29 June 2022

Powerhouse Energy Group plc

("Powerhouse" or the "Company")

Audited Results for the Year Ended 31 December 2021

Powerhouse Energy Group plc (AIM: PHE), the UK technology company commercialising hydrogen production from plastic, is pleased to announce its audited results for the year ended 31 December 2021.

FY2021 Summary

Technology and Innovation

• Continuing successful completion of tests using the Company's test unit at its Thornton site in the northwest of England to support the Powerhouse plastics to hydrogen technology.
• Strengthening of Powerhouse engineering capability by the acquisition of a 48% stake in Engsolve Limited - a privately owned engineering solutions company.
• Updated technical assessment of Powerhouse's DMG technology by international consultancy, DNV confirming its 2018 Statement of Feasibility.
• Independent "red flag" review undertaken by GHD Group for Peel NRE, on the engineering proposals for Protos Plastics to Hydrogen, raising no technical red flags.
• Chief Executive Officer's report describing plans for a £1.3m investment to create a Global Technology & Innovation Centre by Q2 2023.

Commercial Development

• Continued support of Peel NRE's development of the first commercial scale application of Powerhouse's technology at the Protos Energy Park in Cheshire, UK.
• Submission by Peel NRE for planning permission for a second plastics to hydrogen facility at Rothesay Dock, West Dunbartonshire in Scotland.
• Chief Executive Officer's Report describing proposals for the future development of the Company.
• Signed Collaboration Agreement with development partner, Hydrogen Utopia International Plc with prospect of a plastics to hydrogen project at Konin, Poland.

Financial Performance

• Increased revenues in the year to £701k (2020: £100k) primarily due to engineering support works provided to the Protos SPV.
• £9.6m of available cash at 31 December 2021 (2020: £3.4m).
• Successfully raised £10m pre-expenses from the market during the year.
• Provided a loan facility to the Protos SPV of £3.8m of which £1.15m had been advanced prior to the year end.

Organisation and Growth

• Changes to the Board of Directors, including the Chairman, non-executive Directors and resignation of the Chief Executive Officer.
• Post year end appointment of Paul Drennan-Durose as Chief Executive Officer.
• Post year end appointment to the Board of Chief Technical Officer and non-executive Directors.  

Keith Riley, Interim non-executive Chairman of Powerhouse Energy Group Plc commented:

"During 2021, Powerhouse's prime focus was the continued support of its plastics to hydrogen DMG Technology being implemented by Peel NRE at its Protos Energy Park in the UK. The project missed some anticipated milestone dates but continued to progress through the year and saw a restructuring and strengthening of the project team, of which Powerhouse is an important member. With our new CEO coming into post in 2022, I now look forward to seeing a strengthening of the Powerhouse capabilities and its technology being implemented."

Paul Drennan-Durose, Chief Executive Officer of Powerhouse Energy Group Plc, commented:

"Governments and companies are expected to embrace reducing waste effectively, and to play an increasingly active role in decarbonising the economy. These expectations represent significant opportunities for Powerhouse as the transition to net zero continues to evolve. The Company is encouraged by the progress made in 2021 and, with a new and invigorated leadership team, we look to the future with optimism."

The annual report and accounts for the year ended 31 December 2021 will be sent to shareholders shortly and available to view on the Company's website: https://www.powerhouseenergy.co.uk

For more information, contact:

About Powerhouse Energy Group plc

Powerhouse Energy has developed a proprietary process technology - DMG® - which can utilise waste plastic, end-of-life-tyres, and other waste streams to convert them efficiently and economically into syngas from which valuable products such as chemical precursors, hydrogen, electricity, and other industrial products may be derived. Powerhouse's technology is one of the world's first proven, distributed, modular, hydrogen from waste process.

Powerhouse's process produces low levels of safe residues and requires a small operating footprint, making it suitable for deployment at enterprise and community level.

Powerhouse is quoted on the London Stock Exchange's AIM Market under the ticker: PHE and is incorporated in the United Kingdom.

For more information see www.powerhouseenergy.co.uk

INTERIM CHAIRMAN'S STATEMENT

At time of writing this statement, I have been in the Chair at Powerhouse Energy Group for a very short time, but having been involved with the first application of its plastics-to-hydrogen DMG technology since October 2020, and a non-executive director since September 2021, I feel more than qualified to present this statement in support of our results for the year ending 31 December 2021.

Despite the difficulties caused by the Covid pandemic that impacted a good part of the year and some major changes in Board members, including the Chairmanship, the focus of the Powerhouse executive team was almost exclusively in support of Peel NRE on the development at their Protos Plastics Park in Cheshire, UK. The pathway of development of complex capital projects, is rarely smooth, and Protos Plastics-to-Hydrogen has been no exception. A change of project management and a realignment of the contracting strategy meant that earlier target dates were not achieved,

Late 2021 saw a major reorganisation of the Peel project team, which substantially increased its level of experience and professionalism. The fact is that it took the project team most of the year to complete the restructuring and prepare for engaging with the construction contractor market. Powerhouse provided its full support to the team, as well as strengthening its own engineering capability by the acquisition of 48% of the share capital of Engsolve Ltd.

There is much more work involved in specifying the technical requirements, tendering and contract negotiation, and putting into place the myriad of items required for a project to proceed than most people realise. Powerhouse was, and is, a key contributor to Peel NRE's Protos development, but is only one of a number of organisations involved. To carry out these tasks and deliver them comprehensively takes time and effort, and whilst there is disappointment in missed targets, doing this properly also lays down a solid foundation for the future. Once done, it can be reproduced and used again. The Powerhouse engineering team has done its very best in supporting the Protos project, which has now obtained robust, contractable offers for the construction of the project from some very substantial contractors. It has been difficult reporting to shareholders on this phase of the development, particularly due to the sensitive commercial nature of the process being led by Peel NRE and its project team.

The need to concentrate on Protos meant that development of Powerhouse's business in other areas took a back seat. Even so, the Company continued to work with its development partners and entered into a collaboration agreement with Hydrogen Utopia International Plc ("HUI"). An application for approval of an environmental impact assessment of a project in Konin, Poland was submitted to the Polish authorities by HUI, response to which is still pending.

With the arrival of Paul Drennan-Durose as Chief Executive Officer, the Company is now looking to expand its capabilities and activities. We welcome Paul to the Company at a time when a transformation of the world's behaviour towards the environment is being openly demanded by the people, placed at the heart of the public agenda and economic players throughout the world. Powerhouse has developed a technology that can make a significant contribution to achieving net zero. This contribution will only be achieved, however, if we build and develop the competence and capability of the Company to create a high-performance, purpose-led culture. Paul outlines in his statement to this Annual Report the measures he is taking to achieve that.

I look forward to the next stage of the evolution of the Company that will see Powerhouse technology implemented and the business of the Company being able to grow.

We would also like to take this opportunity to thank all our staff for their continued efforts and hard work as well as all our investors and stakeholders for their continued support.

Keith Riley

Interim Non-Executive Chairman

28 June 2022

CHIEF EXECUTIVE OFFICER'S REPORT

This is my first report as Chief Executive Officer of Powerhouse Energy Group, having been appointed in February 2022.

In the period since my appointment as Chief Executive Officer, much has already been started, completed and achieved. As set out in the Strategic Report which follows this statement, this work will provide a foundation for the establishment of a clear set of imperatives and direction for the Company.

Discovery, Engagement and Direction

My initial approach was to embark upon an intense discovery phase to fully evaluate our business. Time has been invested with a wide and deep cross section of stakeholders, starting with existing and potential partners and players in our markets. Engagement with key collaboration partners during the first weeks of appointment was a high priority. Meetings with Peel NRE's leadership commenced on day two and have resulted in a refresh of previous plans aimed at supporting Peel NRE delivering what could be the first commercial project utilising Powerhouse's technology. Naturally, the Company is supporting Peel NRE, and doing what it can to mitigate any risk of delay Peel NRE has on this first project.

During this initial period, a comprehensive 360-degree understanding has been developed by the team, and key imperatives and collaboration positions have been re-established and prioritised. Many of these imperatives have already been completed or initiated and included within a plan for relevant periods in the near, mid, and longer terms. These are set out in the Strategic Report.

In parallel, we have also taken time to form a new strategy team, made up by the nucleus of the leadership team, and a set of trusted advisors, including the cementing of relationships with our Nominated Adviser, brokers, lawyers and accountants. This new strategic team will be tasked to ensure that the Company continues to deliver its stated objectives whilst also delivering better communications and engagement with the Company's shareholders and the market.

Evolving Strategy

In 2022, the new leadership team and the Board has started to build a robust, flexible business model and three-year strategy, designed to meet the challenges of each phase of the Company's evolution. The Company will elaborate on this further later this year as the strategy is developed.

The Company must build trust from its key stakeholders. Relationships with our customers and partners remain core to the Company's growth strategy. Our plan is to launch in developed markets close to our operational base, developing and testing repetitively and with rigor, cultivating close and strong relationships with our customers and partners. As the dynamic of change is so fast flowing in economies, Powerhouse has embarked on a process to reassess its purpose, its values, its structure, its processes, and its markets.

Powerhouse understands that it must create value for all its stakeholders, and it intends to deliver this through a refreshed strategy. Reducing energy dependency, providing more effective solutions for increasing levels of non-recyclable waste, creating more sources of newer non-fossil fuel energy are all unmistakably of ever-increasing relevance. Powerhouse intends to play a role in this transition.

The Strategic Report outlines the challenges met, and the progress made by the team last year. Although early days for the new team, this is a good opportunity to share some early assessments:

·     Technology and Innovation - a renewed focus on improving the technology readiness level and ensuring it is process capable.

·     Commercial Development - support development of the first of a kind commercial project, commit fully to early users and reduce dependencies by building quality of choice in developer/channel partner pipeline and project pipeline.

·   Business Model Evolution - ensure the target business model of being a prominent leader of technology innovation and an attractive licensing partner is enabled.

·     Go-to-market engagement

o   Creation of a combined Marketing Centre & Global Technology and Innovation Centre - to support the development of technology readiness levels, expand the range of products the Company can offer, and lessen the risk of impact to growth from delays the Company has experienced at its first of a kind commercial site in the UK.

o   Marketing Pillars - investing in developing a marketing pathway which will underpin and support the commercialisation and scale up of the Company.

·     Invest in Talent - enrich, invest and engage partners and talent at all levels of the enterprise.

Board

The Board of Powerhouse has been through a period of significant change. We are delighted to have welcomed some high calibre individuals to the board including Gill Weeks OBE, Hugh McAlister and Paul Emmitt as well as Keith Riley and myself. A brief biography on each is outlined below, and biographies of all Directors are contained within the Directors Report within this document.

Gill Weeks joined the Powerhouse in Board in January 2022 as a Non-Executive Director and is a leader of compliance and regulatory teams in global environmental business, advising on environmental law changes. Over the course of her career Gill has developed expertise in public policy, environmental law, stakeholder management, governance and risk, environmental science and regulatory compliance and enforcement.

Hugh McAlister was appointed to the Powerhouse Board in February 2022 as a Non-Executive Director and has over 40 years' stockbroking experience in the City of London. Hugh has been the executive chairman of Novum Securities Limited since 2018, having been its Chief Executive Officer for the previous nine years. Prior to this, Hugh was a founding partner and head of trading a Kaupthing Singer & Friedlander Capital Markets and Head of Pan European Equities at Dresdner Kleinwort Benson.

Paul Emmitt joined Powerhouse in July 2021 and was appointed to the Board as an Executive Director in March 2022. He will continue as CTO, leading the management, planning, development, and operation of the DMG technology. Paul is a Chartered Engineer, has an MBA in Engineering Management, and has over twenty years of multi-sector engineering and operational management experience. He is also the Managing Director of Engsolve Limited, the engineering consultancy in which Powerhouse has a 48% stake.

I recently joined the Board of Powerhouse as Chief Executive Officer. I have just spent over three years as the investor appointed Chief Executive Officer of Heliex Power Limited, a private equity backed cleantech energy business. Whilst there, I led the transformation of the start-up new technology company, leading the roll-out of its technical development, and commercial market recovery.

Keith Riley joined the Board as a Non-Executive Director in 2021 and stepped in as Interim Non-Executive Chair on 27 June 2022. Mr Riley is also the proprietor and Chief Executive Officer of Vismundi Limited, a consultancy company providing services to the resources and waste management industry. Prior to that, between 1993 and 2012 he worked for what is now known as Veolia Environmental Services plc in a number of senior roles.

It is the intention of the Board for the interim Chair and myself, to evaluate and re-assess the composition, scale and relevance of the Board ensuring its alignment with the strategy being created and deployed in this phase of the Company's evolution.

The outcome of these evaluations will include options for the Board to consider and implement where appropriate.

It is intended that a permanent Chair will be recruited in quarter three of 2022.

Once this process is complete, the Board's focus will be on continuity, stability, cost, and effectiveness.

Financial Results

The Company increased revenues in the year ended 31 December 2021 to £701k (2020: £100k) primarily due to further engineering support works provided to the Protos SPV. Once the project enters construction, it is currently intended that Powerhouse enters an agreement with the Protos SPV for provision of owner's engineer services.

The total loss for the year is £1.87m (2020: £15.83m). This substantial reduction is due to a reduction in the impairment of goodwill to £nil (2020: £14.2m). The carrying value of goodwill, which arose on the acquisition of the Waste2Tricity Limited, is independently assessed on an annual basis, with no impairment deemed to have arisen in 2021.

The loss per share for the year is 0.05p (2020: 0.57p) with the change reflecting the reduction in the total loss detailed above.

Cash at year end amounted to £9.64m (2020: £3.46m). The Company raised an additional £10m pre-expenses from the market during the year. The Company also provided a loan facility to the Protos SPV of £3.8m of which £1.15m had been advanced by the year end.

Market Outlook 

There is no question that most stakeholders now expect companies to embrace reducing waste effectively, and to play an active role in decarbonising the economy. This shift in expectations represents significant opportunities for Powerhouse. The transition to net zero continues to evolve, with different economies moving at different speeds. The pace of change, and the level of available capital to support decarbonisation, is vastly different in developing and developed countries. Being quoted on the London Stock Exchange means Powerhouse can benefit from a widely available pool of public capital, in a market where investors have a proven track record of supporting companies involved in the energy transition.

Russia's invasion of Ukraine, and the on-going appalling war, has seen the launch of an economic conflict too. Western countries' dependence on Russian energy is in the spotlight, and it is anticipated that companies and governments will also be looking more broadly at their energy dependencies and energy security strategies, as well as on their fossil fuel consumption.

This would suggest that a focus by Powerhouse on countries within closer proximity to its UK base, would be an appropriate scalable market in terms of available capital, motivation, and attractiveness for dealing with unrecyclable waste and decarbonisation in those regions, and would avoid the company overreaching in its commercialisation phases. However, we are committed to serving all markets should the right opportunity present itself.

Engaging and Communicating with Shareholders

We must share that it is not lost on the new leadership team that the engagement the Company has with its investor community is not where it needs to be. As explained in the Chairman's Statement, much of the reason has been the commercially delicate stage the Protos project has been in. The project will shortly be through that stage and working with the Chairman, one of my aims is to maintain more regular communications with shareholders without overburdening them. The new implemented structure will foster strong, balanced coordination of the Company's image and messaging to investors, and to other key stakeholders. This is intended to help drive valuation, sales, and overall image. Our investor community will be updated on this in short order.

Thank you

I would also like to take this opportunity to thank all the Powerhouse staff and our associates at Engsolve for their continued efforts and hard work, and our investors and stakeholders for their continued support. The Board believe that Powerhouse is well placed and that we are implementing a strategy that is not only appropriate but will enable the Company to take full advantage of the significant opportunities that are available to deliver long term value.

Paul Drennan-Durose

Chief Executive Officer

28 June 2022

STRATEGIC REPORT

This Strategic Report addresses the Directors' management of the Company and contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of the report preparation and approval and such statements should be treated with caution as they address uncertainties.

Business Descriptor

Powerhouse develops, designs, co-designs, integrates, delivers and licenses technology and its know-how, its DMG solution. This has an advanced thermal conversion technology at its centre, which converts calorific waste streams into synthetic gas (syn-gas), a valuable product that can be used as an intermediary for producing new high-value products such as hydrogen, or as a fuel in its own right for power generation.

Powerhouse's central capability is its know-how in the integration of the processes and technology, the application of the pyrolysis and gasification processes involved, and the research and development of the complex variables, which make it operationally and financially viable. This includes development and testing of equipment, but also testing of assorted feedstock materials and mixes, and in the process, calibration, and programming of control systems, which maximise yield and process productivity.

The process can convert a wide range of end-of-life and other feedstocks, including the Company's initial focus of end-of-life, non-recyclable waste plastic, to produce a range of 'end of waste' products, including:

· Hydrogen

· Electrical power

· Thermal Energy

· Natural gas replacement

· Chemical feedstocks

· Biochar

Business Strategy

To position Powerhouse's technology as a converter of waste to wellness, and to support its growth and scale-up, the Company has centred its main focus on several key strategic imperatives:

1.  Technology and Innovation

A successful year of tests, trials and development using the Company's test unit at its Thornton site in the northwest of England, was completed in 2021.

Several developments are worthy of highlighting in this report:

The team has made noteworthy progress in enhancing the Hydrogen output of the system, and there has been a tangible increase in evidence-based confidence from the systematic testing of feedstocks in 2021 and in 2022, in the generation of optimum levels of Hydrogen.

More understanding and control of the technology has been achieved which has allowed in certain cases, optimized carbon retention in the residue (biochar). This is a form of carbon sequestration.

The 2021 period is being followed by a doubling down on the Company's efforts in 2022 and 2023.

In 2022, the new leadership team and the Board intend to have a robust three-year strategy for technology development and a solid detailed level plan every year. This is designed to meet the challenges of each phase of the Company's evolution, truly generate continuous improvement, and maintain relevance to its target markets.

Technology and System Readiness and Capability

The thrust of focus in 2022 is on the Company setting about applying more rigour and scrutiny to delivering the technology and system readiness level of the core technologies it is developing and adopting and ensuring that the technology the Company is forming and integrating is process capable. This is a critical foundation, necessary for minimising risk and optimising potential when the Company rolls-out a full-scale commercial operation.

In quarter two of 2022, the Company initiated the formation of effective engineering leadership structures for this next phase in its evolution. This structuring includes, but is not restricted to, Powerhouse's CTO Paul Emmitt being appointed to the Board to generate more positional authority and to position technology and innovation at main Board level, given its criticality. The Company has also embarked on a process of partnering meaningfully with technologists, engineers, universities, and industrial partners for this next phase.

The technological developments will be underpinned and supported by the creation of a Global Technology & Innovation Centre. This will have pyrolysis and gasification technology at its core, and the £1.3m turnkey supply, installation and commissioning contract announced and awarded in June 2022 is intended to see the centre operational by Q2 2023. Funded by the Company from current reserves, the Company is at the same time underway with a search for a site for this in the UK. Doing so simultaneously with launching the award for the long lead time equipment build is designed to reduce the total operational completion timeframe.

The location profile brief has been defined and includes the environment it will be situated in, its proximity to supply and manufacturing networks as well as being located within reach of relevant technology and research networks, and of course being easily accessible for customers in near to-door as well as near to shore markets. 

The centre will house up-scaled R&D facilities for testing capabilities in a live environment. This will be the pre-commercial plant core and will provide an environment to support the improvement of the technology readiness level and demonstrate the process capability. At the same time, of course, it will generate visibility and proof of scalability for the Company, and its stakeholders.

Quarter two 2022 has already seen a new relevant relationship forged with the Department of Mechanical, Aerospace and Civil Engineering at Manchester University, which is collaborating with Powerhouse and one of the Company's key vendors. This first venture together is to develop further the understanding of the thermal transfer and fluid dynamic flows associated with the reactions within the Thermal Combustion Chamber in the gasification process. This project will have several phases extending throughout 2022.

Business Acquisition - Engsolve

In Q3 2021, the Company acquired a 48% stake in Engsolve Limited, a privately owned engineering solutions company with significant experience in undertaking engineering design and support, cost estimating and control, project management and safety risk assessments across a range of industries including energy from waste, renewables, and green energy. The shares were acquired for a consideration of £99,990.

Engsolve has worked closely with the Company for more than four years and the acquisition is intended to maintain Engsolve's continued support of the Company's projects and developments and will ensure that their expertise remains available going forward. This follows the appointment of Paul Emmitt, Engsolve's Managing Director, to the position of Chief Technical Officer of the Company.

Engsolve is a profit generating business and, as an associate of the Company, its post-acquisition results are reflected in these accounts.

Technology Endorsement

The international consultancy DNV completed the assessment and updated report on the enhanced technology design against their standards and provided a positive technology endorsement in the third quarter of 2021. In addition to this, as part of the Protos development work, an independent red flag review was undertaken by GHD Engineering for Peel NRE which raised no technical red flags.

The Company continues to actively ensure that the process is enhanced to be compliant with established and emerging legislation.

Intellectual Property Management

The Company has initiated the development and formation of IP and has filed patents pending in 2021 the operational conditions within the Powerhouse Thermal Conversion Chamber at their centre. The leadership team have assessed this as being low in value for the short term until patents are market assessed and granted. However, it has identified that the Company can also supplement this with the highly valuable technical, market and commercial knowhow it has, and continues to create. This can be incorporated in new future IP development and generation where possible.

The most important IP remains the chemical engineering model of the process to create the clean gas - and Powerhouse maintain strict protocols to ensure this information is protected, including limited access and isolated control over the design documents, calculations, and process development models for the process.

Through last year and into 2022, the technical development team of Powerhouse has continued to assess and develop the DMG control system. This work was further enhanced during the basic engineering phase where third party control vendors and the Thermal Combustion Chamber (TCC) supplier engaged in the progression of the system.

Further works on the development of patent protection had been undertaken in the period, with patents now filed in Europe, Australia, Japan, Brazil, Canada, USA, Indonesia, South Korea, GCC, Hong Kong and the United Kingdom.

Future Product Developments

In addition to developing the core technologies, the Directors recognise that the evolving hydrogen and associated energy transition market offers opportunities to develop other advanced complimentary technologies and applications in future. The decision to invest in a Global Technology and Innovation Centre, will permit the technical team to optimise the technology development, and provide the platform to advance complimentary processes and technologies in supporting this, and future value. This will ultimately enhance the Powerhouse offering.

2.  Commercial Development

UK - Planned first of a kind

In 2020's strategic report, the business model and arrangements of the Company's potential first of a kind commercial project and pipeline for the UK were the dominant feature and the subsequent focus of shareholders and stakeholders.

Peel NRE is part of the Peel Group, one of the leading infrastructure, transport, and real estate investors in the UK, with collective investments owned and under management of more than c£5 billion.

The business model agreed by Powerhouse Energy with Peel NRE is unchanged, in so much as that it will derive revenues in the UK principally from annual licence fees payable by the plant owner in respect of each process application of the Powerhouse technology. Under the UK Exclusivity Option Agreement Peel NRE, on payment of £500,000 to Powerhouse, can also acquire the exclusive rights to develop Powerhouse's technology in the UK.

In addition, Powerhouse can generate revenues in the project development stage from the engineering services and technical assurance services for specific client feedstock analysis and laboratory services, from engineering during project development, and then from operational support services when plants are in operation.

The first commercial scale application of Powerhouse technology is under development at the Protos Energy Park, Ellesmere Port, Cheshire, UK by Peel NRE, who owns that site. Peel NRE completing the construction of this first commercial scale plant remains a key milestone and priority for the Company. In 2021 these experienced delays to financial close which continued into 2022. This was related to a combination of factors experienced by Peel NRE and the Protos SPV which included contractor and vendor engagement, an amended procurement strategy and planning delays associated with the development of the engineering design.

A competitive tender process, including pre-qualification of potential tenderers, was commenced by Peel NRE midway through February 2022 and Peel NRE indicates that this is expected to complete in September 2022.

UK - Pipeline Development

Peel NRE's plan is that it will replicate the development model at the Protos site, incorporating its 'Plastic Parks' vision where there is scope, coupled with the community-based provision of hydrogen at various sites across the UK. Each park/site is intended to have Powerhouse technology to divert non-recyclable plastic from landfill and produce hydrogen and clean power.

Recently, Powerhouse introduced the concept of having two process streams at future pipeline sites, doubling capacity and capability - which improved the return on investment, sweated the land asset, and provided future system redundancy for the plant operators and owners. Peel NRE has introduced this into its rollout considerations, with the size of sites and local waste volumes influencing the mix of sites between single and twin processes. It is not planned to have twin processes until the single process configurations are established and delivering repeatable performance and reliability.

Under the CA Business Planning, Peel NRE is maintaining a long-term plan of more than seventy sites. These sites will be a mixture of Peel NRE developed sites together with a pipeline of third-party sites enacted by Peel NRE on tolling commercial terms or by capital sales on waste processing sites around the UK. Each application of DMG will carry the Powerhouse licence fee.

The development counterparties vary and current interest in the pipeline arises from waste management companies, councils, companies in the plastics and consumer goods production sectors and developers.

In 2021 Peel NRE announced that it had submitted planning applications for the second of its eleven primary target sites for a waste to hydrogen plant in the UK. The second site is in Scotland, at Rothesay Dock on the north side of the Clyde River, opposite Glasgow Airport. Peel NRE announced in June 2022 that West Dunbartonshire council's planning board has approved planning consent for that site.

International Development

Development activities by the Company in territories outside of the UK have focused on developing project, regional and territory-by-territory partnership agreements to roll out Powerhouse's technology.

The Company has previously stated that the pipeline from these activities was embodied in collaboration or project agreements, country agreements and memoranda of understanding. And that the project or collaboration agreements allow developers access to initial limited information to undertake project screening. The work in these phases has included supporting the review of feedstock alternatives, offtake, and environmental constraints. 

This process had not developed consistent traction. The recruitment of a UK based Business Development Manager was completed in late 2021. The appointment of a new CEO in February 2022 has generated a new sense of direction and purpose for this resource. Pipeline opportunities are being qualified, with in-person visits to perspective clients in close to door/shore markets such as UK and Ireland, and in far from shore markets such as Australia completed in Quarter two 2022. These are aimed at understanding client needs, perspective project status, and assessing the probability and prospects from the existing pipeline.

A modification of the go-to-market approach will be implemented in quarter three.

Why? The transition to net zero is already uneven with different parts of the world economy moving at different tempos. The pace of change will be vastly different between developing and developed countries. But all markets will require unprecedented investment in decarbonisation technology. In response to the energy shock caused by the war in Ukraine, many European countries are looking more urgently for new sources of energy and more broadly at their dependencies on other nations. This is a market where the offtakes from the technology Powerhouse is developing are of increasing relevance.

The Company will of course develop relationships with existing partners in other territories and cultivate these for more mid to longer term pipeline conversion. It will naturally continue to centre its initial focus on the UK's first of a kind commercial site, which will generate validation and consensus with Peel NRE, supporting the conversion of their pipeline with the next site being the Rothesay Dock site in West Dunbartonshire, Scotland. This first commercial site will also provide supportive validation and consensus as Powerhouse builds pipeline elsewhere.

The progress of our go-to-market approach includes a reliance on growing an effective, relevant network of license distributors, developers, contractors, and other partners across target geographies.

The intent is that each of these markets will ultimately have its own, growing pipeline of opportunities, developed, and managed by a professional team and with a growing, local network of partners to support development, construction, and operations & maintenance.

3.  Business Model Evolution

Through its arrangement with Peel in the UK, PHE extracts its share of value primarily from delivered projects through licence fees per system delivered and operational.

This follows an early establishment of roles with Peel acting as Developer and PHE as technology provider. This was also a reflection of the relative strengths of the two businesses at the time the arrangements were made, when PHE had limited funding and accordingly a limited ability to resource and deliver multiple projects through development.

In last year's report, it was explained that just as it has under the arrangements with its UK development partner, Powerhouse intends to license the use of its technology to project owner companies which will operate plants using technology it provides and integrates. The Company held this out as its business model.

The Company's new CEO's focus has been on how best to maximise shareholder value. A range of evaluations conducted included one of the business models.

This demonstrated that the type of model that had been adopted by the Company has relevance and value, but conversely, that it can create a prominent level of dependency on developer partners, or even sole dependency where exclusivity rights to, for example, a territory, have been granted. It can generate a loss of traction where delays develop and can confine Powerhouse to a smaller-part player, with a low influence level over the pace of progression of the project, its financing or achieving key value points within the gated process.

These assessments have also shown clearly that Powerhouse's technology value to a project is represented in the value of the outputs the technology can produce (i.e., hydrogen, syngas, power, heat) or, to a lesser extent, the costs that can be avoided (e.g., waste disposal to landfill or incineration). Fresh financial modelling revealed the level of, for example, potential development revenues, project management incomes, as well as build and technical support revenues the Company could generate if it adopted a more flexible business model, including considering being, for example, co-developer, developer, or project lead.

In doing so, these assessments have established that the target business model of being a prominent leader of technology innovation and an attractive licensing partner, is likely to be more effectively realised and achieved by a more flexible model in the initial stages of commercialisation and scale-up by the company. Naturally, this would include Powerhouse creating an investor grade, qualified and well-integrated group of partners, who could deliver a deep and wide range of roles and activities essential to the integration of Powerhouse's technologies into its plants of the future.

The Board is currently exploring this evolution of its current business model for its effectiveness and how best to structure this, to serve as part of a market entry strategy, validating and demonstrating with clients and markets the value and credibility of the plants and the technology, generating consensus and subsequently further pipeline opportunities.

It is envisaged that that this could see a switch to development and operational fees dominating revenue streams, and as scale-up evolves that Powerhouse subsequently migrates more to generating revenues from its technology, integration, and engineering know-how, as client's take-over operations or fund the project pipeline.

4.  Go-to-market engagement

Marketing Centre

Within the Commercial development imperative referred to earlier in this report, the Company has outlined how it will enrich its global network of partners and clients, and the Company has also outlined how it is considering adapting its current business model. The Company is clear that there is a strong market, and that scale-up will be supported by a range of imperatives, which includes proof of operation and scalability.

As reported above, in Q2 of 2022, the Company deployed its own capital to invest up to £1.3 million in the supply, installation, and commissioning of equipment, which has a pre-commercial scale thermal gasification technology at its centre. This will form the nucleus of a Global Innovation and Technology Centre.

This is designed to achieve several outcomes. Firstly, as mentioned earlier, it will support a doubling down on the development of the readiness of the technologies the Company is leading the development of, and to deliver and demonstrate process capability.

It is also intended to mitigate any risk of impact to growth. Specifically, from interruptions the Company may experience with in-operation development on a commercial scale facility at its first of a kind site, until a repetitive consistent performance and reliability is established and assured consistently. At the same time, it will lessen any impact on growth from risks of delays the Company has experienced on reaching Financial Close at its first of a kind commercial site in the UK. The Company has the quality of using the centre as a market reference site when operational.

Importantly, however, it as well as supporting the development and further proving Powerhouse's proposition and offering, it will also be a marketing centre, serving as a focal point to grow the pipeline with prospective partners and clients, providing proof that a larger scale technology operation can perform, and is scalable.

Marketing Pillars

Finally, we are commencing investing in developing a marketing pathway which will underpin and support the commercialisation and scale up of the Company. This will include investment in appropriate professional marketing resources and collateral.

5.   Invest in Talent

As well as enriching its network of partners, the Company also intends to enrich and invest in its talent. 2021 saw growth in our technical team, and the addition of a business development manager. In 2022, we are restructuring and investing in replacing two engineering personnel with more seasoned engineering talent. This will underpin the Technology and Innovation imperative.

The Company will also be recruiting a Financial Controller by the end of 2022; will see migration from outsourced functions, providing the Company with greater control over financial functions including accounting records and timely production of financial and management information, to enable more accurate decision making, governance and reporting to investor markets.

Board Strengthening

There has been a high level of attrition at Board level historically and up to present day. The Board's strategy has been to keep the composition of the Board and related corporate governance issues under constant review. The aim is to ensure that the Directors have the right mix of skills, experience, and qualifications to carry out their duties in a way which ensures the Company's future success. The appointment of a new Non-executive Chairman in Q3, to replace Russell Ward, will continue with the work he had started on supporting the CEO in the aim of ensuring that the relevance, composition, and scale of the Board is appropriate for the forthcoming stage of its evolution.

Financial Strategy

At 31 December 2021, the Company had £9.6m of available cash with commitments forward, outside of normal operational spend, only in respect of the Protos short term loan facility. The Company considers the impacts of forward plans by producing regular forecasts, considering forward running costs of the business.

Under the Protos short term loan facility of £3.8m, the Company had lent £1.15m as at 31 December 2021, excluding accrued loan interest. During 2022, the amount drawn down under the facility has increased to £1.89m.

In 2022, the Company has committed £1.3m for the supply, installation, and commissioning of equipment in respect of its planned Global Technology and Innovation Centre.

The Company will consider alternative financing routes for project initiatives and will explore appropriate ways to invest funds in the development of projects internationally. The Company is prepared to function as developer or as co-developer in key markets, where appropriate, to accelerate progress. Whilst the use of future fund raises where appropriate will also be considered, there are no firm plans to do so at this time.

2022 Key Performance Indicators

The Board of Powerhouse remains focused on the first application for DMG. The principal Key Performance Indicator for 2022 is to support Peel NRE, and its SPV team to complete the procurement and construction phase, generate investment committee sign off at Peel NRE and reach financial close, leading to proving the process in operation.

The Company intends to build the Global Technology and Innovation Centre in early 2023, and the technical team will complete the key imperatives within the Technology and Innovation detailed plan for the year.

The Company puts safety to the fore in our activities and for 2022 our target will be to operate without harm and to ensure that our operating systems and process are developed with safety of all as the prime concern. Continued incident free activity is a key performance indicator for 2022.

CORPORATE SOCIAL RESPONSIBILITY

Our Commitment

The Company cares profoundly about the environment and is committed to addressing two of the world's current challenges in the eradication of unrecyclable plastic waste and the production of hydrogen energy to replace diesel in heavy goods vehicle use improving air quality around our communities.

The Company is committed to operating with an inclusive, transparent, and respectful culture and places particular emphasis on operating to the highest ethical and environmental standards and our applications target the best achievable energy efficiency.

The Directors take personal ownership of the policies and maintenance of the necessary exacting standards of business conduct throughout the organisation and for delivering these Corporate Social Responsibilities.

Health and Safety

Powerhouse cares profoundly about the health and safety of our employees, customers and the communities who could be affected by our activities and aims to protect them from any foreseeable hazard or danger arising from our activities or our products. To this end in 2020 and 2021 the Company completed a series of safety related studies and reviews, including hazard and operability studies, quantified risk assessments and layer of protection analysis using external experts to review the product risk and the application on sites such as Protos. In all instances the findings of the safety risk assessments have demonstrated that the risk arising from the DMG technology is well within acceptable tolerable risk levels. In 2022 and 2023 the Company will revisit these assessments to identify any changes that have been introduced which may represent new or variants of risk.

The Directors recognise that the key to successful health and safety management requires an effective policy, organisation, and arrangements which reflect the commitment of senior management. The Chief Executive Officer will implement the Company's health and safety policy and ensure that the Company Health and Safety (HSE) management system and safety standards are all maintained, monitored, and improved where necessary.

The Company's research and development activities and activities at Protos were delivered HSE incident free in 2021.  

Environment Policies

The Company's Environmental Policy recognises the importance of our technology from a global challenge perspective. The Company will regularly evaluate the environmental impact of its activities, products, and services, taking all actions necessary to continually improve the Company's and its products' environmental performance.

Product Emissions in Operation

The Company is committed to providing a solution for utilising problem waste streams with its current UK focus being to use non-recyclable plastics within its technology to produce hydrogen as a clean fuel for buses and trucks which minimise emissions and to comply with all relevant environmental legislation, regulations, and other environmental requirements. The Company passionately believes that its process is a far better alternative to incineration and / or landfill.

The application of the Company's technology in waste to hydrogen plants produces residues in two forms, a char like solid residue and waters with hydrocarbon content. During the last period progress has been made on the characterisation and utilisation of the residue (Biochar) and we are confident that we can develop it into a saleable product for a given feedstock mix. This work will continue through 2022. Similarly, once the Protos plant is in operation, the technical development team is looking to implement further cleaning processes to treat and use the emitted water to return into the process.

Under the Powerhouse Environmental Policy, Powerhouse has committed to improving the product emission performance, and Directors are confident that the technology performance in this area will be improved, and we will report annually on this matter.

Stakeholder Engagement

Recruitment and employee management are undertaken in line with the Company Employment Policy which has committed to a working environment with equal opportunities for all, without discrimination and regardless of sex, sexual orientation, age, race, ethnicity, nationality, religion, or disability.

Furthermore, the Company has committed to continuous development schemes and will support employees to attain the best for themselves and the Company through personal assessment, training, and mentoring.

Powerhouse recruited a Chief Executive Officer in February 2022. During 2021, the Company recruited a Chief Technical Officer and a Business Development Executive.

The Board is mindful of the duties of Directors under S.172 of the Companies Act 2006. The Directors believe strongly in the importance of solid and exemplary corporate governance to help achieve our corporate goals. The Board takes its accountability to each of Powerhouse's stakeholder groups very seriously.

The Directors have committed to promoting a company culture that treats everyone fairly and with respect and this commitment extends to all principal stakeholders including shareholders, employees, consultants, suppliers, customers, and the communities where it is active.

All Directors are encouraged to act in a way they consider, in good faith, to be most likely to promote the success of the Company for the benefit of its shareholders. In doing so, they each have regard to a range of matters when making decisions for the long-term success of the Company.

PRINCIPAL RISKS AND UNCERTAINTIES

The Company is subject to various operational risks and the following issues are particularly relevant to the Company's business activities:

Business Risk

Technology Risk

The Company continues to manage technology risks within the detailed Technology Management Program. The risks are identified from our test and design activities, tests on potential waste materials and the residues arising. The strategy of selecting proven components with extensive operating hours in similar service in other plants significantly reduces the risk profile for its DMG system. The Directors' objective is to reduce technology risk wherever practical, however the risk of the first application will remain with the project SPV until the Protos plant is commissioned.

Throughout 2021 and the current year, engineering design contractors and independent experts including DNV have reviewed the design. The feedback from these reviews has allowed the removal of some of the risk issues completely and the refinement of other matters. The design has been validated by commissioning experiences that Powerhouse and our specialist suppliers have experienced, and further challenged by the independent reviews that have been undertaken by the FEED contractor, specialist consultants such as DNV and GHD addressing the chemical engineering, gas, and hydrogen activities.

A key aspect in risk reduction is process development. The inception of the Global Technical and Innovation Centre ("GTIC") will focus on improving the technology readiness level of the technologies Powerhouse is developing and adopting and allow the development and integration of technologies to further enhance its offering whilst reducing overall risk.

The GTIC will allow the technical team to focus on specific aspects arising from risk assessments and an active technical risk register. It will also commence development of in-house technologies to reduce any risks posed by third party systems within the process.

In conjunction with the development of the GTIC, we will continue to build on the initial work with Manchester University by taking the initial computational fluid dynamic output and begin a program of works with the University to optimize the internals of the TCC. The aim of this works will be to gain a better understanding of the intricacies of gas flow but also allow us to build additional IP relating directly to the TCC design.

The Protos final contractor selection to be made in 2022 by Peel NRE's SPV for the Protos site, will allow the final detailed design to be completed and the control system logarithm functionality to be defined. This design detail, and the commissioning and testing program will allow the closure, or mitigation, of detail design related risks noted as outstanding against the risk management program that was assessed by DNV during the second stage of their Technology Validation process.

Research and Development Activity Risk

Throughout 2021 and into 2022, research and development has continued using the demonstration unit at Powerhouse's Thornton, Cheshire site. The test time has been utilised to further refine the feedstock/output model along with allowing the testing of numerous potential feedstock sources. All testing, maintenance and modifications to the unit are undertaken after

formal design and functional safety reviews with all activities being subject to risk assessments in accordance with the Company Health & Safety Management processes.

Powerhouse operates its research and development laboratory equipment and testing programme in accordance with the Company Health and Safety Management system.

The Research and Demonstrator rig has been optimised further during the year and has resulted in a design package that has allowed the placement of the order for a larger feedstock testing unit to be sited at the new Global Testing and Innovation Centre, as reported above. The design, fabrication, construction, and commissioning of the new equipment will follow all required external and internal Health, Safety and Environmental guidelines.

Competition Risk

In quarter two 2022, the Company commenced an in-depth re-assessment of competitive technologies to maintain a current and forward-looking vision of the landscape it operates within.

Powerhouse remains well-placed to address current and future waste market potential. As an innovator at the leading edge of integrating associated technologies and advanced gasification technologies, Powerhouse can pursue and deliver on UK and international opportunities in line with the Company's focused strategy.

Market Adoption Risk

In the UK, Peel NRE, as our main collaboration partner, has been leading the commercial engagement for waste plastic and hydrogen, and contract negotiations with waste suppliers available to the first of a kind plant they are developing plant.

The Company acknowledges that once this facility at the Protos Park is operating successfully, commercial scale-up can be achieved.

The Company also has a collaboration with Hydrogen Utopia International Plc (HUI). It is pursuing a project at Konin in Poland. To date, the project is reported to be on programme, but is at risk of delay and other negative impacts due to the situation regarding Ukraine.

Reliance on client parties

The Company depends on key developers and counterparties for its business pipeline. The failure of a key business partner, supplier, subcontractor, financer, or other provider could materially affect the operational and financial effectiveness of the Company. Ensuring ongoing professional collaborative relationships with our early-stage clients is mission critical.

Central to achieving our strategy is winning and successfully delivering projects and supplying our technology services, and the product ecosystem.

Winning new, and retaining and converting, existing client pipeline continues to be critical for the future success of the business.

To mitigate some of this risk, the Company has also signalled and recently launched several imperatives to begin to limit dependency on any one or similar number of projects and development partners. The Company aims to build and create a quality of pipeline choice, whilst having a professional supportive collaborative position with key partners.

Intellectual Property and Know-How Risk

The Company undertakes reasonable endeavours to protect its know-how and has filed patents in 2021 to generate IP. However, any patents and other IP may not prevent competitors from independently developing or selling products and services like or duplicative of those filed.

If the Company can generate and protect IP, the value of the brand and other intangible assets may be increased, and our business positively affected. In addition to the IP patents, the Company possesses a wide-ranging level and breadth of proprietary know-how that drives our capabilities and excellence.

The Directors are aware of the risks of IP leakage and, through our IP attorneys, are maintaining and monitoring compliance of any potentially conflicting technologies as well as maintaining protection around the freedom to operate worldwide. The Company follows a dual route of IP protection via a suite of patents and maintaining control of disclosure over the design documents, calculations, and chemical engineering models for the process through systems management.

All contracts robustly define the IP and Employees are trained to limit data made available to third parties

Finally, the GTIC and material partner collaborations are designed to form a platform which will support building further know-how and IP potential for the Company.

Employee Risk

Attracting and retaining the best, skilled people at all levels of the business is critical. This is particularly the case in ensuring the Company has access to a diverse range of views and relevant experience, and in attracting specific expertise at both board, managerial and operational levels where the market may be highly competitive.

As the Company evolves, this risk will take more prominent focus with the Board. Employees should not become a hurdle to progress for the Company.

The Board is also aware that the value of the Company is inherently embedded in its employees and the remuneration committee has made commitments to make Powerhouse an attractive workplace, both in terms of suitably attractive packages but also commitment to development through training and compliance and other Employees benefits.

As part of the Covid-19 measures all employees were supported to ensure that their home working facilities were compliant and, as the Directors are also aware of the pressures on employees, that well-being support and instruments were introduced.

Supply Chain Risk

As a hangover from the pandemic, global shortages in raw material shortages, supplier capacity constraints, supplier production disruptions, supplier quality and sourcing issues or price increases are widespread and touching a wide range of industries.

It is not beyond the realms of possibility that this could increase aspects of the technology, or development and operating costs, and adversely impact the competitive positions of the Company's products or service. The reliance on its development partners, and their reliance on contractors, third-party suppliers and manufacturers, and raw material markets exposes enterprises like Powerhouse to volatility in the prices and availability of such items. A disruption in deliveries, including as a result of catastrophic events or war, could have an adverse effect on our ability to meet our development partner's commitments to customers or increase operating costs.

It is however also anticipated that the prices of offtakes such as gas, power, heat, and hydrogen produced by Powerhouse will see increases in the same environment.

Financial Risk

Capital management

In January 2021, the Company raised £10 million before expenses by way of a fund raise. This was primarily intended to support the delivery of the Protos project, evidenced by the provision of the £3.8m loan facility to the Protos SPV.

Due to changes in the Protos contracting strategy, the facility was not fully utilised during 2021 and has been made available until August 2022 in keeping with updated cashflows for the project development phase. Powerhouse had a cash balance of £9.6 million at 31 December 2021.

Whilst this is a healthy position, until the Company can secure forward revenues in excess of its running costs, this amount will deplete over time. The Company produces regular cashflows to assess plans forward and the use of its cash resources based on business strategy. The Company assesses investment opportunities, either in its technology development or in project engagement, on their individual merits but also in terms of how funds can be used to generate future revenues in line with Business Strategy.

To enhance financial control procedures and to strengthen the oversight and monitoring and control of financial performance and cash, the Company will bring activities which are outsourced currently, in-house and will recruit a Financial Controller who will report to the CFO. The Company will also invest in an upgraded finance software system appropriate for this current and immediate stage in its evolution.

The Company manages its capital according to budgets with the aim of ensuring it can continue as a going concern. Capital sources include debt and equity instruments.

Board members review cash balances available for ongoing spend on a weekly basis against budget and income forecasts in assessing needs forward and timing for any future equity raises.

Other financial risks are considered as follows:

Foreign Currency Risk

The execution of the first project does not expose the Company to any foreign currency risk and the Company does not hold any cash in foreign currencies. Foreign currency value fluctuations are therefore insignificant. In future, as international contracts are signed, the Board will examine the currency risk exposure of each project and protect any revenues and expenses against currency volatility.

Interest Rate Risk

The Company does not have any corporate or project related debt outstanding, so the Board considers that there is currently no material risk of any exposure to interest rate variations.

Credit risk

The Company has provided a loan facility and billed for engineering services to the Protos SPV during the year and into 2022. Amounts due will be dealt with as part of the funding arrangements for the project during 2022. The Company has exposure on these amounts should the project fail to reach a financial close, although security is in place in the event of a default in repayment.

Other Financial Risk

The Company considers price risk and liquidity risk to be negligible in relation to their performance and financial position at this early stage of its development, except as referenced elsewhere in this report.

Before entering any contract, partnership, or collaboration arrangements for service providers to Powerhouse, the Board ensures that steps are taken to confirm the ability to deliver of any contractor or partner to avoid business disruption.

External Risks

The Company is subject to various risks originating from external events including political, economic, legal, business, and financial conditions. The assessment of these risks, their evaluation and mitigation are essential parts of the Company's planning and internal control system.

Projects that utilise the Company's technology are subject to price risk in respect of project build and operational costs and market risks in respect of commodity pricing relating to project outputs. As the Company's ability to generate revenues is dependent upon projects materialising, the Company is indirectly exposed to these risks. The Company is actively involved with its customers in assisting management of these risks.

The following risk factors, which are not exhaustive, are particularly relevant to our current business activities:

COVID-19

Since 2020, the engineering development work avoided significant interruption.

In 2022, as the different regions of the UK moved more into the phases of 'living with Covid-19', more normalised operations were established within society, and in our business environment. Despite this, the flow through impact of Covid-19 on global supply chain is still prevailing. The Company and its collaboration partner in the UK, Peel NRE, and the SPV team on the Protos project, monitor the supply chain related effects of the pandemic on the project (including cost volatility), and on the business. They deploy appropriate risk mitigation strategies where possible.

The Company continues to closely monitor the coronavirus situation, are following health authority and government guidelines. The Company is prepared to take further action to deal with any situational changes.

Implications of the war in Ukraine 

The Company does not consider there to be a direct impact on its assets and liabilities as a result of the war in Ukraine. The Company notes that the situation is impacting commodity pricing, exchange rates and the supply chain, as well as the possibility of an economic downturn. The Company will continue to monitor events and potential impacts on the business and relating projects, mitigating where appropriate and possible. 

Regulatory and Compliance Risk

The international markets available to Powerhouse expose the Company to risk across a spectrum of different political and regulatory regimes with different risk profiles.

The steps being taken to adopt a more strategic and tactical development of territories and markets by the Company of late reduces this risk and allows the Company to focus on aligning with relevant markets where there is existing or potential market fit and attractiveness, which includes the political, regulatory and compliance elements.

STATEMENT OF COMPREHENSIVE INCOME

For The Year Ended 31 December 2021

All activities are in respect of continuing operations and there are no other items of comprehensive income.

The notes numbered 1 to 30 are an integral part of the financial information.

STATEMENT OF FINANCIAL POSITION

As At 31 December 2021

The financial statements of Powerhouse Energy Group Plc, Company number 03934451, were approved by the Board of Directors and authorised for issue on 28 June 2022 and signed on its behalf by:

Paul Drennan-Durose

Director

The notes numbered 1 to 30 are an integral part of the financial information.

STATEMENT OF CASHFLOWS

For The Year Ended 31 December 2021

The notes numbered 1 to 30 are an integral part of the financial information.