Kedco Annual Report and Accounts 2011 by Charlie Neville

Kedco plc

Annual Report and Accounts 2011

Kedco plc identifies, develops, builds, owns and operates biomass electricity and heat generation plants in the UK and Ireland using two tried and tested technologies gasification of wood and wood waste and anaerobic digestion of either food or agricultural waste.

Contents Summary

Our Company

Chairman’s Statement

Chief Executive’s Report

Board of Directors

Directors’ Report

Statement of Directors’ Responsibilities

Corporate Governance Report

Independent Auditor’s Report

Consolidated Income Statement

Consolidated Statement of Comprehensive Income and Expenditure

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Company Statement of Financial Position

Company Statement of Changes in Equity

Company Statement of Cash Flows

Notes to the Consolidated Financial Statements

Advisors and Other Information

Kedco plc Annual Report and Accounts 2011

The UK Government has emphasised its commitment to biomass electricity and biomass heat and is encouraging gasification and anaerobic digestion as electricity and heat generation technologies

Summary ●

Signed binding facilities agreement up to £9.44m with Ulster Bank Group, a subsidiary of Royal Bank of Scotland plc to complete the development and commissioning of a 4MW biomass electricity and heat generating plant in Newry, Northern Ireland. Initial commissioning estimated to complete in Q2 2012

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Company’s main shareholder, Farmer Business Developments plc (‘FBD’) agreed to become the Company’s joint venture partner in Newry, wholly replacing Kedco plc’s previous partner

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Completed strategic review with the aim of refocusing business portfolio to core activities and delivering cost savings by exiting non-core and non-profitable business segments with the aim of creating a leaner, more efficient structure with a focus purely on the biomass, energy from waste, power generation business

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Having received planning permission to construct a c£45m biomass wood gasification plant in Enfield, North London capable of generating 12MW of electricity and 10 MW of heat, tenders currently being prepared to source a suitable EPC Contractor for the proposed construction of the plant

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Continuing to progress potential projects through the pipeline

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Further prospective sites identified for future developments

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The UK Government has emphasised its commitment to biomass electricity and biomass heat and is encouraging gasification and anaerobic digestion as electricity and heat generation technologies through the RO and most recently through the RHI scheme.

Biomass Biomass is a renewable energy source and is made from living or recently living organisms such as wood and waste. It is typically made up of plant matter. Waste plant matter can be turned into energy by converting the waste using gasification or anaerobic digestion into methane or synthetic gas which is then used as a form of energy. Electricity from biomass is sustainable renewable and clean.

Clean Tech Clean Technologies are products, services, and processes that harness renewable material and energy sources, dramatically reducing the use of natural resources, and cut or eliminate emissions and wastes.

Anaerobic Digestion Anaerobic digestion is a clean technology that converts biodegradable material, such as food waste, domestic brown waste and agricultural waste, into a methane and carbon dioxide-rich biogas suitable for energy production helping replace fossil fuels. As part of an integrated waste management system, anaerobic digestion reduces the emission of landfill gas into the atmosphere.

Gasification Gasification is a clean technology that converts carbonaceous materials, such as wood or wood waste, into a hydrogen and carbon monoxide-rich synthetic gas suitable for energy production helping replace fossil fuels. As part of an integrated waste management system, gasification reduces the emission of landfill gas into the atmosphere.

Kedco plc Annual Report and Accounts 2011

Our Company Kedco plc’s business strategy is to identify, develop, build, own and operate biomass electricity and heat generation plants in the UK and Ireland using two tried and tested technologies: gasification of wood and wood waste; and anaerobic digestion of either food or agricultural waste.

We identify seven stages in the development of a biomass power generation project. These are: initial evaluation, sign letter of intent, secure site, obtain planning and permitting, secure financial closure, construction and finally operation. Value is created as we move from one stage of a biomass power project to the next. When we secure a site, value is created; when we secure planning and permitting further value is created. Moving to financial close on projects and actual construction and operation in our view increases value substantially. Kedco plc is excellently positioned to take advantage of renewable energy legislation developed to combat climate change.

Experience ●

Five Years of Renewable knowledge and experience

Energy

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Specific Planning & Permitting knowledge and experience - obtained five Planning Permissions in UK and Ireland for the Conversion of 200,000tpa of Waste to c22MW of Energy

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Detailed and relevant Project Finance experience and success

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Project Delivery experience – post funds drawdown in Newry 24 weeks away from production of electricity

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Structured and negotiated project specific Feedstock Supply Agreements

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Exported Electricity to a national Grid from the Gasification of various feedstocks including wood and digestive pellets.

We look forward to Kedco plc capitalising on its strong pipeline of projects and years of experience within this sector.

Kedco plcâ&#x20AC;&#x2122;s 4MW biomass electricity and heat generating plant Newry, Northern Ireland

Kedco plc Annual Report and Accounts 2011

Chairman’s Statement I am pleased to report the Company’s results for the year to 30th June 2011. During this period we have continued to make progress in our goal of developing biomass electricity and heat generation plants. I am delighted to have been recently appointed Non-Executive Chairman of the Kedco plc board. Farmer Business Developments plc, as a long - term shareholder and supporter of Kedco, has always been attracted to the earnings potential within the waste to energy sector and we look forward to helping Kedco capitalise on its strong pipeline of projects and years of experience within this sector. Since it was founded, Kedco has gained nearly five years of renewable energy knowledge and experience. The Company has specific planning and permitting experience having obtained five planning permissions in the UK and Ireland for the conversion of approximately 200,000 tonnes per annum of waste and biomass into approximately 22MW of energy. The Company possesses a significant combination of knowledge of renewable energy markets, advance conversion technologies, biomass and waste fuel sources, project finance, project development and project delivery.

Throughout the period the Board primarily focused on concluding funding for our Newry project, a 4MW biomass electricity and heat generation plant, which we achieved on 14th November 2011. At the same time we have continued to push forward development of the London Enfield project and have issued tenders for the main EPC contract for this 12MW biomass electricity and heat generation plant. In its Renewable Energy Roadmap published in July of this year, the UK Government made clear its commitment to increasing deployment of renewable energy across the UK in the sectors of electricity and heat. Biomass electricity and biomass heat are two of the eight technologies that the Roadmap identifies which have the greatest potential to help the UK meet the 2020 target in a cost effective and sustainable way. Biomass electricity has the advantage that it is both predictable and controllable and so can be used for baseload or peakload generation. Energy from waste has the additional advantage that it extracts value from biomass at the end of its useful life and reduces the amount of waste otherwise sent to landfill and thus reduces methane emissions.

Kedco welcome the fact that the UK Government has addressed perceived uncertainty about the Government’s commitment to the use of waste and biomass for electricity generation and the level and surety of long-term financial support which will be provided for this. We particularly welcome the grandfathered support for biomass electricity from waste and biomass under the Renewable Obligations (‘RO’) where this is generated through advanced conversion technologies. The Board will continue to focus on commercialising Kedco's lead projects and we look forward to updating the market on these in due course. I would like to thank all my fellow directors and all employees, stakeholders and shareholders whose combined efforts and support have positioned the Company to capitalise on these exciting opportunities.

Dermot O’Connell Non-Executive Chairman

Kedco plc will now aggressively pursue other opportunities in our project pipeline.

Kedco plcâ&#x20AC;&#x2122;s proposed ÂŁ45m biomass wood gasification plant in Enfield, North London, capable of generating 12MW of electricity and 10 MW of heat.

Kedco plc Annual Report and Accounts 2011

Kedco, with its partner Larkfleet Group, recently hosted an Open Day in Clay Cross in Derbyshire and is preparing to submit a planning application to Derbyshire County Council with a public consultation for an 8MW wood gasification plant and a 1MW Anaerobic Digestion plant. We are continuing to progress potential projects through the pipeline and have identified further prospective sites for future developments.

Chief Executive’s Report Operational Review As announced on 14th November 2011, Kedco has signed a binding facilities agreement for up to £9.44m with Ulster Bank Group, a subsidiary of Royal Bank of Scotland plc in respect of our Newry project. The Company’s main shareholder, Farmer Business Developments plc, agreed to become the Company’s joint venture partner in respect of Newry, wholly replacing Kedco’s previous partner. This is a significant milestone for the Company. Kedco now has access to the financing to complete the Newry Plant. The Company estimates that the plant, once commissioned in full, will sell approximately 29 million Kwh per annum of renewable energy to the electricity grid in Northern Ireland. The plant is expected to generate EBITDA of approx £1.9m per year once fully commissioned, and it is estimated that initial commissioning will complete in Q2 2012. Having received planning permission to build a c£45m biomass wood gasification plant in Enfield, North London capable of generating 12MW of electricity and 10 MW of heat, tenders are currently being prepared to source a suitable Engineering Procurement and Construction (‘EPC’) Contractor for the proposed construction of the plant. Once this is done we will move forward to financial close on the London Enfield project. The plant has an estimated capital cost of £45m and the site is secured on twenty-year lease.

During the year the Board undertook a strategic review of the business to refocus the business portfolio on core activities and deliver cost savings by exiting noncore and non-profitable business segments. The Company’s focus is on the UK and Ireland, and consequently the Board is reducing Kedco’s international presence. The Company has recently exited from the domestic energy business and removed certain management costs from the organisation with the aim of creating a leaner, more efficient structure with a focus purely on the waste to energy power generation business. Financial Review Revenue in the period amounted to b11m, in line with expectations (FY 2010: b9m). The Company reported a loss for the period of b4.5m: an increase on the prior year figure of b3.2m for FY 2010. The increase in losses are attributable to one off restructuring costs and an increase in financing costs due to the Company taking on more debt finance. During the year the Company raised £2.6m from the issue of zero-coupon, secured loan notes. It also secured equity finance in aggregate of £1.75m from a variety of investors. The Company also negotiated debt facilities totaling b1.2m to assist in short-term working capital requirements from the Company’s main shareholder, Farmer Business Developments plc. Following the yearend, the Company sourced a further b1.2m in debt facilities from Farmer Business Developments plc. 07

Kedco plc Annual Report and Accounts 2011

At 30th June 2011, the Company had net debt of j11.8m (30th June 2010: j9.1m) including cash balances of j616,285 (30th June 2010: j116,753). Outlook Until such time as the Company generates sufficient cash flow from its projects, preserving cash and securing additional finance remain a priority for the Company. We will continue our disciplined reduction of non-core and non-profitable assets. Whilst the Companyâ&#x20AC;&#x2122;s strategy is to build own and operate biomass power generating plants, once a site has been secured and planning and permitting has been obtained we would be in a position, if we so chose, to monetise either part or all of any project. Kedco is a development company. Economic conditions remain uncertain and the restricted credit markets could continue to have an impact on the availability of finance. We have continued to raise finance successfully during the period and the Board is cautiously optimistic about the coming period. We continue to invest capital in developing customer and partner relationships and in furthering projects in our pipeline.

We welcome the clarity provided by the Department of Energy and Climate Changeâ&#x20AC;&#x2122;s consultation document, published in October 2011, on levels of banded support under the Renewables Obligation for the period 2013-2017. We believe that the proposals to retain the existing support level of 2 Renewable Obligation Certificates per megawatt hour, for advance gasification and anaerobic digestion banding, until 2015/16 when the rate drops marginally to 1.9 for new accreditations - in effect maintains the existing support levels for those projects already under construction or those that will be in the near term. The UK Secretary of State for Energy and Climate Change recently stated that renewable energy technologies will deliver a third industrial revolution whose impact will be every bit as profound as the first two. He argued that the revolution has already begun. Kedco aims to be a part of this revolution. The signing of banking facilities for a biomass gasification plant is an endorsement of the Companyâ&#x20AC;&#x2122;s strategy to build own and operate biomass energy plants in the UK and we will now aggressively pursue other opportunities in our project pipeline.

Gerry Madden Interim CEO and Finance Director

Kedco plc Annual Report and Accounts 2011

Kedco plc Board of Directors Dermot O’Connell Non-Executive Chairman Dermot O’Connell, who is Chairman of Cork Cooperative Marts and a director of the Company’s largest shareholder, Farmer Business Developments plc, joined the Board as a Non-Executive Director in March 2011 and was appointed as Non – Executive Chairman in October 2011. Dermot's other directorships comprise Fairfield Estates Limited, Fairfield Developments Limited, CCM House Limited, Corrin Event Centre Limited, Market Green Developments Limited, Market Green Estates Limited and CCM Dovea Genetics Limited.

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● Gerry

Madden Interim CEO and Finance Director Gerry Madden joined Kedco plc in May 2007 as Finance Director. He has more than two decades of experience in business in the UK and Ireland. Prior to joining Kedco, Gerry operated his own consulting practice between 1998 and 2007, advising companies on corporate finance and business strategy. Before that Gerry worked for 16 years with the international accountants KPMG and was auditor and adviser to listed companies, multinationals and private companies operating in Ireland and internationally. Gerry has acted as Non-Executive Director for a variety of companies in different business sectors in Ireland. Gerry is a Fellow of the Institute of Chartered Accountants in Ireland having qualified as an accountant with KPMG in 1987. Gerry holds a degree in Commerce from University College Cork.

● Brendan

Halpin Executive Director Brendan Halpin joined Kedco plc in February 2006 as Financial Controller and joined the Board as Executive Director in March 2011. He is a Chartered Accountant qualifying with PriceWaterhouseCoopers in 1998 before joining Siebel Systems Inc. His current responsibilities include, inter alia, finance management, project management and treasury functions.

Kedco plc Directors (l-r): Edward Barrett, Donal O'Sullivan, Diarmuid Lynch, Dermot O'Connell, Brendan Halpin, Gerry Madden and William Kingston. ● Edward Barrett Non-Executive Director Eddie Barrett is one of the original founders of Kedco plc. He established International Livestock Genetics Ltd, an Irish importer and distributor of bovine genetics based in Co. Cork and has been Managing Director since 1993. In addition, Eddie is a Director of Platinum Asset Management Ltd, an investment company specialising in the renewable energy sector. ● William Kingston Non-Executive Director William Kingston is one of the original founders of Kedco plc, joining the Board in January 2005 as Chairman. He is also a past president of the Irish Grassland Association, a body focused on research and dissemination of information to the Irish agricultural industry. William was a board member of the Food Safety Authority of Ireland from 2002 to 2006 and the West Cork Leader (an EU-backed body involved in rural development) from 2005 to 2007. ● Diarmuid Lynch Non-Executive Director Diarmuid Lynch is one of the original founders of Kedco plc. He operates one of the largest dairy farms in Ireland based in Co. Cork. From 1998 to 2000, he served on the board of the Blackwater Trading Company, a group involved in the procurement of agricultural inputs, services and feedstock in the Blackwater region of Ireland.

● Donal O’Sullivan Non-Executive Director Donal O’Sullivan joined the board of Kedco in August 2007. He was the Chairman and an Executive Director of Esso Ireland Limited between 1986 and 2001. He was also a Director of the Irish Petroleum Industry Association, the representative body of companies in Ireland engaged in the importation, distribution and marketing of petroleum products. Donal held the position of Managing Director of HOYER Ireland Limited and was a board member of HOYER in the UK from 2001 to 2006. HOYER Ireland is a subsidiary of HOYER GmbH, a company involved in the provision of specialist logistics services to the petroleum, chemical, gas and foodstuff sector. ● Alf Smiddy Non-Executive Director Alf Smiddy joined the board of Kedco plc in May 2007. He is currently Chairman of the Quintas Group, Eolas International Research and Granite Consulting. Alf is also a Non - Executive Director of the Kilkenny Group, and the Moran and Bewleys Hotel Groups. He previously served as Chairman and Managing Director of Beamish & Crawford Plc and on the Board of its parent company, Scottish & Newcastle (UK) Ltd (a FTSE 100 company). Alf holds a Commerce degree from University College Cork, and is fellow of the Institute of Chartered Accountants in Ireland having worked with PricewaterhouseCoopers.

Kedco plc Annual Report and Accounts 2011

Directors’ Report The Directors present their annual report and the audited financial statements of the company and its subsidiaries collectively know as ‘the Group’ for the period ended 30th June 2011. Principal Activities The principal activities of the Group are to identify, develop, build, own and operate biomass electricity and heat generation plants in the UK and Ireland using two tried and tested technologies: gasification of wood and wood waste; and anaerobic digestion of either food or agricultural waste. The Group is also involved in the sale of wood and biomass materials. Review of Business and Future Developments A review of the Group’s business and future developments is contained in the Chairman’s Statement and the Chief Executive’s Report on pages 5 to 8. Results and Dividends The results for the year are set out on Page 17. No dividends have been proposed by the Directors (2010: Nil). Principal Risks and Uncertainties The Group has a risk management structure in place, which is designed to identify, manage and mitigate business risk. Risk assessment and evaluation is an essential part of the Group’s internal control system. Information about the financial risk management objectives and policies of the Group, along with exposure of the group to credit risk, liquidity risk and market risk, are disclosed in Note 4 of the notes to the consolidated financial statements. Details of the principal risks and uncertainties affecting the Group are detailed in the Chief Executive’s Report on Pages 7 and 8. Directors The present Directors are listed on Page 9. Dermot O’Connell and Brendan Halpin were appointed to the board on 11th March 2011 and in accordance with the Articles of Association retire and offer themselves for re-election. In accordance with the Articles of Association, William Kingston and Gerry Madden retire by rotation and being eligible offer themselves for re-election. The board recommends the re-election of William Kingston, Gerry Madden, Dermot O’Connell and Brendan Halpin as Directors. Directors’ and Secretary’s Interests in Shares The Directors and Secretary of Kedco plc who held office at 30th June 2011 had the following interests in the shares of the Company: Number of Number of Number of Number of Ordinary Shares ‘A’ Ordinary Shares Ordinary Shares ‘A’ Ordinary Shares at 30th June 2011 at 30th June 2011 at 30th June 2010 at 30th June 2010

● ● ● ● ● ● ● ●

Diarmuid Lynch William Kingston Edward Barret Brendan Halpin Gerry Madden Alf Smiddy Donal O’Sullivan Dermot O’Connell

21,294,186 16,639,734 13,571,666 8,271,120 76,667 146,668 66,667 -

5,021,880 4,094,100 3,080,000 3,261,873 14,926,161 1,492,616 2,238,924 -

(or at date of appointment if earlier)

21,294,186 16,559,734 13,486,666 8,271,120 76,667 66,668 66,667 -

5,021,880 4,094,100 3,080,000 3,261,873 14,926,161 1,492,616 2,238,924 -

Kedco plc Annual Report and Accounts 2011

Directors’ Report (continued) Remuneration Committee Report The Group’s policy on senior executive remuneration is designed to attract and retain people of the highest calibre who can bring their experience and independent views to the policy, strategic decisions and governance of the Group. In setting remuneration levels the Remuneration Committee takes into consideration the remuneration practices of other companies of similar size and scope. A key philosophy is that staff must be properly rewarded and motivated to perform in the best interests of the shareholders. Details of Directors remuneration are included in Note 34 of the notes to the consolidated financial statements. Books of Account To ensure that proper books and accounting records are kept in accordance with Section 202 of the Companies Act, 1990, the Directors have employed appropriately qualified accounting personnel and have maintained appropriate computerised accounting systems. The books of account are located at 4600 Airport Business Park, Cork, Ireland. Subsequent Events During October 2011, the Company raised j1.2m from the issue of loan notes to the Company’s main shareholder Farmer Business Developments plc. The proceeds from the placing will be used to develop identified opportunities for joint ventures and working capital purposes. In November 2011 the Company confirmed that its joint venture, Best Kedco Limited which was established to develop a biomass electricity and heat generating plant in Newry, Northern Ireland signed a binding facilities agreement with Ulster Bank Group a subsidiary of the Royal Bank of Scotland plc. Pursuant to the agreement, which is subject to certain conditions precedent, Ulster Bank Group will advance up to £9.44m to enable the completion of construction, installation and commissioning of the 4MW plant. To date Kedco plc has invested approximately £6.1m on the construction of the plant. No other significant events affecting the Group have occurred since 30th June 2011. Auditors The auditors, Deloitte & Touche, Chartered Accountants, continue in office in accordance with Section 160(2) of the Companies Act 1963. Approved by the Board on 16th November 2011.

Dermot O’Connell Chairman

Gerard Madden Director

Kedco plc Annual Report and Accounts 2011

Statement of Directors’ Responsibilities Irish company law requires the Directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Company and Group, and of the profit or loss of the Group for that period. In preparing those financial statements, the Directors are required to: ● select suitable accounting policies and then apply them consistently; ● make judgments and estimates that are reasonable and prudent; and ● prepare going concern basis unless it is itinappropriate to presume that the prepare the the financial financialstatements statementsononthe the going concern basis unless is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements are prepared in accordance with accounting standards generally accepted in Ireland and comply with Irish statute comprising the Companies Acts, 1963 to 2009. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.

Kedco plc Annual Report and Accounts 2011

Corporate Governance Report The Company is not subject to the Combined Code on Corporate Governance applicable to companies with full listings on the London Stock Exchange. The Company does however intend, in so far as is practicable and desirable, given the size and nature of the business, follow the recommendations on corporate governance for AIM companies (the ‘QCA Guidelines’) issued by the Quoted Companies Alliance (‘QCA’). The Board The Board of Directors of the Company is responsible to shareholders for leadership in all aspects of the business. The Board comprises eight members. Six independent Non-Executive Directors, contribute individual experience from diverse backgrounds. Two Executive Directors are responsible for the implementation of all Board decisions and oversee the management of the Group on a day-to-day basis. In accordance with the articles of association, one-third of Directors retire by rotation each year. Each Director must be subject to re-election at least every three years. Role of the Board The Company has adopted a schedule of matters reserved for consideration by the whole Board, including, for example: approval of the Group’s long-term objectives and commercial strategy; approval of the annual operating and capital expenditure budgets of the Group (and any material changes thereto); changes relating to the Group’s structure; major changes to the Group’s corporate structure; approval of the Group’s annual report and accounts; approval of the dividend policy; major capital projects; changes to the structure, size and composition of the Board; determination of the remuneration for the Directors, the Company Secretary and executive management; division of responsibilities between the Chairman, the Chief Executive and other executives of the Board; and the making of political donations or political expenditure. The Board is also responsible for ensuring maintenance of sound systems of internal control and risk management and the Directors confirm that they continually review the effectiveness of the system of internal control, covering all material controls including financial, operational and compliance controls and risk management. In accordance with QCA Guidelines, the Board has established audit, nomination and remuneration committees, as described below, and utilizes other committees as necessary in order to ensure effective governance. Audit Committee The company’s Audit Committee comprises William Kingston as the Chairman, Alf Smiddy and Diarmuid Lynch. The Audit Committee meet at least three times a year at appropriate times in the reporting and audit cycle and otherwise as required. The Finance Director normally attends meetings of the Committee and the Chief Executive Officer attends as necessary. The external auditors are invited to attend meetings of the Audit Committee on a regular basis. The terms of reference for the Audit Committee include the following responsibilities: ● Monitoring the integrity of the reported financial performance of the Group, including its preliminary results announcement, annual report and interim report; ● Reviewing the effectiveness of the Group’s internal financial controls; ● Making recommendations to the Board on the appointment and removal of the external auditors and the audit fee; ● Monitoring the objectivity and independence of the external auditors.

Kedco plc Annual Report and Accounts 2011

Corporate Governance Report (continued) Nomination Committee The Company’s Nomination Committee comprises Donal O’Sullivan as the Chairman, Diarmuid Lynch and William Kingston. The Nomination Committee meets at such times required by the Chairman of the Committee. The Nomination Committee is responsible for making recommendations on all new Board appointments. Remuneration Committee The Company’s Remuneration Committee comprises Edward Barrett as the Chairman, Alf Smiddy and William Kingston. The role of the Remuneration Committee is to review the performance of the Executive Directors and other senior executives and to set the scale and structure of their remuneration, including the implementation of any bonus arrangements, with due regard to the interests of Ordinary Shareholders. The Remuneration Committee also administers and establishes performance targets for share incentive schemes and determines the allocation of share incentives to employees. The Board has adopted a code for dealings in the company’s securities by Directors and applicable employees, which conforms to the requirement of the AIM Rules (Share Dealing Code). The Company will be responsible for taking all proper and reasonable steps to ensure compliance by the Directors and applicable employees with the Share Dealing Code and the AIM Rules. The Company complies with the corporate governance obligations applicable to Irish registered public companies whose shares are quoted on the AIM market of the London Stock Exchange.

Kedco plc Annual Report and Accounts 2011

Independent Auditor’s Report to the Members of Kedco plc We have audited the financial statements of Kedco plc for the year ended 30th June 2011 which comprise the Group Financial Statements: the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income and Expenditure, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the Company Financial Statements: the Company Statement of Financial Position, Company Statement of Changes in Equity and Company Statement of Cash Flows and the related Notes 1 to 40. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with Section 193 the Companies Act, 1990. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditors The Directors are responsible for preparing the Annual Report, including the preparation of the Group Financial Statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Parent Company Financial Statements in accordance with applicable law and accounting standards issued by the Accounting Standards Board and published by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland). Our responsibility, as independent auditor, is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the Group Financial Statements give a true and fair view, in accordance with IFRSs as adopted by the European Union and the Parent Company Financial Statements give a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland, and are properly prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2009, and Article 4 of the IAS Regulations. We also report to you whether in our opinion: proper books of account have been kept by the company; whether, at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and whether the information given in the Directors' Report is consistent with the financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purpose of our audit and whether the company's balance sheet is in agreement with the books of account. We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Alternative Investment Market of the London Stock Exchange regarding directors’ remuneration and directors’ transactions is not disclosed and, where practicable, include such information in our report. We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatement or material inconsistencies with the financial statements. The other information comprises only the Chairman’s Statement, Chief Executive’s Report, Director’s Report and the Corporate Governance Statement. Our responsibilities do not extend to other information. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the company’s and the group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we evaluated the overall adequacy of the presentation of information in the financial statements.

Kedco plc Annual Report and Accounts 2011

Independent Auditor’s Report to the Members of Kedco plc (continued) Opinion In our opinion: theGroup GroupFinancial FinancialStatements Statementsgive givea atrue trueand andfair fairview, view, accordance with IFRSs as adopted European Union, of • the in in accordance with IFRSs as adopted by by thethe European Union, of the state of the affairs of the group as at 30 June 2011 and of its loss for the year then ended; the state of the affairs of the group as at 30 June 2011 and of its loss for the year then ended; the Group Group Financial Financial Statements Statements have been properly prepared in accordance with the Companies Acts, 1963 to 2009 and and • the Article 4 of Regulations; Article 4 of thethe IASIAS Regulations; the Parent Parent Company Company Financial Financial Statements give a true and fair view, in accordance with Generally Accepted Accounting • the Accounting Practice in Ireland as applied in accordance with the provisions of the Companies Acts 1963 to 2009, of the state of the parent Practice in Ireland as applied in accordance with the provisions of the Companies Acts 1963 to 2009, parent company affairs June 2011; and company affairs as as at at 3030 June 2011; and the Parent Company been properly prepared in accordance with with the Companies Acts, 1963 2009. • the Companyfinancial financialstatements statementshave have been properly prepared in accordance the Companies Acts, to 1963 to 2009. Emphasis of Matter – Going Concern Without qualifying our opinion, we draw your attention to Note 3 to the financial statements which indicates that the Group incurred a loss for the year of j4,534,863. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. Subsequent to the year end, the Group has raised additional finance of j1.2m from Farmer Business Developments and Best Kedco Limited, a joint venture company, has signed a binding facilities agreement with Ulster Bank Group under which Ulster Bank will advance up to £9.44m to enable construction, installation and commissioning of the 4MW plant. The Directors have given careful consideration to the appropriateness of the going concern assumption in the preparation of the financial statements. After making appropriate enquiry, the Directors believe progress towards securing additional finance is being made and they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Directors have prepared the financial statements on the basis that the Group is a going concern. The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern. We have obtained all the information and explanations we considered necessary for the purpose of our audit. In our opinion proper books of account have been kept by the company. The company’s balance sheet is in agreement with the books of account. In our opinion the information given in the Directors' Report is consistent with the financial statements. The net assets of the company, as stated in the company balance sheet are more than half the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 30th June 2011 a financial situation which, under Section 40(1) of the Companies (Amendment) Act, 1983, would require the convening of an extraordinary general meeting of the company.

Brian Murphy For and on behalf of Deloitte & Touche Chartered Accountants and Registered Auditors Cork Date: 18th November 2011

Kedco plc Annual Report and Accounts 2011

Consolidated Income Statement for the Year Ended 30th June 2011 Notes

2011 h

2010 h

Revenue

11,132,570

9,023,979

Cost of Sales

(9,196,239)

(7,069,165)

1,936,331

1,954,814

(4,640,738) 7,605

(4,310,925) -

(2,696,802)

(2,356,111)

Gross Profit Operating Expenses Administrative Expenses Other Operating Income

Operating Loss Finance Costs Share of Losses on Joint Ventures after Tax Profit on Disposal of Share in Joint Venture Finance Income

11 21 21 11

(1,627,690) (356,228) 285,379 364

(758,567) (113,536) 32,411

Loss Before Taxation

(4,394,977)

(3,195,803)

Income Tax Expense

(139,886)

(47,098)

Loss for the Year from Continuing Operations

(4,534,863)

(3,242,901)

Loss Attributable To: Owners of the Company Non-Controlling Interest

(4,698,241) 163,378

(3,388,284) 145,383

(4,534,863)

(3,242,901)

Euro Per Share

Basic Loss Per Share: From Continuing Operations

(0.02)

Diluted Loss Per Share: From Continuing Operations

(0.02)

(0.01)

Kedco plc Annual Report and Accounts 2011

Consolidated Statement of Comprehensive Income and Expenditure for the Year Ended 30th June 2011 2011 h Loss for the Financial Year Other Comprehensive Income Exchange differences arising on translation of foreign operations

(4,534,863)

21,063

2010 h (3,242,901)

880

Total comprehensive income and expense for the year

(4,513,800)

(3,242,021)

Attributable to: Owners of the company Non-controlling interests

(4,677,178) 163,378

(3,387,404) 145,383

(4,513,800)

(3,242,021)

Kedco plc Annual Report and Accounts 2011

Consolidated Statement of Financial Position at 30th June 2011 Notes

2011 h

2010 h

16 17 18 19 21

549,451 505 5,060,243 990,000 6,600,199

549,451 71,995 5,570,812 990,000 207,109 7,389,367

22 23 24

1,613,026 9,425,279 2,848,088 616,285 14,502,678

1,610,015 9,291,911 2,511,302 116,753 13,529,981

21,102,877

20,919,348

25 25 26

3,543,999 19,038,300 492,580 (22,316,689) 758,190 799,228 1,557,418

3,239,407 17,410,077 328,383 (17,639,511) 3,338,356 635,850 3,974,206

Non-Current Liabilities Borrowings Deferred income – government grants Finance lease liabilities Deferred tax liability Share of net liabilities of jointly controlled entities Total Non-Current Liabilities

27 28 29 31 21

7,958,393 36,915 373 268,062 18,867 8,282,610

6,749,672 50,653 4,693 128,176 6,933,194

Current Liabilities Amounts due to customers under construction contracts Trade and other payables Borrowings Deferred income – government grants Finance lease liabilities Total Current Liabilities

23 30 27 28 29

1,272,735 5,481,674 4,494,676 9,444 4,320 11,262,849

1,302,357 6,221,514 2,445,265 6,009 36,803 10,011,948

21,102,877

20,919,348

ASSETS Non-Current Assets Goodwill Intangible assets Property, plant and equipment Financial assets Share of net assets of jointly controlled entities Total Non-Current Assets

Current Assets Inventories Amounts due from customers under construction contracts Trade and other receivables Cash and cash equivalents Total Current Assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Share capital Share premium Shared based payment reserves Retained earnings – deficit Equity attributable to equity holders of the parent Non-controlling interest Total Equity

TOTAL EQUITY AND LIABILITIES

Kedco plc Annual Report and Accounts 2011

Consolidated Statement of Changes in Equity for the Year Ended 30th June 2011 Share Capital

Share Premium i

Balance at 1st July 2009 Issue of ordinary shares in Kedco plc

3,065,807

173,600

Retained Earnings i

15,096,219 (14,252,107)

2,313,858

Loss for the financial year

Unrealised foreign exchange gain

880

Share based payments

Balance at 30th June 2010 3,239,407 Issue of ordinary shares in Kedco plc

304,592

17,410,077 (17,639,511)

1,628,223

Loss for the financial year

Unrealised foreign exchange gain

Share based payments

Balance at 30th June 2011 3,543,999

(3,388,284)

(4,698,241)

21,063 -

19,038,300 (22,316,689)

Share Based Payment Reserve i

Attributable to Non Equity Holders Controlling of the Parent Interest i i

164,188

4,074,107

2,487,458

(3,388,284)

490,467

145,383

Total

4,564,574

2,487,458 (3,242,901)

880

164,195

328,383

3,338,356

1,932,815

(4,698,241)

635,850

163,378

3,974,206

1,932,815 (4,534,863)

21,063

164,197

492,580

758,190

799,228

1,557,418

Kedco plc Annual Report and Accounts 2011

Consolidated Statement of Cash Flows for the Year Ended 30th June 2011 Notes

2011 h (4,394,977)

2010 h (3,195,803)

164,197 634,734 71,396 (88,881) 424,668 94 6,941 356,228 (166,014) 281,921 (10,303) 1,627,690 (285,379) (364) (1,378,049)

164,195 658,599 85,314 (13,478) 113,536 (286,429) 44,832 (15,033) 758,567 (32,411) (1,718,111)

(133,368) (174,720) (284,932)

(2,226,444) 101,644 (327,523)

(29,622) (717,781) (2,718,472) (55,968)

302,357 1,333,655 (2,534,422) 12,545

(2,774,440)

(2,521,877)

Cash Flows from Investing Activities Additions to property, plant and equipment Proceeds from sale of property, plant and equipment Additions to investments in jointly controlled entities Proceeds from disposal of interest in jointly controlled entities Interest received

(573,181) 113,229 134,840 364

(185,068) 19,051 (309,172) 35,950

Net Cash Used in Investing Activities

(324,748)

(439,239)

Cash Flows from Financing Activities Proceeds from borrowings Repayments of borrowings Proceeds from issuance of ordinary shares Payments of finance leases Interest paid

4,142,687 (1,583,381) 1,932,815 (36,803) (590,526)

2,584,154 (1,839,889) 2,487,458 (117,503) (709,869)

Net Cash from Financing Activities

3,864,792

2,404,351

Cash Flows from Operating Activities Loss before taxation Adjustments for: Share based payments Depreciation of property, plant and equipment Amortisation of intangible assets Profit on disposal of property, plant and equipment Impairment of property, plant and equipment Impairment of intangible assets Unrealised foreign exchange gain Share of losses of jointly controlled entities after tax (Decrease) in provision for impairment of trade receivables Increase in impairment of inventories Decrease in deferred income Interest expense Profit on disposal of interest in jointly controlled entity Interest income Operating cash flows before working capital changes (Increase)/decrease in: Amounts due from customers under construction contracts Trade and other receivables Inventories (Decrease)/increase in: Amounts due to customers under construction contracts Trade and other payables Cash Generated From Operations Income taxes paid Net Cash Used in Operating Activities

Net Increase/(Decrease) in Cash and Cash Equivalents

765,604

Cash and cash equivalents at the beginning of the financial year

(557,017)

Cash and cash equivalents at the end of the financial year

208,587

(556,765) (252) (557,017) 21

Kedco plc Annual Report and Accounts 2011

Company Statement of Financial Position at 30th June 2011 Notes

2011 h

2010 h

24,941,463

35,401,752

24,941,463

35,401,752

10,850,094 402,718

5,524,057 27,723

Total Current Assets

11,252,812

5,551,780

TOTAL ASSETS

36,194,275

40,953,532

25 25 26

3,543,999 37,972,379 492,580 (11,550,529)

3,239,407 36,344,157 328,383 (401,254)

Equity attributable to equity holders of the parent

30,458,429

39,510,693

Non-Current Liabilities Borrowings

3,435,580

1,827,070 473,196

1,219,028 223,811

2,300,266

1,442,839

36,194,275

40,953,532

ASSETS Non-Current Assets Investment in Subsidiary Companies

Total Non-Current Assets Current Assets Trade and other receivables Cash and bank balances

EQUITY AND LIABILITIES Equity Share Capital Share Premium Share based payment reserve Retained earnings - deficit

24 35

Total Non-Current Liabilities Current Liabilities Borrowings Trade and other payables Total Current Liabilities TOTAL EQUITY AND LIABILITIES

27 30

Kedco plc Annual Report and Accounts 2011

Company Statement of Changes in Equity for the Year Ended 30th June 2011

Share Capital

Share Premium

Retained Earnings

3,065,807

34,030,299

(164,266)

173,600

2,313,858

Loss for the financial year

Share based payments

Balance at 1st July 2009

Share-Based Payment Reserve h

Total

164,188

37,096,068

2,487,458

(237,028)

164,195

3,239,407

36,344,157

(401,254)

328,383

39,510,693

304,592

1,628,222

1,932,814

Loss for the financial year

(11,149,275)

Share based payments

3,543,999

37,972,379

Issue of ordinary shares in Kedco plc

Balance at 30th June 2010 Issue of ordinary shares in Kedco plc

Balance at 30th June 2011

(11,149,275) (11,550,529)

(237,028)

164,197

492,580

30,458,429

Kedco plc Annual Report and Accounts 2011

Company Statement of Cash Flows for the Year Ended 30th June 2011

Notes

Year Ended 30th June 2011 u

Cash Flows from Operating Activities Loss before taxation Adjustments for: Share based payments Interest expense Interest income Provision for impairment of investment in subsidiaries Operating cash flows before working capital changes

(11,149,275)

(237,028)

164,197 1,148,881 (265) 10,460,290

164,195 212,843 (67) -

623,828

Increase in: Trade and other receivables Increase in: Trade and other payables

Year Ended 30th June 2010

(5,326,037) 287,286

139,943

(3,448,709) 185,311

Cash generated from operations Income taxes paid

(4,414,923) (5,390)

(3,123,455) -

Net Cash Used in Operating Activities

(4,420,313)

(3,123,455)

Cash Flows from Investing Activities Additions to investments in subsidiaries Interest received

(1) 265

Net Cash from Investing Activities

264

Cash Flows from Financing Activities Proceeds from borrowings Repayments of borrowings Proceeds from issuance of ordinary shares Interest paid

4,117,732 (1,073,411) 1,932,814 (182,091)

1,855,423 (1,114,609) 2,487,458 (174,343)

Net Cash from Financing Activities

4,795,044

3,053,929

Net Increase/(Decrease) in Cash and Cash Equivalents Cash and cash equivalents at the beginning of the financial year Cash and Cash Equivalents at the end of the financial year

374,995

(69,459)

27,723

97,182

402,718

27,723

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements for the Year Ended 30th June 2011 1 General Information Kedco plc (‘the Company’) was incorporated in Ireland on 2nd October 2008. The address of its registered office and principal place of business is Building 4600, Cork Airport Business Park, Kinsale Road, Cork. On 13th October 2008 the Group, previously headed by Kedco Block Holdings Limited, underwent a re-organisation by virtue of which Kedco Block Holdings Limited’s shareholders, in their entirety, exchanged their shares for shares in Kedco plc, a newly-formed company. Kedco plc then became the ultimate parent company of the Group. These financial statements for the year ended 30th June 2011 consolidate the individual financial statements of the Company and its subsidiaries (together referred to as ‘the Group’). On 20th October 2008 the Company’s shares were admitted to trading on the London Stock Exchange’s AIM market. The principal activity of the Group is as follows: ● Acts as project developer for power plants that convert Waste and Biomass to Clean Power using Anaerobic Digestion, Gasification and Biomass Combustion.

2 Application of New and Revised International Financial Reporting (IFRSs) The following new and revised Standards and Interpretations have been adopted by the Group with no significant impact on its consolidated results or financial position, but may impact the accounting for future transactions or arrangements: Amendments to IFRS 2 Cash-Settled Share Based Payments of Intra-Group Transactions. This amendment clarifies the accounting for group cash-settled share based payments. Improvements to IFRSs (2009). These amendments concerned the following Standards: ● IFRS 5 Non-Current Assets Held for Resale and Discontinued Operations clarifies the nature of disclosures required in respect of groups of assets classified as ‘held for resale’; ●

IFRS 8 Operating Segments removes the requirement to report information about segment assets and segment liabilities when this information is not regularly provided to the chief operating decision maker;

●

IAS 1 Presentation of Financial Statements clarifies that the possibility for a holder to convert a convertible debt instrument into an equity instrument within twelve months does not affect its classification as current or non-current;

●

IAS 7 Cash Flow Statements clarifies that only expenditures that result in a recognised asset in the balance sheet are eligible for classification as cash flows from investing activities;

●

IAS 17 Leases provides guidance on classification of land as a lease.

●

IAS 18 Revenue Recognition introduces criteria for determining whether an entity is acting as a principal or as an agent in a business transaction;

●

IAS 36 Impairment of Assets clarifies that the largest unit permitted for allocating goodwill acquired in a business combination is the operating segment defined in IFRS 8 before aggregation for reporting purposes; and

●

IAS 39 Financial Instruments: Recognition and Measurement clarifies the accounting treatment for contracts to purchase or sell a business and the event that subsequently results in the reclassification of profit and loss in a cash flow hedging relationship.

Amendment to IAS 32 Financial Instruments: Presentation – Clarification of Rights Issues. This amendment states that, subject to certain conditions, foreign currency rights issues (and certain warrants and options) can be classified as equity instruments. 25

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 2 Application of New and Revised International Financial Reporting Standards (IFRSs) (continued) Improvements to IFRSs (2010): The amendments that are effective for accounting periods beginning 1st July 2010 concern the following Standard: ●

IFRS 3 Business Combinations (Revised) limits the fair value option when measuring non-controlling interests in a business combination; furthermore, it addresses the application of the existing IFRS 3 for earn-outs (adjustments to consideration) from business combinations recognised under IFRS 3; it also clarifies the accounting treatment for un-replaced and voluntarily replaced share-based payment transactions.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments clarifies the accounting treatment when an entity negotiates the terms of its debt with the result that the liability is extinguished, in whole or in part, by the entity issuing its own equity instruments to the lender(s). The interpretation does not address the accounting by the lender. 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 ●

●

IAS 24 (Revised) Related Party Disclosures (effective for annual periods beginning on or after 1st January 2011, endorsed by the European Union on 20th July 2010); Amendment to IFRIC 14 Prepayments of a Minimum Funding Requirement (effective for annual periods beginning on or after 1st January 2011, endorsed by the European Union on 20th July 2010); IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1st January 2013, not yet endorsed by the European Union); Improvements to IFRSs (2010) (effective for annual periods beginning on or after 1st January 2011 and endorsed by the European Union on 19th February 2011); Amendment to IFRS 7 Financial Instruments: Disclosures (effective for annual periods beginning on or after 1st July 2011; not yet endorsed by the European Union); Amendment to IAS 12 Income Taxes (effective for annual periods beginning on or after 1st January 2012 not yet endorsed by the European Union). Amendment to IAS 1 Presentation of Financial Statements (effective for annual periods beginning on or after 1st July 2012; not yet endorsed by the European Union). IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union). IFRS 11 Joint Arrangements (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union). IFRS 12 Disclosure of Interest in Other Entities (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union). IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union). IAS 27 Separate Financial Statements (Amended 2011) (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union). IAS 28 Investments in Associates and Joint Ventures (Amended 2011) (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union). Amendments to IAS 19 Employee Benefits (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union). IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective for annual periods beginning on or after 1st January 2013;

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies Basis of Preparation The Group’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) effective at 30th June 2011 for all periods presented as issued by the International Accounting Standards Board. The consolidated financial statements are also prepared in accordance with IFRS as adopted by the European Union (‘EU’). The consolidated financial statements are prepared under the historical cost convention. The principal accounting policies set out below have been applied consistently by the parent company and by all of the Company’s subsidiaries to all periods presented in these consolidated financial statements. The financial statements of the parent company, Kedco plc have been prepared in accordance with accounting standards generally accepted in Ireland and Irish statute comprising the Companies Acts, 1963 to 2009. As described in the Chief Executive’s Report, the Company continues to invest capital in developing customer and partner relationships in the UK and Ireland. The Company has also continued to develop and expand its pipeline of projects. These activities together with the current challenging economic environment have resulted in the Company continuing to report losses for the year to 30th June 2011. Since 30th June 2011, the Company has secured a e1,200,000 facility, of which e800,000 is already drawn down, to assist its short-term working capital requirements from its main shareholder, Farmer Business Developments plc. Best Kedco Limited, the joint venture, which was established to develop a biomass electricity and heat generating plant in Newry, Northern Ireland, signed a binding facilities agreement with Ulster Bank Group in November, 2011. Pursuant to this agreement, Ulster Bank will advance up to £9.44m to enable the completion of construction, installation and commissioning of the 4MW plant. To date, Kedco plc has invested approximately £6.1m on construction of the plant. The facilities include a construction facility of £7.94m, of which £4m will be made available to complete an initial 2MW of generating capacity. The remaining £3.94m will be made available upon the successful commissioning of the initial 2 MW. The directors of Kedco plc estimate that the initial commissioning will complete in Q2 2012. This facility allows Kedco plc to realise the value of Construction Work in Progress in its subsidiary company, Kedco Fabrication Limited and enables Kedco Fabrication Limited to complete the commissioning of the plant for Best Kedco Limited. In July 2011, the Group announced that it has undertaken a strategic review with the aim of refocusing its business portfolio to core activities and delivering cost savings by exiting non-core and non-profitable business segments. The Group intends to focus on the UK and Ireland, reduce its international presence and continued its disciplined reduction of non-core and non-profitable assets. The Group exited from the domestic energy market and removed certain management costs from the organisation with the aim of creating a leaner, more efficient structure with a focus purely on the waste to energy power generation business. Until such time as the Company generates sufficient cash flow from its projects, the Directors will continue to institute measures to preserve cash and will continue to seek additional finance. The financial statements have been prepared on a going concern basis. The Directors have given careful consideration to the appropriateness of the going concern concept in the preparation of the financial statements. The validity of the going concern concept is dependent upon additional finance being available for the Company’s working capital requirements and for the continued investment in the Company’s strategy of identifying, developing, building and operating power generating plants so that the Group can continue to realise its assets and discharge its liabilities in the normal course of business. Whilst the strategy is to build, own and operate plants, once a site has been secured and planning and permitting obtained the Company would be in a position, if it so chose, to monetise the value of the project. The financial statements do not include any adjustments that would result should the above conditions not be met.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies (continued) Basis of Preparation (continued) After making enquiries and considering the items referred to above, the Directors believe that solid progress towards securing finance has been and is being made and that, whilst there is no guarantee that future investment will be forthcoming, the Directors have a reasonable expectation that the Company has 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. Basis of Consolidation The consolidated financial statements incorporate the financial information of the Company and its subsidiaries. The financial year-ends of all entities in the Group are coterminous. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control over the operating and financial decisions is obtained and cease to be consolidated from the date on which control is transferred out of the Group. Control exists where the Company has the power, directly or indirectly, to govern the financial and operating policies of the entity so as to obtain economic benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Group. On 13th October 2008 the Group, previously headed by Kedco Block Holdings Limited, underwent a re-organisation by virtue of which Kedco Block Holdings Limited’s shareholders, in their entirety, exchanged their shares for shares in Kedco plc, a newly formed Company. Kedco plc then became the ultimate parent company of the Group. Notwithstanding the change in the legal parent of the Group, this transaction has been accounted for as a reverse acquisition under IFRS 3 Business Combinations and these consolidated financial statements are prepared on the basis of the new legal parent, Kedco plc, having been acquired by the existing Group. As a result of applying reverse acquisition accounting, the consolidated financial statements are a continuation of the financial statements of Kedco Block Holdings Limited and its subsidiaries. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Non-controlling interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling share of changes in equity since the date of the combination. Losses applicable to the non-controlling interest in excess of its interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the non-controlling interest has a binding obligation and is able to make an additional investment to cover the losses. Business Combinations Acquisitions of subsidiaries and businesses from third parties are accounted for using the purchase method. The cost of the business combination is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3, Business Combinations, are recognised at their fair values at the acquisition date, except for non-current assets that are classified as held for sale in accordance with IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. 28

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies (continued) Business Combinations (continued) The interest of non-controlling shareholders in the acquiree is measured at the non-controlling interests’ proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Goodwill For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss for goodwill is immediately recognised in profit or loss and not reversed in a subsequent year. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Interests in Jointly Controlled Entities Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using the equity method of accounting except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in jointly controlled entities are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the jointly controlled entity, less any impairment in the value of individual investments. Losses of jointly controlled entities in excess of the Group’s interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly controlled entities) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the jointly controlled entity. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the jointly controlled entity recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint venture. Investments Investments in subsidiary undertakings are accounted for at cost less provisions for diminution in value. Revenue Recognition Revenue is measured at fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Sale of Goods Revenue from the sale of goods, including boilers, wood pellets, wood chips and timber production, is recognised when all the following conditions are satisfied: ● The significant risks and rewards of ownership have transferred to the buyer of the goods; ● The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; ● The amount of revenue can be measured reliably; ● It is probable that the economic benefits associated with the transaction will flow to the entity; and ● The costs incurred or to be incurred in respect of the transaction can be measured reliably. 29

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies (continued) Sale of Goods (continued) Revenue from the sale of goods is recognised when the possession of the goods pass to the buyer on delivery. The Group still retains legal title until payment has been made to protect collectability of the amount due, but the significant risks and rewards have been passed to the buyer. Interest Revenue Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assetâ&#x20AC;&#x2122;s net carrying amount. Leasing - The Group as Lessee Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value, or if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss. Operating lease payments are recognised as an expense on a straight-line basis over the lease term. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the lease term. Foreign Currencies For the purposes of the consolidated financial statements, the results and financial position of each group entity are expressed in Euro, which is the functional currency of the Company and its subsidiaries, except for SIA Vudlande and Kedco Fabrication Limited, where the functional currency is Latvian Lats and Sterling, respectively. There has been no material currency movement arising as a result of the stable position of the Lat and Sterling relative to Euro. Transactions in currencies other than the functional currencies are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. For the purpose of presenting the consolidated financial statements, the assets and liabilities of the Groupâ&#x20AC;&#x2122;s foreign operations are expressed in Euro using exchange rates prevailing at the balance sheet date. Income and expense items are translated at the rates at the dates of the transactions. For practical reasons, in some cases a rate that approximates the exchange rates at the dates of the transactions is used if exchange rates do not fluctuate significantly. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. 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 resale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the year in which they are incurred. 30

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies (continued) Government Grants Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred income in the balance sheet within either non-current liabilities or current liabilities, as appropriate and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets and included in the line item â&#x20AC;&#x2DC;administrative expensesâ&#x20AC;&#x2122; as an offset against depreciation of the relevant asset. Other government grants are recognised as income over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purposes of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the year in which they become receivable. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current Tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Groupâ&#x20AC;&#x2122;s liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred Tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A deferred tax liability is recognised for all taxable temporary differences associated with investments in subsidiaries except where the Company controls the timing of the reversal of the temporary difference and where the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and Deferred Tax for the Financial Year Current and deferred tax are recognised as an expense or income in profit or loss, except where they relate to items credited or debited directly in equity.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies (continued) Share-Based Payments The group operates an equity settled share-based long-term incentive plan (the â&#x20AC;&#x2DC;LTIPâ&#x20AC;&#x2122;). Group share schemes allow employees to acquire shares in the Company. The fair value of the share entitlements is recognised as an employee expense in the income statement with a corresponding increase in equity. Share entitlement granted by the Company under the LTIP are subject to non-market vesting conditions. Non-market vesting conditions are not taken into account when estimating the fair value of entitlements as at the grant date. The expense for the share entitlements shown in the income statement is based on the fair value of the total number of entitlements expected to vest and is allocated to accounting periods on a straight-line basis over the vesting period. The cumulative charge to the income statement is reversed only where entitlements do not vest because non-market performance conditions have been met or where an employee in receipt of share entitlements leaves the Group before the end of the vesting period. Property, Plant and Equipment Property, plant and equipment are stated in the balance sheet at cost, less accumulated depreciation and any accumulated impairment losses. The cost of plant, property and equipment and construction in progress comprises purchase price and other directly attributable costs. Freehold land and construction in progress are not depreciated. Depreciation is charged so as to write off the cost of assets, other than freehold land and construction in progress, over their estimated useful lives to estimated residual value, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end. The following estimated useful lives are used in the calculation of depreciation: Buildings Plant and Machinery Office Equipment Fixtures and Fittings Motor Vehicles

5-50 years 2-5 years 2-5 years 2-5 years 5 years

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Held for Sale Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets and disposal groups classified as held for sale are measured at the lower of the assetsâ&#x20AC;&#x2122; carrying amount and fair value less costs to sell. Where the criteria are no longer met the non-current asset or disposal group is reclassified to the appropriate balance sheet heading and is measured at the lower of its recoverable amount at the date of the decision not to sell and its carrying amount before being reclassified as held for sale, adjusted for any depreciation, amortisation or revaluation that would have been recognised had the asset not been classified as held for sale.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies (continued) Intangible Assets Internally-Generated Intangible Assets â&#x20AC;&#x201C; Research and Development Expenditure Expenditure on research activities is recognised as an expense in the year in which it is incurred. Intangible assets arising from development are only recognised if the Group has the necessary technical, financial and other resources to complete the development, the asset has the ability to generate future cash flows and other economic benefits for the Group and the Group can measure the expenditure attributable to the intangible asset. The amount initially recognised for internally-generated intangible assets is the amount of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is charged to profit or loss in the year in which it is incurred. Subsequent to initial recognition, internally-generated assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged on a straight line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting year. The following useful lives are used in the calculation of amortisation of intangible assets: Software 3 years Trademarks 4 years Development costs 5 years Impairment of Tangible and Intangible Assets Excluding Goodwill At each balance sheet date, the Group reviews the carrying amount of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the assets may be impaired. Recoverable amount is the higher of 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 which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on an average cost basis and includes all expenditure incurred in the normal course of business in bringing the products to their present location and condition. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies (continued) Construction Contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the year in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Trade and Other Receivables Trade and other receivables are initially recognised at fair value and subsequently stated at amortised cost using the effective interest rate method. An impairment is recognised for trade receivables where there is objective evidence that the Group will not be able to collect amounts due according to the original terms of the receivable indicated by a default in payment terms and significant financial difficulty. Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with maturities of three months or less from the date of acquisition and that are subject to an insignificant risk of change in value.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies (continued) Financial Liabilities and Equity Instruments Issued by the Group Measurement Financial liabilities are initially recognised at fair value and subsequently stated at amortised cost using the effective interest rate method. The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant year. 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 year. Classification as Debt or Equity Debt and equity instruments are classified as either financial liabilities or as an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. Equity Instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. A financial instrument is classified as an equity instrument if, and only if, the instrument includes a contractual obligation to deliver cash or other financial assets to another entity and if the instrument will or may be settled in the issuer’s own equity instruments, it is a non-derivative with no contractual obligation to deliver a variable number of its own equity instruments or a derivative that will be settled by the issuers exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. Financial instruments which do not meet the recognition criteria of equity instruments are classified as financial liabilities. Financial Liabilities Financial liabilities are classified as either financial liabilities at fair value through profit or loss (‘at FVTPL’) or other financial liabilities. Financial Liabilities at FVTPL Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL. A financial liability is classified as held for trading if: It has been acquired principally for the purpose of repurchasing it in the near term; or ● On initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or ● It is a derivative that is not designated and effective as a hedging instrument. ●

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: ● Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or ● The financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or ● It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset and liability) to be designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘other gains or losses’ line item in the consolidated income statement. 35

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 3 Statement of Accounting Policies (continued) Financial Liabilities and Equity Instruments Issued by The Group (continued) Other Financial Liabilities Other financial liabilities (including borrowings) are subsequently measured at amortised cost using the effective interest method. 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 (including all fees and points paid or received that forms an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Derecognition of Financial Liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

4 Critical Accounting Judgements and Key Sources of Estimation of Uncertainty In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years. The following are the critical judgments, apart from those involving estimations, that management have made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements. Going Concern As described in the basis of preparation in Note 3 above, the current economic environment is challenging and the Group has reported an operating loss for the current year. The Group continues to invest in the activities of the Power Generation segment and awaits the commissioning of the first electricity generating plant. The Directors have instituted procedures to preserve cash, have secured additional finance of e1.2m in October 2011, has secured financing with Ulster Bank in relation to project finance for the Newry project and are also pursuing other sources of finance. The validity of the going concern concept is dependent upon additional finance being available for the Company’s working capital requirements and for the continued investment in the Company’s strategy of identifying, developing, building and operating power generating plants so that the Group can continue to realise its assets and discharge its liabilities in the normal course of business. After making enquiries, and considering the items referred to above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Recoverability of Amounts Due Under Construction Contracts The directors considered the recoverability of the group’s balances due under construction contracts which is included in the balance sheet at 30th June 2011 at e9,425,279 (2010: e9,291,911). The directors have reviewed the relevant costs incurred to date and expected costs for completion. They have also been in contact with the ultimate beneficiaries of the construction contracts and have considered the ability of these customers to have the relevant facilities available to pay for these contracts. Based on these reviews, the directors are satisfied with the recoverability of balances due under construction contracts at the balance sheet date. 36

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 4 Critical Accounting Judgements and Key Sources of Estimation of Uncertainty (continued) Provisions for Impairment of Trade Receivables The Group estimates the allowance for doubtful trade receivables related to 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 30th June 2011, provisions for doubtful debts amounted to e140,333 which represents 10% of trade receivables at that date (2010: e306,347 – 20%). Determining Useful Lives of Intangible Assets The amortisation charge of intangible assets is dependent on the estimated useful lives allocated to each type of intangible asset. The Directors regularly review these asset lives and change them as necessary to reflect current thinking on remaining assets and the expected pattern of consumption of the future economic benefits embodied in the asset. Changes in asset lives can have a significant impact on amortisation charges for the period. Details of useful lives are included in the accounting policy in Note 3 above. Determining Useful Lives of Property, Plant and Equipment Long lived assets, consisting primarily of property, plant and equipment, comprise a significant portion of the Group’s total 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 period. 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. Details of useful lives are included in the accounting policy in note 3 above. The impact of any change would vary significantly depending on the individual changes in assets and the classes of assets impacted. Valuation of the Long Term Incentive Plan The Group has an equity settled share-based long term incentive plan (‘LTIP’) for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of the grant, excluding the impact of non-marketing vesting conditions. The fair value of the LTIP is measured by management on the date of the grant based on certain assumptions. These assumptions include, among others, the degree of probability of the vesting conditions being achieved and the marketability of the shares at the date of the grant.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 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 and interest rate 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. The Group’s exposure to currency risk is not currently a significant risk. One of the Group’s subsidiaries operates in Latvia and the fluctuations in the Latvian Lat compared to the Euro have not been significant for the financial periods presented. Another subsidiary’s reporting currency is Sterling and the fluctuation in Sterling compared to Euro has not been significant for the financial periods presented. 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 The Group’s maximum exposure to credit risk is represented by the balance sheet amount of each financial asset:

Amounts Due from Customers Under Construction Contracts Trade and Other Receivables Cash and Cash Equivalents

2011 h 9,425,279 2,848,088 616,285

2010 h 9,291,911 2,511,302 116,753

The Group’s credit risk is primarily attributable to its amounts due from customers under construction contracts and to its trade and other receivables. The amounts due from customers under construction contracts represents the total costs incurred to date on the Group’s projects plus recognised profits less recognised losses to date. These customers are jointly controlled entities in which the Group is a 50% partner. The directors of the Group are in constant contact with the other partners of the jointly controlled entities. The Group’s exposure to credit risk arises from the failure of the ultimate customer to raise the appropriate finance, with a maximum exposure equal to the carrying amount of the related costs. 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. Ongoing 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 credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related parties. Concentration of credit risk to any counterparty did not exceed 5% of gross monetary assets at any time during the financial year. The credit risk on cash deposits and liquid funds which have a maturity of less than 3 months at the year end is limited because these instruments are held 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. 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. 38

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 5 Financial Risk Management (continued) Liquidity Risk (continued) The table below details the maturity of the Group’s liabilities as at 30th June 2011: Up to 1 Year a Trade and Other Payables Amounts Due to Customers under Construction Contracts Investor Loans Vudlande Loan Zero Coupon Loan Notes 2012 Preference Shares Bank Overdrafts Bank Loans Finance Leases

1 – 5 Years a

After 5 Years a

Total a

5,481,674 1,272,735

2,650,905 1,050,000 407,698 386,073 4,320

3,435,580 500,000 2,128,407 373

1,894,406 -

2,650,905 1,050,000 3,435,580 500,000 407,698 4,408,886 4,693

11,253,405

6,064,360

1,894,406

19,212,171

The table below details the maturity of the Group’s liabilities as at 30th June 2010: Up to 1 Year a Trade and Other Payables Amounts Due to Customers under Construction Contracts Investor Loans Vudlande Loan Preference Shares Bank Overdrafts Bank Loans Finance Leases

1 – 5 Years a

After 5 Years a

Total a

6,221,514 1,302,357

1,219,028 673,769 552,468 36,803

963,555 1,310,000 500,000 2,079,109 4,693

1,897,008 -

2,182,583 1,310,000 500,000 673,769 4,528,585 41,496

10,005,939

4,857,357

1,897,008

16,760,304

The Group expects to meet its obligations from operating cash flows and from access to alternative sources of finance, which is currently ongoing.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the year ended 30th June 2011 5 Financial Risk Management (continued) Liquidity Risk (continued) Future interest payments on borrowings which are repayable after more than one year are at carrying rates as follows:

Bank Loans

Amount j 4,022,813

Zero-Coupon Loan Notes 2012 Investor Loans Preference Shares

3,435,580 599,909 500,000

Interest Rate Varying Rates as noted in Note 27 (iii) 19% 2% plus Prime Lending Rate from AIB 8%

The future finance charges on finance leases are disclosed in Note 29 to the financial statements.

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 loans and other debt instruments amounted to h12,453,069 and h9,194,937 in 2011 and 2010, 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 loans 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 loans 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 loans and debt instruments repayable between two and five years and ‘long-term’ to bank loans repayable after more than five years. The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and nonderivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming that the amount of the liability outstanding at the end of the 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 year ended 30th June 2011 would decrease/increase by h24,083 (2010: Decrease/increase by h26,012). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings. The Group’s sensitivity to interest rates has increased during the current year mainly due to the increase in variable rate debt instruments.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 5 Financial Risk Management (continued) Foreign Exchange Risk The Group is exposed to future changes in the Sterling and Latvian Lats relative to the Euro. These risks are managed by monthly review of Sterling and Latvian Lats 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 period are as follows:

Sterling Latvian Lats

Liabilities 2011 s 3,612,940 2,251,219

2010 s 4,154,070 2,672,339

Assets 2011 s 8,968,123 2,069,736

2010 s 9,336,875 2,047,401

The group is mainly exposed to Sterling. There is no exposure to the Latvian Lat as Latvia is in the process of adopting the Euro as its currency and has a fixed exchange rate of 1 Euro = 0.702804 Lats. The following table details the Group’s sensitivity to a 10% increase and decrease in the Euro against Sterling. 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 and other equity where the Euro strengthens 10% against Sterling. For a 10% weakening of the Euro against Sterling, there would be a comparable impact on the loss and other equity, and the balances below will be negative.

Profit or Loss

Sterling Impact 2011 s 602,168

2010 s 471,164

The Group’s sensitivity to foreign currency has increased during the current year mainly due to the increase in amounts due from customers under construction contracts, and the financing of same through the raising of Euro debt and equity. 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.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 6 Capital Management 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 periodic 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 year presented is as follows:

Debt Cash and Bank Balances Finance Leases Net Debt Equity Net Debt to Equity Ratio

30th June 2011 s 12,453,069 (616,285) 4,693 11,841,477 758,190 1,562%

30th June 2010 s 9,194,937 (116,753) 41,496 9,119,680 3,338,356 273%

Debt is defined as financial liabilities and borrowings of the Group while equity includes all capital, reserves and retained earnings attributable to equity holders of the parent. The Group has noted the increase in the above ratio in the year and has examined a number of plans to control and reverse this. These plans include, but are not limited to, the issue of new shares capital and the sale of assets, the proceeds of which would be used to reduce debt.

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 sold to customers. The Group’s reportable segments under IFRS8 Operating Segments are as follows: Power Generation:

Being the supply of technologies including anaerobic digestion, gasification and biomass heating; Wood Products: Being the production of sawn timber, realisation of wood and the supply of wood chips; and, Renewable Energy Solutions: Being the supply of combined heat and power units, domestic boilers, solar panels and other related products.

The chief operating decision maker is the Chief Executive.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 7 Segment Information (continued) Information regarding the Group’s reportable segments is presented below. The following is an analysis of the Group’s revenue and results from continuing operations by reportable segment: Segment Revenue

Segment Profit / (Loss)

2011 c

2010 c

2011 c

2010 c

Power Generation Wood Products Renewable Energy Solutions

69,860 10,196,135 866,575

76,825 7,878,450 1,068,704

(1,409,087) 1,035,833 ( 958,475)

(1,341,977) 815,142 ( 504,065)

Total from Continuing Operations

11,132,570

9,023,979

(1,331,729)

(1,030,900)

(1,372,678)

(1,325,211)

7,605 ( 356,228) 285,379 (1,627,690) 364 (4,394,977)

( 113,536) ( 758,567) 32,411 (3,195,803)

Central Administration Costs and Directors’ Salaries Other Operating Income Share of Losses on Joint Ventures Profit on Disposal of Joint Venture Interest Costs Interest Income Loss Before Taxation (Continuing Operations)

Revenue reported above represents revenue generated from external customers. Inter-segment sales for the year amounted to f30,011 (2010: f19,581). No customers account for more than 10% of revenue. Revenues from external customers for each product and service has not been disclosed, as the necessary information is not available, and the cost to develop it would be excessive. 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.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 7 Segment Information (continued) Other segment information: Depreciation and Amortisation

Power Generation Wood Products Renewable energy solutions

Additions to Non-Current Assets

2011 s 95,428 552,708 57,994

2010 s 102,536 566,336 75,041

2011 s 5,731 567,450 -

2010 s 64,770 114,199 6,100

706,130

743,913

573,181

185,069

In addition to the depreciation and amortisation reported above, impairment losses of s424,762 (2010: sNil) were recognised in respect of property, plant and equipment. These impairment losses were attributable as follows: Renewable Energy Solutions Segment s340,057 Power Generation Segment s 84,705 The Group operates in three principal geographical areas: Republic of Ireland (country of domicile), Latvia and the Rest of Europe. The Groupâ&#x20AC;&#x2122;s revenue from continuing operations from external customers and information about its non-current assets* by geographical location are detailed below: Revenue from External Customers

Republic of Ireland Latvia Rest of Europe

Non-Current Assets*

2011 s

2010 s

2011 s

2010 s

911,105 10,196,135 25,330

1,054,310 7,878,450 91,219

781,449 4,828,750 -

1,354,243 4,838,105 -

11,132,570

9,023,979

5,610,199

6,192,348

* Non-current assets excluding financial instruments and investment in jointly controlled entities. 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.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 8 Revenue An analysis of the Groupâ&#x20AC;&#x2122;s revenue for the year (excluding interest revenue), from continuing operations, is as follows:

Revenue from the Sale of Goods

9 Cost of Sales Opening Inventory Purchases Provision for Impairment of Inventory to Net Realisable Value Freight Closing Inventory

10 Expenses Administrative Expenses Employee Expenses Office Expenses Marketing Expenses Professional Fees Depreciation and Impairment of Property, Plant and Equipment Profit on Disposal of Property, Plant and Equipment Amortisation and Impairment of Intangible Assets Travel and Subsistence Bad Debt Expense Provision for Impairment of Trade Receivables Other Miscellaneous Expenses Regulatory Expenses

11 Finance Costs

Interest on Loans, Bank Facilities and Overdraft Interest on Preference Shares Lease Interest Charges Interest on Revenue Liabilities Finance Income Interest on Deposit Accounts

2011 h 11,132,570

2010 h 9,023,979

2011 h 1,610,015 8,608,254 315,606 275,390 (1,613,026)

2010 h 1,327,324 7,079,531 107,442 164,883 (1,610,015)

9,196,239

7,069,165

2011 h

2010 h

2,140,134 440,216 5,630 301,684 1,059,402 (88,881) 71,490 222,058 280,812 (166,014) 139,221 234,986

2,362,704 422,205 71,631 160,925 658,599 (13,478) 85,314 295,021 334,542 (286,429) 17,223 202,668

4,640,738

4,310,925

2011 h

2010 h

1,582,912 40,000 822 3,956 1,627,690

732,473 20,000 5,303 791 758,567

364

32,411

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 12 Employee Data Employee Costs (including Executive Directors): Salaries Social Insurance Costs Share Based Payments (Note 33)

Average Number of Employees (including Executive Directors)

2011 h 1,655,627 222,885 164,197 2,042,709

2010 h 1,700,465 208,251 164,195 2,072,911

No. 91

No. 89

2011 v 634,734 (53,103) 71,396 73,000 372,750 153,000 11,678

2010 v 658,599 (38,776) 85,314 72,000 358,767 -

424,668 94 (88,881) (166,014) 315,606

(13,478) (284,551) 107,442

34,500 12,400 46,900

34,500 12,400 5,900 52,800

Company All group employees are employed in subsidiary companies.

13 Loss Before Taxation Loss before taxation is stated after charging /(crediting): Depreciation of Property, Plant and Equipment Gain on Foreign Exchange Amortisation of Intangible Assets Directors’ Remuneration: for Services as Directors Directors’ Remuneration: for Other Services Termination of Services – Director Other Redundancy Costs Impairment Losses of Property, Plant and Equipment charged to Profit and Loss Impairment Losses of Intangible Assets charged to Profit and Loss Profit on Disposal of Property, Plant and Equipment Provision for Impairment of Trade Receivables Provision for Impairment of Inventory to Net Realisable Value

Auditor’s Remuneration Audit Services Other Assurance Service Tax Advisory Services Other Non-Audit Services

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 14 Income Tax Expense

2011 j

2010 j

Income Tax Expense Comprises: Current Tax Deferred Tax relating to the Origination and Reversal of Temporary Differences

139,886

47,098

Income Tax Expense Recognised in Profit or Loss

139,886

47,098

The applicable tax rate of 12.96% (2010: 13.12%) used by the Group is based on the weighted average of the standard tax rates applying to profits/losses earned by the Group in the jurisdictions in which it operates. The applicable tax rate for the year can be reconciled to the current tax expense as follows:

Loss Before Taxation Applicable Tax 12.96% (2010: 13.12%) Effects of: Amortisation and Depreciation in Excess of Capital Allowances Lease Payments Expenses Not Deductible for Tax Purposes Income Taxed at Higher Rate Charges Non-Trade Charges Group Relief Relief on a Value Basis Losses utilised Losses carried foward

2011 j (4,394,977)

2010 j (3,195,803)

(569,527)

(419,289)

58,468 (729) 73,802 13,897 (718) 162,178 1,735 1,901 (114,968) 373,961 -

14,164 (3,883) 94,759 (248) (42,079) 356,576 -

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 15 Loss Per Share

2011 d Euro per share

2010 d Euro per share

Basic Loss Per Share From continuing operations

(0.02)

Diluted Loss Per Share From continuing operations

(0.02)

(0.01)

Basic Loss Per Share The loss and weighted average number of ordinary shares used in the calculation of the basic loss per share are as follows: 2011 d Loss for year attributable to equity holders of the parent Weighted average number of ordinary shares for the purposes of basic loss per share

(4,698,241) No. 236,242,380

2010 d (3,388,284) No. 220,482,654

Diluted Loss Per Share The loss used in the calculation of all diluted earnings per share measures is the same as those for the equivalent basic earnings per share measures, as outlined above. The weighted average number of ordinary shares for the purposes of diluted loss per share reconciles to the weighted average number of ordinary shares used in the calculation of basic loss per share as follows:

Weighted average number of ordinary shares used in the calculation of basic loss per share Shares deemed to be issued in respect of long term incentive plan Weighted average number of ordinary shares used in the calculation of diluted earnings per share

2011 No.

2010 No.

236,242,380

220,482,654

49,256,332

285,498,712

269,738,986

Share warrants which could potentially dilute basic earnings per share in the future have not been included in the calculation of diluted earnings per share as they are anti-dilutive for the periods presented. The dilutive effect as a result of share warrants in issue as at 30th June 2011 would be to increase the weighted average number of shares by 30,672,924 (2010: 8,075,766). Convertible preference shares which could potentially dilute basic earnings per share in the future have not been included in the calculation of diluted earnings per share as they are anti-dilutive for the periods presented. The dilutive effect as a result of preference shares in issue as at 30th June 2011 would be to increase the weighted average number of shares by 3,125,000 (2010: 1,562,500). Convertible loans which could potentially dilute basic earnings per share have not been included in the calculation of diluted earnings per share as they are anti-dilutive for the periods presented. The dilutive effect as a result of loans in issue as at 30th June 2011 would be to increase the weighted average of shares by 9,500,000 (2010: 1,208,333). 48

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 16 Goodwill Balance at Beginning and End of the Financial Year

2011 d 549,451

2010 d 549,451

Goodwill arose on the acquisition of an 80% shareholding in SIA Vudlande, a limited liability company incorporated in Latvia as disclosed in Note 20. Goodwill was allocated to the Latvian CGU within the Kedco Wood Products segment.

Annual Test for Impairment During the financial year presented, the Group assessed the recoverable amount of goodwill and determined that the goodwill associated with the acquisition of SIA Vudlande was not impaired. The full amount of goodwill for impairment testing purposes relates to the SIA Vudlande cash-generating unit. The principal activities of SIA Vudlande are the processing of wood, sawn timber production and wood realisation. SIA Vudlande has maintained its position in the competitive Latvian market as the company has access to continuous raw material input and as it has the flexibility to produce different types of sawn material. Development which has been undertaken in SIA Vudlande is expected to expand the production capacity of the company. The recoverable amount of this cash-generating unit is determined based on a value in use calculation which uses cash flow projections from financial budgets approved by the directors for a five-year period. The cash flow forecasts employed for the value-in-use comparisons are based on budgeted figures for the first year and on a three-year forecast approved by the Board for the following three years. Cash flow is then projected forward for the following ten years based on an assumed growth of 3% per annum. The discount factors applied to future cash flows range from 9% to 12% which reflects the risk associated with this cash-generating unit. The key assumptions used in the value-in use calculations for the SIA Vudlande cash-generating unit are: (a) Budgeted growth forecasts: A growth forecast of 3% per annum, which is consistent with the directorsâ&#x20AC;&#x2122; plans for focusing operations in this market. The directors believe that the planned budget growth of 3% per annum for the next 10 years is reasonably achievable. (b) Budgeted gross margins: Average gross margins achieved in the period immediately preceding the budget period, increased for expected efficiency improvements. This reflects past experience, except for efficiency improvements. The directors believe efficiency improvements of 3-5% per annum are reasonably achievable. (c) Raw materials price inflation: Forecast consumer price indices during the budget period for Latvia. The values assigned to the key assumption are consistent with external sources of information. The directors believe that any reasonably possible change in key assumptions on which the value-in-use is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit. A 1% increase in the discount rate would not result in an impairment charge for the years presented. No impairment losses have arisen in any financial year to date.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 17 Intangible Assets

Trademarks

Software

Development Costs e

Total

At 1st July 2009

1,128

11,025

412,349

424,502

At 30th June 2010

1,128

11,025

412,349

424,502

At 30th June 2011

1,128

11,025

412,349

424,502

282 376

5,756 2,468

261,155 82,470

267,193 85,314

658 376 94 1,128

8,224 2,296 10,520

343,625 68,724 412,349

352,507 71,396 94 423,997

Carrying Amount At 30th June 2010

470

2,801

68,724

71,995

At 30th June 2011

505

Cost

Accumulated Amortisation At 1st July 2009 Amortisation Expense At 30th June 2010 Amortisation Expense Impairment Cost At 30th June 2011

Development expenditure, substantially all of which was incurred in 2006, in respect of anaerobic digestion, gasification and biomass heating technologies has been recognised as an intangible asset. The expenditure incurred related to engineering costs, surveys and consultants fees. These costs are associated with technologically feasible processes which will be used in the business in future and accordingly have been capitalised. These costs have been fully amortised as at 30th June 2011. All other research costs incurred during the year presented relate to other research activities and do not represent capitalisable development costs. Amortisation expense has been included in the line item ‘administrative expenses’. Impairment Losses Recognised in the Year During the year, impairment losses recognised in respect of intangible assets amounted to j94. These losses are attributable to greater than anticipated wear and tear. These assets are used in the Group’s Renewable Energy Solutions segment.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 18 Property, Plant and Equipment Land and Buildings f

Office Equipment f

Plant and Machinery f

Construction Fixtures and Motor In Progress Fittings Vehicles f f f

Total

Cost At 1st July 2009 Additions Disposals Reclassification

2,968,176 83,290 13,997

145,811 10,599 -

5,219,201 48,159 (24,270) 17,810

89,021 31,807 ( 89,021) ( 31,807)

221,414 7,714 (20,662) -

172,672 3,500 (73,031) -

8,816,295 185,069 (206,984) -

At 30th June 2010 Additions Disposals Reclassification

3,065,463 96,090 (1,901) 14,308

156,410 4,265 (599) -

5,260,900 53,200 (339,625) 296,864

412,466 (311,172)

208,466 7,160 (25,327) -

103,141 (9,337) -

8,794,380 573,181 (376,789) -

At 30th June 2011

3,173,960

160,076

5,271,339

101,294

190,299

93,804

8,990,772

Accumulated Depreciation At 1st July 2009 On Disposals Charge for the Year

793,408 137,957

53,048 20,305

1,582,411 (24,270) 431,043

118,820 (20,662) 41,520

129,672 (67,458) 27,774

2,677,359 (112,390) 658,599

At 30th June 2010 On Disposals Impairment Charge for the Year

931,365 (1,901) 358,151 146,529

73,353 (260) 33,748 21,784

1,989,184 (315,616) 422,449

139,678 (25,327) 29,820 33,768

89,988 (9,337) 2,949 10,204

3,223,568 (352,441) 424,668 634,734

At 30th June 2011

1,434,144

128,625

2,096,017

177,939

93,804

3,930,529

Carrying Amount At 30th June 2010

2,134,098

83,057

3,271,716

68,788

13,153

5,570,812

At 30th June 2011

1,739,816

31,451

3,175,322

101,294

12,360

5,060,243

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 18 Property, Plant and Equipment (continued) Included are leased assets held under finance leases or hire purchase contracts as follows:

Asset Description

Plant and Machinery Motor Vehicles

2011 Carrying Amount f -

2011 Depreciation Charge f 2,224 2,224

2010 Carrying Amount f 72,034 2,224 74,258

2010 Depreciation Charge f 57,627 18,766 76,393

The Group’s obligations under finance leases are secured by lessors’ title to the leased assets. Non Cash Transactions Acquisitions of property, plant and equipment include fNil (2010: fNil) acquired under finance leases. Impairment Losses Recognised in the Year During the year, as a result of a slowdown in the trading activities in the Renewable Energy Solutions operating segment, the Group carried out a review of the recoverable amount of assets in that segment. The review led to a recognition of an impairment loss of f33,963, which has been recognised in profit or loss. The recoverable amount of the assets has been determined on the basis of their value in use. No impairment assessment was performed in 2010 as there was no indication of impairment. The Group also carried out a review of the recoverable amount of property held by the Renewable Energy Solutions operating segment, as a result of falls in the property market in Ireland. The review led to a recognition of an impairment loss of f306,000, which has been recognised in profit or loss. The recoverable amount of the assets has been determined on the basis of their fair value, less costs to sale. Additional impairment losses recognised in respect of property, plant and equipment amounted to f84,705. These losses are attributable to greater than anticipated wear and tear. These assets are used in the Group’s Power Generation segment. The impairment losses have been included in the line item ‘Administrative Expenses’ in the consolidated income statement. 19 Financial Assets Group Loan Advanced to Jointly Controlled Entities Company Investment in Subsidiary Undertakings At 1st July Provision for Impairment in Investment At 30th June

2011 f 990,000 2011 f 35,401,753 (10,460,290) 24,941,463

2010 f 990,000 2010 f 35,401,752 35,401,752

The investment in subsidiary undertakings has been calculated by reference to the number of shares issued by Kedco plc in the share for share exchange with Kedco Block Holdings Limited, multiplied by the share price on the day of the Company’s admission to the AIM. In the opinion of the directors, the shares in the subsidiary undertakings are worth at least the amounts at which they are stated in the balance sheet. Details of subsidiary undertakings are set out in Note 20. In the year ended 30th June 2011, the carrying value of the investment in the financial statements of Kedco plc exceeded the carrying amount in the consolidated financial statements of the investee’s net assets, and as a consequence the investment in subsidiary undertakings was impaired. The Group reviewed the carrying value of the investment with reference to the future cash flows of projects currently undertaken by the Group, and have calculated the resulting impairment to be f10,460,290. 52

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 20 Subsidiaries Details of Kedco plc subsidiaries at 30th June 2011 are as follows: Country of Incorporation Name ● ● ● ● ●

● ● ● ● ● ● ●

Shareholding Principal Activity

Kedco Block Holdings Limited Kedco Power Limited Kedco Block Limited Granig Trading Limited SIA Vudlande

Republic of Ireland Republic of Ireland United Kingdom Republic of Ireland Latvia

100% 100% 100% 100% 80%

Castle Home Supplies Limited Kedco Energy Limited Kedco Investment Co. 1 Limited Kedco Investment Co. 2 Limited Kedco Fabrication Limited Kedco Group Holdings USA Inc. Ardstown Investments Limited

Republic of Ireland Republic of Ireland Republic of Ireland Republic of Ireland Republic of Ireland United States of America Republic of Ireland

100% 100% 100% 100% 100% 100% 100%

Investment company Provision of energy solutions Contracting company Dormant company Wood processing and sawn material production Dormant company Provision of energy solutions Investment company Investment company Contracting company Dormant company Dormant company

The shareholding in each company above is equivalent to the proportion of voting power held. SIA Vudlande is a limited liability company registered in Latvia. Shares in SIA Vudlande are held by Kedco Block Limited, a wholly owned subsidiary incorporated in the United Kingdom under a trust deed with Kedco Block Holdings Limited. Kedco Block Limited acknowledges holding shares upon trust for Kedco Block Holdings Limited ‘the beneficial owner’. All dividends and interest accrued or to accrue upon same, including bonuses, rights and other privileges shall be transferred, paid, or dealt with in such manner as the beneficial owner shall from time to time direct.

21 Investment in Jointly Controlled Entities Details of the Group’s interests in jointly controlled entities at 30th June 2011 are as follows: Name of Jointly Controlled Entity ● Best Kedco Limited ● Kedco Howard Limited ● Asdee Renewables Limited ● Bridegreen Energy Limited ● Cromie Kedco Limited

Country of Incorporation Northern Ireland United Kingdom Republic of Ireland Republic of Ireland Northern Ireland

Shareholding 50% 50% 50% 50% 50%

Principal Activity Energy Utility Company Energy Utility Company Energy Utility Company Energy Utility Company Energy Utility Company

None of the above companies have commenced trading as at 30th June 2011. The company has entered into a guarantee in respect of Kedco Howard Limited in relation to the due and proper performance of its duties and obligations under the joint venture agreement. Kedco Investment Co. 1 Limited entered into a put and call option agreement and a second call option agreement relating to the shares in Kedco Howard Limited during the year ended 30th June 2009. Under the put and call option agreement, Kedco Investment Co. 1 Limited may be required to purchase the remaining 50% of shares in Kedco Howard Limited for g510,000. Under the second call option agreement, Kedco Investment Co. 1 Limited may be required to sell 50% of the shares, if required, under the put and call agreement in Kedco Howard Limited for g1,510,000. The put and call option was exercised by the joint venture partner on 20th June 2010. Under a new option agreement made on 15th July 2010, the option price was changed to g1,510,000.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 21 Investment in Jointly Controlled Entities (continued) On 13th July 2011, an agreement was signed whereby the joint venture partner, Wellwin Investments Limited was to receive from Kedco plc the balance of the loan outstanding, payable in equal instalments over seven months, as offset against the debt owed by Kedco Howard Limited to Wellwin Investments Limited. At 30th June 2011, the debt stood at g492,500. (30th June 2010:g990,000) The reduction in this debt is offset against the reduction of monies owed by Kedco Investment Co. 1 Limited to Kedco Howard Limited. Kedco plc was also to pay a facility fee of 5% of the outstanding loan to Wellwin Investments Limited until the outstanding loan of Wellwin Investments Limited to Kedco Howard Limited is discharged. Summarised financial information in respect of the group’s interests in jointly controlled entities is as follows:

Non-Current Assets Current Assets Current Liabilities Net (Liabilities)/Assets Group’s Share of Net (Liabilities)/Assets of Jointly Controlled Entities Total Revenue Total Expenses Total Loss for the Year Group’s Share of Losses of Jointly Controlled Entities

2011 f 1,208 2,329,495 (2,368,438) (37,735) (18,867)

2010 f 1,754 2,955,250 (2,542,785) 414,219 207,109

163,719 (876,176) (712,457) (356,228)

(227,072) (227,072) (113,536)

On 19th July 2010, controlling interest in a subsidiary, Kedco Agrikomp Limited and its subsidiaries was amended to create a jointly controlled entity in which the Group held a 50% share in the jointly controlled entity. On 29th June 2011, the Group disposed of its 50% interest in Kedco Agrikomp Limited to the other joint venture partner for proceeds of f150,000 (received on 30th June 2011). This transaction has resulted in a gain in profit or loss, calculated as follows:

Proceeds of Disposal Plus: Fair Value of Losses Realised Less: Costs Associated with Disposal Less: Carrying Value of Investment on Date of Loss of Significant Influence Gain Recognised

22 Inventories Group Raw Materials Finished Goods

f 150,000 150,540 (15,160) (1) 285,379

2011 f

2010 f

788,029 824,997 1,613,026

554,433 1,055,582 1,610,015

The cost of inventories recognised as an expense during the year in respect of continuing operations was f9,196,239 (2010: f7,069,165). The cost of inventories recognised as an expense during the year in respect of write-downs of inventory to net realisable value amounted to f315,606 (2010: f107,442). All inventories are expected to be sold within twelve months. 54

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 23 Construction Contracts Contracts in progress at the Balance Sheet Date: Construction Costs Incurred Plus Recognised Profits Less Recognised Losses To Date Less Payment Received In Advance

Recognised and Included in the Financial Statements as amounts due: From Customers Under Construction Contracts To Customers Under Construction Contracts

2011 o 9,425,279 (1,272,735) 8,152,544

2010 o 9,291,911 (1,302,357) 7,989,554

9,425,279 (1,272,735) 8,152,544

9,291,911 (1,302,357) 7,989,554

At 30th June 2011, retentions held by customers for contract work amounted to oNil (2010: oNil). Advances received from customers for contract work amounted to o1,272,735 (2010: o1,302,357). The following table shows an aged analysis of amounts due from customers under construction contracts (being construction costs incurred on projects plus recognised profits less recognised losses to date):

Costs incurred in the past twelve months Costs incurred between twelve and twenty-four months Costs incurred between twenty-four and sixty months

2011 o 1,043,630 2,008,335 6,373,314 9,425,279

2010 o 2,226,444 7,065,467 9,291,911

Of the balance of o9,425,279 (2010: o9,291,911), o8,846,956 (2010: o8,644,764) relates to the construction of a 4MW Gasification plant in Northern Ireland. The principal customer for this contract is Best Kedco Limited, a jointly controlled entity of the Group. As noted in Note 3 (Basis of Preparation), Best Kedco Limited has secured financing of ÂŁ9.44m to enable the construction, installation and commissioning of the 4MW plant. The directors of the Group are satisfied, from this review, that the Groupâ&#x20AC;&#x2122;s exposure to credit risk with respect to the above projects are manageable.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 24 Trade and Other Receivables Group Trade Receivables Provision for Impairment of Trade Receivables Amounts Due from Jointly Controlled Entities VAT Receivable Prepayments Other Receivables

2011 f 1,478,095 ( 140,333) 1,337,762 762,916 22,415 164,017 560,978 2,848,088

2010 f 1,523,567 ( 306,347) 1,217,220 393,971 115,200 236,173 548,738 2,511,302

The movement in the Group’s provision for impairment of trade receivables consists of provisions established during the year amounting to f95,446 (2010: f76,427) offset by a reversal of a prior period provision of f261,460 (2010: f362,856). The reversal of prior period provisions is as a result of these provisions being recognised as a bad debt expense in the current year. The following table shows an analysis of trade receivables split between past due and within terms accounts. Past due is when an account exceeds the agreed terms of trade, which are typically 60 days.

Within Terms Past due more than one month but less than two months Past due more than two months

2011 f 1,132,842 163,630 41,290

2010 f 1,021,382 50,704 145,134

1,337,762

1,217,220

Included in the Group’s trade receivables balance are debtors with carrying amount of f204,920 (2010: f195,838) which are past due at year end and for which the Group has not provided. There has not been a significant change in credit quality and therefore the directors consider the amounts are still recoverable. The Group does not hold any collateral over these balances. No interest is charged on overdue receivables. The quality of past due not impaired trade receivables is considered good. The carrying amount of trade receivables approximates to their fair values. The Group has recognised an allowance for doubtful debts of 100% against all receivables over 120 days because historical experience has been that trade receivables that are past due beyond 120 days are not recoverable. Allowances for doubtful debts are recognised against trade receivables between 60 days and 120 days based on estimated irrecoverable amounts determined by reference to past default experience of the counterparty and an analysis of the counterparty’s current financial position.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 24 Trade and Other Receivables (continued) In determining the recoverability of a trade receivable, the Group considers any changes in the credit quality of the trade receivable from the date credit was initially granted up to the end of the current reporting period. The concentration of the credit risk is limited due to the customer base being large and unrelated, and the fact that no one customer holds balances that exceed 10% of the gross assets of the Group. The maximum exposure risk to trade and other receivables at the reporting date by geographic region is as follows:

Ireland United Kingdom Eurozone Countries

2011 f 103,412 2,147 1,372,536 1,478,095

2010 f 315,466 1,208,101 1,523,567

Other receivables related to unpaid share capital of f492,563 (2010: f492,563) relating to the issue of 49,256,352 ‘A’ shares of f0.01 each as part of the long-term incentive plan (‘LTIP’) for employees; balances recoverable from debt providers totalling f16,500 (2010: fNil); unpaid share capital of f40,000 (2010: f40,000); deposits on rental contracts amounting to f5,000 (2010: f9,583); and miscellaneous debtors amounting to f6,915 (2010: f6,592). Apart from receivables relating to share capital, the aged analysis of other receivables are within terms. Other receivables relating to share capital, totalling f532,563 (2010: f532,563) are older than two years but have been reviewed by management and it is believed that the credit risk is limited due to the matching of liabilities. There is no concentration of credit risk with respect to receivables as disclosed in Note 5 under credit risk.

Company Amounts Due from Subsidiary Undertakings Amounts Due from Jointly Controlled Entities Prepayments VAT Receivable Other Receivables

9,542,491 762,916 10,707 1,417 532,563 10,850,094

4,607,476 393,971 30,047 492,563 5,524,057

The concentration of credit risk in the individual financial statements of Kedco plc relates to amounts due from subsidiary undertakings. The directors have reviewed these balances in the light of the impairment review carried out on the investments by Kedco plc in its subsidiaries. The Directors considered the future cash flows arising from subsidiaries and are satisfied that no impairment is required on these balances.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 25 Share Capital

Kedco plc At 30th June 2010

Authorised

No.

Allotted and Called up No.

Ordinary Shares of f0.01 each ‘A’ Shares of f0.01 each

10,000,000,000 10,000,000,000

224,822,657 99,117,952

100,000,000 100,000,000 200,000,000

2,248,227 991,180 3,239,407

At 30th June 2011

Authorised

No.

Allotted and Called up No.

Allotted and Called up f

10,000,000,000 10,000,000,000

255,281,916 99,117,952

100,000,000 100,000,000 200,000,000

Ordinary Shares of f0.01 each ‘A’ Shares of f0.01 each

Authorised

Allotted and Called up f

2,552,819 991,180 3,543,999

The holders of the ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the company. All ordinary shares are fully paid up, with the exception of f40,000 which is disclosed in Note 24. The Company was incorporated on 2nd October 2008 with an initial authorised share capital of f100,000,000 divided into 100,000,000 ordinary shares of f1.00 each of which 38,100 ordinary shares of f1.00 each fully paid up were issued. On 14th October 2008 the ordinary shares were subdivided so that each ordinary share had a nominal value of f0.01 each as opposed to the previous nominal value of f1.00 each. On 3rd December 2010, the trading denomination of the Company’s ordinary shares of f0.01 each changed from Euro to pounds sterling. This does not affect the nominal valuation of the shares. Reverse Asset Acquisition On 13th October 2008, the Company acquired the entire issued share capital of Kedco Block Holdings Limited (‘KBHL’) in consideration for the allotment and issue of 2,493,081 ordinary shares of f1.00 each to the former members of KBHL. Pursuant to the agreement, the Company allotted and issued one ordinary share of f1.00 each in consideration for the transfer to it of each share held in KBHL. The fair value of the shares in Kedco Block Holdings Limited received as consideration for the issue of these shares in Kedco plc was f34,903,134 which resulted in a share premium in the Company of f32,908,669. From a group perspective, since the acquisition is being accounted for as a reverse asset acquisition, the shares of the new legal parent (Kedco plc) were recognised and the shares of the accounting parent (Kedco Block Holdings Limited) were derecognised. A reverse acquisition adjustment has been made for the share capital of the accounting parent and is offset against the share premium of the new legal parent.

Movements in the Year to 30th June 2011 Kedco plc: On 25th January 2011, the Company issued 15,200,000 ordinary shares of f0.01 each at a premium of f690,369. On 15th February, 2011, the Company issued 15,259,259 ordinary shares of f0.01 each at a premium of f937,853.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 26 Reserves Equity Settled Employee Benefits Reserve Balance at Beginning of the Financial Year Share-Based Payment Expense

2011 s 328,383 164,197

2010 s 164,188 164,195

Balance at End of the Financial Year

492,580

328,383

The equity settled employee benefits reserve arises on the grant of share options to employees under the employee share option plan. Further information about share-based payments to employees is set out in Note 33.

27 Borrowings Non-Current Liabilities Group Unsecured – at Amortised Cost Investor Loans (ii) Vudlande Loan (iii) Secured – at Amortised Cost Zero-Coupon Loan Notes 2012 (i) Bank Loans (iv) Financial liabilities carried at fair value through profit or loss Preference shares (v)

Current Liabilities Bank Overdrafts Investor Loans (ii) - Secured - Unsecured Vudlande Loan (iii) Bank Loans (iv)

2011 s

2010 s

963,555 1,310,000 2,273,555

3,435,580 4,022,813 7,458,393

3,976,117 3,976,117

500,000 7,958,393

500,000 6,749,672

2011 s 407,698 475,967 2,174,938 1,050,000 386,073

2010 s 673,769 400,000 819,028 552,468

4,494,676

2,445,265

Summary of Borrowing Arrangements The Group has secured debt funding from banks and from its equity investors throughout the reporting year in order to finance capital investment and working capital. The principal loan arrangements entered into are as follows: (i) On 5th July, 2010, the Company raised s3.2m (£2.6m) from the issue of 3,588,583 zero-coupon secured loan notes. The loan notes, which had a subscription price of £0.72, were issued to a variety of investors and are redeemable at par value (being £1) two years from the date of issue (or earlier on the occurrence of certain events including a sale of the Company). Each Loan Note entitled the holder to subscribe for three Ordinary Shares of the Company at a subscription price of £0.01 at any time prior to the fourth anniversary of the issue. Pursuant to the placing, Best Kedco Limited, a jointly controlled entity established for the purposes of the Newry Project, will pay a royalty of 5 per cent of the proceeds arising from the sale of energy from the Newry Project to the investors. The royalty payments would commence with the initial generation of 1MW of energy from Newry and would conclude following 24 months of continuous generation of 2MW electricity.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 27 Borrowings (continued)

Summary of Borrowing Arrangements (continued) (i) (continued) Pursuant to a separate warrant agreement and in consideration for its placing services, Cornhill Asset Management Limited, an adviser to the Company, will have the right to subscribe to two Ordinary Shares per Loan Note issued to the Company at a subscription price as described in the preceding paragraph. Additionally, pursuant to a separate royalty agreement, Best Kedco would pay 2 per cent of the proceeds arising from the sale of energy from the Newry Project to Cornhill for the same period as that outlined above for the Investors. Under the Loan Note agreement, the Company granted the holders of the Loan Note second-ranking security over its 80% interest of its Vudlande subsidiary in Latvia. As of 5th July 2011, the security is capable of being enforced due to the delays in the finalisation of the Newry Project and the Company has received notice from the Trustee of the Loan Notes that it intends to enforce the security. The Company, as part of its strategic review, was already considering seeking purchasers for its Vudlande subsidiary as it was deemed non-core to the Company’s focus on waste to energy generation. Under the terms of the Loan Note if the Company is successful in executing a sale of Vudlande, the proceeds of any such sale may first be applied in discharging its obligations under the Loan Note Agreement and other senior lending facilities. Any disposal of the Vudlande operation is likely to be subject to the approval of Kedco Shareholders. (ii) A loan of j1,000,000 was received from equity investors during the year ended 3th April 2007 to finance the general working capital requirements of the Group. These equity investors are a director and his close family. In 2008, j36,445 of this loan was converted into ordinary share capital in the company. In the year ended 30th June 2011, j329,242 was converted into zero-coupon secured loan notes as discussed in note (i) above, while another j34,404 was repaid to the investor. The remaining j599,909 loan is repayable on demand between 24th May 2012 and 24th November 2013. This loan is unsecured and carries an annual interest rate of 2% over the prime lending rate of Allied Irish Banks plc. Interest is payable monthly. Investor loans of j1,219,028 were received during the year ended 30th June 2010. Of the total j1,219,028 received, j250,000 is secured on the 75kW combined heat and power modular biopower system included in inventories at 30th June 2011 and j150,000 is secured by personal guarantees from certain directors. The total of j400,000 was repayable between 1st September 2010 and 31st October 2010 with an interest payment of between 2.5% and 3% per month. These funds were advanced to finance working capital. During the year ended 30th June 2011, j162,500 of the principal was repaid. At 30th June 2011, the outstanding loan balance and accrued interest was j475,967. The remaining investor loans of j819,028 received during the year ended 30th June 2010 are unsecured, have no fixed interest rate and have no fixed repayment date. These funds were advanced to finance working capital. Of this amount, j108,000 related to funds advanced by directors. During the year ended 30th June 2011, a further j190,000 was advanced to the company to finance working capital while j910,911 was repaid by the company, leaving an outstanding balance of j98,117 payable to investors at 30th June 2011. During the year ended 30th June 2011, j1,200,000 of unsecured loans was received from its 22.14% shareholder, Farmer Business Developments plc (‘FBD’) to assist its short term working capital requirements. These funds were repayable on demand as and from 1st May 2011, with an interest payment on outstanding capital of 10% per annum. The drawdown portion of the facility may be converted at any time by FBD into Ordinary Shares in Kedco. If FBD opts to convert the Facility into Kedco plc ordinary shares, then the conversion price will be the average of the closing midmarket price of the ten working days prior to conversion. FBD would not be able to convert any proportion of the Facility into Kedco ordinary shares if to do so would result in FBD holding in excess of 29.9% of Kedco’s issued share capital. At 30th June 2011, the outstanding principal and interest came to j1,252,986.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 27 Borrowings (continued) Summary of Borrowing Arrangements (continued) (ii) (continued) ended 30th June 2010, further investor loansofofj223,925 j223,925were wereadvanced advancedtotofinance financeworking working capital. capital. During the the yearyear ended 30th June 2010, further investor loans During These loans are unsecured, no fixed interest no fixed repayment These loans are unsecured, havehave no fixed interest raterate andand havehave no fixed repayment date.date. investors (j1,150,000) (j1,150,000) during during the the year year (iii) A loann of j1,650,000 was received from directors (j500,000) and external investors ended to develop theVudlande SIA Vudlande in Latvia. j340,000 was repaid to directors year ended 30th30th AprilApril 20072007 to develop the SIA plant plant in Latvia. j340,000 was repaid to directors during during the yearthe ended 2010. the year ended June 2011, j260,000 was converted by the investors into zero30thended June 30th 2010.June During theDuring year ended 30th June30th 2011, j260,000 was converted by the investors into zero-coupon coupon notes asindescribed in noteresulting (i) above, in an outstanding balance of j1,050,000 year loan end. secured loansecured notes asloan described note (i) above, in resulting an outstanding balance of j1,050,000 at year end.at This This loan is unsecured and carries an annual interest rate of 15%. The term is five years with repayment dates between is unsecured and carries an annual interest rate of 15%. The term is five years with repayment dates between 31st January 31st 2011 2012. and 26th March 2012. Interest is repayable annually. 2011 andJanuary 26th March Interest is repayable annually. Bank loans were entered intointo in the year ended 30th April 2006 to to fund acquisition of of freehold land andand buildings by (iv)iv) Bank loans were entered in the year ended 30th April 2006 fund acquisition freehold land buildings Castle Home Supplies Limited. The loan balance at 30th June 2011 was j1,894,406 (2010: j1,897,008). This loan by Castle Home Supplies Limited. The loan balance at 30th June 2011 was j1,894,406 (2010: j1,897,008). This loan carries interest at 7% is repayable in 2031 according to the terms of the original agreement. is secured carries interest at 7% andand is repayable in 2031 according to the terms of the original agreement. ThisThis loanloan is secured by by personal guarantees from the directors j750,000 and a charge the freehold land and buildings of personal guarantees from the directors totallingtotalling j750,000 and a charge over theover freehold land and buildings of Castle Castle HomeLimited. Supplies Limited. Home Supplies Bank loans were entered into in the year ended 30th April 2007 to fund working capital: 2007SIA SIAVudlande Vudlandesigned signedaaloan loanagreement agreementwith with Hipot Hipot ku ku un un zemes zemes banka (‘LHZB’) for j1,800,000. The loan facility ● InIn2007 facility been drawn down gradually upon requestofofthe thecompany companyand andisisavailable availableuntil until27th 27thJuly July 2014. 2014. Interest on loan hashas been drawn down gradually upon thethe request loan usage is six months EURIBOR 2.5% drawn down amount. Since 27th June 2011, interest is fixed usage is six months EURIBOR plusplus 2.5% for for thethe drawn down amount. Since 27th June 2011, thethe interest raterate is fixed for for 5.86% for years. three years. The maturity date theisloan is 27th July 2014. On July 2nd 2010, July 2010, a second agreement 5.86% for three The maturity date of theofloan 27th July 2014. On 2nd a second loan loan agreement was wasfor signed for j220,000 to purchase and machinery. The annual onhas thisbeen loanfixed has to been fixedfor tothree 3.41% for signed j220,000 to purchase plant andplant machinery. The annual rate on thisrate loan 3.41% years. years.date Theofmaturity of this is 27th Juneare 2015. All loans areassets secured on Vudlande the assets inofaggregate SIA Vudlande in Thethree maturity this loandate is 27th Juneloan 2015. All loans secured on the of SIA as well aggregate as well as future derived from these assets. The drawn 30th 2011 of the two as future benefits derived frombenefits these assets. The drawn down amount at 30thdown Juneamount 2011 ofatthe twoJune loans is j1,244,337 loansj1,356,922). is j1,244,337 (2010: j1,356,922). (2010: Anadditional additionalbank bankloan loanof ofj599,568 j599,568was wastaken taken out out during during the the year year ended 30th April 2007 for the purpose of meeting ● An meeting working capital requirements.This This repayableininfive fiveyears yearsand andcarries carriesan aninterest interestrate rateof of 7%. 7%. This This loan is secured by working capital requirements. is is repayable personal guarantees from directors. balance at 30th June 2011 j606,046 (2010: j599,568). personal guarantees from thethe directors. TheThe balance at 30th June 2011 waswas j606,046 (2010: j599,568). Liabilitiesinclude includebank bankloans loansininthe theamount amountof ofj164,185 j164,185 (2010: (2010: j250,000) j250,000) for a stocking loan. This is secured by a letter ● Liabilities of guarantee from directors, a floating charge assets of Kedco Energy Limited assignments policies on of guarantee from thethe directors, a floating charge overover assets of Kedco Energy Limited andand assignments overover policies on the life of nominated individuals. the stocking is the Bank’s Ulster Bank’s of rate funds rate plus 2.75%. Thisis lifethe of nominated individuals. InterestInterest on the on stocking loan is loan the Ulster cost of cost funds plus 2.75%. This loan loanrepaid is being repaid ininstalments monthly instalments over a three year period. being in monthly over a three year period. Businesscredit credit lines were received in 2007 for working The balance outstanding at 30th was ● Business lines were received in 2007 for working capital.capital. The balance outstanding at 30th June 2011June was 2011 j499,913 j499,913 (2010: Interest j499,548). Interestbusiness is a varying business credit linefacility rate. The facility is letters of guarantee (2010: j499,548). is a varying credit line rate. The is secured bysecured letters by of guarantee from the from the directors as noted and a charge over the commercial PortgatePark, Business Park, Monkstown, directors as noted above and aabove charge over the commercial warehousewarehouse at PortgateatBusiness Monkstown, Co. Cork. Cork. Thiswithin is presented withinbank non-current ThisCo. is presented non-current loans. bank loans. Available Facilities On 2nd July 2010 the limit of the credit line facility available from LHZB to SIA Vudlande was amended to j360,000. Interest is paid based on the actual used credit line amount. The interest rate on the use of the credit line is 5.1% plus EURIBOR. The maturity date of this facility is 27th October 2011. As at 30th June 2011, the amount used by SIA Vudlande was j257,772 (2010: j568,990).

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 27 Borrowings (continued) Summary of Borrowing Arrangements (continued) (v) Preference Shares Kedco Power Limited issued 500,000 8% cumulative Kedco Power Limited issued 500,000 8% cumulativeredeemable redeemableconvertible convertiblepreference preferenceshares sharesof of h1 h1 each each at at par to Enterprise Ireland, the Irish Government agency responsible for the Global expansion of Irish companies, in the year year Enterprise Ireland, the Irish Government agency responsible for the Global expansion of Irish companies, in theended 30th June 30th 2011,June realising The preference shares will shares be convertible at the option of the holder in the eventinthat ended 2011,h500,000. realising h500,000. The preference will be convertible at the option of the holder the investment of investment at least h2.0 million is secured by Kedco plc, or Power Limited, within fivefive years from thethe date of event that of at least h2m is secured by Kedco plc,Kedco or Kedco Power Limited, within years from date allotment of theofpreference shares and and would convert intointo ordinary shares in in either of allotment the preference shares would convert ordinary shares eitherKedco Kedcoplc plcororKedco Kedco Power Power Limited respectively. TheThe shares are are unsecured borrowings of the and and are designated as atasfairatvalue through profitprofit or loss. respectively. shares unsecured borrowings of Group the Group are designated fair value through or loss. The directors consider the carrying amount of borrowings approximates to their fair values. Company Non-Current Liabilities Secured – at Amortised Cost Zero-Coupon Loan Notes 2012 (i)

Current Liabilities Investor Loans (ii) - Secured - Unsecured

2011 j

2010 j

3,435,580 3,435,580

2011 j 475,967 1,351,103

2010 j 400,000 819,028

1,827,070

1,219,028

Summary of Borrowing Arrangements The Company has secured debt funding from its equity investors throughout the reporting year in order to finance capital investment and working capital. The principal loan arrangements entered into are as follows: (i) On 5th July, 2010, the Company raised g3.2m (£ 2.6m) from the issue of 3,588,583 zero-coupon secured loan notes. TheThe loanloan notes, which hadhad a subscription priceprice of £0.72, was was issued to a variety of investors and are at parat value notes, which a subscription of £0.72, issued to a variety of investors andredeemable are redeemable par (being £1) ten years fromyears the date issue occurrence of certain events including sale of theaCompany). value (being £1) ten fromofthe date(orofearlier issue on (or the earlier on the occurrence of certain eventsa including sale of the Each Loan NoteEach entitled holder to subscribe fortothree Ordinary SharesOrdinary of the Company of £0.01 Company). Loanthe Note entitled the holder subscribe for three Shares of at thea subscription Company at price a subscription at any prior toatthe fourth the issue. Pursuantoftothe theissue. placing, Best Kedco Limited, a jointly controlled entitya pricetime of £0.01 any timeanniversary prior to theoffourth anniversary Pursuant to the placing, Best Kedco Limited, established for the purposes of the Newry will payofathe royalty of 5% of thewill proceeds arising of from energy jointly controlled entity established for Project, the purposes Newry Project, pay a royalty 5%the ofsale the of proceeds from the Newry Project to energy the investors. The royalty payments commence with payments the initial generation of 1MW of arising from the sale of from the Newry Project to thewould investors. The royalty would commence with energy from generation Newry andofwould 24 months of continuous generation 2MWofelectricity. the initial 1MWconclude of energyfollowing from Newry and would conclude following 24 of months continuous generation of 2MW electricity. Pursuant to a separate warrant agreement and in consideration for its placing services, Cornhill Asset Management Limited, an Pursuant adviser totothea Company, will have the right to subscribe to two Ordinary Shares per Loan Note issued to Management the Company separate warrant agreement and in consideration for its placing services, Cornhill Asset at aLimited, subscription price as in thewill preceeding Additionally, toShares a separate royalty agreement, an adviser to described the Company, have theparagraph. right to subscribe to twopursuant Ordinary per Loan Note issued toBest the Kedco would at paya 2% of the proceeds frominthe of energyparagraph. from the Newry Project to Cornhilltofor the sameroyalty period Company subscription price asarising described thesale preceeding Additionally, pursuant a separate as that outlinedBest above for would the Investors. agreement, Kedco pay 2% of the proceeds arising from the sale of energy from the Newry Project to Cornhill for the same period as that outlined above for the Investors.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 27 Borrowings (continued)

Summary of Borrowing Arrangements (continued) (i) continued Under Loan Note agreement, Company granted holders of Loan the Loan second-ranking security its Under thethe Loan Note agreement, the the Company granted the the holders of the NoteNote second-ranking security overover its 80% interest of its Vudlande of2011, 5th July theissecurity of being due enforced to 80%of interest its Vudlande subsidiarysubsidiary in Latvia.inAsLatvia. of 5thAs July the2011, security capableisofcapable being enforced to thedue delays the delays in the finalisation of the Newry Project and the Company has received notice from the Trustee of the Loan in the finalisation of the Newry Project and the Company has received notice from the Trustee of the Loan Notes that it Notestothat it intends to enforce the security. The of Company, as review, part of was its strategic review, wasseeking alreadypurchasers considering intends enforce the security. The Company, as part its strategic already considering for seeking purchasers Vudlande was deemed non-core the to Company’s focus on waste energy its Vudlande subsidiaryfor as ititswas deemedsubsidiary non-coreas toitthe Company’s focus on to waste energy generation. Undertothe terms generation. Under theCompany terms of the Loan Noteinifexecuting the Company successful in executing a saleofofany Vudlande, proceeds of the Loan Note if the is successful a saleis of Vudlande, the proceeds such salethe may first be of any such sale may first be applied in discharging its obligations under the Loan Note Agreement and other senior applied in discharging its obligations under the Loan Note Agreement and other senior lending facilities. Any disposal of the lendingoperation facilities. Any disposal the Vudlande operation is likelyShareholders. to be subject to the approval of Kedco Shareholders. Vudlande is likely to be of subject to the approval of Kedco Investor loans of of g1,219,028 were received during the (ii)(ii) Investor loans g1,219,028 were received during theyear yearended ended30th 30thJune June2010. 2010.OfOfthe thetotal totalg1,219,028 g1,219,028received, received, g250,000 is secured on the 75kW combined heat and power modular biopower system included in inventories at 30th g250,000 is secured on the 75kW combined heat and power modular biopower system included in inventories at 30th June June 2011 and g150,000 secured by personal guarantees fromdirectors. certain directors. total of g400,000 was 2011 and g150,000 is securedis by personal guarantees from certain The total The of g400,000 was repayable repayable between 1st2010 September 2010 and 31st October withpayment an interest between 2.5% 3% between 1st September and 31st October 2010 with an2010 interest of payment between of 2.5% and 3% perand month. per funds month. These funds were advanced to finance year ended 30th June 2011, g162,500 These were advanced to finance working capital.working During capital. the yearDuring endedthe 30th June 2011, g162,500 of the principal the principal repaid. 30th June 2011, thebalance outstanding loan balance was g475,967. wasofrepaid. At 30thwas June 2011,Atthe outstanding loan was g475,967. remaining investor loans of g819,028 received during ended are unsecured, no TheThe remaining investor loans of g819,028 received during the the yearyear ended 30th30th JuneJune 20102010 are unsecured, havehave no fixed fixedrate interest fixed repayment date.funds These funds were advanced to working finance working Of this interest and rate haveand no have fixed no repayment date. These were advanced to finance capital. capital. Of this amount, amount,related g108,000 related to funds directors. During the30th yearJune ended 30tha further June 2011, a further g190,000 g108,000 to funds advanced byadvanced directors. by During the year ended 2011, g190,000 was advanced wascompany advancedtoto the company finance working capital was repaid by the company, leaving to the finance working to capital while g910,911 waswhile repaidg910,911 by the company, leaving an outstanding balanceanof outstanding balance of g98,117 to investors at 30th June 2011. g98,117 payable to investors at 30thpayable June 2011. During ended 2011, g1,200,000 of unsecured was received from its 22.14% shareholder, During thethe yearyear ended 30th30th JuneJune 2011, g1,200,000 of unsecured loansloans was received from its 22.14% shareholder, Farmer FarmerDevelopments Business Developments (‘FBD’) assist its working short term working capital requirements. funds were Business plc (‘FBD’) plc to assist its to short term capital requirements. These funds These were repayable on repayable on from demand as and1st from as2011, from 1st May with an interest payment on capital outstanding capital 10% per demand as and as from May with an 2011, interest payment on outstanding of 10% per of annum. The annum. The drawdown portionmay of the mayatbeany converted anyinto timeOrdinary by FBD Shares into Ordinary Shares Kedco plc.to drawdown portion of the facility be facility converted time by at FBD in Kedco plc. IfinFBD opts If FBD opts to convert the Facility into Kedco plc ordinary shares, then the conversion price will be the average of the convert the Facility into Kedco plc ordinary shares, then the conversion price will be the average of the closing mid-market closing the to tenconversion. working days to conversion. FBD wouldany notproportion be able to of convert any proportion price of themid-market ten workingprice daysofprior FBDprior would not be able to convert the Facility into Kedco the Facility into Kedco ordinary shares if toholding do so would result in FBD of holding excess of 29.9% of Kedco plc of ordinary shares if to do soplcwould result in FBD in excess of 29.9% Kedcoinplc’s issued share capital. At plc’s 30th issued capital. At 30th June 2011, the outstanding principal and interest came to g1,252,986. June 2011,share the outstanding principal and interest came to g1,252,986. The directors consider the carrying amount of borrowings approximates to their fair values.

28 Deferred Income - Goverment Grants

2011 e

2010 e

Non-Current Liabilities Deferred Income - Government Grants

36,915

50,653

Current Liabilities Deferred Income - Government Grants

9,444

6,009

Deferred income relating to Government grants represent rural support service and EU Structure fund co-financing received in 2004 and 2005 for the purchase of plant, property and equipment. The financing received has been recognised as deferred income and is transferred to the profit or loss over the useful lives of the related assets which are five and eleven years. The amortisation of deferred income is offset against depreciation on the relevant assets within ‘administrative expenses’ in the income statement. 63

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 29 Finance Lease Liabilities Finance lease liabilities relate to motor vehicles and plant and machinery. Lease terms vary from three to five years. The Group has options to purchase the related assets for a nominal amount at the conclusion of the lease agreements. The Groupâ&#x20AC;&#x2122;s obligations under finance leases are secured by lessorsâ&#x20AC;&#x2122; title to the leased assets. 2011 h

2010 h

Less Future Finance Charges Present Value of Minimum Lease Payments

4,497 375 4,872 (179) 4,693

37,519 4,872 42,391 (895) 41,496

Present Value of Minimum Lease Payments No later than 1 Year Later than 1 Year and not later than 5 Years Present Value of Minimum Lease Payments

4,320 373 4,693

36,803 4,693 41,496

Included in the financial information as: Current Liabilities Non-Current Liabilities

4,320 373

36,803 4,693

Minimum Lease Payments No later than 1 Year Later than 1 Year and not later than 5 Years

The fair value of finance lease liabilities is approximately equal to their carrying amount. 30 Trade and Other Payables

Group VAT Payable Trade Payables Other Payables Accruals Amounts due to Jointly Controlled Entities PAYE and Social Welfare Income Tax Payable

2011 h 1,350 3,264,538 43,773 1,234,808 781,920 149,998 5,287

2010 h 18,734 3,524,313 267,187 907,473 1,309,765 185,712 8,330

5,481,674

6,221,514

The carrying amount of trade and other payables approximates fair value. All trade and other payables fall due within one year.

Company Trade Payables Amounts Due to Subsidiary Undertakings Income Tax Payable Accruals

2011 h 18,089 134,840 599 319,668

2010 h 112,271 111,540

473,196

223,811

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 31 Deferred Tax Liability

At the beginning of the financial year Movement in deferred tax liability â&#x20AC;&#x201C; charged to income At the end of the financial year

2011 h 128,176 139,886 268,062

2010 h 81,078 47,098 128,176

The deferred tax liability arises due to a temporary difference between the book value of property, plant and equipment compared to the tax base. A deferred tax asset has not been recognised at the balance sheet date in respect of trading tax losses. Due to the history of past losses, the company has not recognised any deferred tax asset in respect of tax losses to be carried forward which are h10,062,816 at 30th June 2011.

32 Operating Lease Arrangements Operating leases relate to office facilities with lease terms varying from 5 years to 25 years and a rent review every 5 years. The Group does not have an option to purchase the leased asset at the expiry of the lease period.

Operating Lease Charges

2011 h 143,740

2010 h 143,740

At the balance sheet date, the Group has commitments under non-cancellable operating leases which fall due as follows:

Within One Year Longer than 1 Year and not longer than 5 Years Longer than 5 Years

2011 h 20,000 -

2010 h 122,395 390,907 429,167

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 33 Share-Based Payments On 16th October 2008 the Group established a Long-Term Incentive Plan (the ‘LTIP’) under the terms of which certain employees subscribed for ‘A’ shares at a subscription price being the par value of h0.01 each that reflected the restricted nature and contingent value attaching to such shares. All ‘A’ shares will convert into ordinary shares with full voting and dividend rights following the achievement by management of the Group of any one of the following performance related targets: the Group, for any financial year ending on or prior to 30th June 2011, achieving EBITDA of at least h14m in respect of such financial year; or ● the Group, for any financial year ending on or prior to 30th June 2011, achieving EBITDA of at least h7m in respect of such financial year (conversion only taking place after 30th June 2011 notwithstanding the achievement of the relevant target in an earlier year); or ●hethe Group, forfor anythe financial yearyear ending on or 30th2011 Juneand 2011, EBITDA at least respect of Group, financial ending on prior 30thtoJune for achieving the financial yearofending onh7m 30thinJune 2012, such financialcumulative year (conversion place after June 2011 notwithstanding achieving EBITDAonly of attaking least h14m over 30th the period of such financial years.the achievement of the relevant target in an earlier year); or EBITDA in respect of any relevant financial year means the earnings of the Group before interest, taxation, depreciation and amortisation by reference to the profit and loss account of the Group for the relevant financial year (based on the audited financial statements of the Group for such financial year) which shall be calculated both in accordance with IFRS and in accordance with the same accounting principles and policies applied by the Group in previous years (IFRS prevailing in the case of conflict). ●

If the EBITDA targets referred to above are not met then the conversion of the ‘A’ shares shall not occur and the Group may redeem these ‘A’ shares, subject to adequate reserves, at the par value thereof. If a successful offer is made to acquire control of a majority of the shares in the Group or all, or substantially all, of its assets, immediately prior to completion of such an offer, the ‘A’ shares will convert into ordinary shares so that they become eligible to participate in such an offer notwithstanding if such an offer occurs prior to 30th June 2012. The Group will have an option to redeem all ‘A’ shares (at the original subscription price) held by a member of management who leaves the Group’s employment for whatever reason before the date of conversion, save for: ● where a member of management ceases to be an employee of the Group by reason of death or permanent disability. In this instance the ‘A’ shares will pass to the deceased’s estate (in the case of death) or will be retained by him/her (in the case of permanent disability) pending confirmation as to whether conversion shall occur; and ● where a member of management ceases to be an employee of the Group (for any reason whatsoever) after the end of a particular financial year (or years), but before EBITDA is determined based on the audited accounts for that year (or where a member of management ceases to be anfor employee of theyear Group by reason deathwill, or permanent disability. In years), then if the relevant targets are achieved such financial (or years) suchof person notwithstanding his/her thisdeparture instance the shares willremain pass toentitled the deceased’s case of scheme death) or will be retained him/her (in the from‘A’the Group, to benefitestate under(in thisthe incentive and have his/her ’Abyshares converted caseand of re-designated permanent disability) pending confirmation as to whether conversion shall occur; and into ordinary shares. Details of the ‘LTIP’ shares are as follows: Issue Date

Number of ‘LTIP’ ‘A’ shares

Issue Price

Fair Value at Issue Date

16th October 2008

49,256,332

g0.01

Expense in Income Statement 30th June 2011 g164,197

Expense in Income Statement 30th June 2010 g164,195

The fair value assigned to the ‘LTIP’ shares is estimated by management on the date of the grant based on certain assumptions. These assumptions include, among others, the degree of probability of the vesting conditions being achieved and the marketability of the shares at the date of the grant.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 34 Related Party Transactions Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. During the reporting year the Group received finance from its related parties. There were no further related party transactions other than the remuneration of key management. Financing Transactions The following transactions have taken place with members of the Board:

Amounts Owed to Directors: Zero-Coupon Loan Notes 2012 (Note 27) Investor Loans (Note 27) Vudlande Loan (Note 27)

2011 c 532,135 599,909 -

2010 c 1,071,555 160,000

During the year ended 30th June 2011, Board members converted c489,242 of existing Investor and Vudlande loans into Zero-Coupon Loan Notes 2012. During the year ended 30th June 2011, investor loans of cNil (2010: c183,000) were advanced by members of the Board. c224,404 of these loans were repaid to members of the Board in the year ended 30th June 2011 (2010: c115,000). A further c329,242 of these loans were converted into Zero-Coupon Loan Notes 2012 as disclosed above. During the year ended 30th June 2011, c160,000 of the Vudlande loan was repaid to members of the Board (2010: c340,000). These funds were used by the Board members to invest in the Zero-Coupon Loan Notes 2012 as described above. Security for the Zero-Coupon Loan Notes 2012 is disclosed under Note 27. There is no security attached to the other loans disclosed above. Warrants attached to the Zero-Coupon Loan Notes 2012 issued to Board members above total 1,667,499 â&#x20AC;&#x201C; details of the exercise of these warrants are disclosed in Note 27 above. As described in Note 21 of the financial statements, the company entered into a put and call option and a second call option relating to the shares in Kedco Howard Limited with the other party in the joint venture, Wellwin Investments Limited, a company incorporated in Ireland. One of the shareholders of Wellwin Investments Limited, who controls 32.5% of the company, is a director of Kedco plc. As part of the agreement described in Note 21, Kedco plc has guaranteed to repay the debt of c990,000 owed by Kedco Howard Limited to Wellwin Investments Limited, and to pay a facility fee of 5% of the loan outstanding to Wellwin Investments Limited. During the year ended 30th June 2011, Kedco plc paid c497,500 to Wellwin Investments Limited by way of its own investment in Kedco Howard Limited. Kedco plc also paid c59,175 to Wellwin Investments Limited by way of facility fee (2010: c60,600). Warrants attaching to these loans total 4,050,000 at a subscription price of ÂŁ0.03 exercisable at any date up to 30th June 2014.

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 34 Related Party Transactions (continued) Finance costs recognised in the income statement in respect of loans from members of the Board amounted to:

Zero-Coupon Loan Notes 2012 (Note 27) Investor Loans (Note 27) Wellwin Facility Charge (see above) Vudlande Loan (Note 27)

2011 c 127,051 54,970 59,175 241,196

2010 c 58,524 60,600 35,656 154,780

Included in accruals at 30th June 2011 is finance costs payable of c11,562 relating to loans from members of the Board (2010: c20,993). Interest from the Zero-Coupon Loan Notes 2012 have been rolled up into the loan balance at 30th June 2011.

Amounts Invested by Directors: Share Capital Share Premium

2011 c -

2010 c 31,333 438,667

Certain directors have provided personal guarantees to Allied Irish Bank plc and Ulster Bank for bank loans, business credit line facilities and a stocking loan. They have also provided personal guarantees on certain investor loans. (Note 27).

Key Management Remuneration Key management personnel of Kedco plc consists of the Board of Directors as they are responsible for planning, directing and controlling the activities of the Group. The remuneration of directors during the year presented was as follows:

Fees for services as directors Remuneration for other services Termination payments

2011 c 73,000 372,750 153,000

2010 c 72,000 358,767 -

590,750

430,767

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 34 Related Party Transactions (continued) Remuneration earned by each director during the financial year ended 30th June 2011 is as follows: Emoluments and Compensation h William Kingston Donal Buckley Gerry Madden Edward Barrett Brendan Halpin Dermot O’Connell Diarmuid Lynch Donal O’Sullivan Alf Smiddy

21,000 104,000 250,000 9,000 18,750 4,000 12,000 12,000 15,000 445,750

Long Term Incentive Plan h

Pension Contributions h

Termination Payments h 153,000 153,000

At 30th June 2011, Directors’ remuneration unpaid amounted to h189,084 (2010: h163,739). The Company and the Group are controlled by the Board of Directors. No long term incentive plan (‘LTIP’) shares were issued during the financial year ended 30th June 2011. At 30th June 2011, 49,256,332 ‘LTIP’ Shares were in issue (see Note 33). Details of each director’s shareholding is shown in the Directors’ Report. Consultancy costs paid to a company controlled by one of the directors amounted to h9,000 in the year to 30th June 2011 (2010: hNil).

Other Related Party Transactions Amounts owed to external investors: Investor loans (Note 27) Vudlande loan (Note 27)

2011 h

2010 h

1,252,986 700,000

700,000

During the year ended 30th June 2011, investor loans of h1,200,000 were advanced by Farmer Business Development plc, the 22.14% shareholder of the Company. Details of this facility are noted in Note 27. The Vudlande loan relates to monies advanced by close family members of one of the directors. There was no movement in these loans in the year to 30th June 2011 or in the comparative year. A close family member of one of the Directors is a 32.5% shareholder in Wellwin Investments Limited, as described in Note 21.

Kedco plc Annual Report and Accounts 2011

Investor loans (Note 27) Vudlande loan (Note 27)

2011 g

2010 g

52,986 105,000

105,000

157,986

105,000

Included in accruals at 30th June 2011 are finance costs payable of g83,125 relating to loans from related parties (2010: g83,125).

Jointly Controlled Entities Details of amounts advanced to and received from jointly controlled entities are as follows: 2011 g

2010 g

Loan to Jointly Controlled Entity (disclosed under financial assets)

990,000

Balances Due from Jointly Controlled Entities (disclosed under Trade and Other Receivables in Note 24)

762,916

393,971

Amounts Payable to Jointly Controlled Entities: Balances due to Jointly Controlled Entities (disclosed under Trade and Other Payables in Note 30)

781,920

1,309,765

Amounts advanced to Jointly Controlled Entities:

During the year ended 30th June 2011, sales of g42,080 was made to a jointly controlled entity (2010: g16,043). Included in trade receivables at 30th June 2011 is gNil relating to amounts receivable from jointly controlled entities (2010: gNil). During the year ended 30th June 2011, stock and services were purchased from a jointly controlled entity totalling g121,339 (2010: gNil. Included in trade payables at 30th June 2011 is gNil relating to amounts payable to jointly controlled entities (2010: gNil). Expenses recharged to a jointly controlled entity for the year ended 30th June 2011 amounted to g227,611 (2010: gNil).

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 35 Cash and Cash Equivalents For the purposes of the cash flow statement, cash and cash equivalents include cash on hand and in banks and bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement can be reconciled to the related items in the balance sheet as follows: Group

Cash and Bank Balances Bank Overdrafts Company Cash and Bank Balances

2011 g

2010 g

616,285 (407,698) 208,587

116,753 (673,770) (557,017)

402,718

27,723

36 Reconcilation of Movement in Shareholders’ Funds

Company Issue of Ordinary Shares Share Premium Arising on Issued Share Capital Loss for the Financial Year Share-Based Payment Reserve Movement in Shareholders’ Funds in the Period Opening Shareholders’ Funds Closing Shareholders’ Funds

For the year ended 30th June 2011 g

For the year ended 30th June 2010 g

304,592 1,628,222 (11,149,275) 164,197 (9,052,264) 39,510,693 30,458,429

173,600 2,313,858 (237,028) 164,195 2,414,625 37,096,068 39,510,693

37 Contingent Liabilities Kedco plc has guaranteed the liabilities (as defined in Section 5 (c) (ii) of the Companies (Amendment) Act 1986) of its wholly owned subsidiaries for the year ended 30th June 2011: ● ● ● ● ● ● ● ● ●

Kedco Power Limited Kedco Block Holdings Limited Kedco Fabrication Limited Granig Trading Limited Castle Home Supplies Limited Kedco Energy Limited Ardstown Investments Limited Kedco Investment Co. 1 Limited Kedco Investment Co. 2 Limited

Kedco plc Annual Report and Accounts 2011

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2011 38 Commitments At the balance sheet date, the group has commitments of v212,073 (2010: v212,073) with respect to the purchase of equipment in relation to one of its construction contracts.

39 Events After the Balance Sheet Date During October 2011, the Company raised v1.2m from the issue of loan notes to the Company’s main shareholder Farmer Business Developments plc. The proceeds from the placing will be used to develop identified opportunities for joint ventures and working capital purposes. In November 2011 the Company confirmed that its joint venture, Best Kedco Limited which was established to develop a biomass electricity and heat generating plant in Newry, Northern Ireland signed a binding facilities agreement with Ulster Bank Group, a subsidiary of the Royal Bank of Scotland plc. Pursuant to the agreement, which is subject to certain conditions precedent, Ulster Bank Group will advance up to £9.44m to enable the completion of construction, installation and commissioning of the 4MW plant. To date Kedco plc has invested approximately £6.1m on the construction of the plant. Farmer Business Developments plc (‘FBD’) has agreed to become the Company’s joint venture partner in respect of Best Kedco, wholly replacing Kedco’s previous partner. FBD, which is investing on identical terms to those of the previous partner, will acquire a 50 per cent equity interest in Best Kedco, although its rights to a share of the profits generated by Best Kedco will be limited to how much capital it contributes to the project (initially approximately eight per cent). FBD has an option to purchase up to 50 per cent of the issued loan notes in Best Kedco, currently held by a subsidiary of Kedco. The loan notes may be acquired at par value plus interest of eight per cent. per annum. To the extent that FBD exercises its option, its entitlement to profits from Best Kedco will increase proportionate to its resultant aggregate capital contribution. No other significant events affecting the Group have occurred since 30th June 2011.

40 Approval of Financial Statements These consolidated financial statements were approved by the Board of Directors on 16th November 2011.

Kedco plc Annual Report and Accounts 2011

Advisors and Other Information ●

DIRECTORS Dermot O’Connell, Non-Executive Chairman Gerry Madden, Interim Chief Executive Officer and Finance Director Brendan Halpin, Executive Director Edward Barrett, Non-Executive Director William Kingston, Non-Executive Director Diarmuid Lynch, Non-Executive Director Donal O’Sullivan, Non-Executive Director Alf Smiddy, Non-Executive Director

●

SECRETARY Diarmuid Lynch

●

NOMINATED ADVISER Deloitte & Touche LLP, Stonecutter Court, 1 Stonecutter Street, London, EC4A 4TR, United Kingdom.

●

SOLICITORS O’Flynn Exhams, 58 South Mall, Cork, Ireland.

●

BROKER SVS Securities plc, 21 Wilson Street, London, EC2M 2SN, United Kingdom.

●

REGISTERED OFFICE Kedco plc, 4600 Airport Business Park, Kinsale Road, Cork, Ireland.

●

REGISTRAR Capita Corporate Registrars plc, Unit 5, Manor Street Business Park, Manor Street, Dublin 7, Ireland.

AUDITORS Deloitte & Touche, No 6 Lapps Quay, Cork, Ireland. BANKERS Allied Irish Bank, Main Street, Carrigaline, Co. Cork, Ireland. Ulster Bank, Georges Quay, Dublin 2, Ireland.

Kedco plc

4600 Airport Business Park Kinsale Road Cork

t +353 (0)21 483 9104 f +353 (0)21 483 9112 e info@kedco.com w www.kedco.com

design: Charlie Neville, Cork

Ireland