to €2,745,689 and €5,974,493 in 31 December 2019 and 31 December 2018, respectively.

The interest rate risk is managed by the Group by maintaining an appropriate mix of fixed and floating rate borrowings. The Group does not engage in hedging activities. Bank borrowings and certain debt instruments are arranged at floating rates which are mainly based upon EURIBOR and the prime lending rate of financial institutions thus exposing the Group to cash flow interest rate risk. The other remaining debt instruments were arranged at fixed interest rates and expose the Group to a fixed cash outflow.

These bank borrowings and debt instruments are mostly medium-term to long-term in nature. Interest rates on loans received from investors and shareholders are fixed in some cases while others are a fixed percentage greater than current prime lending rates. 'Medium-term' refers to bank borrowings and debt instruments repayable between 2 and 5 years and 'long-term' to bank borrowings repayable after more than 5 years.

The sensitivity analysis below has been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting financial year. For floating rate liabilities, the analysis is prepared assuming that the amount of the liability outstanding at the end of the financial year was outstanding for the whole year. A 50-basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible changes in interest rates.

If interest rates have been 50 basis points higher/lower and all other variables were held constant, the Group's loss for the financial year ended 31 December 2019 would increase/decrease by €5,646 (2018: decrease/increase by €7,124). This is mainly attributable to the Group's exposure to interest rates on its variable rate borrowings, which are primarily included in Eqtec Iberia SLU and in the disposal group. The Group's sensitivity to interest rates has decreased during the current financial year mainly due to the repayment of bank borrowings in both Eqtec Iberia SLU and in the disposal group.

Foreign exchange risk

The Group is mainly exposed to future changes in the Sterling and the US Dollar relative to the Euro. These risks are managed by monthly review of Sterling and US Dollar denominated monetary assets and monetary liabilities and assessment of the potential exchange rate fluctuation exposure. The Group's exposure to foreign exchange risk is not actively managed. Management will reassess their strategy to foreign exchange risk in the future.

The carrying amount of the Group's foreign currency denominated monetary assets and monetary liabilities at the end of the reporting financial year are as follows:

The following table details the Group's sensitivity to a 10% increase and decrease in the Euro against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in the currency other than the currency of the lender or the borrower. A positive number below indicates an increase in profit where the Euro strengthens 10% against the relevant currency. For a 10% weakening of the Euro against the relative currency, there would be a comparable impact on the loss, and the balances below will be negative.

The Group's sensitivity to foreign currency has decreased during the current financial year mainly due to the settlement of debt denominated in both sterling and US Dollar through the issue of equity.

6. CAPITAL MANAGEMENT POLICIES AND PROCEDURES

Market risk

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates, which are detailed above. There has been no change to the Group's exposure to market risks or the manner in which it manages and measures the risk.

The Group manages its capital to ensure that the Group is able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the company consists of financial liabilities, cash and cash equivalents and equity attributable to the equity holders of the parent company.

The Group's management reviews the capital structure on a yearly basis. As part of the review, management considers the cost of capital and risks associated with it. The Group's overall strategy on capital risk management is to continue to improve the ratio of debt to equity.

The gearing ratio of the Group for the financial year presented is as follows:

Debt is defined as lease liabilities and borrowings of the Group while Equity includes all share capital, share premium and accumulated deficit attributable to equity holders of the parent.

The movement in the net debt to equity ratio is as a result of the conversion of €3.6 million of debt into equity.

7. SEGMENT INFORMATION

Information reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance focuses on the products and services sold to customers. The Group's reportable segments under IFRS 8 Operating Segments are as follows:

Technology Sales: Being the sale of Gasification Technology and associated Engineering and Design Services;

Power Generation: Being the development and operation of renewable energy electricity and heat generating plants.

The chief operating decision maker is the Chief Executive Officer. Information regarding the Group's current reportable segment is presented below. The following is an analysis of the Group's revenue and results from continuing operations by reportable segment:

Revenue reported above represents revenue generated from jointly controlled entities and external customers. Inter-segment sales for the financial year amounted to €Nil (2018: €Nil). Included in revenues in the Power Generation Segment are revenues of €21,438 (2018: €41,659) which arose from sales to GG Eco Energy Limited, an associate undertaking of EQTEC plc. This represents 1% (2018: 2%) of total revenues in the financial year.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 3. Segment profit or loss represents the profit or loss earned by each segment without allocation of central administration costs and directors' salaries, other operating income, share of profit or loss of jointly controlled entities, profit on disposal of jointly controlled entities, interest costs, interest income and income tax expense. This is the measure reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance.

Other segment information:

In addition to the depreciation and amortisation reported above, reversal of impairment losses of €94,985 (2018: impairment losses of €2,121,637) and impairment losses of €Nil (2018: €1,427,038) were recognised in respect of property, plant, equipment and intangible assets and goodwill respectively. These reversal of impairment losses and impairment losses were attributable as follows: Power Generation Segment, Reversal of impairment losses €173,516 (2018: loss of €2,121,637); Technology Sales Impairment losses €78,326 (2018: loss of €1,427,038); Head Office Impairment losses €206 (2018: €Nil)

The Group operates in three principal geographical areas: Republic of Ireland (country of domicile), Spain and the United Kingdom. The Group's revenue from continuing operations from external customers and information about its non-current assets* by geographical location are detailed below:

*Non-current assets excluding goodwill, financial instruments, deferred tax and investment in jointly controlled entities and associates.

The management information provided to the chief operating decision maker does not include an analysis by reportable segment of assets and liabilities and accordingly no analysis by reportable segment of total assets or total liabilities is disclosed.

8. REVENUE

An analysis of the Group's revenue for the financial year (excluding interest revenue), from continuing and discontinued operations, is as follows:

9. COST OF SALES

11. OTHER INCOME