Powerhouse Ener Regulatory News (PHE)

28 September 2021

Powerhouse Energy Group plc

("Powerhouse" or the "Company")

Interim results for the six months ended 30 June 2021

Powerhouse Energy Group plc (AIM: PHE), the UK technology company pioneering hydrogen production from waste plastic and used tyres, announces its unaudited interim results for the six months ended 30 June 2021.

H1 2021 Highlights

Operational

· Progress at Protos

o Key appointments made

o Orders placed for long lead items including the alloy for thermal Conversion Chamber

· DNV validation of DMG design

· Selection of second site for DMG in Clydebank, Glasgow

Sales

· Engineering support provided to Peel and the SPV for the plant's construction

Financial

· Placing in January 2021 raised £10 million before expenses

· £3.8m loan facility provided to Protos SPV

· Revenues arising of engineering service provision to Protos SPV

Corporate

· Institutional investor engagement in January fund raise

· Entered into exclusivity agreement with Hydrogen Utopia International (HUI) to deploy their clean energy technology in Poland, Greece and Hungary

Board changes and appointments

· Retirement of David Ryan as CEO

· Recruitment process for replacement of CEO underway

· Retirement of Dr. Cameron Davies as Director

· Ian Crockford appointed as specialist project executive to manage the Protos project

· Appointment of Paul Emmitt as Chief Technical Officer

Post-period Highlights

· Acquisition of 48% stake in Engsolve Limited

· Appointment of James Greenstreet as Chairman following retirement of Tim Yeo

· Resignation of Mark Berry as Non-Executive Director

· Appointment of Richard Hodgkinson as Business Development Executive

· Resignation of Allan Vlah as Non-Executive Director

· Appointment of Keith Riley as Non-Executive Director

James Greenstreet, Chairman, commented: 

 Powerhouse has made great progress in the first half of this year, bolstering the technical and management teams and acquiring a stake in Engsolve, the engineering consultancy. This progress supports our top priority, the building of our first commercial scale plant at the Protos Energy Park in Ellesmere Port, Cheshire. During this period we were delighted to sign a binding agreement with HUI which intends to deploy Powerhouse technology in Poland, Greece and Hungary helping to provide a solution to the world's plastic pollution, accelerate the clean energy transition and improve our environment for future generations.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

For more information, contact:

Notes to Editors:

About Powerhouse Energy Group plc

Powerhouse has developed a proprietary process technology - DMG® - which can utilise waste plastic, end-of-life-tyres, and other waste streams to efficiently and economically convert them into syngas from which valuable products such as chemical precursors, hydrogen, electricity and other industrial products may be derived. Powerhouse's technology is one of the world's first proven, distributed, modular, hydrogen from waste (HfW) process.

The Powerhouse DMG® process can generate up to 2 tonnes of road-fuel quality hydrogen and more than 58MWh of exportable electricity per day.

Powerhouse's process produces low levels of safe residues and requires a small operating footprint, making it suitable for deployment at enterprise and community level. As announced on 11th February 2020 under its Supplemental Agreement with Peel Environmental, Powerhouse will receive an annual license fee of £500,000 in respect of each project which is commissioned.

Powerhouse is quoted on the London Stock Exchange's AIM Market under the ticker: PHE and is incorporated in the United Kingdom.

For more information see www.powerhouseenergy.co.uk 

Interim Results for the six months to 30 June 2021

Chairman's Statement

Introduction

Powerhouse is pleased to update investors with progress made in the first half of 2021. The Company's top priority has been, and remains, the building of our first commercial scale plant at the Protos Energy Park in Ellesmere Port, Cheshire. Recently we have secured the site, bolstered our project and commercial management support and engaged with potential EPCm contractors. Long lead item commitment already actioned means that once a contractor is appointed we are able to gain a fast start and a compressed programme to completion and operation in 2023.

We continue to work closely with Peel NRE to successfully commission and operate this plant as quickly as possible. When operational, this is expected to open up a worldwide market for our DMG technology which can transform plastics and waste into clean energy.

The first half of the year saw several changes to the Board and key appointments to the management team. These appointments have helped to strengthen the management and draw on a wealth of experience in the energy sector. We also saw Tim Yeo step down as Executive Chairman, for personal reasons. However, we are pleased that Powerhouse continues to benefit from Tim's experience as he remains a consultant to the Company. I was pleased to be appointed as Non-Executive Chairman having been a Non-Executive Director of the Company for the past ten years.

We are delighted to have brought in Ian Crockford as an advisor to Powerhouse and Peel NRE to help ensure our first commercial scale plant at the Protos Energy Park is delivered as soon as possible. Ian's former assignments include responsibility for project delivery at the 2012 Olympic Delivery Authority.

Our most recent appointment is a business developer. Richard Hodgkinson will help promote Powerhouse technology and identify commercial opportunities.

We are pleased that our development partner in Poland, HUI, is seeking to deploy Powerhouse technology in Poland, Greece and Hungary and that we have now signed a binding exclusivity agreement. This agreement underlines Powerhouse's vision to become a global leader in technology solutions which will reduce plastic pollution, improve air quality and accelerate the world's clean energy transition.

Protos

In May 2021, the Company announced it had entered into a loan agreement to provide up to £3.8 million to Protos Plastics to Hydrogen No. 1 Limited, the special purpose vehicle ("SPV") set up with Powerhouse's partner, Peel NRE (part of the Peel Group), for the purpose of developing the Protos plant, the first proposed commercial application of Powerhouse's DMG® waste plastic to hydrogen technology. The project is using the loan in the procurement of the long lead items including the key alloy material ordered in June and to be used in the manufacture of the DMG® Advanced Thermal Conversion Technology process. The alloy material was selected after four years of research for its necessary high temperature corrosion resistance whilst providing the strength and lifetime durability.

Protos is a first of a kind ("FOAK") project and by nature is subject to technology risk. The Company is assisting Peel NRE on behalf of the SPV towards the appointment of an EPCm contractor. Additionally, it has recently appointed a projects specialist, Ian Crockford, to run the SPV once contracts are implemented and he is overseeing the procurement and risk management of the project including the contracting element. The Company will keep investors updated when financial close and other key milestones are reached.

Powerhouse works closely with Peel and in June announced that Peel was planning to develop its second waste plastic to hydrogen facility, using Powerhouse technology, at the Rothesay Dock on the north bank of the River Clyde in Scotland. The 13,500 tonne facility would be the second in the UK to use DMG® technology. Decisions about the financing of this second plant will be made after land use planning consent has been obtained and closer to the start date for construction. Details of this will be announced at that time.

Board changes and management appointments

David Ryan, our chief executive officer, stepped down from the Board on 30 June 2021, following the announcement of his intention to resign in November 2020. David's service to the Company was exemplary and he was instrumental in the development of DMG and the site at Protos. We are in the final stages of appointing a new chief executive officer and expect to announce the appointment shortly.

Our former Executive Chairman, Tim Yeo, resigned from the Board in August and I became interim Non-Executive Chairman. We are pleased that Tim agreed to remain as a consultant to Powerhouse for a period of 12 months to enable an orderly handover of his responsibilities to the new chief executive officer.

Non-executive directors, Dr. Cameron Davies and Mark Berry, stepped down from the Board on 31 March and 29 July 2021 respectively.

The Company also announced in September 2021 that Allan Vlah will be stepping down as a Non-Executive Director at the end of the year.

I would like to thank all former directors for their outstanding contributions to the development of Powerhouse and wish them all well in their future endeavours.

In June the Company announced the appointment of Paul Emmitt as Chief Technical Officer, a new non-board position. Paul, a chartered materials engineer and chartered environmental engineer, is managing director and founder of Engsolve Limited ("Engsolve"), the engineering consultancy with whom Powerhouse has worked very closely for the last four years. In August, Powerhouse announced it had acquired a 48% stake in Engsolve.

Through his role at Engsolve, Paul has been deeply involved in the development of Powerhouse's technology. He has considerable knowledge of both energy-from-waste technology and markets. He is currently involved in the development of a number of EfW projects utilising a range of existing and emerging technologies. He has been part of the development of the DMG® process from the building and operation of the demonstration unit through to the current position.

Paul has taken over David Ryan's responsibilities for Powerhouse's technology development programme, including all its design, research and project technical assurance activities. He is also responsible for the first application of the Powerhouse technology at Protos and works closely with the management of the SPV to help achieve the timely completion of this project.

Ian Crockford was appointed in April 2021 to run the SPV and he is overseeing the procurement and risk management of the Protos project to ensure that there is a robust contracting position for this FOAK project.

Keith Riley was appointed as a Non-Executive Director in September 2021. Keith is proprietor and Chief Executive Officer of Vismundi Limited, a consultancy company providing services to the resources and waste management industry. Prior to that, between 2005 and 2012 he worked for Veolia Environmental Services plc as Group Managing Director for Technology and as Managing Director for Group Technical Services.

Over the course of his career Keith has worked with a number of specialist waste and resource management companies and most recently has been Non-Executive Director of Waste2tricity Limited. He continues to be a Partner of BH Energy Gap LLP on behalf of Vismundi, which develops projects in the renewables sector and raises the finance to implement them.

Richard Hodgkinson, our recently appointed Business Development Executive, will now commence a global review and analysis of growth opportunities for Powerhouse.

Technology developments

Engsolve acquisition

In August, Powerhouse announced it had acquired 48% of the share capital of Engsolve, the engineering consultancy, (the "Acquisition") for a cash consideration of £99,990.

Reasons for the Acquisition

Paul Emmitt, the Company's Chief Technology Officer, is also the managing director and founder of Engsolve. Powerhouse has worked very closely with Engsolve and Paul for the last four years. The acquisition is intended to maintain Engsolve's continued support of the Company's projects and developments and will ensure that Engsolve's expertise remains available to Powerhouse in future.

Engsolve is a private company based in Bridgend in Wales. As an engineering solutions company, Engsolve has significant experience in undertaking engineering design and support, cost estimating and control, project management and safety risk assessments across a range of industries including energy from waste, renewables and green energy.

It made a profit after tax of approximately £137,000 in the year to 31 March 2021 on a turnover of approximately £840,000.

DNV validation of DMG design

In June 2021, the Company was delighted to announce that DNV, the international gas process design and certification consultancy, had completed stage one of the validation of the enhanced DMG design to produce 2 tonnes per day of hydrogen. The work was based on the recently completed update of the Front-End Engineering Design (FEED) for Protos which enhanced production options, allowed for variable feedstocks and produced large export packets of hydrogen for use by fleet operators. The Statement of Feasibility followed detailed evaluation of the Company's enhanced process design to deliver 2 tonnes per day of hydrogen including features for export of the product and was undertaken against all design enhancements enacted over a two-year period and represented in the first application at Protos.

Following this validation, the DNV assessment team is continuing with extensive verification of the designs including failure mode and criticality assessments which lead to complete technology qualification. DNV and the Company recognise that new sources of uncertainty may be discovered as qualification progresses. However, the Company is confident that its Technology Development Programme has identified a work programme to remove many unknowns through the execution of the Protos development and that the likelihood of new sources of risk arising are low. A Certificate of Endorsement should be expected in due course later in the year.

The DNV Statement and report will be used by Peel, their consultants and contractors to support finalisation of contracts for the Protos execution. The material will also support project development work in Australia and Europe.

Business Development and Sales Pipeline

Overseas market agreements

In 2020, Powerhouse announced it had entered into a non-binding heads of terms with Hydrogen Utopia International ("HUI") with a view to granting HUI an exclusive non-transferable licence for the application of the Company's DMG® technology in Poland for which Powerhouse received a deposit of €125,000. In May 2021, Powerhouse entered into a second non-binding Heads of Terms with HUI for Greece and Hungary.

In August, Powerhouse announced it had entered into a binding exclusivity agreement ("Exclusivity Agreement") with HUI under which HUI has been granted an exclusive non-transferable licence for the application of Powerhouse's DMG® technology in Poland, Greece and Hungary. HUI's corporate mission is to create a project pipeline for Powerhouse's DMG® technology in these regions through seeking funding from and partnering with states, regional authorities and the private sector in targeted regions to facilitate the deployment of DMG® technology.

Under the Exclusivity Agreement, HUI will pay Powerhouse a further €325,000 by the end of 2021, when the formal intellectual property licence for the DMG® technology is anticipated to have been granted to HUI, with a further €300,000 to be paid 12 months later. A royalty fee will be agreed as part of the expected licence agreement.

In addition, Powerhouse will continue to receive a licence fee for any DMG® plant which becomes operational in any location in the world. Consequently, the Company's worldwide rights to ongoing licensing fees for the DMG® technology are unaffected by the Exclusivity Agreement.

The Company is pleased with the progress made in the development of its long-term vision of rolling out its sustainable hydrogen technology internationally. The engineering consultancy, SWECO, was appointed in June by HUI to prepare concept design and an Environmental Impact Assessment report for the waste-to-hydrogen project.

Financial

In January 2021, the Company raised £10 million before expenses in an oversubscribed placing of just over 181 million new shares at 5.5 pence per share. This strengthened our financial position and enabled the early procurement of long lead items, thereby expediting the Company's progress towards financial close at Protos. The funds also allowed the Company to complete negotiations rapidly for the SPV that was established to deliver the Protos plant.

The Company has reported revenues of £373,306 for the first half of 2021, up from £100,000 in the first six months of 2020. The revenues are largely derived from engineering services for the application of the DMG technology at the Protos site.

During the first half of 2021, the Company advanced £1.15m of the £3.8m loan facility made available to the Protos SPV. Please refer to the section on Protos above for further details of the loan facility.

James Greenstreet

Non-Executive Chairman 

Statement of Comprehensive Income

The notes numbered 1 to 6 are an integral part of the interim financial information.

Statement of Financial Position

The notes numbered 1 to 6 are an integral part of the interim financial information.

Statement of Cash Flows

The notes numbered 1 to 6 are an integral part of the interim financial information.

Statement of Changes in Equity

The following describes the nature and purpose of each reserve within equity:

Share capital: Amount subscribed for share capital at nominal value. This includes £3,113,785 related to deferred shares.

Share premium: Amount subscribed for share capital in excess of nominal value

Merger relief reserve: Amount subscribed for share capital in excess of nominal value where merger relief applies

Accumulated deficit: Accumulated deficit represents the cumulative losses of the company and all other net gains and losses and transactions with shareholders not recognised elsewhere

The notes numbered 1 to 6 are an integral part of the interim financial information.

Notes (forming part of the interim financial information)

1. Summary of significant accounting policies

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial information.

1.1. Basis of preparation

This interim financial information is for the six months ended 30 June 2021 and has been prepared in accordance with International Accounting Standard 34 "Interim Financial Statements". The accounting policies applied are consistent with International Financial Reporting Standards ("IFRS") adopted for use by the European Union. The accounting policies and methods of computation used in the interim financial information are consistent with those of the previous financial year and corresponding interim reporting period and with those expected to be applied for the year ending 31 December 2021.

The Company does not consider any new and amended standards that became applicable for the current reporting period to have any impact on the Company's results.

The unaudited results for period ended 30 June 2021 do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the period ended 31 December 2020 for the company are extracted from the audited financial statements which contained an unqualified audit report and did not contain statements under Sections 498 to 502 of the Companies Act 2006.

This interim financial statement will be, in accordance with the AIM Rules for Companies, available shortly on the Company's website.

1.2. Going concern

The Directors have considered all available information about future events when considering going concern. The Directors have prepared and reviewed cash flow forecasts for 12 months following the date of these Financial Statements. The projections show that the Company will have sufficient funding to be able to continue as a going concern on the basis of its cash balances as at 30 June 2021.

The interim financial statements do not include the adjustments that would result if the Company is unable to continue as a going concern.

1.3. Functional and presentational currency

This interim financial information is presented in £ sterling which is the Group's functional currency.

1.4. Revenue

The Company provides engineering services for the application of the DMG technology, the intellectual property that the Company owns. Revenue from providing services is recognised in the accounting period in which services are rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided to the extent to which the customer receives the benefits. This is determined based on the actual labour hours spent relative to the total expected labour hours.

Where contracts include multiple performance obligations as specified by the work scope, the transaction price will be allocated to each performance obligation based on estimated expected cost plus margin.

Estimates of revenues, costs or extent of progress toward completion of services are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management.

In case of fixed-price contracts, the customer pays the fixed amount based on a payment schedule. If the services rendered by the Company exceed the payment, a contract asset is recognised. If the payments exceed the services rendered, a contact liability is recognised.

If a contract includes an hourly fee, revenue is recognised in the amount to which the Company has a right to invoice.

2. SHORT TERM LOANS

On 12 May 2021, the Company announced that it had agreed to provide a loan facility of £3.8 million to Protos Plastics to Hydrogen No. 1 Limited, the Peel NRE special purpose vehicle and owner of the development of the Protos plant, the first proposed application of the Company's DMG technology. The loan is provided to secure long lead time items and project design services necessary for the Protos plant development and construction. The loan facility is available for 6 months and will accrue interest daily set at the Bank of England base rate plus 2%.

3. SHARE CAPITAL

The deferred shares have no voting rights and do not carry any entitlement to attend general meetings of the Company. They carry only a right to participate in any return of capital once an amount of £100 has been paid in respect of each ordinary share. The Company is authorised at any time to affect a transfer of the deferred shares without reference to the holders thereof and for no consideration.

On 21 January 2021, the Company issued 181,818,182 ordinary shares of 0.5p each ("Ordinary shares") in the Company at a price of 5.5p each amounting to £10,000,000 before issue costs. The Company also granted 9,090,910 warrants to subscribe for Ordinary Shares at the issue price of 5.5p to its broker.

On 26 January 2021, the Company issued 4,895,260 Ordinary shares in the Company further to the exercise of warrants for proceeds amounting to £122,382.

On 9 February 2021, the Company issued 6,000,000 Ordinary shares in the Company further to the exercise of options for proceeds amounting to £36,000.

On 24 February 2021, the Company issued 1,600,000 Ordinary shares in the Company further to the exercise of options for proceeds amounting to £12,000.

On 4 March 2021, the Company issued 6,000,000 Ordinary shares in the Company further to the exercise of options for proceeds amounting to £45,000.

On 17 March 2021, the Company issued 500,000 Ordinary shares in the Company further to the exercise of options for proceeds amounting to £3,000.

On 19 April 2021, the Company issued 6,000,000 Ordinary shares in the Company further to the exercise of options for proceeds amounting to £36,000.

On 23 April 2021, the Company granted 998,098 and 775,141 share options over Ordinary shares in the Company to Mark Berry and Allan Vlah respectively. The options have an exercise price of 6.3p and lapse 3 years from the date of grant.

4. Loss per share

5. SHARE BASED PAYMENT

The expense recognised for share based payments during the year is shown in the following table:

There were no liabilities recognised in relation to share based payment transactions.

6. EVENTS AFTER THE REPORTING PERIOD

On 22 July 2021, the Company issued 8,000,000 Ordinary shares in the Company further to the exercise of options for proceeds amounting to £48,000.

On 12 August 2021, the Company announced the acquisition of 48% of the share capital of Engsolve Limited, an engineering consultancy company, for a consideration of £99,990 in cash. The Company and Engsolve have worked closely together for four years in developing the Company's technology offering. The acquisition is intended to maintain Engsolve's continued support of the Company's projects going forward.

On 19 August 2021, the Company issued 13,500,000 Ordinary shares in the Company further to the exercise of options for proceeds amounting to £81,000.

On 31 August 2021, the Company announced it had entered into a binding agreement ("Exclusivity Agreement") with Hydrogen Utopia International PLC ("HUI") under which HUI has been granted an exclusive non-transferable licence for the application of the Company's DMG technology in Poland, Greece and Hungary. The Exclusivity Agreement requires HUI to make exclusivity payments to the Company of €325,000 by the end of 2021, when the formal intellectual property licence for the DMG technology is anticipated to have been granted to HUI, with a further €300,000 payable 12 months thereafter.