NOTES TO THE ACCOUNTS  

For The Year Ended 31 December 2023

1.             Accounting Policies

Powerhouse Energy Group Plc is a company incorporated in England and Wales. The Group is a public limited company quoted on the AIM market of the London Stock Exchange. The address of the registered office is Unit 3/3a Garth Drive, Brackla Industrial Estate, Bridgend, Wales, CF31 2AQ. The principal activity of the Group is to continue the development of its technology and to support its customers in order to achieve its full commercial roll-out. The Principal acativity of the group also includes the provision of Engineering services by a subsidiary company. 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  consolidation

The consolidated and parent company financial statements for the year ended 31 December 2023 have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board (IASB), as adopted for use in the United Kingdom (UK) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS (except as otherwise stated). These accounting policies and methods of computation are consistent with the prior year, unless otherwise stated.

The consolidated group financial statements consist of the financial statements of the parent company Powerhouse Energy Group PLC together with all other entities controlled by the parent company (its subsidiaries) and the groups share of its interests in joint ventures and associates. Control is achieved where the Group is exposed to, or has the rights to, variable returns from its investments with the entity and has the ability to affect those returns through its power over the entity. The Group obtains and exercised control through voting rights.

All financial statements are made up to 31 December 2023. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.

All intra group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provided evidence of an impairment of the asset transferred.

Subsidiaries are consolidated in the Groups financial statements from the date the control commences until the date that control ceases. Acquisitions of subsidiaries are dealt with using the acquisition method. The acquisition method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the Consolidated Statement of Financial Position at their fair values, which are also used as the cost bases for subsequent measurement in accordance with the Group accounting policies.

Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition costs over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition.

Entities in which the group holds an interest and which are jointly controlled by the Group and one or more other ventures under a contractual arrangement are treated as joint ventures. Entities other than subsidiary undertakings or joint ventures, in which the group has a participating interest and over whose operating and financial policies the Group exercises a significant influence, are treated as associates.

Investments in joint ventures and associates are carried in the group statement of financial position at cost plus post acquisition changes in the Groups share of the net assets of the entity, less any impairment in value. The carrying value of investments in joint ventures and associates include acquired goodwill.

If the Groups share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or associate, the group does not recognise further loses unless it has incurred obligations to do so or has made payments on behalf of the joint venture or associate.

Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the groups interest in the entity.

The Group's UK subsidiaries are both trading and non-trading. There are long-term restrictions on the operations of the Group's subsidiaries in the US and Switzerland. With these restrictions in place, the Group is also unable to exert control over the subsidiaries. As such the Group has claimed exemptions applicable to it under Companies Act section 405 (2) and 405 (3b) and IFRS 10 to not include these subsidiaries located in the US and Switzerland in the  Consolidated Financial statements for the year ended 31 December 2023. Investments in subsidiaries that are not consolidated are carried at cost less any provision for impairment.

The acquisition of Waste2Tricity Limited during 2020 was transacted by way of a share for share exchange and qualifies for merger relief, meaning that no share premium is recorded on the issue of the consideration shares. The excess of the fair value of consideration shares over their nominal value has been recorded in a merger relief reserve.

Associates are entities over which the Group has significant influence but not control or joint control as defined under IAS 28. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting.

Under the equity method of accounting, investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in the Income statement. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying value of the investment.

Accounting policies of the equity accounted investees are changed where necessary to ensure consistency with the policies adopted by the Group. The carrying value of equity accounted investments is tested for impairment in accordance with the policy described in Note 1.20 (ii).

As of 31 December 2023 the Group has two subsidiaries included in the Groups consolidated accounts, Engsolve Limited, the balance of the interest in which was acquired on 20 June 2023 and Protos Plastics to Hydrogen No.1 Limited that was acquired on 30 April 2023.

Other investments, which are not publicly traded, are initially measured at cost and subsequently measured at cost less accumulated losses.

1.2.  Judgements and estimates

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts in the financial statements.

Areas involving a higher degree of judgements or complexity, or areas where assumptions or estimates are significant to the financial statements such as the exercise to assess the fair value of goodwill, share based payments (share options and warrants) and going concern are disclosed within the relevant notes.

1.3.  Going concern

The financial statements have been prepared on a Going Concern basis. The Directors' views are based upon working capital projections which take into account the intended use of the funds in hand over the next 12 months.

As at 31 December 2023 the Group is pursuing a business strategy of selling licences for use of its technology. As at 31 December 2023, the Group had one project under development - Protos in Cheshire  -  with others still in prospect.

In looking forward to determine the Going Concern status, the business planning of the Group post the current reporting period, is based on the following:

·      The acquisition of Engsolve, giving the Group the ability to earn revenues from engineering services. Engsolve had an existing client base, a history of providing such services and was integrated into the Group with an existing bank balance.  This provides an immediate and ongoing revenue stream to the Group, extending its positive cash position;

·      The development of a series of capital projects addressing contamination, pollution and climate change mitigation and deploying where possible, but not exclusively, the Group's proprietary technology. The Group will focus on a business strategy of selling licences and receiving royalty fees for the use of its technology.

Adopting this approach:

·      The Group will have an ongoing revenue stream;

·      Investment in the development of the capital projects will be via shareholder loans to the SPV, repayable at financial close; and

·      In the event development of the project does not look viable (for example, failing to obtain the necessary permissions), expenditure will be curtailed and a replacement project identified.

The Directors consider therefore that other than fixed costs, the cash spend looking forward can be managed within the 13-month cashflow projection (May 2024 - May 2025)

A cash inflow of £0.5m is also anticipated following securing asset financing (although this is not guaranteed) of the Feedstock Testing Unit and associated equipment to be installed in the Powerhouse Technology Centre at Bridgend later in 2024, offsetting this capital purchase. In the event that the Group does not receive the asset finance it will need to reduce expenditure on capital projects, offset by income from Engsolve activities.

It was noted in the prior year's accounts that there were loans totalling £3.34m due from the Protos SPV, a company now under PHE's control. On review of the projects at acquisition it was determined that the projects were not expected to progress and as a result the amounts capitalised relating to these projects were fair valued to £330k - being materials transferred to stock for either sale or use in future projects - and the corresponding loan amounts which had been used to fund the project development and were repayable on the success of the projects were fair valued to £nil. This aligns with PHE's assessment of the recoverability of the loan in FY22 where it was deemed irrecoverable and written down to £nil also.

It is the view of the Directors, however, that should Protos generate future cash inflows from similar projects that they reserve the right to reinstate the loans and demand repayment.

1.4.  Foreign currency translation

The financial information is presented in sterling which is the Group's functional currency.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are revalued to the exchange rate at date of settlement or at reporting dates (as appropriate). Exchange gains and losses resulting from such revaluations are recognised in the Statement of Comprehensive Income.

Foreign exchange gains and losses are presented in the Statement of Comprehensive Income within administrative expenses.

1.5.  Revenue

(i)   Engineering services

The Group has provided engineering services to various third party customers. 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 Group exceed the payment, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised.

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

(ii)  Exclusivity fees

Where the Group grants a developer exclusive rights to utilise its technology in a particular territory for an exclusivity fee, the fee is recognised in the income statement over the agreed exclusivity period.

1.6.  Leases

For any new contracts entered into, 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 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:

(i)   the contract contains an identified asset which is either explicitly defined in the contract or implicitly specified by being identified at the time the asset is made available to the Group;

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

(iii) the Group has the right to direct the use of the identified asset throughout the period of use.

Where the above evaluations are met, 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 measurement of the initial lease liability, any direct initial 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.

The Group depreciates 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 assesses the right of use asset for impairment when such indicators exist.

At the commencement date the Group measured 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. For the assessment of the lease entered into in 2020 the Group applied a rate of 7.5%.

Subsequent to initial measurement the liability will be reduced for payments and increased for interest. It is remeasured to reflect any reassessment or modification or if there are any changes to the repayment schedule.

1.7.  Finance income and expenses

(i)   Income

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit impaired. For credit impaired financial assets, the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance).

(ii)  Expense

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

1.8.  Income tax expense

The tax expense for the period comprises current and deferred tax.

UK corporation tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Temporary differences are differences between the Group's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

A net deferred tax asset is regarded as recoverable and therefore recognised only to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the temporary differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

1.9.  Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Cost represents the cost of acquisition or construction, including the direct cost of financing the acquisition or construction until the asset comes into use.

Depreciation on property, plant and equipment is provided to allocate the cost less the residual value by equal instalments over their estimated useful economic lives of 3 years, once the asset is complete.

The expected useful lives and residual values of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful life or residual value are accounted for prospectively.

1.10.      Assets under construction

Assets under construction are stated at cost. Cost represents the cost of acquisition or construction, including the direct cost of financing the acquisition or construction until the asset comes into use.

Depreciation is not  charged until the asset is complete and bought into use at which point it is transferred into a distinct category of property plant and equipment.

1.11.   Right of Use Assets

At inception, the Group assesses whether a contract is, or contains a lease within the scope of IFRS 16. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Where a tangible asset is acquired through a lease, the group recognises a right-of-use asset and lease liability at the lease commencement date. Right of use assets are included within property, plant and equipment, apart from those that meet the definition of investment property.

A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received and any initial direct costs incurred.

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities.

The group has elected not to recognise right-of-use assets and lease liabilities for short term leases of machinery that have a lease term of 12 months or less, or for leases of low value assets including IT equipment. The payments associated with these leases are recognised in profit or loss on a straight line basis over a lease term.

1.12.   Intangible assets

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. Refer to note 1.20 for impairment testing procedures. Goodwill impairment losses are not reversible as explained in note 1.20 (iii).

Goodwill on acquisitions has been calculated by taking the cost less the fair value of the assets and liabilities at acquisition. The Group will review the value of goodwill on their financial statements at least once a year and record any impairments. Where the goodwill generated results on a gain on bargain purchase this is credited to the Statement of Comprehensive Income in the year of recognition.

Exclusivity rights acquired in a business combination that qualify for separate recognition are recognised as intangible assets at their fair value and subsequently assessed for impairment loss.

Costs associated with patent applications are capitalised in the year of spend and amortised over their estimated useful lives of 20 years on a straight-line basis commencing from the date of patent application. Any cost associated with the upkeep of a patent is amortised over the remaining useful life of that patent.

An internally generated intangible asset arising from development is only recognised where all of the following have been demonstrated: (i) the technical feasibility of completing the asset; (ii) the intention to complete the asset and the ability to use or sell it; (iii) the availability of resources to complete the asset; and (iv) the ability to reliably measure the cost attributable to the asset during its development.

Research and development

In all other instances research and development expenditure is recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

1.13.   Other non-current assets

Other non-current assets represent investments in subsidiaries. The investments are carried at cost less accumulated impairment. Where a step acquisition occurs and control of a subsidiary company is achieved in stages the initial investment in associate is treated as being disposed of and reacquired at the considered fair value with any gain or loss arising being allocated to the Statement of Comprehensive Income. This is then treated as the deemed cost. Subsequently the Investment is held at deemed cost less impairment.

Financial assets

The Group classifies financial assets as loans and receivables within current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as noncurrent assets. Assets are initially recognised at fair value plus transaction costs. Loans and receivables are subsequently carried at amortised cost using the effective interest rate method.

1.14.   Contract costs

The Group recognises costs incurred in fulfilling contracts with customers that are directly associated with the contract as an asset if those costs are expected to be recoverable. Contract costs are amortised on a basis consistent with the transfer of goods and services to which the asset relates.

1.15.   Trade and other receivables

Trade receivables are initially recognised at fair value. Subsequently they are carried at amortised cost less any provision for impairment.

1.16.   Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits and are recognised and subsequently carried at fair value. For the purpose of presentation in the statement of cashflows, cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.

1.17.   Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

1.18.   Financial assets and liabilities

i)    Financial assets

Loans receivable, where forward receivables comprise solely of payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method.

ii)   Financial liabilities

Loans payable are financial obligations arising from funding received and used to support the operational costs of the Group. These are initially recognised at fair value. Loans are subsequently carried at amortised cost using the effective interest method.

1.19.   Adoption of new and revised standards

i)    New and amended standards adopted by the Group

New and amended standards for the current period and effective from 1 January 2023 have been applied by the Group, including:

IFRS 17 Insurance Contracts

IAS1 & IFRS practice statement 2

Definition of Accounting Estimates - Amendments to IAS 8

IAS 12 - Deferred Tax related to Assets and Liabilities arising from a single transaction

IAS 12 International Tax reform - pillar two Model Rules

There are no transitional adjustments relating to the adoption of these standards.

ii)   Standards issued but not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2023 reporting periods and have not been adopted early by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

1.20.   Impairment

(i)   Goodwill

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. This is detailed in note 1.12 above.

(ii)  Other assets

At each balance sheet date, the carrying amounts of assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. A cash generating unit is the group of assets identified on acquisition that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of assets or cash generating units is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.

(iii) Reversals of impairments

An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

1.21.   Share based payments

Share based payments are made to employees and third parties and all are equity settled.

(i) Third party provision of services

a)              Via issue of shares

Contractors receive remuneration in the form of share-based payments, whereby services are provided and settled by the issue of shares. The cost of equity settled transactions is determined at the fair value of the services provided, based upon invoiced amounts or formal agreements in place with suppliers.

b)      Via issues of share warrants

The Group also issues share warrants to third parties in relation to services provided by suppliers. The cost of equity settled transactions is determined at the fair value of the services provided, based upon invoiced amounts or formal agreements in place with suppliers. Where no fair value of services can be directly obtained, the fair value at the grant date is determined using the Black Scholes valuation model. At each reporting date the Group revises its estimates of the number of options that are likely to be exercised with any adjustment recognised in the income statement.

(ii) Directors and employees

c)       Via issues of share options

The Group has issued share options to Directors and employees through approved and unapproved option plans. The fair value of options issued is determined at the date of grant and is recognised as an expense in the Income Statement. The fair value at the grant date is determined using the Black and Scholes valuation model. At each reporting date the Group revises its estimates of the number of options that are likely to be exercised with any adjustment recognised in the income statement.

Where share-based payments give rise to the issue of new share capital, the proceeds received by the Group are credited to share capital and share premium when the share entitlements are exercised.

1.22.   Employee benefits

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees' services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are included within creditors in the balance sheet.

For defined contribution pension plans, the Group pays contributions to publicly or privatley administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

The Group does not contribute to any defined benefit pension plans.

1.23.   Segmental reporting

An operating segment is a component of the Group:

•    that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group);

•    whose operating results are reviewed regularly by the Group's chief decision maker to make decisions about resources to be allocated to the segment and assess its performance; and

•    for which discrete financial information is available.

The Group considers it has two business segments, being a UK based technology company intending to license its technology to projects in the UK and internationally and a UK based multi disciplined Engineering Consultancy with significant experience in undertaking engineering design and support for third party customers.

The Engineering segment, Engsolve Limited, generated all of the Group £180,959 Revenue in 2023. Engsolve became part of the Group in June 2023. This revenue was generated through Engsolve providing Engineering Services to third party customers. The Group will be looking to continue providing  third party Engineering Services through Engsolve Limited and to further develop this revenue stream, both through internal and external work.

The Technology/Licensing segment (The Company), did not generate any licence income in 2023. The Group is focusing on developing this license revenue stream in future years.

2.     Revenue

During the year, the Group billed for engineering work carried out on projects. All revenue generated has arisen in the UK.

3.     Employee costs

Highest Paid Director - refer to note 29

The number of average monthly employees (including Directors) are as follows:          

The figures in the table above includes the average number of employees throughout the year based on the acquisition of Engsolve in June 2023. The total number of employees as at 31 December 2023 (including Directors) was 15 (2022: 9) comprising 7 in management and 8 in operations (2022: 6 in management, 3 in operations). All Directors are classed as management

4.     Administrative expenses