IAS 1 para 25, going concern uncertainty, emphasis in audit report, standard listing on LSE

Intelligent Energy Holdings plc – Annual report – 30 September 2016

Industry: manufacturing

Strategic report (extract)

Chief Financial Officer’s review (extract)

Going concern

The Directors recognise that the short-term trading and commercialisation of the Group’s fuel cell technology provides some challenges. The Group meets its day to day working capital requirements through its cash resources. The Directors have prepared detailed cash forecasts for the next 18 months, which indicate that the Group will be able to operate within these available resources. However, the current trading position of the Group and its forecast development plans result in cash consumption for at least the next year. While it is expected that the Group will exit the current financial year with cash on its balance sheet the cash position thereafter will depend on future trading and/or any further action taken with respect to the Company’s cost base. The exact nature and evolution of these are by their nature uncertain.

After careful consideration, and the modelling of foreseeable sensitivities and remedial actions available to the Company, the Directors believe that the Company can manage its position in a way which allows it to fulfil its appropriate commitments and settle its obligations as they fall due without recourse to additional funding. This position is not impacted materially by the delivery or non-delivery of the long-term GTL contract in India, the outcome of which would not negatively materially impact the cash flows of the Group.

The Directors’ forecasts assume the business will secure a significant level of revenues that are not presently contracted. If these future revenues are not secured as the Directors envisage, then the Directors’ position is subject to i) the business taking the above mentioned actions on the Company’s cost base and on ii) the continuation of JDA revenues, for the foreseeable future. Despite the business having a track record over many years of securing JDA revenues, the achievement of forecast levels are uncertain. Given the above circumstances, it is possible that the Group could have a shortfall in cash and require additional funding during the forecast period.

The above factors result in a material uncertainty which may cast significant doubt on the Company’s and Group’s ability to continue as a going concern and that it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Company and Group were unable to continue as a going concern. The unqualified report of the auditors includes an emphasis of matter in this respect.

Despite this, the Directors believe that the track record of the business in securing JDA activity, the options available to the Group from trading activities and the ability to realise value from the IP portfolio mean that the Directors consider that the Company will have sufficient funds to pay its debts as they fall due for the foreseeable future. It is on this basis that the Directors, in their opinion, consider that the Company remains a going concern and the financial statements have been prepared on that basis.

Notes to the annual financial statements (extract)

  1. Basis of preparation (extract)

2.1 Going concern

The Group’s business activities, together with the factors likely to affect its future development and position, are set out in the Group Chief Executive Officer’s review section of the Strategic report on page 09. The financial position of the Group, its cash flows and liquidity position are described in the Chief Financial Officer’s review on pages 18 to 20. In addition, note 29 to the financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.

The Directors recognise that the short-term trading and commercialisation of the Group’s fuel cell technology provides some challenges. The Group meets its day to day working capital requirements through its cash resources. The Directors have prepared detailed cash forecasts for the next 18 months, which indicate that the Group will be able to operate within these available resources. However, the current trading position of the Group and its forecast development plans result in cash consumption for at least the next year. While it is expected that the Group will exit the current financial year with cash on its balance sheet the cash position thereafter will depend on future trading and/or any further action taken with respect to the Company’s cost base. The exact nature and evolution of these are by their nature uncertain.

After careful consideration, and the modelling of foreseeable sensitivities and remedial actions available to the Company, the Directors believe that the Company can manage its position in a way which allows it to fulfil its appropriate commitments and settle its obligations as they fall due without recourse to additional funding. This position is not impacted materially by the delivery or non-delivery of the long-term GTL contract in India, the outcome of which would not negatively materially impact the cash flows of the Group.

The Directors’ forecasts assume the business will secure a significant level of revenues that are not presently contracted. If these future revenues are not secured as the Directors envisage, then the Directors’ position is subject to i) the business taking the above mentioned actions on the Company’s cost base and on ii) the continuation of JDA revenues, for the foreseeable future. Despite the business having a track record over many years of securing JDA revenues, the achievement of forecast levels are uncertain. Given the above circumstances, it is possible that the Group could have a shortfall in cash and require additional funding during the forecast period.

The above factors result in a material uncertainty which may cast significant doubt on the Company’s and Group’s ability to continue as a going concern and that it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Company and Group were unable to continue as a going concern. The unqualified report of the auditors includes an emphasis of matter in this respect.

Despite this, the Directors believe that the track record of the business in securing JDA activity and the options available to the Group from trading activities and the ability to realise value from the IP portfolio mean that the Directors consider that the Company will have sufficient funds to pay its debts as they fall due for the foreseeable future. It is on this basis that the Directors, in their opinion, consider that the Company remains a going concern and the financial statements have been prepared on that basis.

Independent auditor’s report

To the members of Intelligent Energy Holdings plc (extract)

Emphasis of matter – Going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2.1 to the financial statements concerning the Group’s and the Parent Company’s ability to continue as a going concern. The Group incurred a net cash outflow from operating activities of £26.3 million during the year ended 30 September 2016 and, at that date, the Group had net cash of £20.6 million. The Group forecasts further cash outflows in the next 12 months. These conditions, along with the other matters explained in note 2.1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and the Parent Company were unable to continue as a going concern.

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