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Kedco plc

ANNUAL REPORT AND ACCOUNTS

2012


Contents Our Business

01

Chairman’s Statement

06

Chief Executive’s Report

07

Board of Directors

10

Directors’ Report

11

Statement of Directors’ Responsibilities

14

Corporate Governance Report

15

Independent Auditors’ Report

16

Consolidated Statement of Comprehensive Income

18

Consolidated Statement of Other Comprehensive Income

19

Consolidated Statement of Financial Position

20

Consolidated Statement of Changes in Equity

21

Consolidated Statement of Cash Flows

22

Company Statement of Financial Position

23

Company Statement of Changes in Equity

24

Company Statement of Cash Flows

25

Notes to the Consolidated Financial Statements

26

Advisers and Other Information

73


Kedco PLC - Annual Report and Accounts 2012

Kedco plc’s renewable energy p o rt fo l i o in c l u d e s in t e r e s ts i n th e U n i t e d K in g d o m a n d I re la n d

Kedco plc’s 4MW biomass electricity and heat generating plant, Newry, Northern Ireland

Our Business - Who We Are

Why Renewable Energy?

Our stated aim is to be one of the UK and Ireland’s largest

The UK and Irish Governments view the Renewable

independent renewable energy companies, with a diverse Energy Sector as an opportunity for economic rejuvenation, portfolio of operating and developing assets across various driving industry growth and job creation renewable energy technologies. ●

The Renewable Energy Sector in the UK and Ireland is

Our business strategy is to identify, develop, build, own and driven by clear economic and political factors such as rising operate renewable power plants in the UK and Ireland.

energy costs, growing concerns over climate change and increasingly supportive Government policy and regulation.

We identify seven stages in the development of a renewable power generation project. These are; initial evaluation, sign

Bound by targets under the EU Renewable Energy

letter of intent, secure site, obtain planning and permitting, Directive both Governments must ensure that 15% of secure financial closure, construction and finally operation.

energy consumption is from renewables by 2020.

Value is created as we move from one stage of a renewable

The Renewable Energy market in the UK is estimated to

power project to the next. When we secure a site, value is be worth £120 billion, making it the world’s sixth largest low created; when we secure planning and permitting further carbon economy. By 2014/15 this growing sector is value is created. Moving to financial close on projects and expected to be worth £150 billion. actual construction and operation in our view increases project value substantially.

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Operational Highlights The company achieved its objective of transitioning from a clean energy project developer to an operational project owner with the commencement of generation of electricity at the 4MW Newry Biomass project in Northern Ireland.

Significant progress has been made in relation to the ready to construct 12MW Enfield Biomass project in London which has included detailed discussions with EPC contractors and with potential debt and equity partners.

Pre planning consultation phase for the Clay Cross Biomass project is now complete with a full planning application to be submitted by the end of Q1 2013.

Successfully negotiated the proposed acquisition of Reforce Energy Limited a project developer with 60 active projects with a capacity in excess of 40MW at various stages of development in the UK and Ireland which will be completed shortly

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Kedco PLC - Annual Report and Accounts 2012

Financial Highlights – Year ended 30th June 2012

● Revenue from continuing operations of e10.1m (FY 2011

restated: e0.9m)

● Administrative costs reduced to e0.9m (FY 2011 restated:

e3.6m)

● Loss before tax from continuing operations for the period

reduced to e1.6m (FY 2011 restated: Loss before tax e5.3m)

Total loss for the period reduced to e2.5m (FY 2011

restated: Loss for period e4.5m) includes one-off impairment cost of e1.4m arising on the revaluation of the Group’s Latvian subsidiary, SIA Vudlande

0.6 cent loss per share for continuing operations (FY 2011

restated: loss per share 2.3 cent)

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Debt Restructuring – ●

Successfully negotiated balance sheet restructuring with

various lenders, resulting in the conversion of debt to equity and a reduction of balance sheet debt by approximately e10.8m.

Material reduction in ongoing annual interest of

approximately e1.5m.

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Kedco PLC - Annual Report and Accounts 2012

Asset Disposal ●

Completed the disposal of a further non-core asset being

the entire interest in Latvian subsidiary for e3m, as part of debt restructuring.

Share Placing / Funding ●

Successful placings of shares to new investors in February

2012, May 2012 and November 2012 raising approximately e1.5m.

Negotiated and agreed term sheet for the provision of

£1.5m in VCT funding for the Newry Biomass project.

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Chairman’s Statement The Board took the opportunity to reposition the Company as a ‘technology neutral’ renewable energy business with a core focus on developing and delivering operational electricity and heat generation projects. The Company will focus on both large and small-scale projects, providing flexibility to maximise existing land positions whilst diversifying development and technology risks. This flexible business model will deploy capital where it can achieve the In September 2012 the Company best return for shareholders whilst still keeping the focus on announced that its biomass the generation of clean energy from either electricity or heat. electricity and heat generation plant in Newry, Northern Ireland, With this in mind the Company entered into negotiations to commenced the exportation of acquire Reforce Energy Limited (‘Reforce’), a renewable power to the grid. This marked the energy development company focused on small-scale Company’s transition from a pure renewable projects across various technologies. Reforce’s development company to an key markets are the UK, Ireland and Northern Ireland where operator of renewable energy assets. it already has an active pipeline of over 60 projects with a capacity of in excess of 40MW at various stages of Operationally the Company development. We expect to complete the acquisition shortly. completed the refocusing of the business portfolio towards its core, The Company’s ultimate aim is to be one of the UK and renewable energy power generation Ireland’s largest independent renewable energy companies, activities. Cost savings have been with a diverse portfolio of operating and development assets delivered through the exit from non- across various renewable energy technologies. To this end, core and non-profitable business the Company will focus on developing its existing portfolio segments, creating a leaner, more as well as considering strategic bolt-on acquisition efficient business structure with the opportunities that add generating potential to its project focus purely on the renewable portfolio. energy power generation business. On behalf of my colleagues on the Board, we wish to Since 30th June 2012, the Company has carried out a express our thanks to the management and staff who have restructuring process, with the objectives of stabilising the worked so diligently over the past year. I look forward to Company’s financial affairs, positioning the Company in a updating shareholders further on the Company’s progress at manner which will enable it to raise further capital, and our Annual General Meeting in December. enabling the Company to adopt a more appropriate capital structure. This will facilitate the advancement of its development project line through the planning and Dermot O’Connell permitting process. At the Extraordinary General Meeting Non-Executive Chairman held on 5th October 2012, shareholders approved resolutions regarding the restructuring process. The Board is happy to report that this process in now complete.

N ewry p ro ject m a r k s t he Company’s t r a ns i t i o n t o a n operator of ren ew ab le en er gy ass ets from a pure d evelo p men t company

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I am pleased to present the 2012 Annual Report, which provides an update on a year which has been one of significant development for the Company. This financial year has without doubt been the most important in the Group’s history.


Kedco PLC - Annual Report and Accounts 2012

Chief Executive’s Report Operational Review The Company’s stated aim is to be one of the UK and Ireland’s largest independent renewable energy companies, with a diverse portfolio of operating and development assets across various renewable energy technologies. The Company currently has 67MW of potential power at various stages of development as set out below: Newry Biomass – 4MW Biomass combined heat and power (‘CHP’) The Company recently announced that its plant in Newry, Northern Ireland, commenced the exportation of power to the grid. This marks the Company’s transition to an operator of renewable energy assets from a pure development company. The electricity generated by the plant is being sold to Bord Gáis Eireann under a Power Purchase Agreement (‘PPA’). The Company now intends to move towards the completion of the next 2MW phase of the project, which is expected to come online in Q4 2013. The civil and on-site works for this additional 2MW have already been completed and a deposit has been paid to secure the expansion of the grid infrastructure for the project. Kedco has invested £6m through a combination of equity and loan notes in the project corporate entity and owns 50 per cent of the ordinary equity and 92 per cent of the economic return from the project. Our major shareholder, Farmer Business Developments plc, owns the remaining 50 per cent of the ordinary equity but is only entitled to eight per cent of the economic return from the project. The balance of the project funding was arranged through a financing deal with RBS Ulster Bank, which committed project finance facilities of up to £8m. Further updates will be provided in the near future as the project moves towards full commissioning of the first phase.

T h e c o n s t r a i n i ng f a c t o r s of t h e pa s t are n o w b eh in d

We intend to complete the planning process for a further 4MW extension to the Newry Biomass project, bringing the capacity up to 8MW in the coming year.

Enfield Biomass – 12MW Biomass CHP The Company’s other key asset is the 12MW Enfield Biomass project located in Enfield, London. This project has full planning and permitting to convert 60,000 tonnes per annum of waste wood and has entered into advanced discussions in relation to an offer to connect to the national grid. The Company has already entered into a 20 year lease in relation to the site. The Company has various options available in relation to feedstock sourced locally for the plant. The Directors believe that this project is one of the most advanced biomass development projects located in the London region and the Company intends to progress the project towards financial close and commencement of construction. Advanced discussions are currently taking place with potential debt and equity partners in relation to the project. We intend to complete the financing and starting construction of the 12MW Enfield Biomass project in the coming year. A further update will be provided as appropriate. Cork and Kerry Anaerobic Digestion (‘AD’) projects The Company has full planning and permitting for two sites located in the South of Ireland which could convert 40,000 tonnes of agricultural and food waste per annum into up to 1.5MW of electricity and 1.4MW of heat. These projects will qualify for the Irish Government support scheme for renewable energy under REFIT III, which covers biomass technologies for the period 2010 to 2015. This scheme provides for a fixed feed in tariff rate of between e0.10e0.13 per kilowatt hour (‘kWh’) produced, depending on the use of heat generated from the plant. A strategic decision regarding the development of these two projects is currently being undertaken. Clay Cross Biomass CHP and AD and Rutland AD The Company has also invested heavily in planning and permitting over the last 18 months and it is currently engaged in the consenting process for an 8MW site in Derbyshire and 1.3MW AD site in East Anglia, both in the UK.

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Chief Executive’s Report - continued Pluckanes Wind Farm Reforce recently made an announcement that it has completed the purchase of Pluckanes Windfarm Limited (‘Pluckanes’), which has developed a fully consented 800kw single wind turbine project located in Cork, Ireland. The purchase of the Pluckanes project has added a construction ready asset to the portfolio, which is targeted to become operational during 2013. Once the Acquisition is finalised and with the commissioning of the project next year, the Company’s operational capacity will increase by 40 per cent. Project Portfolio The Company is currently in discussion with a number of site owners in the UK and Ireland regarding future sites for the development of renewable energy projects. The intention is to secure sites that will increase the development pipeline to a minimum 300MW within the next three years. Reforce whose acquisition will be completed shortly has a pipeline of over 60 projects with a capacity of in excess of 40MW across various technologies located in the UK, Ireland and Northern Ireland. Financial Review Revenue in the period amounted to e10.1m and was in line with expectations (FY 2011 restated: e0.9m). The Group reported a loss for the period of e2.5m, a decrease on the prior year loss of e4.5m for FY 2011. Included in the loss of e2.5m is a one-off impairment cost of e1.4m arising on the revaluation of the group’s Latvian subsidiary, SIA Vudlande before disposal post year end. The decrease in losses is attributable to a significant reduction in administrative costs during the year and a decrease in financing costs arising from the restructuring of debt.

The Group has carried out a restructuring process since the year end which has significantly strengthened the Group’s balance sheet through the reduction of approximately e10.8m of debt obligations of the Group, as well as a reduction of its annual interest charge by approximately e1.5m. The reduction of e10.8m was achieved through the conversion of debt into equity and the sale of its Latvian subsidiary, SIA Vudlande. Outlook In the 2011 preliminary announcement the Board promised shareholders that we would aggressively pursue other opportunities in our project pipeline. I am pleased to report that we have made substantial progress in adding further projects to the pipeline, which I believe will add shareholder value in the short to medium term. Against this positive backdrop, we have further refined and refocused the Company’s strategy with a clear aim of being one of the largest independent renewable energy companies in the UK and Ireland. The successful completion of the balance sheet restructure further solidifies this strategy and provides a springboard for the Company to accelerate its project pipeline. In light of the Company’s expanding pipeline of development and acquisition opportunities, the Directors anticipate undertaking a further equity fundraising in 2013.

I was also delighted to announce the impending acquisition of Reforce which is expected to close imminently. I feel that the transaction provides a key endorsement of our strategy. In addition to a strong pipeline of renewable energy projects, Reforce has an experienced management team with over 10 years’ experience across 500MW+ of renewable energy At 30th June 2012, the Group had net debt of e11.9m projects. The Reforce management team and shareholders, (30th June 2011: e11.8m) including cash balances of by agreeing to the acquisition, believe there is an attractive e144,764 (30th June 2010: e616,285). value creation story for the combined Group.

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Kedco PLC - Annual Report and Accounts 2012

Chief Executive’s Report - continued The Board has identified the following objectives for the coming 12 months: ● To complete the financing and starting construction of the 12MW Enfield Biomass project. ● To complete the financing and start installation of the second stage of the 4MW Newry Biomass which will be fully commissioned by end of the 2013. ● To complete the planning process for a further 4MW extension to the Newry Biomass project, thereby bringing the capacity up to 8MW. ● Once the Reforce Acquisition is finalised, complete the financing and commissioning the 800kw Pluckanes Windfarm project. ● To obtain planning permission for the 8MW Clay Cross Biomass project. ● Once the Acquisition is finalised bring the Altilow 800kw wind project to a fully consented and ready-to-construct stage. ● To obtain at least another six planning permissions for small scale renewable energy projects ● To double the size of the Company’s current development pipeline. We believe the constraining factors of the past are now behind the Company. With the restructuring, pipeline progress and proposed acquisition of Reforce, we are more confident than ever of being able to deliver real shareholder value in the short to medium term. We will continue to focus the Company’s resources on bringing projects to construction ready and financial close stages and in managing the operations of these projects. Projects will sit in their own individual special purpose entities and project funding will take place in those entities. The Company intends to retain an equity interest in all future projects to the benefit of shareholders in the listed Company.

Gerry Madden CEO

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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 NonExecutive Director in March Kedco plc Board of Directors (l-r): Edward Barrett, Donal O'Sullivan, Diarmuid Lynch, 2011 and was appointed as Dermot O'Connell, Brendan Halpin, Gerry Madden and William Kingston. Non – Executive Chairman in October 2011. Dermot's other directorships comprise ● William Kingston Non-Executive Director Fairfield Estates Limited, Fairfield Developments Limited, William Kingston is one of the original founders of Kedco CCM House Limited, Corrin Event Centre Limited, Market plc, joining the Board in January 2005 as Chairman. He is Green Developments Limited, Market Green Estates Limited also a past president of the Irish Grassland Association, a and CCM Dovea Genetics Limited. body focused on research and dissemination of information to the Irish agricultural industry. William was a board ● Gerry Madden CEO and Interim Finance Director member of the Food Safety Authority of Ireland from 2002 Gerry Madden joined Kedco plc in May 2007 as Finance to 2006 and the West Cork Leader (an EU-backed body Director. He has more than two decades of experience in involved in rural development) from 2005 to 2007. business in the UK and Ireland. Prior to joining Kedco, Gerry operated his own consulting practice between 1998 and ● Diarmuid Lynch Non-Executive Director 2007, advising companies on corporate finance and business Diarmuid Lynch is one of the original founders of Kedco plc. strategy. Before that Gerry worked for 16 years with the He operates one of the largest dairy farms in Ireland based international accountants KPMG and was auditor and in Co. Cork. From 1998 to 2000, he served on the board of adviser to listed companies, multinationals and private the Blackwater Trading Company, a group involved in the companies operating in Ireland and internationally. Gerry has procurement of agricultural inputs, services and feedstock acted as Non-Executive Director for a variety of companies in the Blackwater region of Ireland. in different business sectors in Ireland. Gerry is a Fellow of the Institute of Chartered Accountants in Ireland having ● Donal O’Sullivan Non-Executive Director qualified as an accountant with KPMG in 1987. Gerry holds Donal O’Sullivan joined the board in August 2007. He was a degree in Commerce from University College Cork. the Chairman and Executive Director of Esso Ireland Limited between 1986 and 2001. He was also a Director of the Irish ● Brendan Halpin Executive Director Petroleum Industry Association, the representative body of Brendan Halpin joined Kedco plc in February 2006 as companies in Ireland who import, distribute and market Financial Controller and joined the Board as Executive petroleum products. Donal held the position of Managing Director in March 2011. Brendan is a Fellow of the Institute Director of HOYER Ireland Ltd and was a board member of of Chartered Accountants in Ireland, having qualified as an HOYER in the UK from 2001 to 2006. HOYER Ireland is a accountant with PricewaterhouseCoopers in 1998. His subsidiary of HOYER GmbH, a company involved in the current responsibilities include inter alia, finance provision of specialist logistics services to the petroleum, management, project management and treasury functions. chemical, gas and foodstuff sector. ● Edward

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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.


Kedco PLC - Annual Report and Accounts 2012

Directors’ Report The Directors present their annual report and the audited financial statements of the company and its subsidiaries collectively known as ‘the Group’ for the year ended 30th June 2012. Principal Activities The principal activities of the Group are to identify, develop, build, own and operate power plants in the UK and Ireland using renewable energy technologies. The Group focuses on both large and small scale projects, providing flexibility to maximize existing land positions while diversifying development and technology risks. The Group’s ultimate aim is to be one of the UK and Ireland’s largest independent renewable energy companies, with a diverse portfolio of operating and development assets across various renewable technologies. To this end, the Group will focus on developing its existing portfolio as well as considering strategic bolt-on acquisition opportunities that add generating potential to its project portfolio. Review of Business and Future Developments and Key Performance Indicators A review of the Group’s business and future developments and key performance indicators is contained in the Chairman’s Statement and the Chief Executive’s Report on pages 6 to 9. Below is a summary. Operational Highlights The Company achieved its objective of transitioning from a clean energy project developer to an operational project owner with the commencement of generation of electricity at the 4MW Newry Biomass project in Northern Ireland. ● Significant progress has been made in relation to the ready-to-construct 12MW Enfield Biomass project in London, including detailed discussions with EPC contractors and with potential debt and equity partners. ● Pre-planning consultation phase for the Clay Cross Biomass project is now complete with a full planning application to be submitted by the end of Q1 2013. ● Successfully negotiated the proposed acquisition of Reforce Energy Limited (‘Reforce’), a project developer with 60 active projects and a capacity in excess of 40MW at various stages of development in the UK and Ireland. It is anticipated that the acquisition will be completed shortly. Financial Highlights Revenue from continuing operations of e10.1m (FY 2011 restated: e0.9m). ● Administrative costs reduced to e0.95million (FY 2011 restated: e3.6m). ● Loss before tax from continuing operations for the period reduced to e1.6m (FY 2011 restated: Loss before tax e5.3m). ● Total loss for the period reduced to e2.5m (FY 2011 restated: Loss for period e4.5m) includes one-off impairment cost of e1.4m arising on the revaluation of the Group’s Latvian subsidiary, SIA Vudlande. ● 0.6 cent loss per share for continuing operations (FY 2011 restated: loss per share 2.3 cent). Debt Restructuring Successfully negotiated balance sheet restructuring with various lenders, resulting in the conversion of debt to equity and a reduction of balance sheet debt by approximately e10.8m. ● Material reduction in ongoing annual interest of approximately e1.5m. Asset Disposal Completed the disposal of a further non-core asset being the entire interest in Latvian subsidiary for e3m, as part of debt restructuring. Share Placing / Funding Successful placings of shares to new investors in February 2012, May 2012 and November 2012 raising approximately e1.5m. ● Negotiated and agreed term sheet for the provision of £1.5m in VCT funding for the Newry Biomass project. Results and Dividends The results for the year are set out on page 18. No dividends have been proposed by the Directors (2011: eNil).

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Directors’ Report - (continued) 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. The Group is exposed to a number of other risks and uncertainties. These break into two categories: 1 General risks impacting the business. 2 Project development related risk. General Risks Electricity market The Group’s plans are exposed to electricity market price risk through variations in the wholesale price of electricity. The Group manages this risk by entering into long term power purchase agreements. Legislative risk The Group is exposed to adverse changes in legislation that may impact the income for renewable energy power plants. The directors monitor possible changes to legislation and where possible engage in the consultation process to safeguard the Group’s interests. Projected project revenues could be affected by changes to the renewable legislation including for example; the number of Renewable Obligation Certificates awarded per MWh of generation under the Renewable Obligation. Any negative changes to these projected revenues could impact the ability of the group to secure debt and equity for projects. Project development risk s Site evaluation and procurement Securing sites for the development of renewable energy power plants is a key requirement in further developing the business. This relies upon the ability of the Group to locate, evaluate, select, develop and realise appropriate opportunities, and to be able to negotiate and complete land agreements and related access/connection agreements at a cost that allows profitable projects to be developed. The Group manages these risks by continually reviewing a large number of sites in the UK and Ireland such that it is not focused on any one particular landowner or location. Planning and development consent Once a site is secured a planning and development consent is sought, together with any other necessary permits to allow a renewable energy power plant to be constructed and operated. During this stage of the process the Group is exposed to the following specific risks: ● consents may be subjected to delays beyond the Group’s control, which may subsequently cause the project to be delayed or aborted. There are no guarantees that any or all of the necessary consents will be granted; ● consents granted may be subject to conditions that affect the economic or operational viability of the proposed project. These could in turn impact the Group’s ability to raise project finance, or reduce the value of a project in the case of a sale; ● delays or onerous planning conditions may lead to unforeseen costs which the Group may need to raise finance for; ● legislative changes may influence the acceptability of the site or the economic viability of the project. The Group manages these risks through securing sites on which it believes it can secure planning and development consent, employing suitably qualified and significantly experienced staff to manage the consenting process and ensure compliance with the latest legislation, as well as ensuring maximum engagement of local authorities and interested stakeholders from a very early stage. The Group has significant experience of securing planning consents for renewable energy power plants and knowledge of the important criteria involved. The Group uses this experience when selecting sites for development.

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Kedco PLC - Annual Report and Accounts 2012

Directors’ Report - (continued) Principal Risks and Uncertainties (continued) Project development risk s (continued) Contract Negotiation This stage of the development process involves the negotiation of contracts for the construction of the renewable energy plant, the sale of electricity and related products produced by the plant, the procurement of fuel for the plant and the operation of the plant. This stage begins during the early stages of the planning and development and concludes at the point of financial close. During this stage the Group is exposed to the following specific risks in addition to those outlined above: ● the ability to secure fixed price contracts for the construction of each power plant with the required level of guarantees that allow project finance to be secured; ● significant changes to inflation impacting the costs of building and operating renewable energy power plants and therefore the profitability of renewable energy power plants; and The Group manages these risks through soliciting bids from a number of different suppliers for the equipment required to construct the plant and any other materials or equipment required to ensure the plant can operate profitably. Financial close This stage relates to the crystallisation of the project into the construction stage. This may involve either the sale of the project, in whole or part, or securing project finance enabling the project to be constructed. During this stage the Group is exposed to the additional risks: ● the general availability of finance to fund the construction of power plants, and the level of lending that can be secured; ● changes to interest rates which may impact the cost of financing power projects; ● the ability to secure equity on acceptable terms for the construction of projects once debt is in place; and ● depressed market for the sale of projects, leading to low prices or no willing buyers. It is the Boards view that once the project has planning and development consent, these risks are mitigated by the potential to sell a project for at least its book value. The Group has experience in negotiating financial arrangements for power plants and understands the contract structures required to secure project finance. Additionally the Group has relationships with a number of project finance banks, utility and large industrial companies allowing project finance or sale discussions to be initiated. Construction This stage is reached once financing, both debt and equity, is secure and all project contracts are entered into. During this stage the Group is exposed to the following specific risks: ● cost overruns by contractors or claims made may result in a need for additional equity or debt funding; ● delays to the construction programme leading to higher than planned interest charges during the construction programme and may delay the commencement of operating cash flows to fund the Company’s ongoing activities; ● failure of the completed plant to operate as planned; and ● supplier insolvency. The Group seeks to mitigate these risks through the negotiation of fixed price contracts with reputable contractors and by ensuring the financial plans include adequate levels of contingency to accommodate cost overruns. Additionally, the Group seeks to appoint an owner’s engineer with significant experience to oversee the project programme once construction commences. Going Concern The directors have assessed going concern. See Note 3 for further details. Directors The present Directors are listed on page 10. Mr Alf Smiddy resigned as director of the company on 13th February, 2012. In accordance with the Articles of Association, Diarmuid Lynch and Donal O’Sullivan retire by rotation and, being eligible, offer themselves for re-election. The board recommends the re-election of Diarmuid Lynch and Donal O’Sullivan as directors.

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Directors’ Report - (continued) Directors’ and Secretary’s Interests in Shares The Directors and Secretary of Kedco plc who held office at 30th June 2012 had the following interests in the shares of the Company:

● ● ● ● ● ● ●

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

Number of Ordinary Shares at 30th June 2012

Number of ‘A’ Ordinary Shares at 30th June 2012

Number of Ordinary Shares at 1st July 2011

Number of ‘A’ Ordinary Shares at 1st July 2011

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

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

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

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

(or at date of appointment if earlier)

(or at date of appointment if earlier)

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 36 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 Details of events occurring since 30th June 2012 which impact on the Group are included in Note 41. 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 30th November 2012.

Dermot O’Connell Chairman

Gerard Madden Director

Statement of Directors’ Responsibilities Irish company law requires the Directors to prepare financial statements for each financial year, which gives a true and fair view of the state of affairs of the Company and the Group, and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to: ● Select suitable accounting policies and then apply them consistently; ● Make judgements and estimates that are reasonable and prudent; and ● Prepare the financial statements on the going concern basis unless it 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 2012. 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 2012

Corporate Governance Report The Company is not subject to the Combined UK Corporate Governance Code, applicable to companies with full listing on the London Stock Exchange. The Company does however intend, so far as is practicable and desirable, given the size and nature of the business, to 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 seven members. Five 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 utilises other committees as necessary in order to ensure effective governance. Audit Committee The Company’s Audit Committee comprises William Kingston as the Chairman, Donal O’Sullivan 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. 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, Diarmuid Lynch 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. p15


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 2012 which comprise the Group Financial Statements: the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Other Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cashflows and the Company Financial Statements: the Company Statement of Financial Position, the Company Statement of Changes in Equity and Company Statement of Cashflows and the related Notes 1 to 42. 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 2012. 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.

p16


Kedco PLC - Annual Report and Accounts 2012

Independent Auditor’s Report to the members of Kedco plc (continued) Opinion In our opinion: TheGroup GroupFinancial FinancialStatements Statementsgive giveaatrue trueand andfair fairview, view, inin accordance accordance with with IFRSs IFRSs as adopted by the European Union, • the Union, of of the the of the affairs of the group as at 30th June 2012 and of its loss for the year then ended; state state of the affairs of the group as at 30 June 2011 and of its loss for the year then ended; TheGroup GroupFinancial Financial Statements Statements have been properly to 2012; properly prepared preparedininaccordance accordancewith withthe theCompanies CompaniesActs, Acts,1963 196to 2009 • the TheParent Parent Company give a true andand fair view, in accordance with Generally Accepted Accounting Practice • the CompanyFinancial FinancialStatements Statements give a true fair view, in accordance with Generally Accepted Accounting in Ireland as applied in accordance with thewith provisions of the Companies Acts, 1963 to 2012, of 2009, the state parent company Practice in Ireland as applied in accordance the provisions of the Companies Acts 1963 to of of thethe state of the parent affairs as at 30th June 2012; and company affairs as at 30 June 2011; and TheParent Parent Company financial properly prepared in accordance withwith the Companies Acts, 1963 2012. • the financialstatements statementshave havebeen 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 e2,481,358 and had net current liabilities and net liabilities of e6,258,722 and e827,330 respectively at the balance sheet date. 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. The directors believe progress towards securing finance is being made and that measures have been taken to strengthen the Group’s financial position. The directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. The directors have prepared the financial statements of the company and the group on a going concern basis. The financial statements do not include the 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 Statement of Financial Position are more than half the amount of its calledup share capital and, in our opinion, on that basis there did not exist at 30th June 2012 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: 10th December 2012

p17


Consolidated Statement of Comprehensive Income for the year ended 30th June 2012

Notes

2012 h

(Restated) 2011 h

Revenue

8

10,083,158

9,936,435

Cost of Sales

9

(10,123,726)

(1,059,127)

(40,568)

(122,692)

(953,705) 11,100

(3,617,547) 7,605

(983,173)

(3,732,634)

Gross Loss Operating Expenses Administrative Expenses Other Operating Income

10

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

11 23 23 11

(414,424) (213,923) 333

(1,534,344) (356,228) 9,285,379 287

Loss Before Taxation

13

(1,611,187)

(5,337,540)

Income Tax Expense

14

Loss for the Year from Continuing Operations

-

-

(1,611,187)

(5,337,540)

Profit for the year from discounted operations Losses arising on the remeasurement of assets held for sale

15 15

493,911 (1,364,082)

9,802,677 -

Net loss for the year from discontinued operations

15

(870,171)

9,802,677

Loss for the year - total

(2,481,358)

(4,534,863)

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

(2,580,140) 98,782

(4,698,241) 163,378

(2,481,358)

(4,534,863)

Euro Per Share

Euro Per Share

Basic Loss Per Share: From Continuing Operations From Continuing and Discontinued Operations

17 17

(0.006) (0.009)

(0.023) (0.020)

Diluted Loss Per Share: From Continuing Operations From Continuing and Discontinued Operations

17 17

(0.006) (0.009)

(0.023) (0.020)

p18


Kedco PLC - Annual Report and Accounts 2012

Consolidated Statement of Other Comprehensive Income for the year ended 30th June 2012 2012 h Loss for the Financial Year Other Comprehensive Income Exchange differences arising on retranslation of foreign operations

(2,481,358)

(310,844)

2011 h (4,534,863)

21,063

Total comprehensive income and expense for the year

(2,792,202)

(4,513,800)

Attributable to: Owners of the company Non-controlling interests

(2,890,984) 98,782

(4,677,178) 163,378

(2,792,202)

(4,513,800)

p19


Consolidated Statement of Financial Position At ended 30th June 2012 Notes

2012 h

2011 h

18 19 20 21

757,329 7,608,687 8,366,016

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

Current Assets Inventories Amounts due from customers under construction contracts Trade and other receivables Cash and cash equivalents

24 25 26 37

Assets classified as held for sale

16

50,000 1,355,212 1,605,518 144,764 3,155,494 6,584,239

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

9,739,733

14,502,678

18,105,749

21,102,877

4,106,808 19,375,525 (25,207,673)

3,543,999 19,038,300 492,580 (22,316,689)

(1,725,340) 898,010 (827,330)

758,190 799,228 1,557,418

29 30 31 23 33

2,425,025 509,599 2,934,624

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

25 32 29 30 31

1,110,090 2,595,766 9,661,645 373 13,367,874 2,630,581 15,998,455

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

18,105,749

21,102,877

ASSETS Non-Current Assets Goodwill Intangible assets Property, plant and equipment Financial assets Total Non-Current Assets

Total Current Assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Share capital Share premium Shared based payment reserves Retained earnings – deficit

27 27 28

(Deficit) /Equity attributable to equity holders of the parent Non-controlling interest Total (Deficit) /Equity Non-Current Liabilities Borrowings Deferred income – government grants Finance lease liabilities Share of net liabilities of jointly controlled entities Deferred tax liability Total Non-Current Liabilities Current Liabilities Amounts due to customers under construction contracts Trade and other payables Borrowings Deferred income – government grants Finance lease liabilities Liabilities associated with assets held for sale Total Current Liabilities TOTAL EQUITY AND LIABILITIES

p20

16


Kedco PLC - Annual Report and Accounts 2012

Consolidated Statement of Changes in Equity for the year ended 30th June 2012 Share Capital

Share Premium i

Balance at 1st July 2010 Issue of ordinary shares in Kedco plc

3,239,407

304,592

Retained Earnings i

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 Issue of ordinary shares in Kedco plc

562,809

i

(4,698,241)

21,063 -

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

337,225

-

Share Based Payment Reserve i

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

328,383

3,338,356

-

1,932,815

-

(4,698,241)

-

635,850

163,378

Total

i

3,974,206

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

21,063

-

21,063

164,197

164,197

-

164,197

492,580

758,190

-

900,034

799,228

-

900,034

Loss for the financial year

-

-

(2,580,140)

-

(2,580,140)

Unrealised foreign exchange gain

-

-

(310,844)

-

(310,844)

-

(310,844)

Share based payments

-

-

(492,580)

-

(492,580)

Balance at 30th June 2012 4,106,808

19,375,525 (25,207,673)

(492,580) -

(1,725,340)

98,782

1,557,418

898,010

(2,481,358)

(827,330)

p21


Consolidated Statement of Cash Flows for the year ended 30th June 2012 Notes Cash Flows from Operating Activities Loss for the financial year Adjustments for: Income Tax 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 Impairment of assets held for sale Write off of unpaid share capital Unrealised foreign exchange gain Share of losses of jointly controlled entities after tax Decrease in provision for impairment of trade receivables (Decrease) /Increase in impairment of inventories Decrease in deferred income Interest expense Profit on disposal of share in joint venture Interest income

2012 h (2,481,358)

2011 h (4,394,977)

69,731 (492,580) 596,418 2,275 (67,236) 1,364,082 492,563 163,677 213,923 (71,924) (294,715) (10,302) 506,754 (338)

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)

(9,030)

(1,378,049)

Operating cash flows before working capital changes Decrease/(Increase) 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

8,070,067 4,336 276,377

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

(162,645) (2,476,219)

(29,622) (717,781)

Cash From /(Used in) Operations Income taxes paid Net Cash From /(Used in) Operating Activities

5,702,886 (9,108) 5,693,778

(2,718,472) (55,968) (2,774,440)

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

(644,737) 126,951 (1,770) (6,660,010) 338 (7,179,228)

(573,181) 113,229 134,840 364 (324,748)

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

2,896,483 (2,293,628) 644,250 (58,496) (255,842) 932,767

4,142,687 (1,583,381) 1,932,815 (36,803) (590,526) 3,864,792

(552,683) 208,587 (344,096)

765,604 (557,017) 208,587

Net (Decrease) /Increase 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 p22

37


Kedco PLC - Annual Report and Accounts 2012

Company Statement of Financial Position At 30th June 2012 Notes

2012 h

2011 h

24,941,463

24,941,463

24,941,463

24,941,463

18,336,014 14,331

10,850,094 402,718

Total Current Assets

18,350,345

11,252,812

TOTAL ASSETS

43,291,808

36,194,275

27 27 28

4,106,808 38,309,604 (11,835,887)

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

Equity attributable to equity holders of the parent

38

30,580,525

30,458,429

Non-Current Liabilities Borrowings

29

-

3,435,580

-

3,435,580

6,680,402 6,030,881

1,827,070 473,196

Total Current Liabilities

12,711,283

2,300,266

TOTAL EQUITY AND LIABILITIES

43,291,808

36,194,275

ASSETS Non-Current Assets Intangible Assets Investment in Subsidiary Undertakings

19 21

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

26 37

Total Non-Current Liabilities Current Liabilities Borrowings Trade and other payables

29 32

p23


Company Statement of Changes in Equity for the Year Ended 30th June 2012

Share Capital

Share Premium

Retained Earnings

h

h

3,239,407

36,344,157

304,592

1,628,222

Loss for the financial year

-

-

Share based payments

-

-

3,543,999

37,972,379

562,809

Loss for the financial year Share based payments

Balance at 1st July 2010 Issue of ordinary shares in Kedco plc

Balance at 30th June 2011 Issue of ordinary shares in Kedco plc

Balance at 30th June 2012

p24

h

Share-Based Payment Reserve h

(401,254)

328,383

39,510,693

-

1,932,814

-

(11,149,275)

(11,149,275) -

TOTAL

h

164,197

164,197

(11,550,529)

492,580

30,458,429

337,225

-

-

900,034

-

-

(285,358)

-

(285,358)

-

-

4,106,808

38,309,604

(11,835,887)

(492,580) -

(492,580) 30,580,525


Kedco PLC - Annual Report and Accounts 2012

Company Statement of Cash Flows for the Year Ended 30th June 2012

Notes

Year Ended 30th June 2012 u

Cash Flows from Operating Activities Loss before taxation Adjustments for: Share based payments Interest expense Interest income Amortisation of intangible assets Foreign currency losses arising from retranslation of borrowings Provision for impairment of investment in subsidiaries Operating cash flows before working capital changes

u

(285,358)

(11,149,275)

(492,580) 160,926 (333) 1,770 430,401 -

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

(185,174)

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

Year Ended 30th June 2011

(7,485,824) 5,551,138

623,828

(5,326,037) 287,286

Cash used in operations Income taxes paid

(2,119,860) (695)

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

Net Cash Used in Operating Activities

(2,120,555)

(4,420,313)

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

(1,770) 333

(1) 265

Net Cash (used in) / from Investing Activities

(1,437)

264

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

1,200,000 (95,979) 644,250 (14,666)

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

Net Cash from Financing Activities

1,733,605

4,795,044

Net (Decrease) / Increase in Cash and Cash Equivalents

(388,387)

374,995

Cash and cash equivalents at the beginning of the Financial Year

402,718

27,723

14,331

402,718

Cash and Cash Equivalents at the end of the Financial Year

37

p25


Notes to the Consolidated Financial Statements for the Year Ended 30th June 2012 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 2012 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: ● Identify, develop, build, own and operate power plants in the UK and Ireland using renewable energy technologies. The Group focuses on both large and small scale projects, providing flexibility to maximise existing land positions while diversifying development and technology risks.

2 Application of New and Revised International Financial Reporting Standards (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: AS 24 Related Party Disclosures (2009) clarifies the definition of a related party and provides a partial exemption from related party disclosures for government-related entities. Amendment to IFRIC 14 Prepayments of a minimum funding requirement remedies an unintended consequence of IFRIC 14 where entities are in some circumstances not permitted to recognise as an asset prepayments of minimum funding contributions. Improvements to IFRSs (2010). These amendments concerned the following Standards: ●

IFRS1 First Time Adoption of International Financial Reporting Standards clarifies the requirement to explain changes in accounting policy in the year of adoption and amends the usage of deemed cost in certain circumstances.

IFRS7 Financial Instruments: Disclosures encourages the use of qualitative disclosures to enable users to understand the nature and extent of risks arising from financial instruments and clarifies the required level of disclosure around credit risk and collateral held.

IAS1 Presentation of Financial Statements clarifies that an entity may present the analysis of other comprehensive income by item either in the statement of changes in equity or in the notes to the financial statements.

IAS 34 Interim Financial Reporting emphasises the principle in IAS34 that the disclosure of significant events and transactions in interim periods should update the relevant information presented in the most recent annual report.

IFRIC 13 Customer Loyalty Programmes clarifies what should be accounted for in determining the fair value of award credits.

Disclosures – Transfers of Financial Assets (Amendments to IFRS 7 Financial Instruments: Disclosures) increases the disclosure requirements for transactions involving the transfer of financial assets, enhances the existing disclosures under IFRS7 where an asset is transferred but not derecognised and introduces new disclosures for assets that are derecognised but the entity continues to have a continuing exposure to the asset after the sale. 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:

p26

IFRS 9 Financial Instruments and subsequent amendments (effective for annual periods beginning on or after 1st January 2015, 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).


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 2 Application of New and Revised International Financial Reporting Standards (IFRSs) (continued) ● 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 IFRS 1 First Time Adoption of International Financial Reporting Standards (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union).

Amendments to IFRS 7 Financial Instruments: Disclosures (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union).

Amendments to IAS 1 Presentation of Financial Statements (effective for annual periods beginning on or after 1st July 2012; endorsed by the European Union 5th June 2012).

Amendments to IAS 12 Income Taxes (effective for annual periods beginning on or after 1st January 2012; not yet endorsed by the European Union).

Amendments to IAS 19 Employee Benefits (effective for annual periods beginning on or after 1st January 2013; endorsed by the European Union 5th June 2012).

Amendments to IAS 32 Financial Instruments: Presentation (effective for annual periods beginning on or after 1st January 2014; not yet endorsed by the European Union).

Annual Improvements to IFRSs: 2009-2011 Cycle (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union)

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transitional Guidance (effective for annual periods beginning on or after 1st January 2013; not yet endorsed by the European Union)

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 2012 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 except for certain financial assets and financial liabilities which are measured ar fair value. The principal accounting policies set out below have been applied consistently by the parent company and by all of the Company’s subsidiaries to all 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 2012.

p27


Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 3 Statement of Accounting Policies (continued) Basis of Preparation (continued) 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 resulted in the Company continuing to report reduced losses for the year to 30th June 2012. The group incurred a loss of e2,481,358 (2011: e4,534,863) during the year, and it had net current liabilities of e6,258,722 (2011: net current assets e3,239,829) and net liabilities of e827,330 (2011: net assets e1,557,418) at 30th June 2012. Since 30th June 2012, the Company has carried out a restructuring process, with the objective of stabilising the Company’s financial affairs, position the Company in a manner which will enable it to raise further capital, and enable the Company to adopt a more appropriate capital structure, which will facilitate the advancement of its development project line through the planning and permitting process. Resolutions approving the restructuring process were agreed by the members of the Company at an Extraordinary General Meeting of the Company held on 5th October 2012. The restructuring has significantly strengthened the Group’s balance sheet through the reduction of approximately e10.8m of Debt Obligations from the group and a reduction of its annual interest charge by approximately e1.5m. The reduction in e10.8m was achieved through the conversion of debt into equity (e5.8m) and the sale of its Latvian subsidiary SIA Vudlande, which has the affect of removing debt (e1.4m) from the balance sheet and paying down zero loan note holders (e3m). In conjunction with the above restructuring, the Company raised approximately e0.95m in an equity placing in November 2012. The proceeds of the Fundraising will be used by the Company to meet its on-going working capital requirements including the continued development of its project pipeline. The Company also announced in November 2012 that it had secured a conditional offer of further financing of £1.5m for the further development of its Newry Power Plant. 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 finance being available for the Group’s working capital requirements and for the continued investment in the Group’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. The financial statements do not include any adjustments that would result should the above conditions not be met. After making enquiries and considering the matters referred to above, the Directors believe that progress towards securing finance has been and is being made. The Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. For these reasons the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

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Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 3 Statement of Accounting Policies (continued) 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. The results and assets and liabilities of subsidiaries are incorporated in these financial statements using equity method of accounting, except when the subsidiary 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. 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 noncontrolling 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. The interest of non-controlling shareholders in the acquiree is measured at the non-controlling interest’s 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. p29


Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 3 Statement of Accounting Policies (continued) Goodwill (continued) 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. 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. Rendering of services The Group recognises revenue for services provided when the amount of the revenue can be reliably measured and it is probable that future economic benefits will flow to the entity. 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 asset’s net carrying amount. p30


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 3 Statement of Accounting Policies (continued) 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 Group’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. 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 ‘administrative expenses’ 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. p31


Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 3 Statement of Accounting Policies (continued) 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 Group’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. Share-based Payments The group operates an equity settled share-based long-term incentive plan (the ‘LTIP’). 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.

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Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 3 Statement of Accounting Policies (continued) 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 5-50 years ● Plant and machinery 2-5 years ● Office equipment 2-5 years ● Fixtures and fittings 2-5 years ● Motor vehicles 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 assets’ carrying amount and fair value less costs to sell. Where the criteria are no longer met the noncurrent 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. Intangible Assets Internally-generated Intangible Assets – 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: ● Website 2 years ● Software 3 years ● Trademarks 4 years ● Development costs 5 years

p33


Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 3 Statement of Accounting Policies (continued) 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. 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 plus transaction cost. 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. Financial Liabilities and Equity Instruments Issued by the Group Measurement Financial liabilities are initially measured at fair value net of transaction costs. 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.

p34


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 3 Statement of Accounting Policies (continued) 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 nonderivative 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. 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.

p35


Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 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 validity of the going concern concept is dependent upon finance being available for the Group’s working capital requirements and for the continued investment in the Group’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. The restructuring has significantly strengthened the Group’s balance sheet through the reduction of approximately e10.8m of Debt Obligations from the group and a reduction of its annual interest charge by approximately e1.5m. In conjunction with the above restructuring, the Company raised approximately e0.95m in a equity placing in November 2012. The proceeds of the Fundraising will be used by the Company to meet its on-going working capital requirements including the continued development of its project pipeline. The Company also announced in November 2012 that it had secured a conditional offer of further financing of £1.5m for the further development of its Newry Power Plant. After making enquiries and considering the matters referred ton above, the Directors believe that solid progress towards securing finance has been and is being made. The Directors have a reasonable expectation that the Group will have 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 2012 at e1,355,212 (2011: e9,425,279). 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. 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 2012, provisions for doubtful debts amounted to eNil which represents 0% of trade receivables at that date (2011: e140,333 – 10%). 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. Provision for impairment of financial assets Determining whether the carrying value of financial assets has been impaired requires an estimation of the value in use of the investment in subsidiaries and joint venture vehicles. The value in use calculation requires the directors to estimate the future cash flows expected to arrive from these vehicles and a suitable discount rate in order to calculate present value. After reviewing these calculations, the directors are satisfied that no impairment is required for the current year. 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.

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Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements - (continued) for the Year Ended 30th June 2012 4 Critical accounting judgements and key sources of estimation of uncertainity (continued) Determining usefull lives of property, plant and equipment (continued) 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. 5 Financial Risk Management Financial Risk Management 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. 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: 2012 2011 e e Amounts due from customers under construction contracts 1,355,212 9,425,279 Trade and other receivables 1,605,517 2,848,088 Cash and cash equivalents 144,764 616,285 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. Exposure to credit risk on cash deposits and liquid funds is monitored by Directors. Cash held on deposit is with financial institutions in the Ba rating category of Moody’s. The directors are of the opinion that the likelihood of default by a counter party leading to material loss is minimal. 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. p37


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

1 – 5 Years a

After 5 Years a

TOTAL a

2,595,764

-

-

2,256,764

1,110,090

-

-

1,110,090

2,630,581 3,311,191 1,050,000 3,956,621 150,000 1,193,833 373

500,000 -

1,925,025 -

2,630,581 3,311,191 1,050,000 3,956,621 500,000 150,000 3,118,858 373

15,998,453

500,000

1,925,025

18,423,478

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 Preference Shares Bank Overdrafts Bank Loans Finance Leases

1 – 5 Years a

After 5 Years a

TOTAL a

5,481,674

-

-

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 -

1,272,735 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 Group expects to meet its obligations from operating cash flows and from access to alternative sources of finance, which is currently ongoing. As noted in Note 41, the Group announced details of a proposed restructuring which would remove debt obligations from the Company such that it will have a suitable basis on which to raise further equity finance in the future. The restructuring has significantly strengthened the Group’s balance sheet through the reduction of approximately a10.8m of Debt Obligations from the group and a reduction of its annual interest charge by approximately a1.5m. The reduction in a10.8m was achieved through the conversion of debt into equity (a5.8m) and the sale of its Latvian subsidiary SIA Vudlande, which has the affect of removing debt (a1.4m) from the balance sheet and paying down zero loan note holders (s3m).

p38


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 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 Preference Shares

Amount 1,925,025 500,000

Interest rate Varying rates as noted in Note 29 (iii) 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 e12,086,670 and e12,453,069 in 2012 and 2011, 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 2 and 5 years and ‘long-term’ to bank loans repayable after more than 5 years. The sensitivity analysis below has been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting 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 2012 would decrease/increase by e16,344 (2011: Decrease/increase by e24,083). 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.

p39


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 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 2012 e 4,824,901 1,848,783

2011 e 3,612,940 2,251,219

Assets 2012 e 8,519,149 1,968,803

2011 e 8,968,123 2,069,736

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 2012 £ 463,318

2011 £ 602,168

The Group’s sensitivity to foreign currency has decreased during the current year mainly due to the decrease in amounts due from customers under construction contracts. 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.

p40


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 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: 30th June 2012 s 12,086,670 (144,764) 373 11,942,279 (1,725,340) (692%)

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%

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, post year-end, has announced a restructuring process which would involve the sale of SIA Vudlande and the conversion of debt into equity, which will improve the above net debt to equity ratio. Details of the restructuring are described in more detail in Note 41 of the financial statements.

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; 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. 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:

Power Generation Renewable Energy Solutions Total from continuing operations Central administration costs and directors’ salaries Other operating income Share of losses on joint ventures Profit on disposal of share in joint venture Interest costs Interest income Loss Before Taxation (continuing operations)

Segment Revenue 2012 2011 (Restated) q q 10,036,547 69,860 46,611 866,575 10,083,158 936,435

Segment Profit / (Loss) 2012 2011 (Restated) q w (106,404) (1,409,087) (145,779) (958,475) (252,183) (2,367,562) (742,090) 11,100 (213,923) (414,424) 333 (1,611,187)

(1,372,677) 7,605 (356,228) 285,379 (1,534,344) 287 (5,337,540) p41


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 7 Segment Information (continued) Revenue reported above represents revenue generated from jointly controlled entities and external customers. Inter-segment sales for the year amounted to eNil. (2011: e30,011). Included in revenues in the Power Generation Segment are revenues of e10,031,773 (2011: aNil) which arose from sales to Newry Biomass Limited, a company which is under the joint control of Kedco plc. No other single customer contributed 10% or more to the Group’s Revenue for both 2012 and 2011.

Revenues from external customers for each product and service have 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. Other segment information: Depreciation and Amortisation 2012 2011 e e Power Generation 14,795 95,428 Renewable energy solutions 15,625 57,994 30,420 153,422

Additions to Non-Current Assets 2012 2011 e e 8,068 5,731 8,068 5,731

In addition to the depreciation and amortisation reported above, impairment losses of eNil (2011: e424,762) were recognised in respect of property, plant and equipment. These impairment losses were attributable as follows: Renewable Energy Solutions Segment, eNil (2011:e340,057); Power Generation Segment, eNil (2011: e84,705). The Group operates in two principal geographical areas: Republic of Ireland (country of domicile), and the United Kingdom. The Group’s revenue from continuing operations from external customers and information about its non-current assets* by geographical location are detailed below:

Republic of Ireland United Kingdom

Revenue from Jointly Controlled Entities and External Customers 2012 2011 e e 51,385 911,105 10,031,773 25,330

2012 e 757,329 -

2011 e 781,449 -

10,083,158

757,329

781,449

936,435

Non-Current Assets*

* 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.

p42


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 8 Revenue An analysis of the Group’s revenue for the year (excluding interest revenue), from continuing operations, is as follows: 2012

Revenue from the Sale of Goods and Provision of Services

9 Cost of Sales

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

10 Administrative Expenses

h 10,083,158

2012 h 142,894 9,968,170 60,237 2,425 (50,000) 10,123,726

2012 h

Employee Expenses Recharge Consultancy Fee 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 Write off of unpaid share capital re LTIP (Note 35) Other receivables written off Bad Debt Expense Provision for Impairment of Trade Receivables Other Miscellaneous Expenses Gain on Foreign Exchange Regulatory Expenses

11 Finance Costs / (Income) 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

515,920 (274,012) 164,984 2,456 373,141 30,420 (13,072) 1,770 (10,898) 492,563 20,220 30,384 (25,750) 19,495 (391,816) 17,900 953,705 2012

2011 (Restated) h 936,435

2011 (Restated) h 631,817 164,326 315,606 90,272 (142,894) 1,059,127

2011 (Restated) h 1,679,880 419,897 3,979 293,440 506,098 (2,893) 69,194 217,983 234,227 (124,138) 136,846 (51,952) 234,986 3,617,547

h 374,247 40,000 177 -

2011 (Restated) h 1,489,649 40,000 739 3,956

414,424

1,534,344

333

287 p43


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 12 Employee Data Employee Costs (including Executive Directors): Salaries Social Insurance Costs Share Based Payments (Note 35)

Average Number of Employees (including Executive Directors)

2012 h

2011 (Restated) h

792,278 82,924 (492,580) 382,622

1,300,524 135,648 164,197 1,600,369

No. 9

No. 17

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

p44

2012 v

2011 (Restated) v

30,420 (391,816) 1,770 67,000 325,000 2,784

293,440 (51,952) 69,194 73,000 372,750 153,000 11,678

(13,072) (25,750) 60,237

424,668 94 (2,893) (124,138) 315,606

38,700 13,400 52,100

34,500 12,400 46,900

-


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 14 Income Taxes Relating to Continuing Operations

2012 j

2011 (Restated) j

Income Tax Expense Comprises: Current Tax Deferred Tax

-

-

Income Tax Expense Recognised in Profit or Loss

-

-

Loss before taxation Applicable Tax 12.50% (2011: 12.50%)

Effects of: Amortisation & depreciation in excess of capital allowances Lease payments Expenses not deductible for tax purposes Non-taxable income Other Timing Differences Income taxed at higher rate Loss utilised Losses carried forward

2012 j (1,611,187)

2011 j (5,337,540)

(201,398)

(667,192)

(7,990) (581) 75,826 (12,860) (18,072) 3,589 161,486 -

67,058 (729) 203,303 19,406 (10,651) 388,805 -

The tax rate used for 2012 and 2011 reconcilation above is the corporate rate of 12.5% payable by corporate entities in Ireland on taxable profits under tax law in that jurisdiction.

p45


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 15 Discontinued Operations P la n t o di sp os e o f SI A Vud la nd e ( Wo od P ro du ct s B us in es s ) In its interim results for the six months to 31st December 2011, the Group announced that it was seeking purchasers for its 80% interest in its Latvian wood processing facility, SIA Vudlande, as it was deemed non-core to the Group’s focus on the conversion of biomass to renewable energy. The company sought purchasers for its interest in SIA Vudlande over a considerable period. The highest offer received for the Group’s interest as a result of this process was d2.5m. On 10th September 2012, the Group announced a proposed restructuring of the debts of the Group. As part of the restructuring, the Group have agreed in principle to allow the holders of Zero-Coupon Secured Notes in the company to acquire the entire share capital of Kedco Block Limited for d3m (£2,379,253), the proceeds of which will correspondingly reduce amounts due to the holders of the Zero-Coupon Secured Notes. Kedco Block Limited is the registered shareholder of the Group’s 80% shareholding in SIA Vudlande. This proposal was approved by shareholders at an Extraordinary General Meeting held on 5th October 2012. The Group has recognised impairment losses in respect of the wood products business to reduce the net carrying value of assets held for sale to their fair value, less the estimated cost to sell these assets, at the end of the reporting period of d1,364,082. The results of the discontinued wood products operations included in the consolidated income statement are set out below. The comparative profit and cash flows from discontinued operations have been represented to include those operations classified as discontinued in the current year. ( L o s s ) / P ro fi t f o r th e y e a r fr o m d is c o n ti n u e d o p e ra t io n s

Revenues Other Gains Expenses Profit before tax Attributable income tax expense Profit for the year from discontinued operations Loss on remeasurement to fair value less costs to sell of assets held for sale

2012 d 9,456,422 5 9,456,427 (8,892,785) 563,642 (69,731) 493,911

2011 d 10,196,135 77 10,196,212 (9,253,649) 942,563 (139,886) 802,677

(1,364,082)

-

Net (loss)/profit for the year from discontinued operations

(870,171)

802,677

Attributable to the owners of the Company

(968,953)

639,299

2012 d 643,548 (524,555) (365,555) (246,562)

2011 d 1,352,760 (457,375) (223,486) (671,899)

C a s h fl o w s f ro m d i s c o n ti n u e d o p e r a t io n s

Net cash inflows from operating activities Net cash outflows used in investing activities Net cash outflows used in financing activities Net cash outflows

Movement in the Consolidated Statement of Cash Flows on page 22 includes items classified as held for sale in accordance with IFRS 5, see Note 16 for further details. The wood products business has been classified and accounted for at 30th June 2012 as a disposal group held for sale (see Note 16).

p46


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 16 Assets Classified as Held For Sale

Assets related to the wood products business

2012 e 6,584,239

2011 e -

Liabilities associated with assets held for sale

2,630,581

-

As described in Note 15 above, the Group completed the disposal of the wood products business being the entire 80% interest in Latvian sudsidiary for e3m, as part of debt restructuring. The major classes of assets and liabilities of the wood products business at the end of the reporting period are as follows: 2012 e Property, plant and equipment Inventories Trade and other receivables Cash and bank balances

3,782,884 1,581,364 1,091,711 128,280

Assets of wood products operations classified as held for sale

6,584,239

Trade and other payables Current borrowings Current finance lease liabilities Current deferred income Non-current borrowings Non-current finance lease liabilities Non-current deferred income Non-current deferred tax liability

(512,482) (687,937) (74,014) (10,302) (804,487) (177,811) (25,755) (337,793)

Liabilities of wood products operations associated with assets classified as held for sale

(2,630,581)

Net assets of wood products operations classified as held for sale

3,953,658

p47


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 17 (Loss) /Earnings Per Share

2012 d Euro per share

2011 d Euro per share

Basic (Loss) /Earnings Per Share From continuing operations From discontinued operations Total basic loss per share

(0.006) (0.003) (0.009)

(0.023) 0.003 (0.020)

Diluted (Loss)/ Earnings Per Share From continuing operations From discontinued operations Total diluted loss per share

(0.006) (0.003) (0.009)

(0.023) 0.003 (0.020)

Basic (Loss)/ Earnings Per Share The loss and weighted average number of ordinary shares used in the calculation of the basic (loss)/ earnings per share are as follows: 2012 2011 d d Loss for year attributable to equity holders of the parent (2,580,140) (4,698,241) (Loss) /profit for the year from discontinued operations used in the calculation of basic earnings per share from discontinued operations Losses used in the calculation of basic loss per share from continuing operations Weighted average number of ordinary shares for the purposes of basic loss per share

(870,171) (1,709,969)

274,612,376

802,677 (5,500,918)

236,242,380

Diluted (Loss) /Earnings 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 ‘A’ Shares in issue Weighted average number of ordinary shares used in the calculation of diluted earnings per share

2012

2011

274,612,376

236,242,380

99,117,952

99,117,952

373,730,328

335,360,332

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 2012 would be to increase the weighted average number of shares by 27,392,915 (2011: 30,672,924). 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 2012 would be to increase the weighted average number of shares by 3,125,000 (2011: 3,125,000). 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 2012 would be to increase the weighted average of shares by 21,942,154 (2011: 9,500,000). p48


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 18 Goodwill

2012 d -

Goodwill - SIA Vudlande

2011 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 22. Goodwill was allocated to the Latvian CGU within the Kedco Wood Products segment. As noted in Notes 15 and 16 above, the Group completed the disposal of the wood products business being the entire interest in Latvian sudsidiary for e3m, as part of debt restructuring. Arising from this reclassification, the goodwill arising on the purchase of SIA Vudlande has been fully impaired.

19 Intangible Assets

Website

Trademarks

Software

Development Costs

TOTAL

e

e

e

e

e

-

1,128

11,025

412,349

424,502

At 30th June 2011 Additions Reclassified as held for sale At 30th June 2012

1,770 1,770

1,128 1,128

11,025 (11,025) -

412,349 412,349

424,502 1,770 (11,025) 415,247

Accumulated Amortisation At 1st July 2010 Amortisation Expense Impairment

-

658 376 94

8,224 2,296 -

343,625 68,724 -

352,507 71,396 94

At 30th June 2011 Amortisation Expense Reclassified as held for sale At 30th June 2012

1,770 1,770

1,128 1,128

10,520 (10,520) -

412,349 412,349

423,997 1,770 (10,520) 415,247

Carrying Amount At 30th June 2011

-

-

505

-

505

At 30th June 2012

-

-

-

-

-

Group Cost At 1st July 2010

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 prior year During the year ended 30th June 2011, impairment losses recognised in respect of intangible assets amounted to e94. These losses are attributable to greater than anticipated wear and tear. These assets are used in the Group’s Renewable Energy Solutions segment.

p49


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 19 Intangible Assets (continued)

Website

TOTAL

d

d

-

-

At 30th June 2011 Additions

1,770

1,770

At 30th June 2012

1,770

1,770

-

-

At 30th June 2011 Amortisation expense

1,770

1,770

At 30th June 2012

1,770

1,770

Carrying Amount At 30th June 2011

-

-

At 30th June 2012

-

-

Company Cost At 1st July 2010

Accumulated Amortisation At 1st July 2010

p50


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 20 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 f

Cost At 1st July 2010 Additions Disposals Reclassification

3,065,463 156,410 96,090 4,265 (1,901) (599) 14,308 -

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

5,271,339

101,294

190,299

93,804

8,990,772

(150,484)

(93,804)

Additions Disposals Reclassified as held for sale

(1,513,917)

At 30th June 2012

1,660,043

Accumulated Depreciation At 1st July 2010 On Disposals Impairment Charge for the Year At 30th June 2011

-

931,365 (1,901) 358,151 146,529 1,434,144 -

160,076 6,299 (38,178) 128,197

73,353 (260) 33,748 21,784 128,625 (38,178)

(87,697) (5,183,642) -

(101,294) -

(39,815) -

6,299 (370,163)

-

(6,838,668)

-

1,788,240

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

2,096,017

-

177,939

93,804

3,930,529

(87,696)

-

(150,483)

(93,804)

(2,008,321) -

-

(27,456) -

On Disposals Reclassified as held for sale Charge for the Year

(524,100) 15,625

14,795

At 30th June 2012

925,669

105,242

-

-

Carrying Amount At 30th June 2011

1,739,816

31,451

3,175,322

At 30th June 2012

734,374

22,955

-

(370,161)

-

(2,559,877) 30,420

-

-

1,030,911

101,294

12,360

-

5,060,243

-

-

-

757,329

p51


Notes to the Consolidated Financial Statements

(continued)

for the Year Ended 30th June 2012 20 Property, Plant and Equipment (continued) Included are leased assets held under finance leases or hire purchase contracts as follows: 2012 2012 2011 Asset Description Carrying Depreciation Carrying Amount Charge Amount f f f Plant and Machinery Motor Vehicles -

2011 Depreciation Charge f 2,224 2,224

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 eNil (2011: eNil) acquired under finance leases.

Impairment losses recognised in the prior year During the year ended 30th June 2011, 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 recognition of an impairment loss of e33,963, 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. The Group also carried out a review of the recoverable amount of property held by the Renewable Energy Solutions operating segment at 30th June 2011, as a result of falls in the property market in Ireland. The review led to recognition of an impairment loss of e306,000, 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 the year ended 30th June 2011 in respect of property, plant and equipment amounted to e84,705. 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.

21 Financial Assets Group Loan Advanced to Jointly Controlled Entities At 1st July Additions in year

2012 f 990,000 6,618,687 7,608,687

2011 f 990,000 990,000

During the year, Newry Biomass Limited, a joint venture vehicle which was established to develop a biomass electricity and heat generating plant in Newry, Northern Ireland, issued loan notes to the Group of £5,330,691. These loan notes will be redeemed in full on 1st November 2026, and entitle the holder to a share of the earnings after tax of Newry Biomass Limited in the ratio of the loan notes issued to the relevant loan note holders. Company Investment in Subsidiary Undertakings At 1st July Provision for Impairment in Investment At 30th June

2012 f 24,941,463 24,941,463

2011 f 35,401,752 (10,460,290) 24,941,463

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 22. p52


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements

(continued)

for the Year Ended 30th June 2012 21 Financial Assets (continued) 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. The Group carried out a further assessment the carrying value of the investment with reference to the future cash flows of projects currently undertaken by the Group as at 30th June 2012, and have determined that no additional impairment is required for the current period.

22 Subsidiaries Details of Kedco plc subsidiaries at 30th June 2012 and 30th June 2011 are as follows: Name Country of Incorporation 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. The registered office for all of the above companies is 4600, Airport Business Park, Cork except for Kedco Block Limited, whose registered office is Hill House, 1 Little New Street, London EC4A 3TR, England, and SIA Vudlande whose registered office is ‘Lejasupites’, Launkalnes pagasrs, Valkas, LV-4718, 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. As noted in Note 41, a decision has been reached after the year end to dispose of the shareholding in SIA Vudlande and has been reclassified as a discontinued operation (see Note 15).

35


Notes to the Consolidated Financial Statements

(continued)

for the Year Ended 30th June 2012 23 Investment in Jointly Controlled Entities Details of the Group’s interests in jointly controlled entities at 30th June 2012 and 30th June 2011 are as follows: Name of Jointly Controlled Entity ● Newry Biomass Limited (formerly Best Kedco Limited) ● Enfield Biomass Limited (formerly Kedco Howard Limited) ● Asdee renewables Limited ● Bridegreen Energy Limited

Country of Incorporation Northern Ireland

Shareholding Principal Activity 50%* Energy Utility Company

United Kingdom

50%

Energy Utility Company

Republic of Ireland Republic of Ireland

50% 50%

Energy Utility Company Energy Utility Company

* The Group owns 50% of the shares of Newry Biomass Limited. However, as noted in Note 21 above, during the year the group has received loan notes from Newry Biomass Limited which entitles the holders to a share of the profits of the company. Based on the holding of shares and loan notes, the Group is entitled to a share of 92% of the profits and losses of the company. None of the above companies have commenced trading as at 30th June 2012. The company has entered into a guarantee in respect of Enfield Biomass 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 Enfield Biomass 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 Enfield Biomass Limited for e510,000. 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 Enfield Biomass Limited for e1,510,000. 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 e1,510,000. 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 Enfield Biomass Limited to Wellwin Investments Limited. At 30th June 2012, the debt stood at e220,000. (30th June 2011: e492,500) The reduction in this debt is offset against the reduction of monies owed by Kedco Investment Co. 1 Limited to Enfield Biomass 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 Enfield Biomass Limited is discharged. As noted in Note 41, the above loan issued to Wellwin Investments Limited is part of the restructuring plan issued by the Group after the year end.

p54


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements

(continued)

for the Year Ended 30th June 2012 23 Investment in Jointly Controlled Entities (continued) Summarised financial information in respect of the group’s interests in jointly controlled entities is as follows: 2012 f 11,095,301 4,863,923 (6,892,749) (9,705,017)

2011 f 1,208 2,329,495 (2,368,438)

Net Liabilities

(638,542)

(37,735)

Group’s Share of Net Liabilities of Jointly Controlled Entities

(509,599)

(18,867)

Total Revenue Total Expenses Total Loss for the Year Group’s Share of Losses of Jointly Controlled Entities

(321,078) (321,078) (213,923)

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

Non-Current Assets Current Assets Non-Current Liabilities Current Liabilities

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 e150,000 (received on 30th June 2011). This transaction has resulted in a gain in the income statement for the year ended 30th June 2011, calculated as follows: f 150,000 150,540 (15,160) (1) 285,379

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

24 Inventories Group Raw Materials Finished Goods

2012 f

2011 f

50,000 50,000

788,029 824,997 1,613,026

The cost of inventories recognised as an expense during the year in respect of continuing operations was e10,123,726 (2011 restated: e1,059,127). The cost of inventories recognised as an expense during the year in respect of write-downs of inventory to net realisable value amounted to e60,237 (2011: e315,606). All inventories are expected to be sold within twelve months.

p55


Notes to the Consolidated Financial Statements

(continued)

for the Year Ended 30th June 2012 25 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

2012 o 11,386,985 (11,141,863) 245,122

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

1,355,212 (1,110,090) 245,122

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

At 30th June 2012, retentions held by customers for contract work amounted to eNil (2011: eNil). Advances received from customers for contract work amounted to e11,141,863 (2011: e1,272,735). 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): 2012 2011 o o Costs incurred in the past twelve months 850,996 1,043,630 Costs incurred between twelve and twenty-four months 35,453 2,008,335 Costs incurred between twenty-four and sixty months 468,763 6,373,314 1,355,212 9,425,279 Of the balance of o1,355,212 (2011: o9,425,279), o832,612 (2011: o8, 846,956) relates to the construction of a 4MW Gasification plant in Northern Ireland. The principal customer for this contract is Newry Biomass Limited (formerly Best Kedco Limited), a jointly controlled entity of the Group. Newry Biomass Limited has put in place financing facilities and is paying the Group for work carried out on a regular basis. The directors of the Group are satisfied, from this review, that the Group’s exposure to credit risk with respect to the above projects is manageable.

26 Trade and Other Receivables Group Trade Receivables Provision for Impairment of Trade Receivables

Amounts Due from Jointly Controlled Entities VAT Receivable Prepayments Corporation Tax Other Receivables

2012 f

2011 f

2,325 2,325

1,478,095 (140,333) 1,337,762

1,469,169 47,972 43,785 101 42,166 1,605,518

762,916 22,415 164,017 560,978 2,848,088

The movement in the Group’s provision for impairment of trade receivables consists of provisions established amounting to fNil (2011: f95,446) offset by a reversal of a prior period provision of f140,333 (2011: f261,460). 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 sixty days. p56


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 26 Trade and Other Receivables(continued)

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

2012 f 2,325

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

2,325

1,337,762

Included in the Group’s trade receivables balance are debtors with carrying amount of f2,325 (2011: f204,920) 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% where appropriate 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. 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 exceeds 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

2012

2011

f 2,325 2,325

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

Other receivables related to unpaid share capital of fNil (2011: 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 fNil (2011: f16,500); unpaid share capital of f40,000 (2011: f40,000); deposits on rental contracts amounting to f2,166 (2011: f5,000); and miscellaneous debtors amounting to fNil (2011: f6,915). Other receivables relating to unpaid share capital were released in the current year as conditions attaching to the conversion of the shares were not met. Apart from receivables relating to share capital, the aged analysis of other receivables is within terms. Other receivables relating to share capital, totalling f40,000 (2011: 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.

p57


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 26 Trade and Other Receivables (continued) There is no concentration of credit risk with respect to receivables as disclosed in Note 5 under credit risk. Company

2012 e 18,282,438 13,045 96 435 40,000 18,336,014

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

2011 e 9,542,491 762,916 10,707 1,417 532,563 10,850,094

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.

27 Share Capital Kedco plc At 30th June 2011

Authorised Number

Allotted and Called up Number

Authorised f

Allotted and Called up f

Ordinary Shares of f0.01 each

10,000,000,000

225,281,916

100,000,000

2,552,819

‘A’ Shares of f0.01 each

10,000,000,000

99,117,952

100,000,000

991,180

At 30th June 2012

Authorised Number

Allotted and Called up Number

Authorised f

Allotted and Called up f

Ordinary Shares of f0.01 each

10,000,000,000

311,562,785

100,000,000

3,115,628

‘A’ Shares of f0.01 each

10,000,000,000

99,117,952

100,000,000

991,180

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 26. 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.

p58


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 27 Share Capital (continued) Reverse asset acquisition On 13rd 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 e1.00 each to the former members of KBHL. Pursuant to the agreement, the Company allotted and issued one ordinary share of e1.00 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 e34,903,134 which resulted in a share premium in the Company of e32,908,669. 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 2012 Kedco plc: ● On 3rd February 2012, the Company issued 31,000,001 ordinary shares of e0.01 each at a premium of e134,981. At the same time, the Company allotted 8,801,259 ordinary shares of e0.01 at a premium of e99,981 to its 22.14% shareholder, Farmer Business Developments plc as a result of FBD exercising its rights under its February 2011 e1,200,000 10% Convertible Loan Note. ●

On 1st May 2012, the Company issued 12,835,385 ordinary shares of e0.01 each at a premium of e70,915. At the same time, the Company allotted 3,644,224 ordinary shares of e0.01 at a premium of e31,349 to its 22.14% shareholder, Farmer Business Developments plc as a result of FBD exercising its rights under its February 2011 e1,200,000 10% Convertible Loan Note.

Share premium relates to the share premium arising on share issues.

28 Reserves Equity Settled Employee Benefits Reserve Balance at Beginning of the Financial Year Reversal of share-based payment expense Share-Based Payment Expense Balance at End of the Financial Year

2012 s 492,580 (492,580) -

2011 s 328,383 164,197 492,580

The equity settled employee benefits reserve arises on the grant of share options to employees under the employee share option plan. The expense was reversed in the current year as conditions attaching were not met. Further information about share-based payments to employees is set out in Note 35.

p59


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 29 Borrowings Group Non-Current Liabilities Secured – at Amortised Cost Zero-Coupon Loan Notes (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 Zero-Coupon Loan Notes (i) Vudlande Loan (iii) Bank Loans (iv)

2012 s

2011 s

1,925,025 1,925,025

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

500,000 2,425,025

500,000 7,958,393

2012 s 150,000 400,000 2,911,191 3,956,621 1,050,000 1,193,833

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

9,661,645

4,494,676

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 s0.08, or if certain performance criteria was not met within 6 months of the drawdown, the lowest trade price between the date of drawdown and the date of first sales receipts from the national grid, at any time prior to the fourth anniversary of the issue. As this performance criteria was not met, the subscription price is now £0.01. Pursuant to the placing, Newry Biomass Limited (formerly 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. 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, Newry Biomass Limited 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 SIA 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 SIA 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.

p60


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 29 Borrowings (continued) Summary of Borrowing Arrangements (continued) (i) Continued As noted in Note 41, the Group announced a proposed restructuring to remove debt obligations from the Company such that it would have a suitable basis on which to raise further equity finance. As part of this restructuring, it was agreed that the holders of the Zero-Coupon Secured Notes would take on a 40% reduction in the interest payable on the Notes, equivalent to £401,921 (e499,033). (ii) A loan of e1,000,000 was received from equity investors during the year ended 30th April 2007 to finance the general working capital requirements of the Group. These equity investors are a director and his close family. In 2008, e36,445 of this loan was converted into ordinary share capital in the company. In the year ended 30th June 2011, e329,242 was converted into zerocoupon secured loan notes as discussed in note (i) above, while another e34,404 was repaid to the investor. In the year ended 30th June 2012, a further e12,500 was repaid to the investor. The remaining e587,409 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. As noted in Note 41, the Group announced a proposed restructuring to remove debt obligations from the Company such that it would have a suitable basis on which to raise further equity finance. As part of this restructuring, it was agreed that the holders of the above investor loan would take on a 40% reduction in the interest payable on the loan to date, ie e7,440. This accrued interest is included in accruals under the category ‘Trade and Other Payables’. Investor loans of e1,219,028 were received during the year ended 30th June 2010. Of the total e1,219,028 received, e250,000 is secured on the 75kW combined heat and power modular biopower system included in inventories at 30th June 2012 and e150,000 is secured by personal guarantees from certain directors. This e400,000 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, e162,500 of the principal was repaid. During the year ended 30th June 2012, e62,500 of the principal was repaid. As noted in Note 41, the Group announced a proposed restructuring to remove debt obligations from the Company such that it would have a suitable basis on which to raise further equity finance. As part of this restructuring, it was agreed that the holders of the above Investor Loans would take on a 40% reduction in all interest that had been accrued and remained unpaid to date, equivalent to e60,258. At 30th June 2012, the outstanding loan balance and accrued interest was e365,387 (2011: e475,967). The remaining investor loans of e819,028 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, e108,000 related to funds advanced by directors. During the year ended 30th June 2011, a further e190,000 was advanced to the company to finance working capital while e910,911 was repaid by the company. During the year ended 30th June 2012, e33,479 was repaid by the company, leaving an outstanding balance of e64,638 payable to investors at 30th June 2012 (2011: e98,117). During the year ended 30th June 2011, e1,200,000 was received from its 22.14% shareholder, Farmer Business Developments plc (‘FBD’) to assist its short term working capital requirements. These funds were repayable as 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 either the Loan Notes as described in (i) above or Ordinary Shares in Kedco. If FBD opts to convert the Facility into Kedco ordinary shares, then the conversion price will be the average of the closing mid-market 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. On 3rd February 2012, the Company allotted 8,801,259 ordinary shares of e0.01 at a premium of e99,981 to its 22.14% shareholder, Farmer Business Developments plc as a result of FBD exercising its rights under its February 2011 e1,200,000 10% Convertible Loan Note. The total value of the loan converted at this time was e187,933. On 1st May 2012, the Company allotted 3,644,224 ordinary shares of e0.01 at a premium of e31,349 to its 22.14% shareholder, Farmer Business Developments plc as a result of FBD exercising its rights under its February 2011 e1,200,000 10% Convertible Loan Note. The total value of the loan converted at this time was e67,792.

p61


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 29 Borrowings (continued) Summary of Borrowing Arrangements (continued) (ii) Continued During the year ended 30th June 2012, a further e1,200,000 was received from its 22.14% shareholder, FBD, to assist its short term working capital requirements. These funds were repayable as from 1st April 2012, 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 either the Loan Notes as described in (i) above or Ordinary Shares in Kedco. If FBD opts to convert the Facility into Kedco ordinary shares, then the conversion price will be the average of the closing mid-market 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. The facility is secured on the residual of the assets secured by the Loan Notes in Note (i) above. As noted in Note 41, the Group announced a proposed restructuring to remove debt obligations from the Company such that it would have a suitable basis on which to raise further equity finance. As part of this restructuring, it was agreed that FBD would accept a 40% reduction in all interest that had been accrued and remained unpaid to date, equivalent to e99,694. At 30th June 2012, the outstanding loan balance and accrued interest was e2,293,757 (2011: e1,252,986). During the year ended 30th June 2010, further investor loans of e223,925 were advanced to finance working capital. These loans are unsecured, have no fixed interest rate and have no fixed repayment date. This loan was repaid in full in the year ended 30th June 2012. (iii) A loan of e1,650,000 was received from directors (e500,000) and external investors (e1,150,000) during the year ended 30th April 2007 to develop the SIA Vudlande plant in Latvia. e340,000 was repaid to directors during the year ended 30th June 2010. During the year ended 30th June 2011, e260,000 was converted by the investors into zero-coupon secured loan notes as described in note (i) above, resulting in an outstanding balance of e1,050,000 at year end. This loan is unsecured and carries an annual interest rate of 15%. The term is 5 years with repayment dates between 31st January 2011 and 26th March 2012. Interest is repayable annually. As noted in Note 41, the Group announced a proposed restructuring to remove debt obligations from the Company such that it would have a suitable basis on which to raise further equity finance. As part of this restructuring, it was agreed that the holders of the above loan would take on a 40% reduction in the interest payable on the loan, ie e104,500. This accrued interest is included in accruals under the category ‘Trade and Other Payables’. (iv) Bank loans were entered into in the year ended 30th April 2006 to fund acquisition of freehold land and buildings by Castle Home Supplies Limited. The loan balance at 30th June 2012 was e1,925,025 (2011: e1,894,406). This loan carries interest at base rate varying plus 2.5% and is repayable in 2031 according to the terms of the original agreement. This loan is secured by personal guarantees from the directors totalling e750,000 and a charge over the freehold land and buildings of Castle Home Supplies Limited, a subsidiary company. Bank loans were entered into in the year ended 30th April 2007 to fund working capital: ●

An additional bank loan of e599,568 was taken out during the year ended 30th April 2007 for the purpose of meeting working capital requirements. This loan carries an interest rate of base rate varying plus 3.1%. This loan is secured by personal guarantees from the directors. The balance at 30th June 2012 was e633,603 (2011: e606,046). This is presented within current loans. Liabilities include bank loans in the amount of e80,230 (2011: e164,185) for a stocking loan. This is secured by a letter of guarantee from the directors, a floating charge over assets of Kedco Energy Limited, a subsidiary company, and assignments over policies on the life of nominated individuals. Interest on the stocking loan is the Ulster Bank’s cost of funds rate plus 2.75%. This loan is presented within current bank loans. Business credit lines were received in 2007 for working capital. The balance outstanding at 30th June 2012 was e499,999 (2011: e499,913). Interest is a varying business credit line rate. The facility is secured by letters of guarantee from the directors as noted above and a charge over the commercial warehouse at Portgate Business Park, Monkstown, Co. Cork. This is presented within current bank loans.

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Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 29 Borrowings (continued) Summary of Borrowing Arrangements (continued) (v) Preference Shares Kedco Power Limited issued 500,000 8% cumulative redeemable convertible preference shares of e1 each at par to Enterprise Ireland, the Irish Government agency responsible for the Global expansion of Irish companies, in the year ended 30th June 2010, realising e500,000. The preference shares will be convertible at the option of the holder in the event that investment of at least e2m is secured by Kedco plc, or Kedco Power Limited, within five years from the date of allotment of the preference shares and would convert into ordinary shares in either Kedco plc or Kedco Power Limited respectively. The shares are unsecured borrowings of the Group and are designated as at fair value through profit 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 (i)

Current Liabilities Zero-Coupon Loan Notes (i) Investor Loans (ii) - Secured - Unsecured

2012 j

2011 j

-

3,435,580 3,435,580

2012 j 3,956,620 400,000 2,323,782

2011 j -

6,680,402

1,827,070

475,967 1,351,103

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 j3.2m (£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 j0.08, or if certain performance criteria was not met within six months of the drawdown, the lowest trade price between the date of drawdown and the date of first sales receipts from the national grid, at any time prior to the fourth anniversary of the issue. As this performance criteria was not met, the subscription price is now £0.01. Pursuant to the placing, Newry Biomass Limited (formerly 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. 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, Newry Biomass Limited 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 SIA 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 SIA 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. As noted in Note 41, the Group announced a proposed restructuring to remove debt obligations from the Company such that it would have a suitable basis on which to raise further equity finance. As part of this restructuring, it was agreed that the holders of the Zero-Coupon Secured Notes would take on a 40% reduction in the interest payable on the Notes, equivalent to £401,921 p63 (j499,033).


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 29 Borrowings (continued) Summary of Borrowing Arrangements (continued) (ii) Investor loans of e1,219,028 were received during the year ended 30th June 2010. Of the total e1,219,028 received, e250,000 is secured on the 75kW combined heat and power modular biopower system included in inventories at 30th June 2012 and e150,000 is secured by personal guarantees from certain directors. This e400,000 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, e162,500 of the principal was repaid. During the year ended 30th June 2012, e62,500 of the principal was repaid. As noted in Note 41, the Group announced a proposed restructuring to remove debt obligations from the Company such that it would have a suitable basis on which to raise further equity finance. As part of this restructuring, it was agreed that the holders of the above Investor Loans would take on a 40% reduction in all interest that had been accrued and remained unpaid to date, equivalent to e60,258. At 30th June 2012, the outstanding loan balance and accrued interest was e365,387 (2011: e475,967). The remaining investor loans of e819,028 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, e108,000 related to funds advanced by directors. During the year ended 30th June 2011, a further e190,000 was advanced to the company to finance working capital while e910,911 was repaid by the company. During the year ended 30th June 2012, e33,479 was repaid by the company, leaving an outstanding balance of e64,638 payable to investors at 30th June 2012 (2011: e98,117). During the year ended 30th June 2011, e1,200,000 was received from its 22.14% shareholder, Farmer Business Developments plc (‘FBD’) to assist its short term working capital requirements. These funds were repayable as 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 either the Loan Notes as described in (i) above or Ordinary Shares in Kedco. If FBD opts to convert the Facility into Kedco ordinary shares, then the conversion price will be the average of the closing mid-market 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. On 3rd February 2012, the Company allotted 8,801,259 ordinary shares of e0.01 at a premium of e99,981 to its 22.14% shareholder, Farmer Business Developments plc as a result of FBD exercising its rights under its February 2011 e1,200,000 10% Convertible Loan Note. The total value of the loan converted at this time was e187,933. On 1st May 2012, the Company allotted 3,644,224 ordinary shares of e0.01 at a premium of e31,349 to its 22.14% shareholder, Farmer Business Developments plc as a result of FBD exercising its rights under its February 2011 e1,200,000 10% Convertible Loan Note. The total value of the loan converted at this time was e67,792. During the year ended 30th June 2012, a further e1,200,000 was received from its 22.14% shareholder, FBD, to assist its short term working capital requirements. These funds were repayable as from 1st April 2012, 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 either the Loan Notes as described in (i) above or Ordinary Shares in Kedco. If FBD opts to convert the Facility into Kedco ordinary shares, then the conversion price will be the average of the closing mid-market 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. The facility is secured on the residual of the assets secured by the Loan Notes in Note (i) above. As noted in Note 41, the Group announced a proposed restructuring to remove debt obligations from the Company such that it would have a suitable basis on which to raise further equity finance. As part of this restructuring, it was agreed that FBD would accept a 40% reduction in all interest that had been accrued and remained unpaid to date, equivalent to e99,694. At 30th June 2012, the outstanding loan balance and accrued interest was e2,293,757 (2011: e1,252,986). The directors consider the carrying amount of borrowings approximates to their fair values.

64


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements

(continued)

for the Year Ended 30th June 2011 30 Deferred Income - Government Grants

2012 h

2011 h

Non-Current Liabilities Deferred Income - Government Grants

-

36,915

Current Liabilities Deferred Income - Government Grants

-

9,444

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. Deferred income has now been reclassed as part of liabilities associated with assets held for sale in the current year. (See Note 16).

31 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 Group’s obligations under finance leases are secured by lessors’ title to the leased assets. 2012 2011 h h Minimum Lease Payments No later than 1 Year 375 4,497 Later than 1 Year and not later than 5 Years 375 375 4,872 Less Future Finance Charges (2) (179) Present Value of Minimum Lease Payments 373 4,693 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

373 373

4,320 373 4,693

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

373 -

4,320 373

The fair value of finance lease liabilities is approximately equal to their carrying amount.

32 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

2012 h 531,374 646,646 42,291 1,350,954 2 24,499 -

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

2,595,766

5,481,674

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

p65


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 32 Trade and Other Payables (continued) Company Trade Payables Amounts Due to Subsidiary Undertakings Income Tax Payable Accruals

2012 h 64,261 5,711,206 255,414

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

6,030,881

473,196

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

33 Deferred Tax Liability

At the beginning of the financial year Reclassified as liabilities associated with assets held for sale Movement in deferred tax liability – charged to income At the end of the financial year

2012 h 268,062 (268,062) -

2011 h 128,176 139,886 268,062

The deferred tax liability recognised in the prior year has now been reclassified as liabilities associated with assets held for sale in the current year (See Note 16). 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 approximately h12.5m at 30th June 2012.

34 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

2012 h 20,000

2011 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

p66

2012 h 20,000 -

2011 h 20,000 -


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements

(continued)

for the Year Ended 30th June 2012 35 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 h14 million 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 h7 million in respect of such financial year (conversion only taking place after 30th June 2012 notwithstanding the achievement of the relevant target in an earlier year); or

the Group, for the financial year ending on 30th June 2011 and for the financial year ending on 30th June 2012, achieving cumulative EBITDA of at least h14 million over the period of such financial years.

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 2011. 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 years), then if the relevant targets are achieved for such financial year (or years) such person will, notwithstanding his/her departure from the Group, remain entitled to benefit under this incentive scheme and have his/her ‘A’ Shares converted and re-designated 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

g0.01

Expense in Income Statement 30th June 2012 (g492,580)

Expense in Income Statement 30th June 2011 g164,197

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. There was a reversal of share based payment reserve and related receivable balance in the current year, as conditions attaching to the conversion of the shares were not met.

p67


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 36 Related Party Transactions Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation. 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 29) Investor Loans (Note 29)

2012 c

2011 c

612,838 587,409

532,135 599,909

During the year ended 30th June 2012, c12,500 of the investor loans was repaid to members of the Board (2011: c222,404). Security for the Zero-Coupon Loan Notes is disclosed under Note 29. There is no security attached to the other loans disclosed above. Warrants attached to the Zero-Coupon Loan Notes issued to Board members above total 1,667,499 – details of the exercise of these warrants are disclosed in Note 29 above. As described in Note 23 of the financial statements, the company entered into a put and call option and a second call option relating to the shares in Enfield Biomass Limited (formerly 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 23, Kedco plc has guaranteed to repay the debt of c990,000 owed by Enfield Biomass 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 2012, Kedco plc paid c272,500 to Wellwin Investments Limited by way of its own investment in Enfield Biomass Limited (2011: c497,500). At 30th June 2012, the debt stood at c220,000 (2011: c492,500). Kedco plc also paid c8,237 to Wellwin Investments Limited by way of facility fee (2011: c59,175). Warrants attaching to these loans total c4,050,000 at a subscription price of the lowest listed share price between signing of the agreement and the date that the outstanding balance of the loan is paid to Wellwin Investments Limited, exercisable at any date up to 30th June 2014. As noted in Note 41, the Group announced a restructuring to remove debt obligations from the Company. Included in this restructuring is the conversion of the Wellwin Investments loan plus accrued facility fee less a discount of 40% to equity in Kedco plc. The amount converted was c230,000. A development fee of c255,000 will be paid to Wellwin within five business days of the financial close of project finance for the project known as the Enfield Biomass project.

p68


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 36 Related Party Transactions (continued) Finance costs recognised in the income statement in respect of loans from members of the Board amounted to: 2012 c 14,039 29,760 15,813 59,612

Zero-Coupon Loan Notes 2012 (Note 29) Investor Loans (Note 29) Wellwin Facility Charge (see above) Vudlande Loan (Note 29)

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

Included in accruals at 30th June 2012 is finance costs payable of c29,668 relating to loans from members of the Board (2011: c11,562). Interest from the Zero Coupon Loan Notes has been rolled up into the loan balance at 30th June 2012. 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. 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

2012 c 67,000 325,000 -

2011 c 73,000 372,750 153,000

392,000

598,750

Remuneration earned by each director during the financial year ended 30th June 2012 is as follows: Emoluments and Compensation h William Kingston Gerry Madden Edward Barrett Brendan Halpin Dermot O’Connell Diarmuid Lynch Donal O’Sullivan Alf Smiddy

12,000 250,000 75,000 20,500 12,000 12,000 10,500 392,000

Long Term Incentive Plan h -

Pension Contributions h -

Termination Payments h -

At 30th June 2012, directors’ remuneration unpaid amounted to h242,167 (2011: h224,084). 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 2012. At 30th June 2012, 49,256,332 ‘LTIP’ shares were in issue (see Note 35). Details of each director’s shareholding who were in office at the year-end are shown in the Directors’ Report. Consultancy costs paid to a company controlled by one of the directors amounted to h53,000 in the year to 30th June 2012 (2011: h9,000). p69


Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 36 Related Party Transactions (continued)

2012

2011

h

h

2,293,756 700,000

1,252,986 700,000

Other Related Party Transactions Amounts owed to external investors: Investor loans (Note 29) Vudlande loan (Note 29)

During the year ended 30th June 2012 and in the comparative year, investor loans of h1,200,000 per annum were advanced by Farmer Business Development plc, the 22.14% shareholder of the Company to the Group. Details of this facility, and movements thereon, are noted in Note 29. 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 2012 or in the comparative year. Management fees of h706,183 were recharged from Kedco plc and Kedco Block Holdings Limited to Kedco Power Limited for services provided. Finance costs recognised in the income statement in respect of loans from related parties amounted to:

Investor loans (Note 29) Vudlande loan (Note 29)

2012 h

2011 h

96,555 29,750 126,305

52,986 105,000 157,986

Included in accruals at 30th June 2012 are finance costs payable on Vudlande loan of g112,875 relating to loans from related parties (2010: g83,125). Interest from investor loan has been rolled up into loan balance at 30th June 2012.

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

Amounts advanced to Jointly Controlled Entities: Loans to Jointly Controlled Entities (disclosed under financial assets) Balances Due from Jointly Controlled Entities (disclosed under Trade and Other Receivables in Note 21) Amounts Payable to Jointly Controlled Entities: Balances due to Jointly Controlled Entities (disclosed under Trade and Other Payables in Note 32)

2012 h

2011 h

7,608,687

990,000

930,567

762,916

2

781,920

During the year ended 30th June 2012, sales of g10,031,773 were made to jointly controlled entities (2011: g42,080). During the year a consultancy fee of h548,025 was charged to Enfield Biomass Limited for services provided. Included in trade and other receivables at 30th June 2012 is a prepayment of g538,602 relating to jointly controlled entities (2011: gNil). Included in amounts due to customers under construction contracts is g1,110,090 (2011:g1,272,735) relating to amounts received from jointly controlled entities. During the year ended 30th June 2012, stock and services were purchased from a jointly controlled entity totalling gNil (2011: g121,339). Expenses recharged to a jointly controlled entity for the year ended 30th June 2012 amounted to gNil (2011: g227,611). p70


Kedco PLC - Annual Report and Accounts 2012

Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 37 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 Cash and Bank Balances included in Assets Held for Sale (Note 16) Bank Overdrafts Bank Overdrafts Associated with Assets Held for Sale (Note 16) Company Cash and Bank Balances

2012 g

2011 g

144,764 128,280 (150,000) (467,140) (344,096)

616,285 (407,698) 208,587

14,331

402,718

38 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 2012 g

For the year ended 30th June 2011 g

562,809 337,225 (285,358) (492,580) 122,096 30,458,429 30,580,525

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

39 Contingent Liabilities In the normal course of business, the Group has contingent liabilities arising from various legal proceedings with third parties, the outcome of which is uncertain. Provision for a liability is made when the directors believe that it is probable that an outflow of funds will be required to settle the obligation where it arises from an event prior to year end. It is the policy of the Group to rigorously defend all legal actions taken against the Group. During the year, Newry Biomass Limited, a jointly controlled entity of the Group, entered into a binding facilities agreement with Ulster Bank Group. Pursuant to this agreement, Ulster Bank will advance up to £9.44m to enable the completion of construction, installation and commissioning of a 4MW biomass electricity and heat generating plant in Newry, Northern Ireland. As part of this agreement, Kedco plc has: ●

Assigned all relevant licences and permits held by the Group with respect to the Newry project; and

Provided a guarantee guaranteeing the obligations of Kedco Fabrication Limited and Kedco Power Limited with respect to the construction, installation and commissioning of the plant.

Details of other guarantees are disclosed at Note 29.

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Notes to the Consolidated Financial Statements (continued) for the Year Ended 30th June 2012 39 Contingent Liabilities (continued) As disclosed in Note 41, and as part of the restructuring carried out by the Group, Wellwin Investments Limited have been guaranteed a development fee of e255,000 upon financial close of the project finance for the project known as the Enfield Biomass project.

40 Commitments At the balance sheet date, the group has commitments of eNil (2011: e212,073) with respect to the purchase of equipment in relation to one of its construction contracts.

41 Events After the Balance Sheet Date In its circular to Shareholders on 10th September 2012, the Group announced details of a proposed restructuring which would remove debt obligations from the Company such that it will have a suitable basis on which to raise further equity finance in the future. The restructuring has significantly strengthened the Group’s balance sheet through the reduction of approximately e10.8m of Debt Obligations from the Group and a reduction of its annual interest charge by approximately e1.5m. The reduction in e10.8m was achieved through the conversion of debt into equity (e5.8m) and the sale of its Latvian subsidiary, SIA Vudlande which has the affect of removing debt (e1.4m) from the balance sheet and paying down zero loan note holders (e3m). Enfield Biomass, a company in which Kedco did hold a 50 per cent interest will as a result of the restructuring become a wholly-owned subsidiary of the Group. In conjunction with the above restructuring, the Company raised approximately £0.8m in an equity placing in November 2012. On 12th September 2012, the Group announced that the Company’s plant in Newry, Northern Ireland, which will produce a total of 4MW, has commenced the exportation of power to the grid from its biomass electricity and heat generation plant. This marks the Company’s transition to an operator of renewable energy assets from a pure development company. On 18th September 2012, the Group announced that it has signed a heads of agreement with Reforce Energy Limited, in relation to the acquisition of its entire share capital. Both parties are now proceeding to final contracts and the completion of all pre-conditions relating to the Acquisition. The consideration for the Acquisition, if completed, would be satisfied by the issue of a new Kedco ordinary shares and would not involve cash consideration. Reforce Energy Limited is a renewable energy development company focused on small-scale renewable projects across various technologies. The company’s key markets are the UK, Ireland and Northern Ireland where it already has an active pipeline of over 60 projects with a capacity of in excess of 40MW at various stages of development.

42 Approval of Financial Statements These consolidated financial statements were approved by the Board of Directors on 30th November 2012.

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Kedco PLC - Annual Report and Accounts 2012

Advisors and Other Information ●

DIRECTORS: Dermot O’Connell, Non-Executive Chairman Gerry Madden, Chief Executive Officer and Interim 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

SECRETARY: Diarmuid Lynch

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

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.

SOLICITORS: Brown Rudnick, 8 Clifford Street, London, W15 2LQ, United Kingdom.

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

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

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

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Kedco plc

4600 Cork 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

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Kedco PLC Annual Report 2012  

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Annual Report 2012

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