On 6 February, Future Renewables Eco plc belatedly published its accounts for the year ending June 2018, just over a month overdue.
Since its incorporation in 2015, FRE has been funded by investors in unregulated bonds paying up to 13% per year.
FRE’s turnover increased from £440k in 2017 to £593k in 2018. However, with overheads increasing from £569k to £808k, and most significantly, interest payable on its bonds and similar expenses increasing from £1.2 million to £2.5 million, pre-revaluation net losses widened from £375k to £1.99 million.
Over the same period, FRE revalued some of its existing wind turbine sites by £2.05 million, which turned this loss into a small net profit for the year.
Net assets at the end of the year were reported as £505k, comprising £16.6m in assets minus £16.1m in liabilities. It is worth noting that the assets figure also includes the £2.05 million uplift in valuation.
This £2 million in revaluation uplift that allowed FRE to report a net profit and positive net assets was based on an independent valuation from Berrys Chartered Surveyors at open market value.
A section of the directors’ report under “Industry overview” is in reality copy and pasted from a report by Deloitte without attribution.
As for the part of the directors’ report that the directors actually wrote, one point that stands out is that the company is due to make capital and interest repayments of £2.7 million by January 2020, of which £2m falls between December 2019 and January 2020.
The company intends to find this from “a combination of trading activity, additional availability of short-term borrowing, opportunity for reinvestment by Bond holders and, if necessary, the sale of turbines in stock and Turbine site sales”.
Given the company is yet to make an operating profit, even before investors’ interest is accounted for, it will need a quick and significant turnaround in its trading performance to be able to repay bondholders from trading activity at the end of this year.
The options of short-term borrowing and bondholders not asking for their money back (aka reinvestment) are perfectly valid in the short-term but kicking the can down the road in the long term.
The directors say that they have prepared projections for 12 months which estimate that even if they do not sell any of their turbines, the company will “remain cash generative” and be able to meet its liabilities as they fall due.
How exactly the company can “remain cash generative” when the cash flow statement shows that the company had a net cash outflow of £988k – even after including £4.1m of new money from investors – is not clear.
What is clear is that, as the directors say, if the company cannot reverse its £2 million net loss (pre-revaluation), then to continue repaying the capital that falls due at the end of this year, it will either need new investment or to start selling off turbines.
FRE continues to seek investment in its “phase 5” bonds which currently pay between 7 and 11% per year for a 3-5 year term.