Kedco plc Annual Report and Accounts Biomass Power

Transcription

1 Kedco Kedco plc Annual Report and Accounts 2010 Biomass Power

2 Our Company Kedco plc identifies, develops, builds, owns and operates Biomass electricity and heat generation plants in the UK and Ireland using two tried and tested technologies: gasification of wood and wood waste; and anaerobic digestion of either food or agricultural waste. Biomass Contents Overview Highlights 01 Market Opportunity 02 About Kedco 04 Performance Chairman s Statement 06 Chief Executive s Report 08 Governance Board of Directors 10 Directors Report 11 Statement of Directors Responsibilities 13 Corporate Governance Report 14 Independent Auditors Report 15 Biomass Biomass is a renewable energy source and is made from living or recently living organisms such as wood and waste. It is typically made up of plant matter and waste plant matter can be turned into energy by converting the waste using gasification or anaerobic digestion into methane or synthetic gas which is then used as a form of energy. Accounts Consolidated Income Statement 17 Consolidated Statement of Comprehensive Income and Expenditure 18 Consolidated Balance Sheet 19 Consolidated Statement of Changes in Equity 20 Consolidated Cashflow Statement 21 Company Statement of Financial Position 22 Company Statement of Changes in Equity 23 Company Cashflow Statement 24 Notes to the Consolidated Financial Statements 25 Directors and Other Information IBC

3 Highlights Revenue of 9.0 million, in line with revised expectations (FY 2009: 5.9 million). Loss for the period of 3.2 million, a decrease on the prior year (FY 2009: 6.2 million). Site secured on 20 year lease for a Biomass wood gasification plant located in Newry, Northern Ireland, which has full permitting approval and which will be capable of generating 4 megawatt ( MW ) of electricity and 3MW of heat. The plant has an estimated capital cost of 15 million and is expected to generate EBITDA of approximately 2 million per year once complete. In excess of 6 million has been invested in the Newry project to date and site construction is almost complete. Received planning permission to build a Biomass wood gasification plant in Enfield, North London capable of generating 12MW of electricity and 10MW of heat. Plant has an estimated capital cost of 45 million and is expected to generate EBITDA of approximately 9 million per year once complete. Site secured on 20 year lease and 10 year feedstock supply agreement signed with local waste operator. Successfully completed capacity and efficiency increases at group s Biomass wood processing plant in Vudlande in Latvia which resulted in an increase in sales to 8 million from 4 million in the year. Vudlande reported EBITDA of 1.5 million in the year. Signed a joint venture agreement with AgriKomp GmbH, a leading German supplier of biogas plants, with the aim of building and selling anaerobic digestion plants to convert primarily agricultural wastes into clean energy in the United Kingdom and Ireland. Generating electricity for sale to national grid from 75KW containerised Biomass wood gasification plant located in Cork, Ireland. Group can now take advantage of UK Government decision to grandfather Biomass plants effectively guaranteeing Renewable Obligation Certificates ( ROCs ) levels for 20 years. Power Strategy Kedco s business strategy is to identify, develop, build, own and operate Biomass electricity and heat generation plants in the UK and Ireland using two tried and tested technologies: gasification of wood and wood waste; and anaerobic digestion of either food or agricultural waste. We identify seven stages in the development of a Biomass power generation project. These are: initial evaluation, sign letter of intent, secure site, obtain planning and permitting, secure financial closure, construction and operation. Value is created as we move from one stage of a Biomass power project to the next. When we secure a site, value is created; when we secure planning and permitting further value is created. Moving to financial close on projects and actual construction and operation in our view increases value substantially. 3.2m Further investment raised after financial year end. 3.5m Additional capital raised during the financial year. Overview Future Kedco continues to progress its strategy of identifying, developing, owning and building Biomass electricity and heat generating plants. Our current focus is in the UK and Ireland and we have been very successful in progressing our projects through the various stages from procuring sites and securing planning and permitting to actual construction. As projects progress through the various stages, their value increases. By achieving financial closure on projects we significantly increase their value. We are currently working through five projects where full planning permissions have been granted either to Kedco or to Kedco and its partners. The current economic climate is challenging. Preserving cash and securing additional finance remain a priority. However, the decision of the UK government to grandfather Biomass plants has removed some of the uncertainty from the sector. This is a time of opportunity for Biomass and, in our view, this sector now has the best risk return profile in the renewable energy space. Our model of taking best of breed technology, which exceeds all current environmental regulations, ensures that we can rapidly maximise any opportunities presented to the Company. We will continue to progress our pipeline of large scale Biomass projects and to advance our strategy of deploying smaller anaerobic digestion and gasification plants to the marketplace through our joint venture with AgriKomp. Kedco plc Annual Report and Accounts

4 Market Opportunity The current EU and UK regulatory regime seeks to limit the amount of waste sent to landfill sites, increasing the amount of waste treated through technology based solutions, whilst also encouraging the development of increased renewable energy generation capacity from new technologies. Power Clean Tech Clean Technologies are products, services and processes that harness renewable material and energy sources, dramatically reducing the use of natural resources, and which cut or eliminate emissions and wastes. 02 Kedco plc Annual Report and Accounts 2010 Overview

5 Market Overview Comprehensive Spending Review The UK Government has confirmed its commitment to a low carbon future after conducting a Comprehensive Spending Review. Renewable Obligation Order The UK Government has confirmed that the Renewable Obligation Order will continue until Both of the technologies used by Kedco qualify for two Renewable Obligation Credits ( ROC s ) under the UK renewable energy regime. The UK Government in July 2010 made the decision to grandfather Biomass plants effectively guaranteeing ROC levels from Biomass plants for 20 years. Renewable Heat Incentive After a long series of consultations, the UK Government confirmed that the Renewable Heat Incentive is being implemented in 2011/12. This will add an additional income stream to Biomass electricity and heat generation plants. Biomass The decision to grandfather Biomass plants has removed uncertainty from the sector. Biomass is now leading the way in appetite for renewable energy projects. Biomass plants have a much greater potential for higher returns than other renewable sources because they operate more effectively as a base load power source in comparison to intermittent technologies such as wind and solar. Right Place, Right Time Kedco has identified that the future of the waste to energy sector is driven by governmental, EU and environmental pressures on existing waste operators, forcing them to utilise waste as a resource and further highlighting the hidden value of this resource as a sustainable energy form. The EU has committed itself to the target of increasing the share of renewables in energy use to 20% by The UK government has designed the Renewable Obligation ( RO ) mechanism to translate this target to electricity generation and provide an incentive system based on RO Certificates ( ROCs ) which are sold in addition to the electricity. The ROC system provides different levels of financial incentive for generating technologies with Kedco s projects eligible for two ROCs per MWhr of generation. Renewable Heat Incentives are expected to have a very positive impact on Kedco s business from 2011/12 onwards. Key Market Drivers Biomass is an ideal alternative fuel source driven by four defining factors: Renewable Energy Incentives Significant increase in support for clean energy generation with Biomass attracting highest incentives including Renewable Heat Incentives from 2011/12 onwards. Waste Management Policy EU landfill directive and waste management rules driving up the cost of waste disposal using Landfill Tax. Energy Security Desire to reduce dependence on fossil fuel from unstable parts of the world. Climate Change Increasing awareness of need to reduce CO 2 emissions from burning fossil fuels. Overview Kedco plc Annual Report and Accounts

6 About Kedco Kedco specialises in power generation from sustainable Biomass fuel sources. Kedco s business strategy is to design build and operate power plants using two tried and tested technologies: gasification of wood and wood waste; and anaerobic digestion of either food or agricultural waste. Clean Anaerobic Digestion and Gasification Anaerobic digestion is a clean technology that converts biodegradable material, such as food waste, domestic brown waste and agricultural waste, into a methane and carbon dioxide-rich biogas suitable for energy production helping replace fossil fuels. As part of an integrated waste management system, anaerobic digestion reduces the emission of landfill gas into the atmosphere. Gasification is a clean technology that converts carbonaceous materials, such as wood or wood waste, into a hydrogen and carbon monoxide-rich synthetic gas suitable for energy production helping replace fossil fuels. As part of an integrated waste management system, gasification reduces the emission of landfill gas into the atmosphere. 04 Kedco plc Annual Report and Accounts 2010 Overview

7 Milestones First Biomass boiler 16KW sold First 130KW Biomass boiler sold and commissioned 1,400KW Boiler First planning application for 2MW AD Plant submitted Listed on LSE AIM Site secured on 20 year lease for a Biomass wood gasification plant located in Newry, Northern Ireland, which has full permitting approval and will be capable of generating 4MW of electricity and 3MW of heat Commenced construction of the 4MW Gasification Plant Secured planning and site secured for two 2MW anaerobic digestion plants in ROI and one 2MW plant in NI Tech Received planning permission to build a Biomass wood gasification plant in Enfield, North London capable of generating 12MW of electricity and 10MW of heat. Site secured on 20 year lease and 10 year feedstock supply agreement signed with local waste operator Generating electricity for sale to national grid from 75KW containerised Biomass wood gasification plant located in Cork, Ireland Successfully completed capacity and efficiency increases at group s Biomass wood processing plant in Vudlande in Latvia What We Do and How We Do It Kedco is now recognised as a leader in the area of Biomass Clean Tech energy by the global industry and offers a unique proposition by providing platforms for companies to use their waste resources for both economical and environmental purposes. This platform is made up of the following: Project Developer Source the technology that is right for the location in question, the feedstock available and the partner at the location. Project manage the construction of the plant. Operate and monitor the plant to ensure maximization of economic benefit. Conduct ongoing research to ensure that the technologies in use are up to date, best practice and maximize economic benefit. Using Joint Venture Model, own 50% of power plants after commissioning. Our Customers and Partners A key part of Kedco s strategy and operating model is to lock in feedstock such as wood, wood waste, food waste and agricultural inputs. Kedco partners with volume and logisticsbased businesses, helping convert them into energy producers and providers, including: Medium-size waste operators Agricultural operators Our Suppliers Kedco has established strong links with renewable energy technology suppliers in the USA, Canada and Germany. The Board believes it should not be dependent on any single technology supplier, hence Kedco will only enter into exclusivity arrangements when the Board believes a strong commercial justification exists. In this way, the Board believes it minimises the risks in relation to security of supply and technology redundancy. Kedco does not champion any particular technology and as the Clean Tech industry advances, so does Kedco. Business Offering Kedco conducts its relationship with its customer/partner in two phases: Phase 1 Kedco supplies a commissioned power generating plant to a joint venture partnership, comprising of Kedco and its customer. Phase 2 Kedco, in conjunction with its partner, operates these plants and shares equally in the net economic benefit, being the difference between the price the joint venture gets for the sale of electricity and what it costs to purchase feedstock and operate the plant. Food companies Local authorities Overview Kedco plc Annual Report and Accounts

8 Chairman s Statement We welcome the decision to grandfather Biomass plants and the degree of certainty that this decision brings effectively guaranteeing ROC levels for 20 years. I am pleased to report that the year ended 30 June 2010 proved to be an important and successful one in the progression of Kedco plc. Kedco s business strategy is to identify, develop, own, build and operate Biomass electricity and heat generation plants in the UK and Ireland using two tried and tested technologies: gasification of wood and wood waste; and anaerobic digestion of either food or agricultural waste. Value is created as we move from one stage of a Biomass power project to the next. When we secure a site, value is created; when we secure planning and permitting further value is created. Moving to financial close on projects and actual construction and operation in our view increases value substantially. Biomass is a renewable energy source and is made from living or recently living organisms such as wood and waste. Kedco use anaerobic digestion and gasification conversion technologies to convert wood and waste into electricity and heat. Both technologies qualify for two Renewable Obligation Credits ( ROCs ) under the UK renewable energy regime. It has been confirmed that the Renewable Obligation Order will continue until Kedco plc Annual Report and Accounts 2010 Performance

9 There has been some uncertainty surrounding continuing ROC support for Biomass and this has led to difficulties for lending institutions. However in late July of this year the UK government made the decision to grandfather Biomass plants, effectively guaranteeing ROC levels from the plants for 20 years. We welcome this decision and the degree of certainty it brings. Having achieved planning and securing a 20 year lease for a 15 million, 4MW Biomass wood gasification plant in Newry, Co. Down, Northern Ireland and, having spent approximately 6 million in constructing and equipping the plant, we believe that the removal of the uncertainty in relation to ROCs will enable us to achieve financial close and complete the construction of the plant. Our success in obtaining planning for a 12MW Biomass wood gasification plant in Enfield in North London has also added value to the Company and points to the successful execution of the Company s strategy. The UK has a significant requirement for new sources of renewable energy; Biomass generation as a proven technology is well placed to satisfy that need. We expect Kedco to be able to capitalise on the significant growth in the market for Biomass generation. Our experienced management team has demonstrated that it can create value by developing Biomass projects to the satisfaction of the town and environmental planners as shown by the granting of full planning to the site in London. I would like to thank all my fellow directors and all company employees, stakeholders and shareholders whose combined efforts and support have positioned the Company to avail itself of what we continue to believe, more than ever, to be an exciting and rewarding opportunity. William Kingston Non-Executive Chairman Performance Kedco plc Annual Report and Accounts

10 Chief Executive s Report This is a time of opportunity for Biomass and in our opinion this sector now has the best risk return profile in the renewable energy space. Operational Review I am pleased to be able to report the progress we have made during the financial year ended 30 June Kedco continues to progress its strategy of identifying, developing, owning and building Biomass electricity and heat generating plants in the UK and Ireland. We continue to progress our projects through the various stages from securing sites to securing planning and permitting to actual construction. As projects progress through the various stages their value increases. By achieving financial closure on projects we significantly increase their value. We are currently working through five projects where full planning permissions have been granted either to Kedco or to Kedco and its partners. We identify seven stages in the development of a Biomass power generation project. These are: initial evaluation, sign letter of intent, secure site, obtain planning and permitting, secure financial closure, construction and finally operation. During the financial year we secured a site on a 20 year lease for a Biomass wood gasification plant located in Newry, Northern Ireland which has full permitting approval and is capable of generating 4MW of electricity and 3MW of heat. In excess of 6 million has been invested in the Newry project to date and site construction is almost complete. We have completed factory acceptance of one 2MW gasifier and produced gas of sufficient quantity and quality to meet the engine specifications for power generation. We also took delivery of the 2MW gasifier on site in Newry. In order to complete the project to its full capacity we need to achieve financial close. The project can be completed in two stages of 2MW each. In order to complete the first 2MW a further 2 million needs to be invested in the project. The second stage to bring the project to 4MW would require a further 6.5 million of investment. 08 Kedco plc Annual Report and Accounts 2010 Performance

11 We are extremely pleased to have received planning permission to build a Biomass wood gasification plant in Enfield, North London capable of generating 12MW of electricity and 10MW of heat. The plant has an estimated capital cost of 45 million and is expected to generate EBITDA of approximately 9 million per year once complete. The site has been secured on a 20 year lease and a 10 year feedstock supply agreement has been signed with a local waste operator. We also commenced operations on a 75KW containerised Biomass wood gasification plant located in Cork, Ireland and are currently generating electricity for sale to the national grid. We continue to invest capital in developing customer and partner relationships and in furthering projects in our pipeline. Excluding Newry and London, we have four projects at full planning and permitting stage. Our next objective is to progress these to financial closure. We have a further five projects at letter of intent stage and we are currently working to secure the sites and move towards the planning and permitting stage. A significant milestone during the year was the signing of a joint venture agreement with AgriKomp GmbH, a leading German supplier of biogas plants, with the aim of building and selling anaerobic digestion plants to convert primarily agricultural wastes into clean energy in the United Kingdom and Ireland. Our partnership with one of the leaders in Europe in this area is an exciting prospect for the Company and we are already working closely with AgriKomp in the marketplace. We are very happy with the progress made in our Biomass wood processing facility at the Group s Vudlande plant in Latvia. As well as being a profitable business in its own right, we consider the waste wood from the plant to be a potential backup Biomass feedstock source for generating plants. We successfully completed capacity and efficiency increases which resulted in an increase in sales to 8 million from 4 million in the year. Financial Review Revenue in the period amounted to 9 million, in line with revised expectations (FY 2009: 5.9 million). The Company increased its reported gross profit to 2.0 million from 0.8 million in FY The Company reported a loss for the period of 3.2 million: a decrease on the prior year figure of 6.2 million for FY During the year the Company has continued to exercise tight control over costs whilst, at the same time strengthening its balance sheet. During the year the Company raised total additional capital of 3.5 million. Following the year end, the Company has sourced a further 3.2 million in loan capital from a variety of private and institutional investors. On 27 July 2010, the UK government published Government Response to the Grandfathering Policy of Support for Dedicated Biomass, Anaerobic Digestion and Energy from Waste under the Renewable Obligation. This announced the UK government s decision to grandfather Biomass plants, effectively guaranteeing ROC levels for 20 years. The uncertainty that existed prior to this decision led many financial and investment entities to give pause. The removal of this uncertainty in our view opens up the market for financing Biomass plants. At 30 June 2010, the Company had net debt of 9.1 million (30 June 2009: 7.8 million) including cash balances of 116,753 (30 June 2009: 340,242). Outlook The current economic climate is challenging. Preserving cash and securing additional finance remain a priority. However the decision of the UK government to grandfather Biomass plants has removed a degree of uncertainty from the sector. We will continue to progress our pipeline of large-scale Biomass projects and to advance our strategy of deploying smaller anaerobic digestion and gasification plants to the marketplace through our joint venture with AgriKomp. Whilst our strategy is to build, own and operate Biomass power generating plants, once the site has been secured and planning and permitting has been obtained we would be in a position, if we so chose, to monetise the value of the project. In our view Biomass plants have much greater potential for higher returns than other renewable sources because they operate more effectively as a base load power source in comparison to intermittent technologies such as wind and solar. This is a time of opportunity for Biomass and, in our view, this sector now has the best risk return profile in the renewable energy space. We are a development company. Economic conditions remain uncertain and the tight credit markets could continue to have an impact on the availability of finance. We have continued to raise finance successfully during the period and we expect to continue to be successful in the coming period. Donal Buckley Chief Executive Officer Performance Kedco plc Annual Report and Accounts

12 Board of Directors 1. William Kingston Non-Executive Chairman William Kingston is one of the four original founders of Kedco, joining the board in January 2005 as Chairman. William has overseen the explosive growth of Kedco and has been very involved in the strategic long-term planning of the Company. William is also a past president of the Irish Grassland Association, a body focused on research and dissemination of information to the Irish agricultural industry. William was a board member of the Food Safety Authority of Ireland from 2002 to 2006 and the West Cork Leader (an EU-backed body involved in rural development) from 2005 to Donal Buckley Chief Executive Officer Donal Buckley is the original promoter and one of the four original founders of Kedco. Since its incorporation in March 2005, Donal has played a key role in the successful growth of Kedco as a leading project development company in the anaerobic digestion and gasification fields. He has shown excellent international expertise when he led Kedco in the takeover of Vudlande in Latvia and completed a very successful integration into the Kedco group. The sales and profitability of this company grew exponentially over the past 4 years under his stewardship. He has guided the company to signing very significant joint venture contracts with project values of up to 100 million. In October 2008 he led Kedco to a listing on the London Stock Exchange creating Kedco plc. Prior to his involvement with Kedco, Donal was a divisional manager with SWS Farm Services Limited, an Irish company specialising in wind energy and business services (sold for 600 million in 2010). Donal graduated from University College Dublin in 1997 with a degree in Agricultural Science, he has a certificate in environmental sustainability from Delft University in the Netherlands and has this year completed an Executive Education Program at Stanford University Graduate School of Business in California. Donal was one of 27 CEO s chosen by the Irish government to complete this program as a leader of a company with the potential to scale globally. Donal is a life member of Stanford alumni. 3. Gerry Madden Finance Director Gerry Madden joined Kedco in May 2007 as Finance Director. Prior to this, Gerry operated his own consultancy practice between 1998 and 2007, advising companies on merger and acquisition activities and business strategy. Before that Gerry worked for 16 years with the international accountants KPMG and was auditor and adviser to listed companies, multinationals and private companies operating in Ireland and internationally. Gerry has acted as Non-Executive Director for a variety of companies in different business sectors in Ireland. Gerry is a Fellow of the Institute of Chartered Accountants in Ireland having qualified as an accountant with KPMG in Gerry holds a degree in Commerce from University College Cork. 4. Edward Barrett Non-Executive Director Edward Barrett is one of the four original founders of Kedco. Edward established International Livestock Genetics Limited, an Irish importer and distributor of bovine genetics based in County Cork and has been Managing Director since In addition, Edward is a director of Platinum Asset Management Limited, an investment Company specialising in the renewable energy sector. 5. Diarmuid Lynch Non-Executive Director Diarmuid Lynch is one of the four original founders of Kedco. Diarmuid operates one of the largest dairy farms in Ireland based in County Cork. From 1998 to 2000, Diarmuid served on the board of the Blackwater Trading Company, a group involved in the procurement of agricultural inputs, services and feedstock on behalf of farmers in the Blackwater region of Ireland. 6. Donal O Sullivan Non-Executive Director Donal O Sullivan joined the board of Kedco in August He was the Chairman and an Executive Director of Esso Ireland Limited between 1986 and He was also a director of the Irish Petroleum Industry Association, the representative body of companies in Ireland engaged in the importation, distribution and marketing of petroleum products. Donal held the position of Managing Director of HOYER Ireland Limited and was a board member of HOYER in the UK from 2001 to HOYER Ireland is a subsidiary of HOYER GmbH, a Company involved in the provision of specialist logistics services to the petroleum, chemical, gas and foodstuff sector. 7. Alf Smiddy Non-Executive Director Alf Smiddy joined the board of Kedco in May 2007 as a Non-Executive Director. Alf is currently Chairman of the Quintas Group, Granite Consulting and Eolas International Research. Alf is also a Non-Executive Director of The Kilkenny Group and the Moran and Bewleys Hotel Groups. Alf is a director of the Plato Ireland Network Limited in Cork, an Irish business development network for small and medium-sized enterprises. In addition, Alf is a director of the Cooperation Ireland Cork Committee. Alf holds a degree in Commerce from University College Cork and is a Fellow of the Institute of Chartered Accountants in Ireland, having qualified as an accountant with PriceWaterhouseCoopers. 10 Kedco plc Annual Report and Accounts 2010 Governance

13 Directors Report The directors present their annual report and the audited financial statements of the Company and its subsidiaries collectively know as the Group for the period ended 30 June Principal Activities The principal activities of the Group are to identify, develop, own, build and operate Biomass electricity and heat generation plants in the UK and Ireland using two tried and tested technologies: gasification of wood and wood waste; and anaerobic digestion of either food or agricultural waste. The Group is also involved in the sale of wood and Biomass materials. Review of Business and Future Developments A review of the Group s business and future developments is contained in the Chairman s Statement and the Chief Executive s Report on pages 6 to 9. Results and Dividends The results for the year are set out on page 17. No dividends have been proposed by the directors (2009: Nil). Principal Risks and Uncertainties The Group has a risk management structure in place, which is designed to identify, manage and mitigate business risk. Risk assessment and evaluation is an essential part of the Group s internal control system. Information about the financial risk management objectives and policies of the Group, along with exposure of the Group to credit risk, liquidity risk and market risk, are disclosed in Note 5 of the notes to the consolidated financial statements. Details of the principal risks and uncertainties affecting the Group are detailed in the Chief Executive s Report on pages 8 and 9. Directors The present directors are listed on page 10. In accordance with the Articles of Association, Edward Barrett and Donal O Sullivan retire by rotation and being eligible offer themselves for re-election. The board recommends the re-election of Edward Barrett and Donal O Sullivan as directors. Directors and Secretary s Interests in Shares The directors and Secretary of Kedco plc who held office at 30 June 2010 had the following interests in the shares of the Company: Number of Number of Number of Number of Ordinary A Ordinary Ordinary A Ordinary Shares at Shares at Shares at Shares at 30 June 30 June 30 June 30 June William Kingston 16,559,734 4,094,100 16,426,400 4,094,100 Donal Buckley* 16,550,627 15,898,468 16,083,960 15,898,468 Diarmuid Lynch 21,294,186 5,021,880 20,127,520 5,021,880 Edward Barret 13,486,666 3,080,000 12,320,000 3,080,000 Gerry Madden 76,667 14,926,161 10,000 14,926,161 Alf Smiddy 66,668 1,492,616 1,492,616 Donal O Sullivan 66,667 2,238,924 2,238,924 * These holdings are based on the aggregate holding of Donal Buckley and his wife, Mrs Sinead Buckley. Donal Buckley s individual holding is 481,667 Ordinary Shares and 11,881,228 A Ordinary Shares. Remuneration Committee Report The Group s policy on senior executive remuneration is designed to attract and retain people of the highest caliber who can bring their experience and independent views to the policy, strategic decisions and governance of the Group. In setting remuneration levels the Remuneration Committee takes into consideration the remuneration practices of other companies of similar size and scope. A key philosophy is that staff must be properly rewarded and motivated to perform in the best interests of the shareholders. Details of directors remuneration are included in Note 34 of the notes to the consolidated financial statements. Governance Kedco plc Annual Report and Accounts

14 Directors Report (continued) 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 Unit 6, Portgate Business Park, Monkstown, Co. Cork. Subsequent Events During October 2010, the Company raised 3.2 million from the issue of loan notes to a variety of investors including the Kedco plc directors. The proceeds from the placing will be used to develop identified opportunities for joint ventures and working capital purposes. No other significant events affecting the Group have occurred since 30 June Auditors The auditors, Deloitte & Touche, Chartered Accountants, continue in office in accordance with Section 160(2) of the Companies Act Approved by the board on 21 October William Kingston Director Donal Buckley Director 12 Kedco plc Annual Report and Accounts 2010 Governance

15 Statement of Directors Responsibilities Irish Company law requires the directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Company and Group, and of the profit or loss of the Group for that period. In preparing those financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; and prepare 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 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. Governance Kedco plc Annual Report and Accounts

16 Corporate Governance Report The Company is not subject to the Combined Code on Corporate Governance applicable to companies with full listings on the London Stock Exchange. The Company does however intend, in so far as is practicable and desirable, given the size and nature of the business, follow the recommendations on corporate governance for AIM companies (the QCA Guidelines ) issued by the Quoted Companies Alliance ( QCA ). The Board The board of directors of the Company is responsible to shareholders for leadership in all aspects of the business. The board comprises 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 Alf Smiddy as the Chairman, William Kingston 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, Alf Smiddy and William Kingston. The role of the Remuneration Committee is to review the performance of the Executive Directors and other senior executives and to set the scale and structure of their remuneration, including the implementation of any bonus arrangements, with due regard to the interests of Ordinary Shareholders. The Remuneration Committee also administers and establishes performance targets for share incentive schemes and determines the allocation of share incentives to employees. The board has adopted a code for dealings in the Company s securities by directors and applicable employees, which conforms to the requirement of the AIM Rules (Share Dealing Code). The Company will be responsible for taking all proper and reasonable steps to ensure compliance by the directors and applicable employees with the Share Dealing Code and the AIM Rules. The Company complies with the corporate governance obligations applicable to Irish registered public companies whose shares are quoted on the AIM market of the London Stock Exchange. 14 Kedco plc Annual Report and Accounts 2010 Governance

17 Independent Auditors Report to the Members of Kedco plc We have audited the financial statements of Kedco plc which comprise the Group Financial Statements: the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income and Expenditure, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cashflow Statement and the Company Financial Statements: the Company Balance Sheet, Company Statement of Changes in Equity and Company Cashflow Statement and the related notes 1 to 41. 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, Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditors The directors are responsible for preparing the Annual Report, including the preparation of the Group Financial Statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Parent Company Financial Statements in accordance with applicable law and accounting standards issued by the Accounting Standards board and published by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland). Our responsibility, as independent auditor, is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the Group Financial Statements give a true and fair view, in accordance with IFRSs as adopted by the European Union and the Parent Company Financial Statements give a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland, and are properly prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2009, and Article 4 of the IAS Regulations. We also report to you whether in our opinion: proper books of account have been kept by the Company; whether, at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the Company; and whether the information given in the Directors Report is consistent with the financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purpose of our audit and whether the Company s balance sheet is in agreement with the books of account. We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Alternative Investment Market of the London Stock Exchange regarding directors remuneration and directors transactions is not disclosed and, where practicable, include such information in our report. We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatement or material inconsistencies with the financial statements. The other information comprises only the Chairman s Statement, Chief Executive s Report, Director s Report and the Corporate Governance Statement. Our responsibilities do not extend to other information. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the Company s and the Group s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: the Group Financial Statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the affairs of the Group as at 30 June 2010 and of its loss for the year then ended; the Group Financial Statements have been properly prepared in accordance with the Companies Acts, 1963 to 2009 and Article 4 of the IAS Regulations; the Parent Company Financial Statements give a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland as applied in accordance with the provisions of the Companies Acts 1963 to 2009, of the state of the parent Company affairs as at 30 June 2010; and the Parent Company Financial Statements have been properly prepared in accordance with the Companies Acts, 1963 to Governance Kedco plc Annual Report and Accounts

18 Independent Auditors Report (continued) to the Members of Kedco plc 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 period of 3,242,901. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group s ability to continue as a going concern. Subsequent to the year end the Group has raised additional finance of 3.2 million. The directors have given careful consideration to the appropriateness of the going concern assumption in the preparation of the financial statements. After making appropriate enquiry, the directors believe solid progress towards securing finance is being made and that, whilst there is no guarantee that such investment will be forthcoming, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The directors have prepared the financial statements on the basis that the Group is a going concern. The financial statements do not include 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 balance sheet are more than half the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 30 June 2010 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. Deloitte & Touche Chartered Accountants and Registered Auditors No. 6 Lapps Quay Cork Ireland 21 October Kedco plc Annual Report and Accounts 2010 Governance

19 Consolidated Income Statement Notes Revenue 8 9,023,979 5,914,077 Cost of sales 9 (7,069,165) (5,106,316) Gross profit 1,954, ,761 Operating expenses Administrative expenses 10 (4,310,925) (5,525,791) Once off listing costs (946,024) Operating loss (2,356,111) (5,664,054) Finance costs 11 (758,567) (690,597) Share of losses on joint ventures after tax 21 (113,536) Finance income 11 32, ,113 Loss before taxation 13 (3,195,803) (6,240,538) Income tax expense 14 (47,098) Loss for the year from continuing operations (3,242,901) (6,240,538) Loss attributable to: Owners of the Company (3,388,284) (6,132,743) Non-controlling interest 145,383 (107,795) (3,242,901) (6,240,538) Euro Euro per share per share Basic loss per share: From continuing operations 15 (0.02) (0.03) Diluted loss per share: From continuing operations 15 (0.01) (0.03) Accounts Kedco plc Annual Report and Accounts

20 Consolidated Statement of Comprehensive Income and Expenditure Loss for the financial year (3,242,901) (6,240,538) Other comprehensive income Exchange differences arising on translation of foreign operations ,568 Total comprehensive income and expense for the year (3,242,021) (6,224,970) Attributable to: Owners of the Company (3,387,404) (6,118,786) Non-controlling interests 145,383 (106,184) (3,242,021) (6,224,970) 18 Kedco plc Annual Report and Accounts 2010 Accounts

21 Consolidated Balance Sheet at 30 June 2010 Notes ASSETS Non-current assets Goodwill , ,451 Intangible assets 17 71, ,309 Property, plant and equipment 18 5,570,812 6,138,936 Financial assets , ,000 Share of net assets of jointly controlled entities ,109 10,593 Total non-current assets 7,389,367 7,846,289 Current assets Inventories 22 1,610,015 1,327,324 Amounts due from customers under construction contracts 23 9,291,911 7,065,467 Trade and other receivables 24 2,511,302 2,330,315 Cash and cash equivalents 116, ,242 Total current assets 13,529,981 11,063,348 Total assets 20,919,348 18,909,637 EQUITY AND LIABILITIES Equity Share capital 25 3,239,407 3,065,807 Share premium 25 17,410,077 15,096,219 Shared based payment reserves , ,188 Retained earnings deficit (17,639,511) (14,252,107) Equity attributable to equity holders of the parent 3,338,356 4,074,107 Minority interest 635, ,467 Total equity 3,974,206 4,564,574 Non-current liabilities Borrowings 27 6,749,672 6,746,220 Deferred income government grants 28 50,653 56,662 Finance lease liabilities 29 4,693 50,324 Deferred tax liability ,176 81,078 Total non-current liabilities 6,933,194 6,934,284 Current liabilities Amounts due to customers under construction contracts 23 1,302,357 1,000,000 Trade and other payables 30 6,221,514 4,915,895 Borrowings 27 2,445,265 1,371,176 Deferred income government grants 28 6,009 15,033 Finance lease liabilities 29 36, ,675 Total current liabilities 10,011,948 7,410,779 Total equity and liabilities 20,919,348 18,909,637 Accounts Kedco plc Annual Report and Accounts