GREEN & SMART HOLDINGS plc

CONSOLIDATED STATEMENT OF CASH FLOW

For the

The notes to the financial statements form an integral part of these financial statements.

GREEN & SMART HOLDINGS plc

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 31 DECEMBER 2018

1.   GENERAL INFORMATION

Green & Smart Holdings plc ("the Company") was incorporated as a public limited company in Jersey with registration number 119200 on 7 August 2015. The registered office of the Company is 12 Castle Street, St. Helier, Jersey JE2 3RT, Channel Islands.

Pursuant to a resolution ratified at the Annual General Meeting of the Company on 25 October 2018,

the Group's financial year was changed from 30 September to 31 December 2018.

The Company is listed on the AIM market of the London Stock Exchange. The Company's nature of operations is to act as the holding company of a group of subsidiaries that are involved in research and development, provision of professional engineering consultancy and process design services in the areas of industrial biotechnology, pollution control and renewable energy; and engineering, procurement and construction of various waste treatment plants/systems; development, commercialisation, operation and maintenance of renewable energy plants.

The consolidated financial statements include the financial statements of the Company and its controlled subsidiaries (the "Group") as follows:

Note 1 - registered address: 3-2, 3rd Mile Square, No.151, Jalan Kelang Lama, Batu 3 ½, 58100 Kuala Lumpur.

Note 2 - registered address: 54B Damai Complex, Jalan Lumut, 50400 Kuala Lumpur.

2.   BASIS OF PREPARATION

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").

As permitted by Companies (Jersey) Law 1991 only the consolidated financial statements are presented.

The financial statements are presented in RM unless otherwise stated, and is the currency of the primary economic environment in which the Group operates. All values are rounded to the nearest thousand ringgit ("RM'000") except where otherwise indicated.

The results for 31 December 2018 are prepared for a 15 month period and therefore the comparative amounts are not entirely comparable.

Going Concern

The financial statements are required to be prepared on the going concern basis unless it is inappropriate to do so. 

The Directors, having considered "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies" issued by The Financial Reporting Council in 2016, consider the going concern basis of preparation to be appropriate in preparing the financial statements. The key conclusions are summarised below.

The Group made a loss for the period of RM13.65m (2017: RM2.70m) and recorded a net cash outflow from operating activities of RM12.08m (2017: RM1.89m). At the reporting date the Group held cash and cash equivalents of RM0.47m (2017: RM0.09m) and had current liabilities of RM40.18m (2017: RM59.30m).

As described in note 7, amounts of RM17.91m (2017: RM24.3m) is due to the Group from Concord Green Energy Sdn Bhd ("CGE"). Further debts arose during the financial period of approximately RM Nil (2017: RM19.47m) from CGE. During the period, a repayment schedule was undertaken with CGE who committed to a monthly repayment of RM2.0m until full and final settlement of outstanding debts. A total of RM6.48m was collected during the financial period and a further RM6.0m was collected post period end.

As described in note 8, amounts of RM38.33m (2017: RM51.15m) is due to the Group from Megagreen Energy Sdn Bhd ("MGE"). Further debts arose during the financial period of approximately RM1.27m (2017: RM28.43m) from MGE. During the period, a repayment schedule was undertaken with MGE who committed to a monthly repayment of RM3.0m until full and final settlement of outstanding debts. A total of RM14.09m was collected during the financial period. Post period end, RM3.0m was collected but the repayment plan was paused whilst re-negotiations are taking place.

The Directors consider the amounts owing to be recoverable in full.

On 19 July 2018 the Company announced that it had raised approximately RM17.09m (£3.2m) via the subscription for 51,806,000 new common shares by Serba Dinamik International Ltd, at a price of approximately 6.19 pence (RM0.33) per share (the "Subscription"). The net proceeds of the Subscription will be used to advance the development of the Company's third fully-owned biogas power plant at Minyak and for working capital purposes.  

The Directors have prepared financial projections and plans for a period of at least 12 months from the date of approval of these financial statements, taking into account the proceeds of the Subscription, and have considered the mitigating actions that could be taken in the event that the anticipated receipts from Megagreen Energy and Concord Green Energy are not forthcoming in accordance with the assurances provided to the Directors by management of those undertakings.

Based on their review of those financial projections and plans, the Directors consider the going concern basis of preparation to be appropriate.

New standards, amendments to and interpretations OF published standards not yet IN effect

A number of new standards and amendments to standards and interpretations have been issued but are not yet effective.

IFRS 9 is not expected to impact the measurement of financial instruments, whilst IFRS 15 may have an impact on revenue recognition relating to construction contracts. IFRS 16 will impact the treatment of operating leases and their presentation.

The Group plans to adopt these new standards on the required effective date. In the case of IFRS 15 this will be in the financial year ending 31 December 2019. The majority of the Group's revenue is expected to be driven by contract revenue. The Group currently recognises revenue from contracts on a percentage completion basis. The Directors are reviewing current and pipeline contracts in order to assess the potential impact of IFRS 15 and developing appropriate systems, internal controls, policies and procedures necessary to collect information for the purpose of disclosure as required by IFRS 15. Revenue from the sale of power is currently recognised on delivery and IFRS 15 is not expected to result in a material change to this.

The adoption of IFRS 16 is expected to have a material impact on the Group's reported results in the following financial year. The total future minimum lease payments under the non-cancellable operating leases is approximately RM13.06m (2017: RM14.90m) (see note 28).

3.   basis of COnSOLIDATION

The consolidated financial statements comprise the financial information of the Company and its subsidiaries made up to the end of the reporting period. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The consolidated financial statements present the results of the Company and its subsidiaries and joint arrangements as if they formed a single entity. Inter-company transactions and balances between Group companies are therefore eliminated in full. The financial information of subsidiaries is included in the Group's financial statements from the date that control commences until the date that control ceases.

On 6 May 2016, the Company entered into agreements with all of the shareholders of Green & Smart Ventures Sdn Bhd ("G&S Venture") for a share for share exchange regarding the ordinary shares in Green & Smart Holdings plc and ordinary shares in G&S Venture.  As a result of this transaction, the ultimate shareholders in the Company received shares in Green & Smart Holdings plc in direct proportion to their original shareholdings in G&S Venture.

The acquisition of G&S Venture by the Company was that of a re-organisation of entities which were under common control. As such, that combination also falls outside the scope of IFRS 3 'Business Combinations' (Revised 2008). The Directors have, therefore, decided that it is appropriate to reflect the combination using the merger basis of accounting in order to give a true and fair view. No fair value adjustments were made as a result of that combination.

4.   SIGNIFICANT ACCOUNTING POLICIES

4.1  CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated by the directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and judgements that affect the application of the Group accounting policies and disclosures, and have a significant risk of causing a material adjustment to the carrying amounts of assets, liabilities, income and expenses are discussed below: -

a)   Impairment of assets

When the recoverable amount of an asset is determined based on the estimate of the value-in-use of the cash-generating unit to which the asset is allocated, the management is required to make an estimate of the expected future cash flows from the cash-generating unit and also to apply a suitable discount rate in order to determine the present value of those cash flows.

b)   Impairment of trade and other receivables

An impairment loss is recognised when there is objective evidence that a financial asset is impaired. Management specifically reviews its loans and receivable financial assets and analyses historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in the customer payment terms when making a judgement to evaluate the adequacy of the allowance for impairment losses. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. If the expectation is different from the estimation, such difference will impact the carrying value of receivables.

As described in note 7, amounts of RM17.91m (2017: RM24.3m) is due to the Group from Concord Green Energy Sdn Bhd ("CGE"). Further debts arose during the financial period of approximately RM Nil (2017: RM19.47m) from CGE. During the period, a repayment schedule was undertaken with CGE who committed to a monthly repayment of RM2.0m until full and final settlement of outstanding debts. A total of RM6.48m was collected during the financial period. A further RM6.0m was collected post period end.

As described in note 8, amounts of RM38.33m (2017: RM51.15m) is due to the Group from Megagreen Energy Sdn Bhd ("MGE"). Further debts arose during the financial period of approximately RM1.27m (2017: RM28.43m) from MGE. During the period, a repayment schedule was undertaken with MGE who committed to a monthly repayment of RM3.0m until full and final settlement of outstanding debts. A total of RM14.09m was collected during the financial period. Post period end, RM3.0m was collected but the repayment plan was paused whilst re-negotiations are taking place.

c)   Construction contracts

As described in note 4.13, the Group's accounting approach reflects a sound judgement as potential losses on contract are being considered and reflected with its probability immediately upon occurrence while contract revenue which cannot be estimated reliably is realised only after confirmed by written agreement. The carrying amounts of the Group's construction contracts due from/(to) customers at the end of the reporting period/year are disclosed in note 9 including any allowance for impairment if there is a material uncertainty to fully recover costs of each contract.

4.2  FUNCTIONAL AND FOREIGN CURRENCIES

a)    Transactions and balances

Transactions in foreign currencies are converted into the respective functional currencies on initial recognition, using the exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities at the end of the reporting period are translated at the rates ruling as of that date. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. All exchange differences are recognised in profit or loss.

b)    Foreign operations

Assets and liabilities of foreign operations are translated to RM at the rates of exchange ruling at the end of the reporting period. Revenues and expenses of foreign operations are translated at exchange rates approximating those ruling at the dates of the transactions. All exchange differences arising from translation are taken directly to other comprehensive income and accumulated in equity under the foreign exchange translation reserve. On the disposal of a foreign operation, the cumulative amount recognised in other comprehensive income relating to that particular foreign operation is reclassified from equity to profit or loss.

4.3  FINANCIAL INSTRUMENTS

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

            4.3.1      Financial Assets

On initial recognition, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables financial assets, or available-for-sale financial assets, as appropriate. The Group currently holds financial assets as:

a)   Loans and receivables financial assets

Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables financial assets, using the effective interest method less impairment. Interest is recognised by applying the effective interest method, except for short-term receivables when the recognition of interest would be immaterial.

4.3.2      Financial Liabilities

All financial liabilities are initially measured at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method other than those categorised as fair value through profit or loss.

Financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

4.3.3      Equity Instruments

Instrument classified as equity are measured at cost and are not remeasured subsequently.

a)    Ordinary shares

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from proceeds.

4.3.4      Derecognition

A financial asset or part of it is derecognised when, and only when, the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in profit or loss.

A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

4.4  PROPERTY, PLANT AND EQUIPMENT

a)    Owned Assets

Items of property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses, if any. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to the location and condition for its intended use.

b)    Depreciation

Depreciation is charged to profit or loss (unless it is included in the carrying amount of another asset) on the straight-line basis to write off the depreciable amount of the assets net of the estimated residual values over their estimated useful lives. Assets under construction is depreciated from the date it is ready to use. Depreciation of an asset does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. The principal annual rates used for this purpose are:-

The depreciation method, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period to ensure that the amounts, method and periods of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of the property, plant and equipment.

c)     Subsequent expenditure

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when the cost is incurred and it is probable that the future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. The carrying amount of parts that are replaced is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Cost also comprises the initial estimate of dismantling and removing the asset and restoring the site on which it is located for which the Group is obligated to incur when the asset is acquired, if applicable.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from de-recognition of the asset is recognised in profit or loss.

4.5  INTANGIBLE ASSETS

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses (note 5). The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised on straight-line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial period / year end.

The amortisation expense on intangible assets with finite useful lives is recognised in the profit or loss in the expense category consistent with the function of the intangible asset.

a)    Trademark

Trademarks are stated at cost less accumulated amortisation and any impairment losses (note 5). Trademarks are tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at cash generating unit level. Trademarks are amortised over a period of ten (10) years.

b)    Research and development expenditure

Research expenditure is recognised as an expense when it is incurred.

Development expenditure is recognised as an expense except that costs incurred on development projects are capitalised as non-current assets to the extent that such expenditure is expected to generate future economic benefits. Such development expenditure is capitalised if, and only if an entity can demonstrate all of the following:

(i)    its ability to measure reliably the expenditure attributable to the asset under development;

(ii)   the product or process is technically and commercially feasible;

(iii) its future economic benefits are probable;

(iv) its intention to complete and the ability to use or sell the developed assets; and

(v)   the availability of adequate technical, financial and other resources to complete the asset under development.

Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses, if any. Development expenditure initially recognised as an expense is not recognised as assets in the subsequent period.

The development expenditure is amortised on a straight-line-method over its expected useful life when the products are ready for sale or use. In the event that the expected future economic benefits are no longer probable of being recovered, the development expenditure is written down to its recoverable amount.

4.6  IMPAIRMENT

a)   Impairment of Financial Assets

All financial assets (other than those categorised at fair value through profit or loss), are assessed at the end of each reporting period whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. For an equity instrument, a significant or prolonged decline in the fair value below its cost is considered to be objective evidence of impairment.

An impairment loss in respect of held-to-maturity investments and loans and receivables financial assets is recognised in profit or loss and is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

b)    Impairment of Non-Financial Assets

The carrying values of assets, other than those to which IAS 36: Impairment of Assets does not apply, are reviewed at the end of each reporting period for impairment when there is an indication that the assets might be impaired. Impairment is measured by comparing the carrying values of the assets with their recoverable amounts. The recoverable amount of the assets is the higher of the assets' fair value less costs to sell and their value‑in‑use, which is measured by reference to discounted future cash flow.

An impairment loss is recognised in profit or loss immediately.

When there is a change in the estimates used to determine the recoverable amount, a subsequent increase in the recoverable amount of an asset is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in profit or loss immediately.

4.7  INCOME TAXES

Income tax for the period comprises current and deferred tax.

Current tax is the expected amount of income taxes payable in respect of the taxable profit for the reporting period and is measured using the tax rates that have been enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous financial years.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred tax liabilities are recognised for all taxable temporary differences other than those that arise from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit. 

Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. The carrying amounts of deferred tax assets are reviewed at the end of each reporting period/year and reduced to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the deferred tax assets to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period/year when the asset is realised or the liability is settled, based on the tax rates that have been enacted or substantively enacted at the end of the reporting period/year.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same taxation authority.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transactions either in other comprehensive income or directly in equity. Deferred tax arising from a business combination is included in the resulting goodwill or excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over the business combination costs.

4.8  CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash in hand, bank balances, demand deposits, bank overdrafts and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value with original maturity periods of three months or less.

4.9  EMPLOYEE BENEFITS

a)     Short-term benefits               

Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are measured on an undiscounted basis and are recognised in profit or loss and included in the development costs, where appropriate, in the period/year in which the associated services are rendered by employees of the Group.

b)    Defined contribution plans

The Group's contribution to defined contribution plans are recognised in profit or loss in the period/year to which they relate. Once the contributions have been paid, the Group has no further liability in respect of the defined contribution plans.

4.10 REVENUE AND OTHER INCOME

 (i)           Revenue from construction contracts

Revenue from construction contracts is recognised based on the methods as described in note 4.14(i).

(ii)           Sale of goods

Revenue from the sale of goods is recognised upon delivery of products and customers' acceptance, if any.

(iii)         Government grants

Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis over the period necessary to match them with the related costs which they are intended to compensate for.

Grants that compensate the Group for the costs of assets are recognised in profit or loss on a systematic basis over the expected life of the related asset.

(iv)          Revenue from Sale of Electricity

Revenue from the sale of electricity generated from the renewable energy plant is recognised as and when the electricity is delivered to the off-taker, based on the invoiced value of sale of electricity, computed at a predetermined rate. Accrued unbilled revenues are reversed in the following month when actual billing occurs.

4.11 BORROWING COSTS

Borrowing costs, directly attributable to the acquisition, construction or production of a qualifying asset, are capitalised as part of the cost of those assets, until such time as the assets are ready for their intended use or sale. Capitalisation of borrowing costs is suspended during extended periods in which active development is interrupted.

All other borrowing costs are recognised in profit or loss as expenses in the period in which they are incurred. No interest costs were capitalised during the period.

Investment income earned on the temporary investment of specific borrowing pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

4.12 CONTINGENT LIABILITIES

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision.

4.13 CONSTRUCTION CONTRACTS

(i)            Contract revenue

Contract revenue is recognised on the percentage of completion method based on works performed. The stage of completion is measured by reference to the actual cost incurred to date to estimated total cost for each contract.

Where the outcome of a contract cannot be reliably estimated, contract revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. Contract costs are recognised as expenses in the period 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.

(ii)           Amount due from / (to) customer for contract work

Amount due from / (to) customer for contract work is the net amount of cost incurred for construction and contract-in-progress plus profit attributable to contract-in-progress less foreseeable losses, if any, and progress billings. Contract cost incurred to date include costs directly related to the contract or attributable to contract activities in general and costs specifically chargeable to the customer under the terms of the contract.

5.   INTANGIBLE ASSETS

(a) Trademark

The trademarks "GRASS", "POME-MAS" and "GREENPAK" are registered in Malaysia in respect of patented wastewater and bio-waste treatment technologies. These trademarks have been granted for an indefinite period, however, they are being amortised over ten (10) years in line with Management's best estimate of their expected useful life.

The remaining amortisation period of trademarks is between one (1) to four (4) years, the remaining amortisation period of patents is between seven (7) to thirteen (13) years.