GSH.L Regulatory News (GSH)

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16 August 2018

Green & Smart Holdings plc

("Green & Smart" or "the Company" or "the Group")

Interim Results

Green & Smart Holdings plc (AIM: GSH), a renewable energy company generating power from biogas captured through the treatment of palm oil mill effluent ("POME") in Malaysia, announces its interim results for the six months ended 31 March 2018.

Financial Summary

· Revenue was RM1.8m (H1 2017: RM25.8m)

· Gross loss was RM0.7m (H1 2017: profit of RM6.9m)

· Loss before tax was RM5.7m (H1 2017: profit of RM3.8m)

· Cash and cash equivalents at 31 March 2018 were RM0.011m (31 March 2017: RM0.515m)

· Post period, raised c.RM17.0m from Serba Dinamik International Ltd by way of a private placement

Operational Summary

Fully-owned Power Producing Projects

· Secured the certificate of initial operation date ("IOD") for the Group's second fully-owned biogas power plant, the 2.0MW Malpom plant, and the Group continues to expect to secure the certificate of commercial operation date ("COD") that will allow the Group to sell power to the national utility at the full tariff rate

· Green & Smart's first fully-owned biogas power plant at Kahang continued to sell power to the national utility and is expected to generate approximately c.RM104m over the remaining term of its contract

· As previously stated, due to financial constraints, progress was slower than initially expected on the other five fully-owned biogas power plants, but these will now be accelerated following the recent fundraising 

 EPCC Projects

· Continued to deliver the EPCC contract of RM12.85m awarded by Megagreen Energy Sdn Bhd ("MGE") in FY 2017 for the construction and maintenance of bio-polishing facilities at the five biogas power plants previously constructed by the Group on MGE sites

· Work on the four Concord Green Energy Sdn Bhd ("CGE") greenfield biogas-based power generation plants was temporarily suspended and is expected to recommence upon an arrangement being finalised with CGE  

Mr. Saravanan Rasaratnam, Chief Executive Officer of Green & Smart, said:

"We have made significant strides in advancing our strategy to become the leading provider of biogas-based renewable energy in Malaysia. We are proud that Green & Smart is the only company in Malaysia with two biogas power plants operating two different systems and running under the Feed-in-Tariff mechanism, and one of only a few fully-integrated providers and operators.

"As we stated previously, our ability to grow and deliver on our projects is dependent on funding. Thanks to our recent fundraising, we can now commence work on our third fully-owned plant as well as progress our other fully-owned plants. As a result, and with the underlying drivers of the business showing no sign of abating, the Board is confident of returning to growth next year and of delivering shareholder value in the long-term."

Enquiries

Operational Review

During the period, Green & Smart achieved a significant milestone with the receipt of the IOD for its second fully-owned biogas power generation plant. It is now the only company in Malaysia with two biogas plants operating two different power production systems under the Feed-in-Tariff ("FiT") mechanism. The Group also progressed work under its engineering, procurement, construction & commissioning ("EPCC") contract with MGE. While development of its other projects has been slower than initially expected due to financial constraints, the recent success in raising c. RM17.0m from Serba Dinamik International Ltd will enable Green & Smart to accelerate the fully-owned projects going forward.

Fully-owned Power Producing Projects

Green & Smart has established a pipeline of biogas power generation plants that it will build, own and operate ("BOO"). Through the BOO structure, the Group builds, owns and operates biogas power plants situated on land within or in close proximity to palm oil mills. As the mill operators generate palm oil mill effluent ("POME") from their palm processing mills on a continuous basis, Green & Smart's biogas operations are built to ensure that they can treat the POME and capture methane from which to generate electricity also on a continuous basis. Under this model, the Group contracts with mill owners to finance and build plants for the generation and sale of electricity to electric utilities - Tenaga Nasional Berhad ("TNB"), a government-controlled company and largest electric utility in Malaysia, or Sabah Electricity Sdn Bhd ("SESB"), the local utility in the Sabah state of Malaysia - under the 16-year electricity FiT regime using waste from the mills made available by the mill owners.

The Group's first fully-owned plant, the 2.0MW Kahang biogas plant located in the state of Johor, continued to sell power to the national utility after having received its COD in FY 2017. During the period, the Group secured the IOD for its second fully-owned plant, the 2.0MW Malpom plant located in Nibong Tebal, Penang, which has allowed the Group to generate initial revenues from this plant. The Group's management remains confident of receiving the COD for this plant, which will allow the Group to sell power at the full tariff rate. Green & Smart is now the only company in Malaysia with biogas power plants operating with two different systems: the Kahang plant utilises a tank tower system while the Malpom plant utilises a lagoon system.

As previously stated, due to financial constraints, progress was slower than initially expected on the other five fully-owned biogas power plants, but these will now be accelerated following the recent raising of c.RM17.0m through the subscription of new shares by Serba Dinamik International Ltd.

EPCC Projects

Green & Smart is also an engineering, procurement, construction & commissioning ("EPCC") contractor on biogas projects developed by MGE and CGE, and additionally will provide operational and maintenance support for the first sixteen years of the project's life.

During the period, the Group progressed delivery of its RM12.85m contract with MGE, which management expects to complete in this financial year. The contract is for the construction of bio-polishing facilities at five plants previously built by the Group. Following the completion of this contract, MGE will progress application for the IOD and COD for these FiT-approved plants and the Group will start to receive revenue under its operations & maintenance contracts when the IODs are received.

Work under the Group's EPCC contract with CGE on four biogas-based power generation plants, which commenced during FY 2017, has been temporarily suspended, awaiting the Company finalising an arrangement with CGE. The Company remains confident in reaching an agreement.

Financial Review

Revenues for the six months ended 31 March 2018 were RM1.8m (H1 2017: RM25.8m). This revenue was generated primarily through the provision of EPCC services to MGE, and from the sale of power from the Group's fully-owned Kahang biogas power plant. While revenue from the sale of power increased compared with H1 2017, this was offset by the reduction in revenue generated under the EPCC contracts with MGE and CGE as a result of the financial constraints, as previously mentioned.

Operating loss was RM4.6m (H1 2017: profit of RM3.8m), with the reduction due to the lower revenue. Due to the Group's BioNexus Status that exempts it from tax, loss before and after tax was RM5.7m (H1 2017: profit of RM3.8m).

On a consolidated level, the Group's loss per share for the six-month period ended 31 March 2018 was RM0.02, based on the weighted number of ordinary shares (H1 2017: earnings per share of RM0.013).

Cash and cash equivalents at 31 March 2018 were RM0.011m (31 March 2017: RM0.515m).

At 31 March 2018, the Group had debtors, net of impairment, of RM74.6m (31 March 2017: RM78.9m) including the gross amounts owed by MGE and CGE of RM77.1m (31 March 2017: RM75.1m). As previously stated, the Directors of Green & Smart are actively monitoring the MGE and CGE receivables. Post period, further payments of RM9.0m were received from these parties in addition to a direct payment of RM3.0m being made by MGE to suppliers of the Company. The Directors of Green & Smart consider the amounts owing to be recoverable in full and that the outstanding receivable position will be progressively rectified. However, considering the age profile of the receivable amounts, the Directors decided to provide for RM5.2m for impairment of receivables and investments.

On 19 July 2018, the Group entered into a subscription agreement with Serba Dinamik International Ltd, who subscribed for 51,806,000 shares in Green & Smart Holdings plc for a cash consideration of c.RM17.0m (c. £3.21m).

Outlook

The ability of the Group to advance its pipeline of fully-owned projects is very much dependent on the availability of adequate funding and financing. Post-period, the Group raised c.RM17.0m (approximately £3.21m) gross via a subscription from Serba Dinamik International Ltd, a wholly-owned subsidiary of Serba Dinamik Holdings Berhad, a Malaysia-based investment holding company with a market value of approximately £1bn. However, the Group was expecting this investment in the early part of 2018 and, as a result of the delay, it had to slow down the pace of its operations to a minimum. This had a direct impact on the Group's ability to complete the connection of its second fully-owned plant and commence generating material revenues from it. Consequently, the Group expects to report materially reduced revenues and profit in the current financial year.

The economics of the Malpom plant remain robust. In 2019, it is expected to be running at full capacity and generating revenues at the full tariff rate of approximately c.RM570,000 per month, with a total of c.RM112m over the full term of its 16-year contract under the FiT mechanism. The Group's first biogas plant is generating revenues and is expected to generate approximately c.RM104m over the remaining term of its contract.

With the Malpom plant due to commence selling power to the national grid at the full tariff rate, alongside the Kahang plant, and the positive developments regarding the Group's financing, the Board remains confident of returning growth next year. Looking further ahead, with the underlying growth drivers of the business showing no sign of abating, the Board is confident of delivering sustained long-term growth and shareholder value.

GREEN AND SMART HOLDINGS PLC

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 March

GREEN AND SMART HOLDINGS PLC

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 March

GREEN AND SMART HOLDINGS PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 March

GREEN AND SMART HOLDINGS PLC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

For the six months ended 31 March

GREEN AND SMART HOLDINGS PLC

NOTES TO THE FINANCIAL STATEMENT

For the six months ended 31 March 2018

1. GENERAL INFORMATION

Green & Smart Holdings plc ("the Company") was incorporated as a public limited company in Jersey with registration number 119200 on 7 August 2015. The registered office of the Company is 12 Castle Street, St. Helier, Jersey JE2 3RT, Channel Islands.

The Company is listed on the AIM market of the London Stock Exchange. The Company's nature of operations is to act as the holding company of a group of subsidiaries that are involved in research and development, provision of professional engineering consultancy and process design services in the areas of industrial biotechnology, pollution control and renewable energy; and engineering, procurement and construction of various waste treatment plants/systems; and development, commercialisation, operation and maintenance of renewable energy plants.

The consolidated financial information includes the financial information of the Company and its controlled subsidiaries (the "Group") as follows:

Note 1 - registered address: 3-2, 3rd Mile Square, No.151, Jalan Kelang Lama, Batu 3 ½, 58100 Kuala Lumpur.

Note 2 - registered address: 54B Damai Complex, Jalan Lumut, 50400 Kuala Lumpur.

2. basis of preparation

The consolidated financial information for the six-month periods ended 31 March 2018 and 31 March 2017 has been prepared in accordance with IAS 34, Interim Financial Reporting. The consolidated financial information is unaudited and does not constitute statutory financial statements. The interim financial information has been prepared on a historical cost basis, and fair value method will be used if it is relevant.

The principal accounting policies used in preparing the interim results are the same as those applied in the Group's financial statements as at and for the year ended 30 September 2017, which have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). The auditors' report on those accounts was unqualified but did contain an emphasis of matters paragraph in respect of the recoverability of amounts owing by related parties and going concern.

The financial information is presented in RM unless otherwise stated, and is the currency of the primary economic environment in which the Group operates. All values are rounded to the nearest thousand ringgit ("RM'000") except where otherwise indicated.

A copy of the audited consolidated financial statements for the year ended 30 September 2017 is available on the Company's website.

The interim financial information for the six months ended 31 March 2018 was approved by the Directors on 15 August 2018.

Going Concern

The interim financial information has been prepared on the going concern basis.

The Directors, having considered "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies" issued by The Financial Reporting Council in 2016, consider the going concern basis of preparation to be appropriate in preparing the interim financial information. The key conclusions are summarised below.

The Group made a loss for the period of RM5.7m (H1 2017: profit of RM3.8m) and recorded a net cash outflow from operating activities of RM0.017m (H1 2017: inflow of RM1.87m). At the reporting date the Group held cash and cash equivalents of RM0.011m (H1 2017: RM0.515m) and had current liabilities of RM61.5m (H1 2017: RM52.5m).

At 31 March 2018, the Group was owed a gross amount of RM77.1m by MGE and CGE. As previously stated, the Directors of Green & Smart are actively monitoring the MGE and CGE receivables. However, considering the age profile of the receivable amounts, the Directors have provided RM5.2m for impairment of receivables. After the end of the reporting period, the Group has received post-dated cheques of RM9.0m in relation to outstanding receivables and a direct payment of RM3.0m has been made to suppliers of the Group by MGE.

On 19 July 2018, the Company announced that it had raised approximately RM17m (£3.2m) via the subscription for 51,806,000 new common shares by Serba Dinamik International Ltd, at a price of approximately 6.19 pence per share (the "Subscription"). The net proceeds of the Subscription will be used to advance the development of the Company's third fully-owned biogas power plant at Minyak and for working capital purposes.

The Directors have prepared financial projections and plans for a period of at least 12 months from the date of approval of these interim financial information, taking into account the proceeds of the Subscription, and have considered the mitigating actions that could be taken in the event that the anticipated receipts from MGE and CGE are not forthcoming in accordance with the assurances provided to the Directors by management of those undertakings.

Based on their review of those financial projections and plans, the Directors consider the going concern basis of preparation to be appropriate.

3. SEASONAL OR CYCLICAL FACTORS

The Group's financial performance for the six months to 31 March 2018 was mixed as revenue was derived from sale of power from the Kahang biogas power plant and from EPCC contract income from MGE. Financial constraints continued to impact the ability of the Group to progress certain projects to completion that would have enabled the generation of anticipated revenue.

4. ITEMS OF AN UNUSUAL NATURE

There were no other unusual items affecting assets, liabilities, equity, net income or cash flows due to their nature, size or incidence for the financial period ended 31 March 2018.

5. MATERIAL CHANGES IN ACCOUNTING ESTIMATES

The preparation of unaudited interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses for the current and its corresponding financial period under review. Actual results may differ from these estimates.

In preparing the unaudited interim financial information, the significant judgements made by the management in applying the Group's accounting policies and the sources of estimates uncertainty were consistent with those applied to the 2017 Audited Financial Statements.

There were no changes in estimates of amounts of the Group that may have a material effect on financial period ended 31 March 2018.

6. DIVIDENDS

No interim dividend was recommended by the Directors during the financial period under review.

7. SEGMENTAL REPORTING

Operating segments are prepared in a manner consistent with the internal reporting provided to the management by its chief operating decision maker in order to allocate resources to segments and to assess their performance. Currently Green & Smart Sdn Bhd operates under two operating segments providing consulting and contract services to customers in the renewable energy sector and those requiring wastewater treatment.

Information on geographical segments is not presented as Green & Smart Sdn Bhd operates wholly in Malaysia where all of its assets and liabilities are located.

8. TAXATION

Green & Smart Sdn Bhd was granted BioNexus Status by the Government of Malaysia resulting in it being entitled to tax exemption on its statutory business income derived from approved activities over five consecutive years of assessment commencing from the first year in which it generates statutory income from relevant approved activities. Except for this, the average corporate tax rate for the subsidiaries is 24%.

9. INTANGIBLE ASSETS

Intangible assets comprise trademarks and patents, registered in Malaysia in respect of patented wastewater and bio-waste treatment technologies, which are amortised over their expected useful life. No addition or disposal occurred during the period and the amortisation charge for the period was approximately RM27,000.

10. PROPERTY, PLANT AND EQUIPMENT

Included in the assets of the Group at the end of the reporting period were motor vehicles with a total net book value of RM486,000 (31 March 2017: RM572,000), which were acquired under hire purchase terms.

Industrial building with carrying amount of RM20,238,000 (31 March 2017: RM20,952,000) and Capital Work in Progress with carrying amount of RM16,053,000 (31 March 2017: RM10,777,000) are pledged against the banking facility (Note 15).

11. AMOUNT OWING BY / TO CONTRACT CUSTOMERS

12. AMOUNTS OWING BY RELATED PARTIES

Amounts owing by related parties comprise uncollected balances due from Megagreen Energy and Concord Green Energy. The Group is a shareholder in Megagreen Energy and the Directors consider the amounts owing to be recoverable in full. Post period, the Group has received payments of RM9.0m and a direct payment of RM3.0m was made by MGE to suppliers of the Company. However, having considered the age profile of the receivable amounts, the Directors have decided to provide RM5.2m for impairment of receivables and investments.

13. STATED CAPITAL

On 19 December 2016, the Company issued a further 10,761,367 Ordinary Shares at a subscription price of 10.62 pence per Subscription Share pursuant to a Share Swap Agreement dated the same to MTDC. This followed the conversion by MTDC of 6,000,000 Preference Shares in Green & Smart Sdn Bhd, acquired pursuant to an Investment Agreement dated 16 December 2016. At the date of the share issuance, MTDC held 19,476,367 shares in the Company, amounting to 6.78% of the enlarged issued share capital of the Company, which stood at 287,428,034.

On 19 June 2017, the Company issued a further 6,141,778 Ordinary Shares (representing approximately 2.1% of the Company's issued share capital as enlarged by the Shares) at 9p per Ordinary Share to raise approximately RM3.12m (£552,759, at an exchange rate of RM5.6461 to £1) and 5,848,664 five-year warrants (exercisable at 9.25 pence per share) to subscribe in aggregate up to 5,848,664 Shares.

At 31 March 2018, the Company's issued share capital was 293,569,812 ordinary shares.

14. TRADE AND OTHER PAYABLES

15. BORROWINGS

On 25 April 2017, the Group procured a 12-month mezzanine loan of approximately RM1.4m (£250,000) with a UK-based lender at an interest of 1% per month for working capital purposes. As at period end, the principle remains outstanding.

The hire purchase payables of the Company at the end of the reporting period bore effective interest rates ranging from 5.20% to 5.36% (H1 2017: 5.20% - 5.36%).

The term loans are secured against: -

(i) Capital work-in-progress as disclosed in note 10 to the financial statements;

(ii) Fixed and floating charge over present and future assets;

(iii) A guarantee by Credit Guarantee Corporation Berhad ("CGC");

(iv) Corporate guarantee from holding company; and

(v) Joint and several guarantees by the Directors.

During the financial year 2017, due to financial constraints the Group delayed its repayment on the term loans. Because the lender is in a position to declare the term loans outstanding of RM9,668,127 as immediately due and payable as at 30 September 2017, the entire term loans was reclassified as a current liability. On 17 October 2017, the Group received a supplemental letter of offer from the lender to vary the terms and conditions of the facility and reschedule the repayment period.

16. EARNINGS PER SHARE

The calculation of earnings per share is based on the following earnings and number of shares:

Diluted EPS amounts are calculated by dividing the profit or loss for the period attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. The potential ordinary shares are anti-dilutive and therefore the diluted loss per share has not been calculated.

17. CONTINGENCIES

The Group has provided Megagreen Energy with a corporate guarantee in support of a loan facility. As the Group has only a 15% interest in Megagreen, it has no effective control over whether any claim may be made under this guarantee. Credit Guarantee Corporation Malaysia Berhad has confirmed that repayment of the 60% of the amount borrowed by Megagreen under the facility is guaranteed by Credit Guarantee Corporation Malaysia Berhad up to June 2025 pursuant to the Green Technology Financing Scheme - established by the Malaysian government. On that basis, the Directors expect the exposure of the Group under the guarantee to be limited to approximately RM14.1m.

18. RELATED PARTY TRANSACTIONS

In addition to the information detailed in note 12, the Group also carried out the following significant transactions with the related parties during the financial period:

19. WARRANT INSTRUMENTS

On 19 June and 28 June 2017, the Company issued 5,848,680 warrants to subscribers to a private placing arranged by Charles Street Securities Europe LLP ("CSS") and to CSS as part of the fee arrangements for arranging the placement. Of the total warrants issued, 2,777,778 were issued to CSS as fees payable in connection with that placement. The warrants issued to subscribers are outside the scope of IFRS2. In accordance with IFRS2 the fair value of the warrants issued as fees for the placement services provided has been estimated as RM220,000. This has been recognised within the stated capital component of equity as the costs were directly incurred in raising the related equity funds.

No warrant was granted or exercised during the reporting period and there were 7,232,013 warrants outstanding at 31 March 2018.

20. SUBSEQUENT EVENTS

On 19 July 2018, the Company announced that it had raised approximately RM17m (£3.2m) via the subscription for 51,806,000 new shares by Serba Dinamik International Ltd ("SDIL"), at a price of approximately 6.19 pence per share (the "Subscription").

The net proceeds of the Subscription will be used to advance the development of the Company's third fully-owned biogas power plant at Minyak and for working capital purposes. Payment to the Company has been made in Malaysian Ringgit and calculated in accordance with the rate of exchange for Pounds Sterling from Ringgit, quoted by Bank Negara Malaysia (Central Bank of Malaysia) at 9.00 a.m. (Malaysia time) on the date of payment. SDIL is a wholly-owned subsidiary of a Malaysia-based investment holding company, Serba Dinamik Holdings Berhad, which is focused on the energy services industry and is listed on Bursa Malaysia (ticker: SDH:MK) and has a market value of approximately £1bn.

Following the Subscription, SDIL holds 51,806,000 Common Shares, representing approximately 15.0% of the enlarged issued share capital of the Company.

Under the terms of the subscription agreement, SDIL is entitled to appoint one executive Director to the Company's Board of Directors for as long as SDIL holds at least 15% of the Company's issued share capital. The appointment of the nominated executive Director will be subject to the usual regulatory requirements for an AIM listed company.