CHAIRMAN’S CORPORATE GOVERNANCE STATEMENT
Updated: 27 September 2018

Overview

As Chairman of the Board of Directors of Plutus PowerGen PLC (Plutus, We, or the Company/Group as the context requires), it is my responsibility to ensure that Plutus has both sound corporate governance and an effective Board. Plutus is an AIM listed power Company focusing on the development and operation of flexible energy generation (FlexGen) projects in the UK.

Plutus’ Board has adopted the principles of the Quoted Companies Alliance Corporate Governance Code (QCA Code) in accordance with the London Stock Exchange’s recent changes to the AIM Rules, requiring all AIM-listed companies to adopt and comply or explain non-compliance with a recognised corporate governance code. The QCA Code identifies ten principles to be followed in order for companies to deliver growth in long term shareholder value, encompassing an efficient, effective and dynamic management framework accompanied by communication to promote confidence and trust. This report follows the structure of these guidelines and explains how we have applied the guidance as well as disclosing any areas of non-compliance. We will provide annual updates on our compliance with the QCA Code. The Board considers that the Group complies with the QCA Code so far as it is practicable having regard to the size, nature and current stage of development of the Company, and will disclose any areas of non-compliance in the text below.

The sections below set out the ways in which the Group applies the ten principles of the QCA Code in support of the Group’s medium to long-term success.

Key governance changes during the year include the formal adoption of the QCA Code, and the appointment of James Longley as Interim Chief Executive Officer, due to the passing of CEO Phil Stephens.
QCA Principles

1. Establish a strategy and business model which promotes long-term value for shareholders

The Board has concluded that the highest medium and long-term value can be delivered to its shareholders through the Company’s objective of constructing flexible generation and gas-powered projects in the UK. Plutus’ multi-revenue stream model is founded upon the roll-out of 20MW power generation sites, funded through a combination of equity and asset finance via dedicated subsidiaries.

Plutus has a large pipeline of FlexGen projects, which will be executed in different ways. The Board’s strategy for future development is set out in more detail in the Chairman’s Statement of the Company’s 2018 Annual Report, but in summary, is to either sell existing FlexGen sites or to make an offer for the 55.5% of sites not already owned. The Company is in the process of advancing its gas portfolio, evaluating and advancing planning on a number of sites, thus diversifying its project portfolio. The Company also continues to pursue its non-dilutive investment model, setting up a dedicated entity for each site as part of the Company’s bottom-up strategy, therefore limiting medium-term dilution to existing shareholders.

The Board intends to deliver shareholder returns through capital appreciation. Challenges to delivering strategy, long-term goals and capital appreciation are uncertainty in relation to organisational, operational, financial and strategic risks, all of which are outlined on pages 10-11 of the 2018 Annual Report and in the Risk Management section below, as well as steps the Board takes to protect the Company by mitigating these risks and secure a long-term future for the Company.

2. Seek to understand and meet shareholder needs and expectations

The Board recognises the importance of communication with its stakeholders and is committed to establishing constructive relationships with investors and potential investors in order to assist it in developing an understanding of the views of its shareholders.

Plutus also maintains a dialogue with shareholders through formal meetings such as the AGM, which provides an opportunity to meet, listen and present to shareholders, and shareholders are encouraged to attend in order to express their views on the Company’s business activities and performance. Members who have queries regarding the Company’s AGM can contact the Registrars Shareholder helpline is 01252 821 390 or +44 1252 821 390 if calling from outside the UK

The Board welcomes feedback from key stakeholders and will take action where appropriate. Charles Tatnall is the shareholder liaison, and meets shareholders regularly. Analysts provide the Board with updates on the Company’s business and how strategy is being implemented, as well as to hear views and expectations from shareholders. The views of the shareholders expressed during these meetings are reported to the Board, ensuring that all members of the Board are fully aware of the thoughts and opinions of shareholders.

Information on the Investor Relations section of the Company’s website is kept updated and contains details of relevant developments, Annual and Interim Results, Regulatory News Service announcements, presentations and other key information.

3. Take into account wider stakeholder and social responsibilities and their implications for long-term success

The Board recognises that the long-term success of the Company is reliant upon the efforts of employees, regulators and many other stakeholders. The Board has put in place a range of processes and systems to ensure that there is close oversight and contact with its key resources and relationships. The Company prepares and updates its strategic plan regularly together with a detailed rolling budget and financial projections which consider a wide range of key resources including staffing, consultants and utility providers.

All employees within the Company are valued members of the team, and the Board seeks to implement provisions to retain and incentivise all its employees. The Company offers equal opportunities regardless of race, gender, gender identity or reassignment, age, disability, religion of sexual orientation. The Company has five employees so are in constant contact and seek to provide continual opportunities in which issues can be raised allowing for the provision of feedback. This feedback process helps to ensure that new issues and opportunities that arise may be used to further the success of the Company. Share options and other equity incentives are offered to employees.

Sustainability is at the heart of Plutus’ operations. Its flexible, stand-by sites facilitate the UK’s increasing reliance on renewable energy by utilising it to cost-effectively plug intermittency gaps. The use of renewable energy also helps to advance the decarbonisation of the UK’s energy sector. The Company’s facilities will conform to all UK and EU air quality standards. Plutus continually evaluates types of green fuel and looks at technology to add to our generators to comply with the stringent requirements associated with the upcoming medium Combustion Plant Directive, demonstrating the Company’s commitment to its corporate social responsibility.

The Company has close ongoing relationships with a broad range of its stakeholders and provides them with the opportunity to raise issues and provide feedback to the Company. The Company regularly engages with local public relations agents to gauge support for sites when applying for planning and also consult local concerns and issues in pre-planning where required.

4. Embed effective risk management, considering both opportunities and threats, throughout

the organisation
The Board recognises the need for an effective and well-defined risk management process and it oversees and regularly reviews the current risk management and internal control mechanisms. The 2018 Annual Report outlines the key risks to the business, see pages 10-11.

The Board regularly reviews the risks facing the Company and seeks to exploit, avoid or mitigate those risks as appropriate. The Board is responsible for the monitoring of financial performance against budget and forecast and the formulation of the Company’s risk appetite including the identification, assessment and monitoring of Plutus’ principal risks. The Audit Committee has the primary responsibility of monitoring the quality of internal controls and ensuring that the financial performance of the Company is properly measured and reported on. Risk management is regularly on the agenda of the Board, Audit Committee and other senior management meetings. Additionally, the Board reviews the mechanisms of internal control and risk management it has implemented on an annual basis, and assesses both for effectiveness.

The risk assessment matrix below sets out and categorises key risks, and outlines the mitigating actions which are in place. This matrix is updated as changes arise in the nature of risks or the mitigating actions implemented, and the board reviews these on a regular basis. Plutus has identified the principal risks to the Company achieving its objectives as follows:

Risk

Potential Impact

Mitigation

Availability of suitable sites

Our ability to build flexible power generation projects depends upon our ability to source suitable sites and to secure these on commercially attractive terms. Should there be a lack of suitable sites or the cost of running the sites be excessive, this would have a material adverse effect on our operations and financial performance.

Our relationships with land owners anddevelopers, and partnership with Reliance Energy underpin our strong pipeline of land, with over 700MW of capacity under review or in progress.

Securing of planning permission

Failure to obtain permits, consents or approvals from third parties in connection with the development of

stand-

by

power generation projects may affect our ability to complete projects. The planning process can be lengthy and delays often occur such that the process may span several accounting periods. Accordingly, there may be delays in

realising

value from projects.

Our strategy to focus on sites with a maximum 20MW of generating capacity facilitates the planning permission process and limits emissions to below European thresholds.

The use of green fuel and gas also eases the planning process where local authorities have policies that favour low carbon power generation.

Ability to tender and win contracts

Our success is dependent on our ability to tender for and win contracts to supply flexible power. While we believe we have a good chance of successfully tendering for such contracts, should competition in the market increase or for any other reason we be unsuccessful in winning contracts to supply flexible power, this would have a material adverse effect on operations and financial performance.

Management’s track record, coupled with our success in securing contracts across diverse revenue streams, give us confidence that we will continue to be awarded contracts

Volatility

of electricity prices

Our activities and the viability of future energy generation projects are subject to changes in demand and prices for power.

A significant reduction in global demand for power, leading to a fall in prices, could lead to abandonment of one or more of our projects, should these prove uneconomical to operate, and impact the profitability of existing sites.

Margins are sufficiently attractive to allow us to be able to withstand a certain degree of price fluctuations, and our different revenue streams and contracts also serve to mitigate this risk. The shift towards rewarding capacity rather than simply energy – evidenced in the Capacity Market, with its 15-year contracts – also cushions us from energy price fluctuations.

Volatility presents opportunities for us to capitalise on high energy prices.

Political risk

The flexible power generation sector is subject to national and regional regulatory oversight, spanning building codes, safety, environmental protection, utility interconnection and metering, and other matters relating to embedded generation.

Changes in Government policy could affect the return on investment and may result in changes in tax rates or reliefs.

Key near-term uncertainties relate to the outcome of Ofgem’s review of embedded benefits, DEFRA's review of air quality and National Grid's review of balancing markets.

The underlying need for flexible stand-by generation is growing, and policymakers are thought to recognise that such assets will have to be rewarded in one way or another in order to maintain security of supply.

Ofgem's 'minded to' decision, if implemented, would reduce the Triad benefit received by small embedded generators to close to zero, from the winter of 2020/21. The multiple revenue streams of each site mean that financial returns, even excluding Triad will remain attractive.

Ability to raise further funds

Our business model depends on our ability to raise debt and/or equity funding for the entities we create for stand-by generation projects.

There can be no guarantee that we will be able to raise funds on terms that are commercially viable in the context of our business model.

The attractive financial characteristics of our projects underpin our success to date in raising funds:

Each 20MW gas project requires capex of circa £12.5m, which will usually be financed with a mixture of external debt, mezzanine and equity, and will be placed in a newly formed Company. Each site pays a monthly management fee to PPG. The highly cash generative nature of each site is expected to be sufficient to repay the bond after five years, amongst other repayment options.


The Board considers that in light of the control environment described above, an internal audit function is not considered necessary or practical due to the size of the Company and the day to day control exercised by the Executive Directors. However, the Board will monitor the need for an internal audit function. The Board has established appropriate reporting and control mechanisms to ensure the effectiveness of its control systems.

5. Maintain the Board as a well-functioning, balanced team led by the Chair

The Board comprises the Executive Chairman, Charles Tatnall, Interim CEO and CFO, James Longley, COO, Paul Lazarevic and independent Non-Executive Director, Tim Cottier. The Executive Directors work full time for the Company, and the Non-Executive Director is expected to dedicate not less than 30 days per annum.

The Board recognises the QCA recommendation for a balance between Executive and Non-Executive Directors and the recommendation that there be at least two Independent Non-Executives. The Board will take this into account when considering future appointments. However, all Directors are encouraged to use their judgement and to challenge matters, whether strategic or operational, enabling the Board to discharge its duties and responsibilities effectively. Therefore, the Board acknowledges that at its current development, it does not comply with Principle 5. However, the Board maintains that the Board’s compositions will be frequently reviewed as the Company develops.

The Board meets regularly and is responsible for formulating, reviewing and approving the Group’s strategy, budgets, performance, major capital expenditure and corporate actions. The Company has in place an Audit Committee, a Remuneration Committee and an AIM Rules Compliance Committee with formally delegated rules and responsibilities. Meetings are open and constructive, with every Director participating fully. The Board aims to meet at least 6 times in the year. Board document authors are made aware of proposed deadlines prior to meetings.

The Directors of the Company are committed to sound governance of the business and each devotes sufficient time to ensure this happens. The table below sets out attendance statistics for each Director at Board and, where relevant, Committee meetings held during the financial year.

Directors

Meetings Attended

Phil Stephens

7

James Longley

7

Paul Lazarevic

6

Charles Tatnall

7

Tim Cottier

7


Directors’ conflict of interest

The Board is aware of the other commitments and interests of its Directors, and changes to these commitments and interests are reported to and, where appropriate, agreed with the rest of the Board.

6. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities

The Company believes that the current balance of skills in the Board as a whole reflects a very broad range of personal, commercial and professional skills, and notes the range of financial and managerial skills. The Non-Executive Director maintains ongoing communications with Executives between formal Board meetings.

Biographical details of the Directors can be found on the Company’s website.
James Longley is the Company Secretary and helps Plutus Powergen comply with all applicable rules, regulations and obligations governing its operation. The Company’s NOMAD assists with AIM matters and ensures that all Directors are aware of their responsibilities. The company also acquires the services of DMH Stallard.

In addition to their general Board responsibilities, Non-Executive Directors are encouraged to be involved in specific workshops or meetings, in line with their individual areas of expertise. The Board is kept abreast of developments of governance and AIM regulations. The Company’s NOMAD provides annual Board AIM Rules refresher training as well as the initial training as part of a new Director’s on boarding. All Directors develop their skills and capabilities through their continuing experiences, and Tim Cottier and James Longley are FCA’s and comply with CPE to maintain their skill-set.

The Directors have access to the Company’s NOMAD, company secretary, lawyers and auditors as and when required and are able to obtain advice from other external bodies when necessary. If required, the Directors are entitled to take independent legal advice and if the Board is informed in advance, the cost of the advice will be reimbursed by the Company.

Board composition is always a factor for contemplation in relation to succession planning. The Board will seek to take into account any Board imbalances for future nominations, with areas taken into account including board independence and gender balance. The Group considers however that at this stage of its development and given the current size of its Board, it is not necessary to establish a formal Nominations Committee. Instead, appointments to the Board are made by the Board as a whole. This position however, is reviewed on a regular basis by the Board.

7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

The Directors consider that the Company and Board are not yet of a sufficient size for a full Board evaluation to make commercial and practical sense. In the frequent Board meetings/calls, the Directors can discuss any areas where they feel a change would benefit the Company, and the Company Secretary remains on hand to provide impartial advice. As the Company grows, it expects to expand the Board and with the Board expansion, re-consider the need for Board evaluation.

In view of the size of the Board, the responsibility for proposing and considering candidates for appointment to the Board as well as succession planning is retained by the Board. All Directors submit themselves for re-election at the AGM at regular intervals.

8. Promote a corporate culture that is based on ethical values and behaviours

The Board recognises that its decisions regarding strategy and risk will impact the corporate culture of the Company as a whole and that this will impact the performance of the Company. The Board is aware that the tone and culture set by the Board will greatly impact all aspects of the Company as a whole and the way that employees behave. The corporate governance arrangements that the Board has adopted are designed to ensure that the Company delivers long term value to its shareholders, and that shareholders have the opportunity to express their views and expectations for the Company in a manner that encourages open dialogue with the Board. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Company to successfully achieve its corporate objectives.

The Board places great importance on the responsibility of accurate financial statements and auditing standards comply with Auditing Practice Board’s (APB’s) and Ethical Standards for Auditors. The Board places great importance on accuracy and honest, and seeks to ensure that this aspect of corporate life flows through all that the Company does.

A large part of the Company’s activities is centred upon an open and respectful dialogue with employees, clients and other stakeholders. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Company to successfully achieve its corporate objectives. The Directors consider that the Company has an open culture facilitating comprehensive dialogue and feedback and enabling positive and constructive challenge. Whilst the Company has a small number of employees, the Board maintains that as the company grows it intends to maintain and develop strong processes which promote ethical values and behaviours across all hierarchies.

Sustainability is at the heart of Plutus’ operations. Its flexible, stand-by sites facilitate the UK’s increasing reliance on renewable energy by utilising it to cost-effectively plug intermittency gaps.

The Board has adopted an anti-corruption and bribery policy (Bribery Policy). The Bribery Policy applies to all Directors and employees of the Group, and sets out their responsibilities in observing and upholding a zero-tolerance position on bribery and corruption, as well as providing guidance to those working for the Company on how to recognise and deal with bribery and corruption issues and the potential consequences.

The Board complies with Rule 21 of the AIM Rules for Companies relating to dealings in the Company’s securities by the Directors and other Applicable Employees. To this end, the Company has adopted a code for Directors’ dealings appropriate for a company whose shares are admitted to trading on AIM and takes all reasonable steps to ensure compliance by the Directors and any relevant employees.

9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

The Board is committed to, and ultimately responsible for, high standards of corporate governance. The Board reviews the Company’s corporate governance arrangements regularly and expect to evolve these over time, in line with the Company’s growth. The Board delegates responsibilities to Committees and individuals as it sees fit.

The Chairman’s principal responsibilities are to ensure that the Company and its Board are acting in the best interests of shareholders. His leadership of the Board is undertaken in a manner which ensures that the Board retains integrity and effectiveness, and includes creating the right Board dynamic and ensuring that all important matters, in particular strategic decisions, receive adequate time and attention at Board meetings.

The Chairman of Plutus is the key contact for shareholder liaison and all other stakeholders.

Executive Directors are responsible for the general day-to-day running of the business and developing corporate strategy.

The Interim CEO has, through powers delegated by the Board, the responsibility for leadership of the management team in the execution of the Group’s strategies and policies and for the day-to-day management of the business. He is responsible for the general day-to-day running of the business and developing corporate strategy while the Independent Non-Executive Director is tasked with constructively challenging the decisions of executive management and satisfying themselves that the systems of business risk management and internal financial controls are robust.

All Directors participate in the key areas of decision-making, including the following matters:
- Strategy
- Budgets
- Performance
- Major Capital Expenditure
- Corporate Actions

The Board delegate’s authority to three Committees to assist in meeting its business objectives, and the Committees meet independently of Board meetings. The Board recognises that whilst Committees should comprise of at least 2 independent Non-Executive Directors, the current Board structure does not permit this, and will seek to take this into account when considering future appointments. The membership of each Committee is listed below.

AUDIT COMMITTEE

The Audit Committee has the primary responsibility of monitoring the quality of internal controls and ensuring that the financial performance of the Group is properly measured and reported on. It receives and reviews reports from the Group’s management and external auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Group. The Audit Committee meets not less than twice in each financial year and has unrestricted access to the Group’s external auditors.

The Audit Committee comprises of Tim Cottier (Chair), James Longley and Charles Tatnall.

REMUNERATION COMMITTEE

The Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to their remuneration and terms of service. The Remuneration Committee also makes recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any employee share option scheme or equity incentive plans in operation from time to time. The Remuneration Committee meets as and when is necessary. In exercising this role, the members of the Remuneration Committee regards the recommendations put forward in the QCA Code and, where appropriate, the UK Corporate Governance Code guidelines.

The Remuneration Committee is comprised of Tim Cottier (Chair), James Longley and Paul Lazarevic.

AIM RULES COMPLIANCE COMMITTEE
An AIM Rules Compliance Committee has been established. The Committee ensures that procedures, resources and controls are in place with a view to ensuring the Company’s compliance with the AIM Rules. The Committee also ensures that each meeting of the Board includes a discussion of AIM matters and assess (with the assistance of the Company’s Nominated Adviser and/or other advisors, where invited to participate) that the Directors are fully aware of their duties and responsibilities under the AIM Rules and other regulations.

The Committee seeks to ensure that all announcements made have been verified and approved by the Company’s Nominated Adviser. The Committee has particular responsibility for questioning the Directors in the event of any unusual, substantial movement in the Company’s share price.

The Committee monitors the Company’s compliance with the AIM Rules and seeks to ensure that the executive directors keep the Company’s Nominated Adviser informed of all relevant financial and operational developments in a timely manner.

The AIM Rules Compliance Committee comprises of Tim Cottier (Chair), Paul Lazarevic and Charles Tatnall.

NOMINATIONS COMMITTEE

In view of the size of the Board, the responsibility for proposing and considering candidates for appointment to the Board is retained by the Board.
The Chair and the Board continue to monitor and evolve the Company’s corporate governance structures and processes, and maintain that these will evolve over time, in line with the Company’s growth and development.

10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The Board is committed to maintaining effective communication and having constructive dialogue with its stakeholders. The Company intends to have ongoing relationships with both its private and institutional shareholders (through meetings and presentations), and for them to have the opportunity to discuss issues and provide feedback at meetings with the Company. In addition, all shareholders are encouraged to attend the Company’s Annual General Meeting. The Board already discloses the result of General Meetings by way of announcement and discloses the proxy voting numbers to those attending the meetings. In order to improve transparency, the Board has committed to publishing proxy voting results on its website in the future. All 2018 AGM resolutions were passed comfortably. The Company maintains that, if there is a resolution passed at a GM with 20% votes against, the Company will seek to understand the reason for the result and, where appropriate, take suitable action.

Information on the Investor Relations section of the Group’s website is kept updated and contains details of relevant developments, regulatory announcements, financial reports and shareholder circulars.

Shareholders with a specific enquiry can contact us on the website contact page. The Company uses electronic communications with shareholders in order to maximise efficiency.

SHAREHOLDER VOTING

Shareholders in the Company have the opportunity to vote on proposed resolutions at AGM and GMs held by the Company. For details of the breakdown of the voting please refer to the relevant documents below.

AGM - 1 November 2018