MAST Mast Energy Developments Plc

Note 14: Other financial and derivative liabilities

Convertible loan notes

Convertible loan notes consist of a facility from institutional lenders which reprofiled the outstanding convertible loan notes held during the previous financial year. The interest accrues at 9.5% to 10% per annum based on the terms applied for each advance of the facility. The convertible loan notes have embedded derivative liabilities which were recognised at fair value.

Term loans

The term loans are from institutional lenders. The interest accrues at 10% to 12% per annum.

·      The "Term loan - Powertree" is payable by the Hindlip project SPV. The loan was used to pay the Capacity Market deposit. This loan is payable in full during the 2025 financial year and bears interest at 10% per annum. The term loan has been rolled up into the investment agreement after year-end. Refer to note 16.  

·      The "Term loan - RiverFort" is payable by the Pyebridge SPV. The funding was used to overhaul the two engines at the Pyebridge site. The loan consists of three separate drawdowns all repayable during the 2026 financial year and bear interest at 12% per annum.

·      The "Loan - Riverfort" is the historic shareholder loan owing by the Company to its former parent company, Kibo Energy PLC ("Kibo"), which Kibo sold to RiverFort during 2024. This loan has no fixed repayment terms and is repayable on demand and bears no interest.

Accrued interest on director's loan

The director's loan consists of interest payable on a director's loan which is to be settled in cash. The interest is accrued at 7% per annum.

Note 15: Related Parties

Related parties of the Group comprise subsidiaries, significant shareholders and the Directors.

Relationships

Board of Directors/ Key Management

Other entities over which Directors/key management or their close family have control or significant influence:

MAST Energy Developments PLC is a shareholder of the following companies and as such are considered related parties:

Balances

Transactions

As announced in the RNS dated 7 May 2024 the Company has entered into a partial settlement deed, in relation to the Reprofiled Balance due under the Reprofiling Agreement. Under the terms of the settlement deed Pieter Krügel, a director of the Company, purchased from Riverfort £325,000 (the "Capitalised Balance") of the Reprofiled Balance due, in consideration, Riverfort was paid £325,000 in cash (the "Acquisition"). The Capitalised Balance was converted into 162,500,000 new MED ordinary shares of 0.1p (the "Subscription Shares") at a conversion price of 0.20p per share by Mr. Pieter Krügel. Following admission of the Subscription Shares, Pieter Krügel has agreed to sell the Subscription Shares to new investors arranged by the Company's broker at the same price per share as the Conversion, being 0.20p for a gross consideration of £325,000.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The transactions during the period between the Company and its subsidiaries included the settlement of expenditure to/from subsidiaries, working capital funding, and settlement of the Company's liabilities through the issue of equity in subsidiaries. The loans from related parties do not have fixed repayment terms and are unsecured.

Note 16: Events after reporting period

Following successful pre-qualification for additional Capacity Market ("CM") T-1 and T-4 contracts during the assessment window in August 2024, and the implementation of a robust CM auction bid strategy, for the first time Pyebridge has now successfully secured both contracts at its maximum generation capacity permissible under the CM rules. The recent CM T-4 auction cleared at £60,000 per MW/year, and the CM T-1 auction cleared at £20,000 per MW/year. This means that Pyebridge now has uninterrupted CM contracts until 2029 with a cumulative total guaranteed gross profit income value of c. £1.73m, over and above its PPA trading income and Embedded Benefits.

The Company has signed a binding definitive investment agreement (the "Investment Agreement") with Powertree (Holdings) Ltd ("Powertree"). Under the Investment Agreement, Powertree will invest up to £5,000,000 into MED's Hindlip project (the "Investment Consideration"), resulting in the Hindlip project being fully funded. The Investment Consideration will consist of £500,000 for 75% of the fully diluted ordinary equity of the Hindlip SPV, ADV 001 Ltd and, up to £4,500,000 will be by way of secured loan (the "Investor Loan") entered into between Powertree (as the lender) and the Hindlip SPV (as the borrower). MED shall retain 25% of the fully diluted ordinary equity of the Hindlip SPV with no further funding obligations. The closing of the Investment Agreement is subject to customary closing conditions.

Note 17: Commitments and contingencies

The Group does not have identifiable material commitments and contingencies as at the reporting date.

Note 18: Principal risks

The realisation of the various projects is dependent on the successful completion of technical assessments, project development and project implementation and is subject to a number of significant potential risks summarised as follows, and described further below:

•     Funding risk;

•     Regulatory risk;

•     Commodity risk;

•     Development and construction risk;

•     Staffing and key personnel risk; and

•     Information technology risk.

•     Successful refinancing of the historic shareholder loan amounting to £849,253 owing by the Company to its former parent company, Kibo Energy PLC ("Kibo"), which Kibo sold to RiverFort during 2024, resulting in the deferral of loans payable in the foreseeable future beyond a 12-month period after sign off of these financial statements.

Funding risk

Following the successful conclusion of an Initial Public Offering ('IPO') on 14 April 2021, the Group was able to raise £5.54 million in cash, which was utilised to further advance the various projects of the Group to date. During 2022, the Group raised a further £650 000 for acquisitions and general working capital purposes and availed of a further £100,000 during 2023 under the reprofiled loan with institutional investors agreed in May 2023. During 2024, the Company continued to avail of loan facilities under a facility agreement with RiverFort on which £2,769,297 has been drawn down to date, and £637,969 has been repaid. Funds from a broker sponsored placing of £350,000 were raised and funds from a second loan facility with RiverFort on which £350,000 was drawn down coincident with a partial re-settlement of the same amount on the outstanding balance on the May 2023 reprofiled loan.

There can be no assurance that such funds will continue to be available on reasonable terms, or at all in future, and that projects will be completed within the anticipated timeframes to supplement cashflows through operational activities. This risk was realised to a significant extent during 2023 where anticipated funding from the Seira and subsequently, Proventure joint venture agreements, did not materialise and has delayed the Company's anticipated timeframes for project completion.

The Group generated revenue of £737,158 (2023: £341,207) for the period ended 31 December 2024 and had a net liability position of £1,238,271 (2023: £384 509) as at 31 December 2024. As at year end, the Group had liquid assets in the form of cash and cash equivalent and other receivables of £146,446 and £364,469 (year to 31 December 2023: £122,901), respectively.

The Directors have reviewed budgets, projected cash flows and other relevant information, and based on this review and the rationale set out below, they are confident that the Group will have adequate financial resources to continue in operational existence for the foreseeable future.  

The budgets and projected cash flows are reliant on continued successful drawdowns on current loan facilities, as well as continued operation of Pyebridge and its anticipated revenue generation from electricity production. Unforeseen challenges with either of the aforementioned cause a risk that the Company may not be able to meet its current liabilities without another cash injection. The directors have concluded that the combination of these circumstances represents a material uncertainty that casts significant doubt upon the Group's ability to continue as a going concern and that, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

The Directors continue to review the Group's options to secure additional funding for its general working capital requirements as well as project financing for commercial production-ready sites, alongside its ongoing review of anticipated revenue generation from existing sites, potential acquisition targets and corporate development needs. The Directors are confident that such funding will be available, although there is no guarantee of such funding. In addition, any equity funding may be subject to shareholder approvals and in line with legal and regulatory requirements as appropriate.

As a result, the Directors continue to monitor and manage the Group's cash and overheads carefully in the best interests of its shareholders and believe that the Company and the Group by successfully implementing the above responses it will remain a going concern for the foreseeable future.

Regulatory risk

The United Kingdom power sector has undergone several considerable regulatory changes over the last few years and is now at a state of transition from large fossil-fuel plants to a more diverse range of power-generation sources, including renewables, small, distributed plants and new nuclear. As a result, there is greater regulatory involvement in the structure of the UK power market than has been the case over the last 20 years. Therefore, there remains a risk that future interventions by Ofgem or Government could have an adverse impact on the underlying assets that the Group manages and/or owns. The Company continually monitors this risk and, where possible, acts proactively to anticipate and mitigate any regulatory changes that may have an adverse impact on the ongoing financial viability of its projects. To monitor compliance with evolving UK government energy regulations, the Company subscribes to relevant environmental and energy regulation bodies' updates which management reviews on a regular basis. It makes recommendations to the Board in terms of mitigation that may be required should it become aware of any pending regulatory changes that may threaten the economic viability of its projects.

Commodity Risk

The assets that the Group manages and owns will receive revenue from the sale of energy onto the wholesale market or to end users at a price linked to the wholesale power market price. Volatility in power prices going forward will affect the profitability of the underlying reserve power assets. For example, the significant reduction in wholesale electricity prices from 2022 to 2023 resulted in lower electricity prices received from sales at Pyebridge during the period that it was in operation during 2023.  The Group will also use its skills, capabilities and knowledge of the UK power market to optimise these wholesale revenues. The Group's ability to effectively manage price risk and maximise profitability through trading and risk management techniques with the assistance of its electricity off-taker and trading platform provider, Statkraft, will have a considerable impact on the revenues and returns.

Climate risk

The Board considers Climate Risk to be a principal risk that may threaten the business viability of the Company insofar as it informs greater regulatory involvement by the UK Government in the structure of the UK power market as discussed under Regulatory Risk above.  As the Company currently relies on the availability and permitted use of natural gas to fuel its current and planned reserve power sites, accelerated climate change, and associated adverse weather events may prompt further restrictions on the use of natural gas by UK regulators including its phasing out within a shorter period than the Company currently anticipates.  In order to mitigate this risk, in addition to keeping itself informed of any pending regulatory risk that may threaten the economic viability of its projects, the Company will ensure that the engineering design and location of its projects are amenable to the use of alternative electricity generating fuels to natural gas e.g. green Hydrogen or biofuel and at minimum conversion costs should it be required. The Company will also plan to incorporate alternative renewable energy projects in its project pipeline such as solar, wind, waste-to-energy or long-duration storage (battery) do diversify its project portfolio in response to any accelerated phasing out of natural gas as an electricity generating fuel.  As well as Climate Risk, the Company also recognises Climate Opportunity and more details on both are discussed under the Strategy heading in the Task Force on Climate-related Financial Disclosures (TCFD) section of this report. The TCFD section, in addition to providing the information required under the TCFD Framework in compliance with the Listing Rules also includes the Group's Climate Related Financial Disclosures (CFD)as required under s414C, s414CA and s414CB of the Companies Act 2006 (the Act).

Development and Construction Risk

The Group will continue to develop new project sites that includes obtaining planning permission, securing land (under option to lease or freehold), and obtaining gas and grid connections. The Group will also oversee the construction of these projects where needed.

Risks to project delivery include damage or disruption to suppliers or to relevant manufacturing or distribution capabilities due to weather, natural disaster, fire, terrorism, pandemic, strikes or other reasons that could impair the Company's ability to deliver projects on time.

Failure to take adequate steps to mitigate the likelihood or potential impact of development and construction setbacks, or to effectively manage such events if they occur, could adversely affect the business or financial results. There are inherent risks that the Group may not ultimately be successful in achieving the full development and construction of every site and sunk costs could be lost. However, the risk is mitigated as the Group targets shovel-ready sites that adhere to specific requirements, coupled with an experienced senior management team.

Staffing and Key Personnel Risks

Personnel are our only truly sustainable source of competitive advantage and competition for key skills is intense, especially around science, technology, engineering and mathematics ('STEM') disciplines. While the Group has good relations with its employees, these relations may be impacted by various factors. The Group may not be successful in attracting, retaining, developing, engaging and inspiring the right people with the right skills to achieve our growth ambitions, which is why staff are encouraged to discuss with management matters of interest and subjects affecting day-to-day operations of the Group.

Information Technology Risks

The Group relies on information technology ('IT') in all aspects of its business. Any significant disruption or failure, caused by external factors, denial of service, computer viruses or human error could result in a service interruption, accident or misappropriation of confidential information. Process failure, security breach or other operational difficulties may also lead to revenue loss or increased costs, fines, penalties or additional insurance requirements. The Group continues to implement more cloud-based systems and processes and improve cyber security protocols and facilities in order to mitigate the risk of data loss or business interruption.

Note 18: Use of Estimates and Judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources.

In particular, there are significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements.

Estimation uncertainty:

Information about estimates and assumptions that may have the most significant effect on recognition and measurement on assets, liabilities and expenses is provided below:

Impairment assessment of property plant and equipment and intangible assets

In applying IAS 36, impairment assessments are performed whenever events or changes in circumstances indicate that the carrying amount of an asset or CGU may not be recoverable. Estimates are made in determining the recoverable amount of assets which includes the estimation of cash flows and discount rates used. In estimating the cash flows, management bases cash flow projections on reasonable and supportable assumptions that represent management's best estimate of the range of economic conditions that will exist over the remaining useful life of the assets. The discount rates used reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted. Refer to Note 11 of the annual report for detailed sensitivity analysis related to a potential change in the key estimation uncertainties inherent in the impairment assessment.

Useful life of Intangible assets

Amortisation is charged on a systematic basis over the estimated useful lives of the assets after taking into account the estimated residual values of the assets. Useful life is either the period of time over which the asset is expected to be used or the number of production or similar units expected to be obtained from the use of the asset.