(HEGY) Helius Energy

1. Accounting policies

Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRIC Interpretations issued by the International Accounting Standards Board ("IASB") as adopted by the EU and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under IFRS. The Group has elected to prepare its parent company financial statements in accordance with UK GAAP.

This information for the year ended 30 September 2011 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006, but is based on the statutory financial statements for that year, on which the auditors have reported on. Their audit report was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 498 (2) or (3) Companies Act 2006.

Basis of consolidation

Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. Intercompany transactions and balances between Group companies are therefore eliminated in full as at 30 September 2011.

The consolidated financial statements incorporate the results of Helius Energy plc and all of its subsidiary undertakings as at 30 September 2011,using the acquisition or merger method of accounting as required. Where the acquisition method is used, the results of the subsidiary undertakings are included from the date of acquisition.

On 9 June 2006 Helius Energy plc entered into a share for share exchange agreements with the shareholders of Helius Power Limited, whereby Helius Energy plc acquired the entire share capital of Helius Power Limited, the consideration being satisfied by the allotment of ordinary shares in Helius Energy plc to the shareholders of Helius Power Limited.

As this transaction is outside the scope of IFRS 3 and in the absence of any relevant guidance under International Financial Reporting Standards, the acquisition has been accounted for as a Company reconstruction as permitted under UK Financial Reporting Standard 6, the most relevant accounting treatment that can be applied to the situation.

Under merger accounting the acquisition has been accounted for as though the Company, as currently constituted, has been in place for the whole of the period covered by these financial statements. As such, the results have been presented as though Helius Power Limited and its subsidiary company had always been part of Helius Energy plc.

Joint ventures are those entities over whose activities the Company has joint control established by contractual agreement. Interests in joint ventures through which the Company carries on its business are classified as jointly controlled entities and accounted for using the equity method. This involves recording the investment initially at cost and then in subsequent periods adjusting the carrying amount of the investment to reflect the Company's share of the joint venture's results.

Gains and losses on transactions between the Company and its joint ventures are eliminated to the extent of the Group's interest in the joint venture. 

Changes in accounting policies

(a)     New standards, amendments to published standards and interpretations to existing standards effective in the year ended 30 September 2011 adopted by the Company:

§ IAS 24 'Related Party Disclosures'. The revision to IAS 24 is in response to concerns that the previous disclosure requirements and the definition of a related party were too complex and difficult to apply in practice, especially in environments where government control is pervasive. This is a disclosure amendment and has no impact on the results or net assets of the Company.

§ The improvements to IFRS. Improvements in this amendment clarify the requirements of IFRS and eliminate inconsistencies within and between standards.

The changes include amendments to:

§ IFRS 1 'First-time Adoption of International Financial Reporting Standards'.

§ IFRS 3 (Revised 2008) 'Business Combinations'.

§ IFRS 7 'Financial Instruments'.

§ IAS 1 (Revised 2007) 'Presentation of Financial Statements'.

§ IAS 34 'Interim Financial Reporting'.

§ IFRIC 13 'Customer Loyalty Programmes'.

§ IAS 21 'The Effects of Changes in Foreign Exchange Rates'.

§ IAS 28 'Investments in Associates'.

§ IAS 27 (as amended 2008) 'Consolidated and Separate Financial Statements'.

Management has concluded that to date there has been no impact on the results or net assets of the Company as a result of these amendments

Changes in accounting policies continued

(b)     Standards, interpretations and amendments to published standards that are effective but not relevant

The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2011 but are currently not relevant to the Company's operations:

§ IFRIC 14 and IAS 19 'Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'. This amendment applies in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the benefit of such an early payment as an asset.

§ IFRS 7 'Transfers of Financial Assets'. This amendment requires the disclosure of information in respect of all transferred financial assets that are not derecognised and for any continuing involvement in a transferred asset, existing at the reporting date, irrespective of when the related transfer transaction occurred.

§ Amendments to IFRS 1. This Amendment makes two changes to the requirements of IFRS 1. The first change  replaces references to a fixed date for first time adopters of IFRS .The second provides guidance on severe hyperinflation on an entity's currency.

(c) Standards, amendments and interpretations to published standards not yet effective and not adopted early by the Company

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Company's accounting periods beginning on or after 1 January 2012 or later periods and which the Company has decided not to adopt early. Management is currently assessing the impact of these amendments.

§ Amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets. This Amendment provides a presumption that recovery of the carrying amount of the asset will, normally be, through sale. Management are currently assessing the impact of this amendment.

§ Amendments to IAS 1.This Amendment requires companies to group together items within Other Comprehensive Income that may be reclassified to the profit or loss section of the income statement. Management are currently assessing the impact of this amendment.

§ IFRS 9 will eventually replace IAS 39 in its entirety. However, the process has been divided into three main components: Classification and measurement; impairment; and, hedge accounting. As each phase is completed, it will delete the relevant portions of IAS39 and create new chapters in IFRS 9. This is effective for annual periods beginning on or after 1st January 2013, this standard is not yet endorsed by the European Union. Management are currently assessing the impact of this standard.

§ IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.  The new standard replaces the consolidation requirements in SIC-12 Consolidation-Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. Management are currently assessing the impact of this standard.

§ IFRS 11 Joint Arrangements .The principle in IFRS 11 is that a party to a joint arrangement recognises its rights and obligations arising from the arrangement rather than focussing on the legal form. There will no longer be an option to use proportionate consolidation. The new standard supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non - monetary Contributions by Venturers. Management are currently assessing the impact of this standard.

§ IFRS 12 Disclosure of Interests in Other Entities includes the disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The standard requires a reporting entity to disclose information that helps users to assess the nature and financial effects of the reporting entity's relationship with other entities. Management are currently assessing the impact of this standard.

§ IFRS 13 defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements.  The standard applies, except in some specified cases (e.g. share-based payments) when other IFRSs require or permit fair value measurements. Management are currently assessing the impact of this standard.

§ IAS27 contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The Standard requires an entity preparing separate financial statements to account for those investments at cost or in accordance with the applicable financial instruments standard (i.e. IAS 39 or IFRS 9). Management are currently assessing its impact on the financial statements

§ IAS 28 now includes the required accounting for joint ventures as well as the definition and required accounting for associates. Equity accounting is required in consolidated or individual financial statements for both of these types of investment unless the investing group is a venture capital organisation, mutual fund, unit trust or similar entity in which case the entity may account for those investments in accordance with the applicable financial instruments standard (i.e. IAS 39 or IFRS 9).  Proportionate consolidation is no longer an option for joint ventures. Management are currently assessing its impact on the financial statements.

§ IAS 19 Employee Benefits. The main changes introduced by the amendment revolve around the accounting for defined benefit pension schemes. The amendments will have no impact on the financial statements of the company.

§ IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. This interpretation will have no impact on the financial statements of the company.

1.Accounting policies continued

Revenue recognition

Revenue for the Company is measured at the fair value of the consideration received or receivable. Revenue comprises the amounts receivable for services provided net of value added tax.

The Companyrecognises revenue for services provided when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the entity.

Impairment of non-financial assets

Intangible and other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash-generating unit (i.e. the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows).

Impairment charges are included in the administrative expenses line item in the consolidated income statement, except to the extent they reverse gains previously recognised in the consolidated statement of recognised income and expense.

Foreign currencies

Transactions entered into by Company entities in a currency other than the currency of the primary economic environment in which they operate(their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated income statement.

On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the "foreign exchange reserve").

Financial assets

The Company classifies all of its financial assets as loans and receivables as discussed below. The Company has not classified any of its financial assets as held to maturity.

Loans and receivables: these assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method.

The Company's loans and receivables comprise both loans and receivables and trade and other receivables in the Consolidated Statement of Financial Position.

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of six months or less and bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the balance sheet.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Company will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Financial liabilities

The Company classifies its financial liabilities as other financial liabilities which include the following items:

§ bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding; and

§ trade payables, other borrowings and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

1.Accounting policies continued

Hedge accounting

Hedge accounting is only applicable for transactions undertaken in Helius CoRDe Limited, the joint venture entity.  No additional hedging transactions have been undertaken in the Group in the year ended 30 September 2011.  Hedge accounting is applied to financial assets and financial liabilities where all of the following criteria are met:

§ At the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group's risk management objective and strategy for undertaking the hedge.

§ For cash flow hedges, the hedged item in a forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss.

§ The cumulative change in the fair value of the hedging instrument is expected to be between 80-125% of the cumulative change in the fair value or cash flows of the hedged item attributable to the risk hedged (i.e. it is expected to be highly effective).

§ The effectiveness of the hedge can be reliably measured.

§ The hedge remains highly effective on each date tested. Effectiveness is tested quarterly.

Cash flow hedges

The effective part of forward contracts designated as a hedge of the variability in cash flows of foreign currency risk arising from firm commitments, and highly probable forecast transactions, are measured at fair value with changes in fair value recognised in other comprehensive income and accumulated in the cash flow hedge reserve. The effective portion of gains and losses on derivatives used to manage cash flow interest rate risk (such as floating to fixed interest rate swaps) are also recognised in other comprehensive income and accumulated in the cash flow hedge reserve.

Under the equity method of accounting for the joint venture in Helius CoRDe Limited, the share of the changes in fair values recognised in other comprehensive income in relation to cash flow hedges are reflected in the consolidated statement of comprehensive income.

Share capital

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group's ordinary shares are classified as equity instruments.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future costs of dismantling and removing items. The corresponding liability is recognised within provisions.

Office equipment       -   25% per annum straight-line
Computer equipment -   25% per annum straight-line

Development projects in progress

Development projects in progress are assets arising from the project development phase of internal projects. The project development phase covers costs incurred from the point at which the Company secures a site, or an agreement for the purchase or lease of a site, through to the point at which the project can either be sold, or finance is secured for construction of the project and the construction phase starts. During this phase costs are incurred in securing planning consent and negotiating the suite of contracts required that will enable project finance to be secured, and allow the Company to build, own and operate a power plant.

These costs are treated as development projects in progress and capitalised if the Group can demonstrate all of the following:

a)   there is a strong probability that any planning application for the site will be successful;

b)   the technical feasibility of completing the asset so that it will be available for use or sale;

c)   its intention and ability to obtain economic benefit through its use or sale;

d)   the extent and nature of the future economic benefits. Among other things the Company must demonstrate the existence of a market for the output of the asset and a fuel supply that will deliver an appropriate financial return;

e)   the availability and probability of obtaining appropriate technical and other resources to complete the development and to use or sell the asset;

f)    the availability of project finance, or the existence of a market for the project to be sold; and

g)   its ability to measure reliably the expenditure attributable to the asset during the development phase.

In accordance with IAS 36, the Company is required to test these assets for impairment by comparing their recoverable amount with their carrying amount, annually and whenever there is an indication that the asset may be impaired.

The Company tests these assets for impairment by reference to a project model which takes all of the expected income streams and costs of both building and operating a plant and calculates the expected profitability of the plant through its lifetime operation. Based on this measure, the Company is able to make an assessment of the ability to secure finance to construct the plant or, alternatively can make an assessment as to its potential sale value prior to construction. In the event and to the extent that the Company believes the project will be unable to attract finance or, sold to a third party the costs will be impaired.

Development projects in progress are not depreciated until they have been completed and have been commissioned for use within the Company.

1. Accounting policies continued

Leased assets

Where substantially all of the risks and rewards incidental to ownership of a leased asset are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

Retirement benefits: defined contribution schemes

Contributions to defined contribution pension schemes are charged to the income statement in the year to which they relate.

Share-based payments

Where share options are awarded to employees, the fair value of the options at the date of the grant is charged to the income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored in to the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for the failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received.

Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs to its tax base,except for differences arising on:

§ the initial recognition of goodwill;

§ goodwill for which amortisation is not tax deductible;

§ 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 or taxable profit; and

§ investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

§ the same taxable company; or

§ different company entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Business segments

The Chief Operating Decision Maker is defined as the executive directors.

The Board considers that the Company's project activity constitutes one operating and reporting segment, as defined under IFRS 8. Management reviews the performance of the Company by reference to total results against budget.

The total profit measures are operating loss and loss for the year, both disclosed on the face of the consolidated income statement. No differences exist between the basis of preparation of the performance measures used by management and the figures in the Company financial statements.

All of the revenues generated relate to management service agreements and are wholly generated within the UK. Accordingly there are no additional disclosures provided to the primary statements.

2. Critical accounting estimates and judgements

The Company makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a)                                                       Earn-out receivable (see note 13)

The earn-out receivable relates to deferred income due from RWE following the sale of the Stallingborough project in September 2008. The earn-out receivable was originally recognised at fair value and thereafter carried at amortised cost with judgements applied to expected cash flows based on changes to construction costs, construction dates, and the forecast for power prices and interest rates, with all of the expected cash flows discounted back to present value at a discount rate defined in the agreement with RWE. Under the original agreement, RWE has the right to early settlement of these cash flows based upon this defined discount rate.

The Company has adjusted the carrying value of the earn-out receivable based on a deed of amendment signed in January 2011 with RWE Innogy for the early settlement of the earn-out conditional on major contracts being awarded for the construction of the plant. The resultant loss was reflected in the income statement for the year ended 30 September 2010.

As at 30 September 2011 in accordance with IAS 39, changes in expected cash flows are accounted for by restating the receivable to the present value of the revised expected cash flows (using the original effective interest rate). Any gain or loss is taken to the income statement.  When calculating the carrying value of the earn out asset an assessment of the expected cash flows was made and actual cash flows may differ.

(b)                                                     Development projects in progress

Development projects in progress are assets arising from the development phase of internal projects. These are recognised if the Company can demonstrate all of the following:

a)   there is a strong probability that any planning application for the site will be successful;

b)   the technical feasibility of completing the asset so that it will be available for use or sale;

c)   its intention and ability to complete the asset and obtain economic benefit through its use or sale;

d)   the extent and nature of the future economic benefits. Among other things the Company must demonstrate the existence of a market for the output of the asset and the availability of fuel that will deliver an appropriate financial return;

e)   the availability and probability of obtaining appropriate technical and other resources to complete the development and to use or sell the asset;

f)    the availability of project finance, or the existence of a market for the project if sold; and

g)   its ability to measure reliably the expenditure attributable to the asset during the development phase.

In accordance with IAS 36, the Company is required to test these assets for impairment by comparing their recoverable amount with their carrying amount, annually and whenever there is an indication that the asset may be impaired.

Development projects in progress are not depreciated until they have been completed and have been commissioned for use within the Company.

There is a risk that if the market conditions or underlying project assumptions change, such that the forecast project returns are no longer deemed to be sufficient either in part or in total to justify the continued development of the project, then the carrying value of the asset may be written down, or written off in the future. The risks associated with the development projects in progress as at 30 September 2011 are detailed further in note 11.

(c) Share-based payment

The Company has two equity-settled share-based schemes for employees and an LTIP scheme. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair value of share options and LTIPs are estimated by using the Black-Scholes model on the date of grant based on certain assumptions. Those assumptions are described in note 20 and include, among others, expected volatility, expected life of the options and number of options expected to vest. Should different assumptions be used then the fair value of the options would be different.  Where vesting conditions exist for share options, the Board reviews progress against these vesting conditions annually and reviews the estimated date of financial close of projects which will impact the financial statements. In the event that milestones conditions are not met it is anticipated that certain options will lapse.

(d)                                                                           Deferred tax assets

Deferred tax assets are only recognised when there is a reasonable anticipation that the Company will make profits in the foreseeable future against which the accumulated tax losses can be utilised.

2. Critical accounting estimates and judgements continued

(e)     Joint venture arrangement
On the 13 April 2011 the Company reached financial close on the CoRDe project securing debt funding from Lloyds Banking Group and the Royal Bank of Scotland plc, along with an equity investment for new shares in Helius CoRDe Limited by Rabo Project Equity BV.  The result of the funding and introduction of a contractual arrangement between Helius Energy PLC, Rabo Project Equity BV

and The Combination of Rothes Distillers' Ltd was a loss of control and Helius Energy PLC now holds 50% + 1 non-controlling share in a Joint Venture.

On the loss of control of the entity, the fair value of the interest retained by Helius Energy PLC was estimated by reference to the amount paid by Rabo Project Equity BV for its purchase of equity in the joint venture. This was deemed to be the latest available information on which to assess the fair value in the absence of an active market.

At 30 September 2011 the carrying value of the joint venture is measured at deemed cost, represented by the fair value of the interest retained, less the Company's share of the loss since financial close. Further details are provided in Note 15.

3. Financial instruments - risk management

Financial instruments

The principal financial instruments used by the Company, from which financial instrument risk arises, are as follows:

§ Financial assets

o  Loans and receivables

§  Loans and receivables

§  Trade and other receivables

§  Cash and cash equivalents

§ Financial liabilities

o  Trade and other payables

To the extent financial instruments are not carried at fair value in the consolidated balance sheet, book value approximates to fair value at 30 September 2010 and 30 September 2011.

Loans and receivables are stated on an amortised cost basis with any changes to valuation being charged /credited to the consolidated statement of comprehensive income in the relevant period.

Trade and other receivables are measured at book value. Book values are reviewed by the Board and any impairment charged to the consolidated statement of comprehensive income in the relevant period.

Cash and cash equivalents are held in sterling and placed on deposit with UK banks.

Trade and other payables are measured at book value.

Capital management

The Company's capital is made up of share capital, share premium, capital redemption reserve, merger reserve, cash flow hedge reserve and retained earnings totalling £23.3 million at 30 September 2011 (2010: £24.55 million).

The Company's objectives when maintaining capital are:

§ to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

§ to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Company sets the amount of capital it requires in proportion to risk. The Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

The Company is reporting a £71,764 profit for the period ended 30 September 2011. The directors have recommended that no dividends will be payable for the period (2010: nil).

In July 2011 non-executive director Angus MacDonald increased his holding in the Company following the issue of 4,360,674 new shares at 16p, representing 5% of the total issued share capital of the Company with an aggregate value of £697,707. All other shares issued in the financial year were for share options exercised. All shares issued in the period 30 September 2010 were in respect of the exercise of share options.

The Company is exposed through its operations to the following key risks:

Market price risk

The Company is exposed to risk of variations in the wholesale price of electricity and biofuel material when assessing the financial viability of planned projects. Currently the Company has not entered into any forward contracts to fix prices of these commodities. The directors will continue to monitor the benefit of entering into such contracts.

3. Financial instruments - risk management continued

Foreign currency risk

Foreign currency fluctuations will impact both the cost of construction and potentially fuel for biomass plants.

Credit risk

Credit risk is the risk of financial loss to the Company when a financial instrument due under contract is not received. At 30 September 2011 the Company is exposed to credit risk largely the receivable associated with the deed of amendment relating to the sale of the Stallingborough project.

The Company has agreed a deed of amendment to the original Sale and Purchase Agreement with RWE Innogy for the sale of the Stallingborough project. This deed of amendment entitles Helius to a cash payment at the point that construction contracts are awarded for the project. The payment is guaranteed by the parent company of RWE in the UK. As such, management considers this to be a low credit risk to the Company.

Other than the impairment of the loan provided to Carolina Pacific LLC as detailed in note 16, no other trade and other receivable balances are past due or require impairment.

In the year ended 30 September 2010 the non-current earn-out asset as detailed in note 13 was adjusted by £4,923,000. An adjustment of £739,435 was made in the year to 30 September 2011.

In addition to the financial instruments used by the Company as outlined above, the Company's Joint Venture investment also uses foreign currency and interest rate hedging instruments in order to mitigate foreign currency and interest rate risk in the construction of assets as required under the project finance facility.

The instruments are designated as fair value through profit and loss, measured at fair value and are categorised at Level 1 in the fair value hierarchy. Further details are provided in Note 15.

4. Revenue recognition

Revenue in 2011 represents income arising from the Management Services Agreements with The Combination of Rothes Distillers' (CORD) and Helius CoRDe Ltd a joint venture in which the Company holds 50% plus 1 share. The revenue recognised in 2011 from the joint venture was £110,808 and £37,500 from The Combination of Rothes Distillers'. No revenue was earned in the year ended 30 September 2010.

5. Loss from operations

6. Staff costs

2010 - the average number of employees (including directors) during the period was 26.

2011 - the average number of employees (including directors) during the period was 24.

Included in other creditors at 30 September 2011 is £11,968 (30 September 2010: £11,963) of pension contributions unpaid at that date.

6. Staff costs continued

Details of all directors' remuneration, including the remuneration of the highest paid director, for the year ended 30 September 2011 are listed in the directors' report.

7. Finance income and expense

The unwinding of the discount from the sale of the Stallingborough project represents the increased value of the earn-out based upon the discount made in September 2010. Any changes to the valuation as a consequence of changes in the underlying assumptions are shown against the line "adjustment to the earn-out receivable from changes in expected cash flows" in the statement of comprehensive income.

8. Tax expense

The reasons for the difference between the actual tax charge for the period and the standard rate of corporation tax in the UK applied to losses for the period are as follows:

The Group has tax losses carried forward of approximately £9,571,000 for the year ended 30 September 2011 and approximately £7,526,000 for 30 September 2010. These can be set off against future trading profits. No deferred tax asset has been recognised in the accounts in respect of these losses as there is not likely, in the foreseeable future, taxable profits available against which the unused tax loss can be utilised.

9. Profit / (loss) per share

The calculation of the earnings per share is based on the following data:

The bonus effect of options was excluded from the number of shares used in the diluted EPS calculation for 2010 as those options were antidilutive.

In October 2011 40,946,142 new ordinary shares were issued at 16 pence per share to raise approximately £6.55 million.

10. Dividends

No dividends were declared in the period.

11. Property, plant and equipment

The impairment of development projects in progress in 2010 relates to costs incurred on a project that the Board decided not to progress further due to uncertainty over the economics of the proposed development.

During the year certain assets from development projects in progress were disposed of as a result of the loss of control of a subsidiary when the CORD project having reached financial close in April 2011 became the joint venture Helius CoRDe Ltd. Helius Energy PLC holds 50% + 1 share for an investment of £7.9 million which included the £2.9 million development costs

11. Property, plant and equipment continued

The £6.7 million balance of development projects in progress at 30 September 2011 can be further analysed as follows:

The projects in the planning and development consent stage are:

§ the Southampton project where the Company expects to make a planning application in 2012; and

§ costs to date relating to equipment for the Veolia agreement signed in 2008. The Company is working with Veolia on securing projects that will facilitate the recovery of these costs through agreements with third parties to process liquid bi-products. Veolia is leading the sales and marketing activity to secure these contracts and is leveraging on its significant customer base. In the event that these activities do not lead to firm contracts the balance will be impaired.

Projects in the contract negotiation or financial close stage are:

§ the Avonmouth project which was awarded deemed planning consent pursuant to the electricity act 1989 in 2010 and is currently in the development phase. Bids have been obtained for the equipment required to build the plant and negotiations are underway to secure the fuel required for the plant. The Company expect to achieve financial close in 2012.

12. Intangible fixed assets

Due to the management time required for the development of further projects the Board, during 2007, anticipated that no time would be allocated to the application of certain patents held. As a result no revenue streams are expected to be generated from these patents for the foreseeable future therefore the carrying value of £900,000 was fully impaired during 2007. The Board considers the treatment to be appropriate at 30 September 2011.

13. Loans and receivables

Sale of the Stallingborough project

During the year ending 30 September 2008, Helius Energy plc disposed of the Stallingborough project, otherwise referred to as Helius Energy Alpha Ltd ("Alpha") to RWE Innogy (UK) Ltd ("RWE"). Alpha contains the rights to planning permission and IP associated with the construction of a 65MWe biomass powered energy generation plant at a site in Stallingborough in the north of England. The transaction included a cash payment of £28.1 million and a deferred amount of consideration, payable through an earn-out arrangement equal to 13% of the post-tax profits generated by the project during its first 24 years of commercial operation.

Earn-out arrangement

The forecasts used to value the earn-out in the 2008 and 2009 financial statements were prepared by management. The forecast profitability was based on an independent report on forecast energy prices for the 24 year period and fully negotiated contracts for the following:

§ the cost of the plant build;

§ the plant fuel supply; and

§ the operations of the plant.

13. Loans and receivables continued

Earn-out arrangement

The forecasts also included various assumptions and judgements made by management in the following areas:

§ plant availability - this was estimated at 2% less than the guarantee levels associated with the plant. Any increase or decrease in the efficiency of the plant would affect the overall profitability and the net present value of the cash flows receivable;

§ finance costs - an interest rate of LIBOR plus 0.75% was assumed based on a gearing level of 90% which reflected the borrowing required for the build cost. Any change in LIBOR would affect this rate and the level of finance cost incurred;

§ operating and management costs - these related to estimated management fees charged by RWE group into the project. These costs are under the control of RWE and any movement in the assumptions of these costs would impact the profitability of the project;

§ discount rate - a rate of 9% was used as this was the rate defined in the agreement with RWE to be used for early settlement of cash flows at RWE's option; and

§ a commercial start up date of 2013 for the 2009 valuation.

At 30 September 2009 the directors reviewed the carrying value of the earn-out in light of expected changes in cash flows relating to the long-term forecast for electricity prices, the latest 20 year forecast for LIBOR, exchange rate impact on construction costs and a delayed date for commercial start up of the power plant and payments under the earn-out agreement. This review was carried out by Helius Energy plc and was not formally agreed with RWE. This review gave a revised carrying value of £12,298,000.

Deed of amendment to earn-out arrangement

During the September 2010 financial year, the Company was involved in extensive negotiations with RWE for a deed of amendment to the original earn-out arrangement. A commercially acceptable offer was agreed in principle by the Company during September 2010 and was used as the basis for determining the carrying value of the earn-out receivable in the financial statements for 2010. The amendment was formalised and signed on 18 January 2011. Details of the revised agreement are shown below:

Payments due:

The Deed outlined that in the event that construction contracts were awarded later than September 2011, additional payments of £100,000 would become due for each quarter of delay. At an agreed date with RWE the Deed of Amendment becomes invalid and the original earn-out arrangement is reinstated, although no repayments of monies received at signature or as a consequence of quarterly delays are payable.

The revised carrying value and resultant entries in the Consolidated Statement of Comprehensive Income are shown in the table below:

In arriving at a discounted value of £8,481,000 as at September 2010, the Board made the assumption that a total payment of £9,300,000 would be received, based on contracts being awarded by RWE in September 2012. This revised valuation is therefore made up of the £100,000 initial payment, £8,800,000 at the point of contracts being awarded and £400,000 of delay payments. The original effective interest rate for the transaction of 9% had been applied to the payments. The directors still considers these

13. Loans and receivables continued

assumptions to be correct as at 30 September 2011.The initial payment being paid in January 2011 and a further £100,000 delay payments were received in October 2011 and January 2012. In the directors view there is no material difference between the carrying value of the earn out receivable at 30 September 2010 and 30 September 2011 and its fair value at each date using appropriate market rates.

The adjustment to the earn-out receivable in the current year of £739,345 relates to a correction to the carrying value of the earn out asset relating to the deed of amendment.  The calculation at 30 September 2010 had assumed settlement of the receivable in advance of the stated expected date of 30 September 2012.  The adjustment in the current year ensures the carrying value and unwinding of discounts is consistent with the expected settlement date of 30 September 2012 and our stated accounting policy.

Taking into account the guidance in IAS 8 as to whether the correction would influence the economic decisions that users make on the basis of the financial statements, the directors conclude that the effect of this correction on the reported results or net assets of the group is not material to warrant a prior year adjustment and as a consequence have reflected it through the current year results.

In the event that RWE does not award contracts prior to the deed of amendment becoming invalid, there is a risk that the Company will not receive the deed of amendment payment of £8.8 million and, in this circumstance the original earn-out arrangement would be reinstated. In the event that RWE has not awarded contracts prior to the deed of amendment becoming invalid, there may be significant uncertainty over the timing of any payment under the earn-out arrangement in the event that a likely construction and commercial operation date could not otherwise be established. This uncertainty would be reflected in the carrying value of the earn-out receivable at that point.

14. Subsidiaries

The principal subsidiaries of the Company, all of which have been included in these consolidated financial statements, are as follows:

Helius Energy Africa (PTY) Ltd was de-registered in March 2011

Helius Energy Inc. went into passive dissolution March 2011

Helius CoRDe Ltd reached financial close in April 2011 when it became a joint venture between Helius Energy PLC, Rabo Project Equity BV and The Combination of Rothes Distillers' Ltd. Helius Energy PLC holds 50% + 1 share for an investment of £7.9 million.

Southampton Biomass Power Ltd was incorporated on 21 July 2010.

Liverpool Biomass Power Ltd was incorporated on the 10 November 2010

15. Investment in Joint Venture

As at 30 September 2010 Helius CoRDe Limited was accounted for as a subsidiary. On the 13 April 2011 the Company reached financial close on the CoRDe project securing £42.5million of debt funding from Lloyds Banking Group and the Royal Bank of Scotland plc, along with an equity investment for new shares in Helius CoRDe Limited of £9.3 million at project level by Rabo Project Equity BV.  The result of the funding and introduction of a contractual arrangement between Helius Energy PLC, Rabo Project Equity BV and The Combination of Rothes Distillers' Ltd was a loss of control and Helius Energy PLC now holds 50% + 1 non-controlling share in a Joint Venture at an investment cost of £7.9 million.

On consolidation the interest in the Joint Venture was initially measured at fair value, being £10.4 million. The fair value has been calculated from the amounts paid by the joint venture partners for their stake in the CoRDe project. The difference between the cost of investment, being the net assets of the subsidiary prior to it becoming a joint venture, and the fair value of the retained interest in the joint venture has been taken to the income statement as a gain of £2.5m on effective loss of control of a subsidiary. 

The agreements signed on financial close represented a new contractual arrangement between the parties providing joint control of the entity. All strategic financial and operating decisions in Helius CoRDe Ltd require a super majority between Helius and Rabo. Helius CoRDe Ltd was formed to take forward the 7.2MWe Net Capacity CHP project which Helius has been developing since before its admission to AIM, reaching financial close for this project enables the project to progress into construction.

15. Investment in Joint Venture continued

The cost of investment in the joint venture was made up of a £4,947,981 cash payment and £2,904,648 development costs incurred which comprised the net assets of the subsidiary prior to loss of control.

The Joint Venture, which is unlisted, results and assets / liabilities , are as follows:

As a requirement of the project finance facility, the CoRDe joint venture company entered into hedging agreements for foreign currency and interest rates in order to mitigate any risk associated with volatility in those rates.  Hedge accounting has been applied to the instruments, with changes in the fair values of the effective portion of the instruments between reporting periods being taken through other comprehensive income statement of the Joint Venture.  The Group has recognised its share of the movement in the period to 30 September 2011 of £2.5m

The hedging policy adopted by the project company is as follows:

Foreign currency

In order to ensure no variability in construction costs the project company entered a forward contract for 36,793,500 euros on the 13 April 2011 at a rate of 1.1238. On the 30 September the bank provided a fair value of the outstanding portion of the forward contract and this analysis resulted in a total liability of £0.7m.This liability is recognised as a derivative financial liability in the balance sheet of the joint venture with the change in value in other comprehensive and will reduce to nil through the construction period with the benefit being recognised in the future reporting periods.

Interest rates

In order to mitigate changes in interest rates the project company entered a forward contract for 100% of interest charges through the construction period and 75% of the interest costs through the 12 year repayment period on the 13 April 2011 based on the forward LIBOR rate . The fixed rate leg of the swap is 4.26% against the floating LIBOR rate. On the 30 September the bank provided a fair value valuation on the outstanding portion of the forward contracts and this analysis resulted in a total liability of £4.3m.

Helius Energy plc values its shareholding in the joint venture initially at fair value, and then in subsequent periods, adjusts the carrying amount of the investment to reflect the company's share of the joint venture's results which include any comprehensive income relating to cash flow hedges.

16. Trade and other receivables

Other than the impairment of the loan provided to Carolina Pacific LLC noted below (2010: none) no other trade and other receivable balances are past due or impaired.

Impairment of other receivables

During 2007 and 2008 the Company made a number of payments to Carolina Pacific LLC (an organisation formed to supply biomass fuel to the European market) under a loan agreement with all advances made against promissory notes that would become due on 31 December 2009. At 30 September 2009 the balance outstanding was £290,000 and the Board already had significant doubts over the financial viability of the operation of Carolina Pacific LLC and the ability to repay its debt due to its failure to make significant progress against its business plan. These doubts were confirmed in November 2009 when Carolina Pacific LLC sought to agree an amended repayment schedule for the notes and remove a charge the Company held over a briquetting machine owned by Carolina Pacific LLC. These terms were rejected by the Company. No repayments against the loan were received on the due date or subsequently and Helius Energy plc has since instigated legal proceedings to recover the outstanding amount. The loan is secured against a briquetting machine owned by Carolina Pacific LLC which was purchased during 2008 at a cost of €116,630 and is, based on information provided, in an as-new condition. The Board considers the machine to have a value of at least £80,000 and as a consequence impaired the loan balance by £210,000 in the financial statements at 30 September 2009 leaving a balance of £80,000. Throughout the financial year to 30 September 2010 the Company had continued to seek recovery of the debt and had initiated legal proceedings. As the machine had not been recovered at 30 September 2010, the Board took the view that the receivable should be impaired to zero, the estimated fair value of the debt. Given that these proceedings are still ongoing the Board consider the treatment to be appropriate at the balance sheet date. The Board has continued to seek the recovery of the debt and expects to reach a conclusion in 2012 when the claim will be placed before a court.

17. Trade and other payables

From 1 August 2011 the Company secured a £302,300 loan facility with Angus MacDonald a non-executive Director of Helius Energy plc . Interest will accrue on funds drawn under the facility at the rate of 4% per annum above the base rate from time to time of the Bank of England. The facility must be repaid in full on 30 June 2013. At 30 September 2011 no funds had been drawn down on the facility.

18. Share capital

In July 2011 non-executive director Angus MacDonald increased his holding in the Company following the issue of 4,360,674 new shares at 16p, representing 5% of the total issued share capital of the Company with an aggregate value of £697,707. All other shares issued in the financial year were for share options exercised. All shares issued in the period 30 September 2010 were in respect of the exercise of share options.

The Company abolished its authorised share capital when it adopted new articles at its AGM in 2011.

The following describes the nature and purpose of each reserve:

19. Leases

Operating leases - lessee

The Group leases its property. The total future value of minimum lease payments due as follows:

20. Share-based payment

Total share options and LTIPs granted under the Company's EMI, Unapproved and LTIP schemes are set out in the table below:

The weighted average share price when options were exercised during the year was 20.8 pence (2010: 30.1 pence).

Equity settled share option schemes

EMI scheme

The Company operates an EMI approved scheme for executive directors and certain senior management. Under the EMI approved scheme, options vest if the market value of the shares is greater than 10% above the floatation price for a period of twelve months since admission to AIM. All of these options have vested.

The number of EMI shares exercisable, and outstanding, at the end of the year 30 September 2011 is 2,893,385, with a weighted average price of 14.5 pence.

The range of exercise prices of share options outstanding at 30 September 2011 are 2,498,748 with exercise price of 12.0 pence which must be exercised by November 2016 and 394,637 with an exercise price range of 30.0 pence to 34.0 pence which must be exercised by May 2017. When these shares will be exercised will depend upon the individuals' circumstances and market price of the shares.

20. Share-based payment continued

Equity settled share option schemes continued

Unapproved scheme

The Company operates an unapproved scheme for non-executive directors' and retained consultants. Under the unapproved scheme, options vest if the market value of the shares is greater than 10% above the floatation price for a period of twelve months.

The number of unapproved shares exercisable, at the end of the year 30 September 2011 is 1,497,383, with a weighted average price of 19.8 pence.

The range of exercise prices of share options outstanding at 30 September 2011 are 854,166 with an exercise price of 12.0 pence which must be exercised by June 2016 and 643,217 with an exercise price range of 26.0 pence to 31.0 pence which must be exercised by April 2018. When these shares will be exercised will depend upon the individuals' circumstances and market price of the shares.

There were 2,980,448 unapproved options granted to directors and employees as part of a performance incentive scheme in 2009; these vest and are exercisable upon achieving defined objectives. There were 120,000 of these shares forfeited during the year and in April 2011 upon reaching financial close of the CoRDe project 143,022 vested. The exercise price of these shares is 26.5 pence which must be exercised by April 2019. When these shares will be exercised will depend upon the individuals' circumstances and market price of the shares.

The outstanding options vest as follows:

The Board assess progress against the above objectives on an annual basis, and, when necessary, as a result of the difficulties in accurately predicting the timing of planning awards, makes changes to expected delivery dates for vesting and subsequent charge to the financial statements. In the event that the Board take the view that any of the above objectives cannot be delivered within the option period they will be removed with a corresponding adjustment to the share-based payment charge in the year of removal.

20. Share-based payment continued

Equity settled share option schemes continued

Long-term Incentive Plan

The Company implemented a Long-term Incentive Plan in June 2010. The shares awarded under this plan vest over a three year period and are subject to achievement of specific targets agreed with the Remuneration Committee on an annual basis.

There were 3,950,000 shares granted with an exercise price of 1.0 pence to directors' and employees as part of a Long-term Incentive Plan in 2010. These vest over a three year period subject to the achievement of specific targets as defined and reviewed by the Remuneration Committee on an annual basis.

There were 1,311,666 LTIPs exercisable at 30 September 2011 which must be exercised by June 2015. When these shares will be exercised will depend upon the individuals' circumstances and market price of the shares.

The outstanding LTIPs vest as follows:

Fair value calculations

The following table shows the inputs used to ascertain the fair value of all LTIPs and all options granted during 2010, no options or LTIPs were issued during 2011: