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Novera Energy Ltd (NVE)

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Friday 31 March, 2006

Novera Energy Ltd

Annual Report & Accounts-Pt 1

Novera Energy Ltd
30 March 2006

Part 1


                             NOVERA ENERGY LIMITED

                                 ANNUAL REPORT

                                31 DECEMBER 2005

Table of Contents


Chairman's Statement...........................................................1

Chief Executive Officer's Review...............................................2

Chief Financial Officer's Review...............................................4

Board of Directors.............................................................7

Corporate Governance Statement.................................................9

Directors Report..............................................................13

Auditors' Independence Declaration............................................16

Remuneration Report...........................................................17

Financial Report..............................................................24

Directors' Declaration........................................................62

Independent Audit Report to Members...........................................63

Shareholder Information.......................................................68





Chairman's Statement



I am delighted to make my first Chairman's report on the activities of Novera.



Overview



The Company is now based in London, with the majority of Directors resident in
the UK. Novera is listed on AIM, and will be traded solely on AIM from 4 April
2006. The UK Government's renewable energy target of 10% by 2010 gives the UK
one of the most favourable legislative environments for renewable energy
generation worldwide. Novera's relocation to the UK, where it has a substantial
renewable energy generating asset base and development opportunities, puts the
Company in an excellent position to take advantage of the opportunities this
presents.



Significant progress on our wind development projects was made in the year, with
the first due to be submitted into planning mid 2006. In February 2005 we sold
the 14.5 MW Mynydd Clogau wind farm site to Novera Macquarie Renewable Energy
Limited (NMRE). Novera also achieved government support for the Company's
proposed 10 MW advanced energy from waste facility in East London.



2005 was also the first full year of operation of the NMRE joint venture, which
on a gross basis generated revenues of £24.9 million and 530 GWh of renewable
energy, enough to power more than 110,000 homes.



The Board



The relocation to the UK resulted in changes to the Board during the year. In
addition to my appointment as Chairman, Michael Cairns was appointed a
non-executive director. In October 2005 we were delighted to welcome David
Fitzsimmons as our new Chief Executive Officer. The Board was strengthened in
the year by these appointments while retaining the experience and knowledge of
the Australian directors, Donald Farrands and Michelene Collopy.



I would like to thank the former Chairman Dr Don Stammer and former CEO Shane
Gannon for their considerable contributions to Novera during the formative years
of the business. Their leadership provided Novera with quality assets and
partnerships from which the Company will continue to benefit for many years to
come.



I would also like to thank all shareholders for their continued support over the
past year.



2005 was a year of change for Novera. We believe that following the significant
restructuring initiatives undertaken, Novera is now well placed to build on its
position as a leading independent developer and owner of renewable energy assets
in the UK.








John Brown

Chairman

















Chief Executive Officer's Review



2005 saw Novera building a platform for growth in the UK renewable energy
market.



It was the first full year of operations by the NMRE joint venture and good
progress was made in the integration of the two asset portfolios. NMRE's
generating capacity grew by 15% to reach 122 MW by the end of the year. NMRE
returned a cash distribution to Novera during 2005 of £1.2 million, in line with
expectations, with the second dividend expected to be received in 1H 2006 (see
Note 31).



2005 also saw good progress in our activities outside of our NMRE joint venture.
We brought forward proposals for a 10 MW advanced energy from waste facility in
East London in October 2005. This will convert biomass fuel from residual
household waste into renewable energy. In addition, we expect to make the formal
planning application for our next wind farm by mid 2006.



Our performance in 2005 gives us a platform to deliver on our strategy, namely
to grow shareholder value by focusing on UK renewable energy generation using a
portfolio of three technologies: landfill gas, wind and advanced energy from
waste. Each of these businesses offer opportunities for growth through a
combination of organic development and acquisition.



2005 was also an important year in Novera's corporate development, in particular
our migration to the UK. The executive management of the Company is now fully UK
based and supported by a realigned Board. We listed on AIM in June 2005, and
from 4 April 2006 Novera will be solely listed on AIM.



2005 Operational Review



Landfill Gas (NMRE - 50% owned by Novera)

Our joint venture, NMRE, owns and operates a diverse portfolio of renewable
energy generating assets, primarily landfill gas, but also some small hydro and
wind power. During 2005 generation capacity of NMRE increased from 106 MW to
122MW, and is expected to increase to 144 MW during 2006. NMRE generated an
EBITDA of £8.8 million in 2005.



Landfill Gas (83% of 2005 generation)

Landfill gas is the major focus of NMRE. In 2005 NMRE generated 442 GWh from
landfill gas. In October 2005 NMRE successfully acquired a 7 MW portfolio of
landfill gas assets.



Through our joint venture we are seeking consolidation opportunities in the
landfill gas market.



Wind and Hydro (17% of 2005 generation)

NMRE's 16 MW hydro power portfolio performed well due to good rainfall. In May
NMRE successfully acquired two wind farms in Germany (9 MW). NMRE acquired the
Mynydd Clogau wind farm from Novera in February 2005 (14.5 MW). The site
achieved first generating revenue ahead of schedule in January 2006.



Wind

In February 2005 Novera sold the 14.5 MW Mynydd Clogau wind farm development
site to NMRE resulting in a gain on sale of £1.8 million, half of which is
recognised in the 2005 accounts as revenue, with the remainder to be recognised
over 20 years.



We expect to submit a formal planning application for a 20 MW site mid 2006 with
construction expected to start in 2007. Beyond that, we are working with a
portfolio of 30 sites (pre-planning) with a potential capacity of 900 MW, which
on a risked basis we expect to yield 200-250 MW capacity.



Advanced Energy from Waste

Novera has brought forward proposals for a 10 MW sustainable energy facility in
East London using advanced energy from waste technology and is seeking both
planning permission and a permit to operate. The facility will produce renewable
energy from the conversion of waste derived from biomass fuel left after
recycling and composting of household waste. The Department of Environment, Food
and Rural Affairs (DEFRA) has agreed to purchase £5 million of services from
Novera related to the development, construction and demonstration of the
project. Novera intends to own and operate the plant, which is expected to be
operational by the end of 2008, subject to relevant planning approvals and
agreements.



We see a significant new business opportunity for Novera in the advanced energy
from waste sector as a result of recent European and UK Government law and
policy changes. Assuming a positive planning outcome in East London, Novera
expects to be the first company in the UK with an operational plant that applies
advanced thermal processes to residual household waste to generate renewable
energy. The UK market is expected to provide the opportunity for well over 500
MW of renewable energy using this waste biomass fuel. We expect to apply more
resources to this important part of Novera's business in years to come with the
possibility of five plants (50 MW) operational by 2012.



Novera Energy Services is responsible for managing the thermal processing of
sewage sludge for UK water utilities on a contract basis. Maintaining and
operating five thermal processing sites in Wales and Scotland, revenues from the
business in 2005 were £1.8 million, an increase of 7% from 2004. The business
unit was responsible for the processing of 122,000 tonnes of sludge waste in the
year.



Staff and environmental practice

Employees are the Company's greatest asset and our goal is to provide them with
a safe environment in which to work, where they can be given the opportunity to
achieve their potential.



Novera aims to ensure the highest standard of environmental compliance and to
make a meaningful contribution to the world in which we all live. In 2005 we had
no IPPC breaches and no minor releases. We are committed to maintaining and
improving our environmental performance record and devising new ways to deliver
cost effective renewable energy to the communities we serve.



Outlook



In 2005 we built a solid position in each of our landfill gas, wind and advanced
energy from waste businesses. We have a strong pipeline of development projects
that will continue to provide growth in future years. Our portfolio of wind
developments and our advanced energy from waste project are the most progressed.



Furthermore, we believe that the UK renewable industry has scope for
consolidation activity in the coming years which will provide Novera with
selected opportunities for value adding acquisitions.



The UK Government policy ensures a growing demand for renewable energy, with a
target of 10% of total by 2010, and 15% by 2015. Current production of
electricity from renewable sources is approximately 3%.



Novera's strategy is to grow shareholder value through focusing on UK renewable
energy generation. We employ three technologies, landfill gas, wind and advanced
energy from waste. Each offers opportunity for growth through both organic
development and acquisition.




David Fitzsimmons

Chief Executive Officer







Chief Financial Officer's Review



Overview



We received a cash distribution from our NMRE joint venture of £1.2 million for
1H 2005 in line with expectations, with the second distribution expected to be
received in 1H 2006 (see Note 31). We also raised £6.6 million (net) from share
placements in the year for funding investments within our joint venture and
current and future projects.



Our result from continuing operations, as per the Income Statement on page 25,
for the year was a loss £2.4 million, an increase from the prior year loss of
£1.5 million. 2005 saw significant changes to our business, with the listing on
AIM and the relocation to the UK, and was also a transitional year for our joint
venture, NMRE as it consolidated two asset portfolios. Furthermore we increased
our investment in development projects compared to 2004, all of which was
expensed in the year.



Novera has a strong balance sheet with £3.9 million of cash in the bank and no
debt. The debt facility held by the Joint Venture is on a non-recourse project
finance basis with no recourse to Novera.  Furthermore, the £2.8 million in
non-current liabilities in the balance sheet are in fact deferred revenue which
will be recognised as revenue over time.



Revenue Analysis



Joint Venture Generation Revenue (2005: 50%, 2004: 100%)
                         100% NMRE    Novera 50% share of      Novera      Variance
                          Revenue         NMRE Revenue        Revenue    2004 to 2005

                           2005               2005              2004
                        £  million         £ million         £ million

                           

LFG                        20.3               10.2              8.0          +27%                                     
Hydro                       2.8               1.4                -
Wind                        0.7               0.3                -
Industrial                  1.1               0.6                -
                           24.9               12.5              8.0          +56%




The NMRE portfolio benefits from energy being sold under long term contracts
providing a high degree of pricing and revenue certainty.  The table above shows
that the 50% share of NMRE revenue in 2005 is greater than Novera's revenue from
LFG in 2004, and highlights the diversity of the new portfolio. The resultant
increase in revenue on a like-for-like basis is 56%.



Revenues in 2006 are expected to increase from 2005 levels as Mynydd Clogau wind
farm is commissioned and NMRE's LFG development sites are completed. As a result
the Company is expecting NMRE to be profitable in 2006.



Revenue from Continuing Operations £2.6 million (100% Novera owned)

Biomass revenue of £1.8 million was generated from managing the thermal
processing of sewage sludge for UK water utilities on a contract basis.



Advisory fees of £0.7 million were received in the year from DEFRA in relation
to the development of the Advanced Energy from Waste Facility in East London and
from our wind project development work.



Interest of £0.1 million was received on the cash deposits held in the year.



Other Income £1.2 million (100% Novera owned)

The release of deferred revenue of £0.3 million in the year relates to the
profits from the sale of Novera Energy Europe Limited (NEEL) to NMRE, half of
which was recognised in 2004, with the remainder recognised over 20 years, and
deferred consideration from the disposal of Arpley landfill gas facility. £2.0
million of deferred revenue remained on the balance sheet at 31 December 2005 in
relation to the sale of NEEL.



Financial close on the sale of Mynydd Clogau wind farm project to NMRE was
completed on 28 February 2005. The gain on sale of £0.9 million recognised in
2005 represents one half of the profit with the balance to be recognised over 20
years.



Analysis of Performance


                                                                                        Note      £ million
                                                                                     Reference
Gross Profit                                                                                         1.2

Other Income                                                                             6           1.2
Cost of migrating to UK                                                                              0.3
Cost of listing on AIM                                                                               0.2
Other Administrative Expenses                                                                       (1.4)
Development Costs                                                                                   (1.5)
Profit/(loss) before share of Joint Venture results                                                 (1.0)

Share of profit/(loss) from Joint Venture                                                31         (1.4)

Profit /(loss) for the year                                                                         (2.4)



In 2005 Novera incurred one off costs in relation to listing on AIM and
relocating to the UK of £0.5 million. We also increased our investment in
development projects from £0.2 million to £1.5 million in 2005 providing us with
a significant pipeline of growth into the future. All our development investment
was expensed in the year.



Our adjusted loss before tax was £1.5 million after adding back one off costs of
migration, listing on AIM and our share of NMRE's transition costs.



Our joint venture, NMRE, generated an EBITDA of £8.8 million in 2005, which
included one off transition costs of £0.8 million. After depreciation,
amortisation, and interest costs the joint venture generated a loss of £2.7
million for the year, with Novera equity accounting a 50% share of the loss of
£1.4 million. During 2005 generating capacity grew from 106 MW to 122 MW and is
forecast to increase to 144 MW by the end of 2006. This increase in capacity and
resulting output is expected to bring NMRE into profit for 2006.



Cash Distribution Received from Joint Venture

In July 2005 a £1.2 million cash distribution was received from NMRE for 1H 2005
in line with expectations. The 2H 2005 distribution is expected in 1H 2006.



Cash Flow and Financial Position

Cash held by the Company at 31 December 2005 was £3.9 million. The capital
raising undertaken in the year injected £6.6 million (net) into the business for
the funding of current and future projects. The £3.1 million spent on
investments related to Novera's equity share of the German wind farm acquisition
(£1.2 million) and the acquisition of the landfill gas portfolio in Norfolk,
England (£1.9 million).



Novera has a strong financial position, with total assets at 31 December of
£22.5 million, represented by cash £3.9 million, an investment in NMRE of £16.6
million, receivables of £1.9 million and other of £0.1 million. Total
liabilities were £4.3 million, of which £2.9 million related to deferred
revenue.



Capital Raising

Novera undertook two capital raisings in the year. On 20 April 2005 Novera
issued 17,620,500 shares at 13p per share raising £2.2 million on a
pre-consolidation of shares basis (refer below).



During the year Novera consolidated its shares on a 1 for 5 basis which had the
impact of reducing the number of shares from 228.1 million to 45.6 million.



Novera raised a further £5.3 million in capital by listing on AIM on 10 June
2005 by placing 9,189,044 shares at 58p per share. At 31 December 2005 the total
number of shares on issue was 54.8 million.


International Financial Reporting Standards

Novera adopted the Australian equivalent to International Financial Reporting
Standards (AIFRS) in the year. The move to AIFRS has not changed how the group
is managed and has had no impact on cash flow.



Presentation Reporting Currency

On 22 March 2006 the Board adopted GBP as the presentation reporting currency.
The Board believes that it is the relevant currency which reflects the risks and
returns associated with the operations of the consolidated group as the
significant operations of the group are either UK based or controlled from the
UK.



This is consistent with the migration of the Company to the UK including the
proposed delisting from the Australian Stock Exchange on 4 April 2006 and
remaining on AIM as the only quoted exchange.



Post balance sheet events

Novera has been granted approval to de-list from the Australian Stock Exchange
with effect from 4 April 2006. Novera will remain listed on AIM.






Rory Quinlan

Chief Financial Officer

Board of Directors



John Brown     Chairman and independent non-executive Director. Age 61.

FCCA, ATII.

John Brown's broad business experience and knowledge of good corporate
governance is invaluable to Novera in his position of Chairman. John has a
wealth of experience working at senior levels in UK listed companies and has a
strong track record of entrepreneurial growth. John built Speedy Hire plc from
one depot in Wigan to the largest tool hire company in Europe, and was their
Chief Executive until his retirement from the Board in July 2005 with a then
market capitalisation of £325 million and £438 million at 31 December. John's
other previous roles have included Finance Director and Company Secretary of the
Allen Group.



John is currently the Chairman of Voller Energy Group, Chairman of the audit
committee of Lookers plc, Chairman of Remuneration Committee of Henry Boot Plc,
Chairman of Scott Harris Limited, and a member of the North West Economic Panel
of the Bank of England.



David Fitzsimmons      Chief Executive Officer. Age 50.

MA, MSc in Management.

David Fitzsimmons brings to Novera proven management and strategic skills, an in
depth knowledge of the energy market, and leadership expertise of growth
businesses. David has held senior positions in all core businesses of BP and has
worked in the energy industry for 27 years. David has extensive experience at
managing international energy businesses, having been head of BP's oil trading
and President of BP Asia. Prior to joining Novera David was Group Vice-President
and Commercial Director for BP's Gas, Power and Renewable business.



Michael Cairns             Non-executive Director. Age 65.

Michael Cairns is an experienced executive having held positions as Chairman,
CEO, COO and non-executive director of a variety of private equity, government
and listed public enterprises. Michael brings to Novera experience in global
management and implementation of successful growth strategies in small to medium
enterprises. Michael represents the interests of the Bennelong Group, a major
shareholder in Novera.



Mark Hardgrave           Alternate Director. Age 47.

BComm, CA.

Mark is Chief Executive Officer of the Bennelong Group, an institutional
investor in Novera Energy Limited. Mark's background includes his former role as
manager with the investment arm of the Pratt Group and as an investment banker
with Merrill Lynch. Mark was on the Board of the Group as a non-executive
Director until October 2005 and has from that date been appointed as an
alternate Director to Michael Cairns.



Donald Farrands          Non-executive Director. Age 47

BEc, LLB, CA, ASIA.

Don has more than 15 years of international corporate advisory and management
experience, having held senior management positions in several multi-national
energy corporations including corporate counsel of Rio Tinto and as CFO of one
of its business units. Don brings to the Board valuable knowledge of energy
market regulations and corporate governance, and expertise in deregulated energy
markets.



David Scaysbrook        Executive Director. Age 43.

BEc, LLB (Hons).

David Scaysbrook founded Novera Energy Limited in 1998. In 2004 David led
negotiations to establish the JV with Macquarie Bank in parallel with the
purchase by the JV of United Utilities Green Energy. David has extensive
experience in the conventional and renewable energy industries and is co-founder
of several enterprises in the emerging climate change arena. David recently
accepted an invitation to join the UK Government's Renewable Energy Advisory
Board under a 3 year appointment.



Michelene Collopy       Company Secretary and Executive Director. Age 48.

BEc, CA.

Michelene Collopy has over 20 years experience in financial markets and has held
senior positions in banking and funds management. Michelene brings to Novera
compliance expertise and an in depth understanding of good corporate governance
practices. Michelene commenced with the Company in May 2003 and was appointed
Company Secretary in December 2003. Michelene is on the compliance committee of
Perpetual Investments Limited.





Retired Directors



Dr Don Stammer          (Retired October 2005).

BA (Hons), MA (Hons), PhD.

Former Chairman and former member of audit & compliance committee and
remuneration committee.

Don Stammer retired from the Board in October 2005. Don was instrumental in
placing the company in its current strong position and overseeing its expansion
into the UK. Don made a substantial contribution to the work of the Board
bringing to it high-level business, financial and investment expertise. Don
Stammer was Chairman of Mosaic Oil NL, Chairman of Tribeca Learning Limited, and
a Director of ING Private Equity Access Limited, all ASX listed companies during
his time as Chairman of Novera Energy.



Shane Gannon                        (Retired November 2005)

B.Bus. ASCPA, FICD.

Former Chief Executive Officer and Director

Shane Gannon resigned from the Board in November 2005. Shane oversaw the
implementation of the Company's joint venture with Macquarie Bank and the
current restructuring and expansion into the UK. Shane brought to Novera strong
corporate finance skills, following ten years with the Lend Lease Group, where
he held chief financial officer and general manager-finance executive roles in
the corporate, property and financial services groups. Shane's diligent efforts
have ensured that the Company has been placed in a position to realise its
potential.



Audit and Compliance Committee

John Brown (Chairman)

Donald Farrands



Remuneration and Appointments Committee

Michael Cairns (Chairman)

John Brown



Executive Management



Mr Rory Quinlan - Chief Financial Officer

B.Bus, MComms, CPA

Rory Quinlan has over 10 years experience in public, private and government
owned companies. Rory has a strong finance and commercial background and has
held senior positions with Ergon Energy and Xstrata (MIM Holdings). Rory
commenced with Novera Energy in January 2003 and was integrally involved in the
establishment of the Novera Macquarie Renewable Energy Joint Venture with
Macquarie Bank as well as being closely involved in the corporate re-structuring
activities and AIM listing in recent years.

Corporate Governance Statement



Novera is committed to implementing and maintaining corporate governance
practices according to industry standards.



Compliance with the Combined Code

The Company's shares were admitted to AIM on the London Stock Exchange ('LSE')
on 10 June 2005. AIM listed companies are not required to comply with the
disclosure requirements of the Combined Code of Corporate Governance ('the
Combined Code') issued by the Financial Reporting Council in July 2003. However,
the Board supports the principles contained in the Code and is committed to
maintaining Corporate Governance according to industry standards.



Compliance with the ASX Corporate Governance Council's Principles of Good
Corporate Governance and Best Practice Recommendations

In addition to AIM, Novera was listed on the Australian Stock Exchange ('ASX')
in 2002 and will remain listed until de-listing on 4 April 2006. Under ASX
Listing rule 4.10.3 the Company is required to disclose the extent to which it
complies with the ASX Corporate Governance Council's Principles of Good
Corporate Governance and Best Practice Recommendations ('the ASX Recommendations
').



The following report summarises the current corporate governance processes that
are in place and addresses the Combined Code and ASX recommendations
requirements.



Directors



The Board

The Board meets regularly, normally at least ten times a year for scheduled
Board Meetings and in addition undertakes a separate offsite meeting to discuss
strategy. The Board also meets as required to deal with urgent business
including consideration and approval of transactions.



The table below lists the number of Board Meetings, Board Committee Meetings,
and Directors' attendance during the year ended 31 December 2005.


Director                      Full meetings                       Meetings of committees
                              of Directors                     Audit &            Remunerations &
                                                             Compliance            Appointments
                           A                 B             A           B            A          B
Don Stammer                16                18            5           6            1          1
John Brown                 11                11            2           2            1          1
David Fitzsimmons          04                04            *           *            *          *
Shane Gannon               16                20            *           *            *          *
David Scaysbrook           18                21            *           *            *          *
Donald Farrands            22                22            6           6            *          *
Michael Cairns             02                04            *           *            1          1
Mark Hardgrave             16                18            *           *            1          1
Michelene Collopy          02                02            *           *            *          *



A=  Number of meetings attended

B=  Number of meetings held during the time the Director held office
    or was a member of the committee during the year

*=  Not a member of the relevant committee



The functions reserved for the Board and management are formalised. The Board of
Directors is responsible for the direction and oversight of the Company.



The current Directors bring to the Board considerable experience and expertise
in their respective fields thus enhancing the effectiveness of the decision
making process. Details of the Chairman, Chief Executive Officer and Directors
are set out on pages 7 and 8 of this Annual Report.



The responsibilities of the Board include:

  • Approval of goals, strategy and plans for Novera's direction and
    monitoring implementation;
  • Approval of the Company's risk management and internal control framework;
  • Approval of Company policies such as remuneration, health & safety and
    environment;
  • Discussion and approval of management recommendations such as capital
    expenditure, capital management, acquisitions and divestitures;
  • Review of performance and results;
  • Review of statutory, regulatory and reporting requirements of the
    Corporations Act;
  • Review of Stock Exchange matters;
  • Review of related party transactions; and
  • Appointment and dismissal of the Chief Executive Officer and Company
    Secretary, determining their conditions of service and monitoring their
    performance against established objectives.



The Company Manual and its policies are in the process of being updated upon
delisting from the ASX and relocation to the UK. Responsibility for the
management of day-to-day operations and administration of the Company is
delegated by the Board to the Chief Executive Officer.



The Board subscribes to the Code of Conduct as published by the Australian
Institute of Company Directors.  The Code requires that Directors adopt basic
principles: honesty, integrity, enterprise, excellence, accountability, justice,
independence, and equality of shareholder opportunity. Novera recognises the
need for Directors and employees to observe the highest standards of behaviour
and business ethics in conducting its business and intends to maintain a
reputation of the highest integrity in its business dealings. Novera's Company
Manual guides the ethical behaviour and work practices of Directors and
employees to guide compliance with legal and other obligations to all
stakeholders. At the expense of the Company, Directors may seek independent
professional advice in relation to matters that may arise in respect of the
legitimate interest of stakeholders.



Chairman and Chief Executive Officer

The Chairman and Chief Executive Officer have separate clearly defined
responsibilities that are not exercised by the same person. During the year
Novera appointed John Brown as Chairman, and David Fitzsimmons as Chief
Executive Officer.



The Chairman is an Independent Director. The Board considers that the Chairman
on his appointment met and continues to meet the independence criteria of A3.1
of the Combined Code and the guidelines on director independence in the ASX
Guidelines.



Board balance and independence

The Board comprises of three non-executive Directors, one alternate
non-executive Director and three executive Directors.



Of the non executive Directors, Michael Cairns and alternate director, Mark
Hardgrave, represent the interests of a significant shareholder and Donald
Farrands is a founder and himself a significant shareholder, and therefore
cannot be considered to meet the independence criteria of the Combined Code. We
will consider the independence criteria of the Combined Code in future
appointments of non executive Directors.



The Board's size and composition is subject to the limits imposed by the
Company's Constitution, which provides for a minimum of three and a maximum of
ten Directors.



The Company has detailed and prescribed guidelines on trading shares.



Appointments to the Board

The role of the Remuneration Committee was expanded in November 2005 into the
Remuneration and Appointments Committee. Prior to that date the appointments of
Board members and key executives were reviewed by the full Board.



Information and professional development

Prior to each scheduled Board Meeting all Directors are presented with the Board
Papers which comprise of a CEO Report and a Financial Report. The Chief
Executive briefs the Board on results, key issues and strategy during the Board
Meetings.



The Company Secretary monitors Board policy, ensures procedures are followed and
that management supplies the Board with timely and accurate information.



The Directors, where appropriate, are able to seek independent professional
advice at the expense of the Company and have unrestricted access to the records
and information of the Company.





Performance evaluation

A new Board assessment process is to be introduced in 2006.



Key executives have performance expectations in letters of appointment and
employment contracts. All executives and employees will undergo a formal
performance review by April each year. Position descriptions are updated as part
of the performance review process.



Re-election

One third of the Board is put up for re-election on an annual basis by rotation.
Biographies of all Directors are provided in the Directors Report, and those
Directors subject to re-election are notified in the Notice of the AGM.



Remuneration



Remuneration

Full disclosure of Directors' and specified executives' remuneration are set out
on pages 19 and 20 of the Remuneration Report.



Remuneration and Appointments Committee

The responsibilities of the Remuneration and Appointments Committee include:

  • Setting the remuneration policy;
  • Ensuring that the remuneration and terms of service of the Directors, and
    Executive Management are appropriate;
  • Reviewing the structure of the Board; and
  • Considering candidates for Board nomination and executive management.



The committee meets as necessary, but at least once a year, and met twice during
2005. The current members are two non-executive Directors, Michael Cairns
(Chairman) and John Brown.  The number of meetings held by the committee has
been outlined on page 9.



Accountability and audit



Financial Reporting

The Board is committed to ensuring that all communications with shareholders
present a balanced transparent assessment of the Company's position and
prospects.



The Chief Executive Officer and Chief Financial Officer have certified to the
Board that the Company's financial reports present a true and fair view, in all
material respects of the Company's financial condition and operational results
and are in accordance with relevant accounting standards. The Chief Executive
Officer and the Chief Financial Officer have also certified that this sign off
is formed on a sound system of risk management and internal control. They have
also certified that the financial records have been kept in accordance with
applicable laws. The Audit and Compliance Committee monitors compliance of
operational and financial controls of the Company.



The responsibilities of the Directors and Auditors are set out in the Directors'
Report and Auditors' Report on pages 62 and 63 - 64 respectively.



Internal Control

The Company's Audit and Compliance Committee ('ACC') serves the function of
reviewing management practices in relation to the identification and management
of significant risk areas and regulatory compliance.



Formal systems have been introduced for regular reporting to the Board on risk
and compliance matters. In September each year the Chief Executive must submit
to the Board a risk management programme for the forthcoming year.



The above procedures are also integrated into the operations of NMRE.



The Company has in place clearly defined lines of responsibility and limits of
delegated authority. Comprehensive procedures provide for the appraisal,
approval, control and review of capital expenditure.



The Company maintains a comprehensive annual planning and management reporting
system. A detailed annual plan is prepared in advance of each year and is
supplemented by revised forecasts during the course of the year. Actual
financial results are reported monthly and compared to plan, revised forecasts
and prior year results.





Audit and Compliance Committee

The members of the ACC are non-executive Directors John Brown (Chairman) and
Donald Farrands.



The ACC's primary objectives are to assist the Board in fulfilling its
responsibilities in relation to financial reporting and internal controls, and
also maintaining the relationship with the external auditor. The
responsibilities of the ACC include:

  • Approving the appointment of external auditors selected by the Company;
  • Reviewing the quality and independence of the external auditor and the
    rotation of external audit engagement partners;
  • Providing an independent, objective review of the adequacy and the
    integrity of the financial information provided by management to
    shareholders and regulatory authorities;
  • Reviewing the consolidated entity's financial control practices; and
  • Reviewing management practices in relation to the identification and
    management of significant financial risk areas.



The external auditors have a direct line of reporting to the ACC and have a
clear and open access to the members of the committee. The ACC's policy is to
appoint external auditors who clearly demonstrate quality and independence. The
performance of the external auditor is reviewed annually.



The number of meetings held by the Committee has been outlined above. The formal
terms of reference for the audit and compliance committee are set out in the
Company Manual.



Relations with Shareholders



The Company has a communication strategy to promote effective communication with
all shareholders and encourage effective participation. Communication
initiatives undertaken by the Company include media announcements and the
Company web site.  Other than during a closed period the Chief Executive and
Chief Financial Officer also maintain regular dialogue with institutional
shareholders through out the year.



All information disclosed to the ASX and LSE is posted on the Company's web site
within three days of being disclosed to the ASX and LSE. When analysts are
formally briefed on aspects of the Company's operations, the material used in
the presentation is released to the ASX and LSE and posted on the Company's web
site. Access to price sensitive information is rigorously controlled but
procedures have been established to ensure that any such information is
immediately released to the market, should it become inadvertently disclosed.



The Company Manual sets out policies and procedures on information disclosure.
The focus of the policies and procedures is on continuous disclosure of any
information concerning the Company and its controlled entities that a reasonable
person would expect to have a material effect on the price of the Company's
securities.



The Chief Executive Officer has overall responsibility for management of the
Company's continuous disclosure obligations as well as communication with
analysts, brokers, shareholders, the media and the public, so as to ensure that
the announcements are timely, factual, clear and precise and omit no material
information.



All Board members and the external auditor attend the Annual General Meeting and
are available to answer questions. Resolutions are proposed on each
substantially separate issue, including in relation to the Report and Accounts
and the Directors Remuneration Report.



Notice of the AGM and related papers are sent to all Shareholders at least 28
days before the meeting.



Directors' Report



Your Directors present their report on the consolidated entity consisting of
Novera Energy Limited and the entities it controlled at the end of or during,
the year ended 31 December 2005.



Directors

The following persons were Directors of Novera Energy Limited during the
financial year and up to the date of this report:



Mr John Brown (appointed June 2005)

Mr David Fitzsimmons (appointed October 2005)

Mr Michael Cairns (appointed October 2005)

Mr Mark Hardgrave (resigned October 2005 and appointed alternate non-executive
Director for Michael Cairns)

Mr Donald Farrands (appointed September 1998)

Mr David Scaysbrook (appointed January 2005)

Ms Michelene Collopy (appointed November 2005).

Dr Don Stammer (resigned October 2005)

Mr Shane Gannon (resigned November 2005)



Company Secretary

Ms Michelene Collopy (appointed December 2003).



The qualifications and experience of the Directors and the Company Secretary are
set out on pages 7 and 8 of this Annual Report.



Meetings of Directors

The number of meetings of the Company's Board of Directors and of each Board
committee held during the year ended 31 December 2005 and the number of meetings
attended by each Director are disclosed in the Report on Corporate Governance on
page 9.



Retirement, election and continuation in office of Directors

John Brown was appointed to the Board in June 2005 and took up the position of
Chairman in October 2005.



Don Stammer retired from the Board in October 2005.



Michael Cairns was appointed to the Board in October 2005.



Mark Hardgrave retired from the Board in October 2005 and was appointed an
alternate non-executive Director to Michael Cairns.



David Fitzsimmons was appointed Chief Executive Officer and a Director in
October 2005.



Shane Gannon retired from the Board in November 2005.



Michelene Collopy was appointed to the Board in November 2005.



In accordance with the constitution, the following directors who were appointed
during the year will retire and are recommended by the Board for re-election:

  • Mr John Brown (appointed June 2005);
  • Mr David Fitzsimmons (appointed October 2005);
  • Mr Michael Cairns (appointed October 2005); and
  • Ms Michelene Collopy (appointed November 2005).





Principal activities

During the year the principal continuing activities of the consolidated entity
consisted of:

  • Holding interests in a 50:50 joint venture which operates a landfill gas
    power business in the UK and wind farms in UK and Germany;
  • The operation of a biomass services business in the UK, providing
    operation and maintenance services to the wastewater industry;
  • The development of wind farm development sites in Scotland and northern
    England;
  • The development of the East London advanced energy from waste project; and
  • Assessing renewable energy project developments in the northern hemisphere
    and Australia.



Results

The consolidated loss for the year ended 31 December 2005 after income tax was
£2,448,000 (2004: profit of £96,000).



Dividends

No dividend was declared or paid during the year ended 31 December 2005.



Review of operations

Details of the operations of the Company during the year are set out on pages 2
and 3 and the notes to the Financial Report and form part of this Directors'
Report.



Significant changes in the state of affairs

Significant changes in the state of affairs of the Company included:

In June 2005, the Company was admitted to the Alternate Investment Market (AIM)
on the London Stock Exchange.

During the year, the Company undertook two capital raisings totalling £6.6
million and consolidated its shares on a 1 for 5 basis.

To align the management and governance of the Company, with its assets and
growth prospects, the majority of the current Board of Directors, including the
Chairman, reside in the UK.



Matters subsequent to the end of the financial year

The Company was granted approval to delist from the ASX with effect from 4 April
2006. The Company will remain listed on the AIM.



Other than the matter discussed above, there has not arisen, in the period
between the end of the financial year and the date of this report, any item,
transaction or event of a material or unusual nature likely in the opinion of
the Directors of the Company to significantly affect the future financial years.



Likely developments and expected results of operations

The consolidated entity will continue to pursue new opportunities in the UK that
show promise in adding value. Further information on likely developments in the
operations of the Company and the expected results of those operations have not
been included in this report as the Directors believe it would be likely to
result in unreasonable prejudice to the consolidated entity.



Director and executive disclosures



Directors' and specified executives' remuneration policy

Details of the Company's remuneration policy in respect of Directors and
specified employees are set out in the Remuneration Report on pages 17 to 23 of
this Annual Report.



Details of the remuneration paid to each Director and specified employee are
shown in the Remuneration Report. The Remuneration Report is incorporated in and
forms part of this Directors' Report.



Directors' and specified executives' options and shareholdings

The Directors' and specified executives' options and shareholding, both
beneficial and non-beneficial, as at the date of this report, in the shares of
the company, are detailed in the Remuneration Report.



Insurance of Directors' and Officers'

The Company has in place a global Directors' and Officers' insurance, insuring
past, present and future Directors and officers of the Company and its
subsidiary companies  (as defined in the contract of insurance) against certain
liabilities incurred in that capacity. Disclosure of the nature of the liability
covered by this contract of insurance is prohibited by the contract of
insurance. The premium payable for 2005 was £29,864.



Environmental Regulation

The Company is subject to environmental regulation in relation to its
operations. The Company monitors compliance with environmental regulations and
has procedures to be followed should an incident occur which adversely impacts
the environment. No material breaches of environmental regulations occurred
during the financial year and up to the date of this report.



Proceedings on behalf of the Company

No proceedings have been brought or intervened in on behalf of the Company with
leave of the Court under section 237 of the Corporations Act 2001.



Non-audit services

The external auditor, PricewaterhouseCoopers, has provided non-audit services
during the year. Disclosure of the details of these services can be found on
page 49 of the notes to the Financial Report.



Auditor's declaration

A copy of the external auditor's independence declaration as required under
Section 307C of the Corporations Act 2001 is set out on page 16 of this Annual
Report.



Rounding of amounts

The Company is of the kind referred to in Class Order 98/0100, issued by the
Australian Securities and Investments Commission, relating to the 'rounding off'
of amounts of the Directors' Report. In accordance with that class order,
amounts in the Financial Report and the Directors' Report, have been rounded to
the nearest thousand pounds, unless specifically stated otherwise.



Auditor

PricewaterhouseCoopers continues in office in accordance with section 327 of the
Corporations Act 2001.





This report has been made in accordance with a resolution of Directors.






John Brown

Chairman






David Fitzsimmons

Chief Executive Officer









London, 31 March 2006









Auditors' Independence Declaration



As lead auditor for the audit of Novera Energy Ltd for the year ended 31
December 2005, I declare that to the best of my knowledge and belief, there have
been:



a)       no contraventions of the auditor independence requirements of the
Corporations Act 2001 in relation to the audit; and

b)       no contraventions of any applicable code of professional conduct in
relation to the audit.



This declaration is in respect of Novera Energy Limited and the entities it
controlled during the year.




Chris Dodd                                           Melbourne
Partner                                              31 March 2006
PricewaterhouseCoopers

Remuneration Report



This Report forms part of the Directors' Report for the year ended 31 December
2005 and outlines the remuneration arrangements in place for Directors and
Executives of Novera Energy Limited.



Remuneration Policy



The Company has designed a remuneration framework to support both a high
performance culture and team focus on adhering to agreed business objectives and
direction. The framework seeks to:

  • Attract, retain and motivate the high calibre professional, managerial and
    technological expertise necessary to realise the Company's business
    objectives;
  • Ensure that the remuneration policy is competitive and fairly reflects the
    appropriate returns for achieving the Company's business goals and achieving
    success in the markets within which the Company operates; and
  • Maintain the correct balance and linkage between individual, team and
    business performance so as to effectively align the interests of the
    employee with those of colleagues and shareholders.



The objective of the Company's executive reward framework is to ensure reward
for performance is competitive and appropriate for the results delivered and
conforms with market best practice for delivery by satisfying criteria for good
reward governance practices, alignment to shareholders' interests, and alignment
to participants' interests.



The framework provides a mix of fixed and variable pay, and a blend of short and
long-term incentives. As executives gain seniority within the group, the balance
of this mix shifts to a higher proportion of 'at risk' rewards.



Remuneration and Appointments Committee



The Remuneration and Appointments Committee reviews the compensation strategy
and the compensation arrangements for all key management personnel on an annual
basis and makes recommendations to the Board. They have access to independent
external advisors as required.



The members of the Remuneration and Appointments Committee during the year were
two non-executive Directors, Michael Cairns (Chairman) and John Brown.



Non-executive director remuneration



Fees and payments to non-executive directors reflect the demands which are made
on, and the responsibilities of, the directors. The chairman's fees are
determined independently to the fees of non-executive directors based on
comparative roles in the external market.



Compensation (inclusive of superannuation) for non-executive board positions for
2005 were:
Australian directors
Prior 1 March 2005
All directors                                                                              £14,700


Subsequent to 1 March 2005
Chairman                                                                                   £21,000
Other                                                                                      £16,800
Additional compensation for chairing a board committee                                     £ 4,200
Additional compensation for membership of a board committee                                £ 2,100


UK directors
Chairman                                                                                   £30,000
Board membership                                                                           £20,000



In the event of termination of the appointment, the fees are calculated on a
pro-rata basis.



The Company does not offer retirement allowances for non-executive directors





Senior management and executive director remuneration



The executive pay and reward framework has four components:

  • Base pay and benefits;
  • Short-term performance incentives (cash bonuses);
  • Long-term incentives through participation in the Novera Energy Australian
    Incentive Option Plan (adopted at the Company's AGM on 15 April 2002) or its
    predecessor, the Primergy Limited Executive Share Option Plan and the
    proposed 'Novera Energy Long Term Incentive Plan'; and
  • Other compensation such as superannuation or pension scheme.



The combination of these comprises the executive's total compensation.



Base pay and benefits

Base pay and benefits are structured as a total employment cost package which
may be delivered as a combination of cash and prescribed non-financial benefits.
It is determined by a number of factors including competence, performance and
external market considerations. In situations where certain skills are scarce an
excess may be paid in the form of a Market Premium Allowance. This allowance
does not form part of the base but may be varied at any time.



Where applicable, executives receive benefits including car allowances and
various relocation allowances.



The Company does not offer a defined benefit pension scheme. Instead, it makes
contributions to the approved pension scheme of the Company. Pension
contributions range from 3% to 10% of base salary. The amount of pension
contributions made in respect of each Executive Director and key management
personnel are set out below.



Short-term Performance Incentives (STPI)

Executive directors, management and staff have the opportunity to earn annual
bonus payments.  These bonuses are linked to the overall corporate strategy and
are dependent on meeting both personal and corporate goals. The proportion that
is set in relation to individual performance ranges, from 50-70%, depending on
seniority and the scope of the job. The Company expects a high level of
achievement when it sets its base and 'stretch' bonus targets. The stretch
targets require an achievement well beyond that which was planned and involves
making significant real contribution to the company's performance. The senior
positions are more exposed to corporate goals which include financial
performance as a parameter.



Long-term incentive Plan (LTIP)

Long-term incentives are a mechanism to link a significant portion of the
executive's compensation to the attainment of substantial growth in shareholder
value by attracting and retaining employees who strive for excellence, and to
motivate those employees to achieve above-average financial objectives for the
Company. Such incentives have previously been given in the form of options under
the Novera Energy Australian Incentive Option Plan (NEAIOP). Upon exercise, each
option entitled the option holder to one ordinary share. It is the Company's
intention to establish a LTIP that is a scheme based on a three year rolling
plan and payout is triggered by the Company's performance against:

  • Total shareholder return measure relative to the FTSE Small Cap Index for
    the UK; and
  • Operating cash flow targets to end of 2008 and beyond.



LTIP awards will be conditional grants of shares that will be released upon the
Company meeting the required criteria. Such a policy should ensure that key
management personnel do not derive compensation benefits without providing a
direct contribution to the long-term superior performance of the Company.




Details of compensation



Director compensation

For the year ended 31 December 2005 details of all the benefits paid are set out
in the table below:


      Name        Year   Short- term employee benefits  Post-employ-  Termination  Share-based
                                                            ment        Benefits      payment
                                                          benefits
                          Cash    Cash   Non-monetary       Super/                     Options      Total
                        salary/   bonus
                          fees                             Pension
                             £        £               £            £              £            £         £
J E Brown        2005     18,611       -              -             -             -            -    18,611
(a)              2004          -       -              -             -             -            -         -
D Fitzsimmons    2005     40,500  25,000              -             -             -            -    65,500
(b) (4)          2004          -       -              -             -             -            -         -
M Cairns         2005      5,000       -              -             -             -            -     5,000
(c)              2004          -       -              -             -             -            -         -
M W Hardgrave    2005     14,693       -              -             -             -            -    14,693
(d),(i)          2004     14,067       -              -             -             -            -    14,067
D J Farrands     2005     17,986       -              -         1,779             -            -    19,765
(i)              2004     12,800       -              -         1,266             -            -    14,066
D Scaysbrook     2005     56,640  31,250        118,315             -             -            -   206,205
(2)              2004     67,010  38,000        114,260             -             -            -   219,270
M Collopy        2005     59,892   6,297              -         5,151             -            -    71,340
(e),(i),(3),     2004     38,582  11,000              -             -             -            -    49,582
D W Stammer      2005     17,509       -          1,300         1,732             -            -    20,541
(f),(i)          2004     12,800       -              -         1,266             -            -    14,066
S M Gannon       2005    146,554       -          1,173        14,359             -            -   162,086
(g) (i),(1)      2004     92,287  60,285              -        12,003        52,942            -   217,517
I R Smith        2005          -       -              -             -             -            -         -
(h),(i)          2004      6,214       -              -           633             -            -     6,847
Total            2005    377,385  62,547        120,788        23,021             -                583,741
                 2004    243,760 109,285        114,260        15,168        52,942            -   535,415

(a) Appointed June 05 to the Board and appointed Chairman in October 2005.

(b) Appointed CEO and to the board in October 2005.

(c) Appointed October 2005.

(d) Retired from the board in October 2005 and appointed alternate director to
Michael Cairns in October 2005.

(e) Appointed November 2005.

(f) Retired in October 2005.

(g) Retired as CEO in October 2005 and resigned from the board in November 2005.

(h) Retired in July 2004. No other amounts were paid in respect of his
retirement in 2005.

(i) Amounts paid in AUD are converted to GBP at an average rate of 0.4198(2004:
0.4019).



(1) Shane Gannon was chief executive officer until October 2005 and then a
non-executive director until November 2005 and the amounts above include
payments made to him both as a director and as chief executive officer.

(2) D Scaysbrook was managing director of Novera Ventures Limited and the
amounts above include payments made to him both as a director and as managing
director.

(3) M Collopy is company secretary of Novera Energy Limited and the amounts
above include payments made to her as company secretary.

(4) D Fitzsimmons is CEO of Novera Energy Limited and the amounts above include
payments made to him as CEO.






Executive compensation



The following persons, together with the directors listed above, were the group
executives with the greatest authority and responsibility for the planning,
directing and controlling the activities of both the consolidated entity and the
parent entity (key management personnel ('kmp')) during the financial year:



For the year ended 31 December 2005 details of all the benefits paid are set out
in the table below:


   Name      Year   Short term employee benefits  Post-employ-    Other   Termination  Share-based
                                                      ment        long-     Benefits      payments          
                                                    benefits      term
                                                                benefits
                     Cash    Cash   Non-monetary     Super/                              Bonus paid    Total
                   salary/   bonus                   Pension                             in Shares
                     fees                            
                      £        £                £           £           £            £            £         £
R. Quinlan  2005     70,422  11,500             -         8,123         -             -            -    90,045
(1),        2004          -       -             -             -         -             -            -         -
T Buxton    2005     76,688   9,000             -         5,319         -             -       33,000   124,007
            2004     57,116  12,000             -         1,312         -             -            -    70,428
J Howson    2005     50,125  10,000             -         3,297         -             -            -    63,422
(1)         2004          -       -             -             -         -             -            -         -
B.Stewart   2005     40,891       -             -         5,499     4,214        17,745            -    68,349
(1),(2),(4) 2004          -       -             -             -         -             -            -         -
R Wilde     2005     28,448                               4,167         -        25,000            -    57,615
(3)         2004     67,463       -             -         4,616         -             -            -    72,079
Total       2005    266,574  30,500             -        26,405     4,214        42,745       33,000   403,438
            2004    124,579  12,000             -         5,928         -             -            -   142,507

(1) These employees were not key management personnel in 2004.

(2) Retired in October 2005.

(3) Retired in April 2005.

(4) Amounts paid in AUD converted to GBP at an average rate of 0.4198
    (2004: 0.4019)



L Oldroyd and S Holdroyd, who were disclosed as specified employees in 2004 were
employed until 16 December 2004 and then transferred to the employment of NMRE.
They have not been included as key management personnel in 2005. No amounts
other than those shown in the 2004 accounts were paid to them as termination
payments in relation to their services. Only T Buxton and R Wilde were key
management personnel in 2004.


Aggregates   Year   Short-term employee benefits    Post-employ-  Other     Termination   Share-based
                                                    ment          long-     benefits      payments          
                                                    benefits      term
                                                                  benefits
                    Cash     Cash     Non-monetary  Super/                                Options/     Total
                    salary/  bonus                  Pension                               bonus paid
                    fees                                                                  in shares


                     £        £        £             £             £         £             £            £
Parent       2005    432,058   42,797         2,473        36,643     4,214        17,745            -   535,930
             2004    176,750   71,285             -        15,168         -        52,942            -   316,145
Group        2005    211,901   50,250       118,315        12,783         -        25,000       33,000   451,249
             2004    191,589   50,000       114,260         5,928         -             -            -   361,777
Total        2005    643,959   93,047       120,788        49,426     4,214        42,745       33,000   987,179
             2004    368,339  121,285       114,260        21,096         -        52,942            -   677,922






Cash bonuses and options

For each cash bonus and grant of options included in the above tables, 100% of
the available bonus accrued at 2004 was paid in the 2005 financial year. No
amounts were forfeited because the person did not meet the service and
performance criteria. 2005 bonuses not paid in 2005 are payable in 2006.



Sign on Payments

There were no payments made to any key management personnel before they started
in their position.



Service agreements

Compensation and other terms of employment for the Chief Executive Officer,
Managing Director and specified employees are formalised in service agreements.
Each of these agreements provide for the provision of performance related
benefits. Other major provisions of the agreements are set out as follows:


       Name         Term of Agreement   Fixed Compensation -       STI           Resignation/
                                       Base salary & pension                     Termination
                                                                                 

David Fitzsimmons   1 year rolling         -/ (1)                  -/              3 months
Michelene Collopy   1 year rolling         -/                      -/              3 months
David Scaysbrook    Extended to 31         -/ (3)                  (2)             3 months
                    July 2006
Shane Gannon        Retired November       -/                      -/              3 months
                    2005
Rory Quinlan        Open ended             -/                      -/              6 months
Tony Buxton         Open ended             -/                      -/              1 month
John Howson         Open ended             -/(1)                   -/              1 month
Brian Stewart       Retired October        -/                      -/              1 month
                    2005
Rob Wilde           Retired April 2005     -/                      -/              2 months



1: Plus car allowance

2: Bonuses paid on equity Mega Watt (MW) acquired by NMRE or Novera
   and on successful IPO/capital raising on AIM

3: Plus living away from home allowances and benefits



Employees are covered by the Australian Incentive Option Plan (see below).



If an employee is found guilty of misconduct, Novera Energy Limited may
terminate the employment agreement at any time without notice. Redundancy and
retirement payments are as per the relevant laws of the UK and Australia.



Equity instrument disclosures relating to directors and specified executives



Share-based compensation: options

Options are granted under the Novera Energy Australian Incentive Option Plan ('
NEAIOP') (adopted at the Company's AGM on 15 April 2002) or its predecessor, the
Primergy Limited Executive Share Option Plan. Options convert on a one-to-one
basis.




The terms and conditions of each grant of options affecting compensation in this
or future reporting periods are as follows:


Grant date          Expiry date         Exercise         Value per     Date exercisable   Number of shares
                                                         option at
                                        price            grant date                       (Post Consolidation)
                                        £ (i)            £(ii)
14/03/2001          14/03/2006          0.91             0.07          14/03/2001         46,591
28/03/2001          28/03/2006          0.50             0.04          31/08/2002         18,636
31/12/2003          (iii)25/05/2006     0.64             0.38          31/12/2003         50,000

(i)   Amounts have been converted at year-end December 2005: 0.4250.

(ii)  Amounts have been converted at month end March 2001: 0.3467:and
      month end December 2003:0.4210

(iii) Due to retirement of the Key Management Person in November 2005,
      the expiry date of these options is now 25 May 2006 (2004: 31 December 
      2006). The market price at the date of change was £0.61. There was no 
      change in the far value immediately before or after the alteration.



All options issued are subject to certain short to medium-term personal and
company performance targets which, if not achieved, result in an adjustment to
the number of options to which the key management personnel is entitled. Options
issued under the plan have an expiry date of up to five years from the date of
issue.



Options are granted under the plan for no consideration and carry no dividend or
voting rights.



The exercise price of the options prior 31/12/2002 was based on the relative
float price and after that date on the relative share price.



Options provided as remuneration



Details of options over ordinary shares in the company provided as compensation
to each key management personnel of the consolidated entity are set out below.
When exercisable, each option is convertible into one ordinary share of Novera
Energy Limited. Further information on options is set out in note 28 of the
Financial Report.



There were no options granted, vested or exercised during the reporting period



Option holdings: key management personnel (kmp)



The following options over ordinary shares in Novera Energy Limited were held,
directly or beneficially, by each director and group executive, including their
personally related entities, during the reporting period:



Option holdings - Directors
Name         Balance at 1   Consolidation 1:5       Granted as       Lapsed     Balance at           Vested
             January  2005                        compensation                 31 December   and exercisable
                                                                                              at 31 December
                                                                                      2005              2005
Listed
D Stammer          972,653            194,531                -     (194,531)             -                 -
(1)
Unlisted
D Farrands         232,954             46,591                -             -        46,591            46,591
S Gannon           750,000            150,000                -     (100,000)        50,000            50,000

(1) The options held by D Stammer were tradeable on the Stock market. These
options expired 1.12.2005



Option holdings - Executives
Name            Balance at 1  Consolidation 1:5 Granted as         Lapsed        Balance       Vested and
                January  2005                   compensation                      at 31        exercisable at
                                                                                 December 2005 31 December 2005

Unlisted
B Stewart             133,182            26,636                          (8,000)        18,636           18,636



Unless stated above, no key management personnel held options over ordinary
shares during the reporting period.



No options were vested and unexercisable at the end of the year. There have been
no options issued since 31 December 2005.



Shareholdings



The number of shares in the Company held during the reporting period and at the
date of this Report, by each director of Novera Energy Limited and each of the
five group executives of the consolidated entity, including their personally
related entities, are set out below


                         Balance at   Consolidation 1:5            Other            Balance   Balance at 31
                     1 January 2005                                          at 31 December     March 2006
                                                                  changes            2005
Director
D Stammer                 5,489,749           1,097,950                -      1,097,950(ii)             NA
J Brown                           -                               20,000             20,000         25,000
D Farrands                4,993,033             998,607                -            998,607      1,006,607
S Gannon                238,419 (i)              47,684                -       47,684 (iii)             NA
D Fitzsimmons                     -                              168,361            168,361        173,361
M Hardgrave            1,000,000(i)             200,000                             200,000        200,000
D Scaysbrook             19,962,796           3,992,560                           3,992,560      3,992,560
M. Collopy                   45,000               9,000            4,500             13,500         13,500
Executive
R Quinlan                         -                   -           11,596             11,596         11,596



(i)             As reported in the Annual Report 2004. Please note that
shareholdings up to the date of the 2004 Annual Report were included in this
amount as noted in that Report.

(ii)            D Stammer retired October 2005 and the shareholding shown above
is the shareholding at the date of his retirement.

(iii)           S Gannon retired November 2005 and the shareholding shown above
is the shareholding at the date of his retirement.



Unless stated above, no other key management personnel held shares during the
year or at the date of this Annual Report.



Loans to key management personnel



Key management personnel do not maintain any loans from or to the Company.



Other transactions: key management personnel



M Hardgrave, a former non-executive Director and now alternate non-executive
Director to M.Cairns, and M Cairns, non-executive director, are also employees
of the Bennelong Group. The Bennelong Group is a major shareholder of Novera
Energy Limited and is entitled to receive any dividends declared on the same
basis as other shareholders. The Bennelong Group were paid advisory fees of
£19,700, during the reporting period. These payments were made in relation to M
Hardgrave's and M Cairns' positions as non-executive director. The amount of
£19,700 was recognised as an expense during the financial period.








Novera Energy Limited

                                                         Annual Financial Report

                                                                31 December 2005



Financial Report



This financial report covers both Novera Energy Limited as an individual entity
and the consolidated entity consisting of Novera Energy Limited and its
subsidiaries.



The financial report is presented in Great British Pounds ('GBP') Sterling. The
Directors of the Company have adopted Pounds Sterling as its presentation
currency as they believe it is the most relevant currency which reflects the
risk and returns associated with the operations of the consolidated group as the
significant operations in the group are either UK based or controlled from the
UK. Comparative information has been restated to reflect the change in
presentation currency from the Australian Dollar ('AUD') to GBP.



Novera Energy Limited is a company limited by shares and is incorporated in
Australia.



A description of the nature of the consolidated group's operations and its
principal activities is included in the review of operations and activities in
the directors' report.



The financial report was authorised for issue by the directors on 31 March 2006.
The Company has the power to amend and reissue the financial report.



Through the use of the internet, we have ensured that our corporate reporting is
timely, complete, and available globally at minimum cost to the Company.  All
media releases, financial reports and other information are available on our
website: www.noveraenergy.com or by calling Novera Energy on +61 2 9240 2700.


                                                           Novera Energy Limited


                                       Income statements

                                             For the year ended 31 December 2005


                                                                    Consolidated               Parent entity
                                                                  2005         2004          2005        2004

                                               Notes             £'000        £'000         £'000       £'000
Revenue                                        1,4,5             2,587        9,968         1,873         600
Cost of sales                                                  (1,386)      (3,668)         (446)           -
Gross Profit                                                     1,201        6,300         1,427         600

Other income                                     6               1,221            -         2,004           -

Cost of migrating to the UK                                      (247)            -         (119)           -
Cost of listing on AIM                                           (210)            -         (153)           -
Finance costs-net                                                    -        (837)             -           -
Other administration expenses                    7             (1,498)      (4,874)         (450)     (1,203)
Administration Expenses                                        (1,955)      (5,711)         (722)     (1,203)

Development costs                                              (1,513)        (180)             -           -
Depreciation and amortisation expense            7                (29)      (1,528)          (18)        (17)

(Loss)/profit before share of joint venture                    (1,075)      (1,119)         2,691       (620)
results
                                                 

Shares of net losses of a joint venture
entity accounted for using the equity method     31            (1,373)        (191)             -           -

                                                               (2,448)      (1,310)         2,691       (620)

(Loss) /profit before income tax

Income tax expense                               8                   -        (143)             -           -
(Loss)/profit from continuing operations                       (2,448)      (1,453)         2,691       (620)

Profit from discontinued operations              9                   -        1,549             -       3,961

(Loss)/profit for the year                                     (2,448)           96         2,691       3,341

(Loss)/profit attributable to minority                               -            -             -           -
interests
                                                               (2,448)           96         2,691       3,341

(Loss)/profit attributable to members of
Novera Energy Limited


Earnings per share for (loss)/profit                            £               £
attributable to the ordinary equity
holders of the company

Basic earnings per share                                   (0.05)            0.02
Diluted earnings per share                                 (0.05)            0.02




Novera Energy Limited

                                                                  Balance sheets
                                                          As at 31 December 2005



                                                                    Consolidated                 Parent entity
                                             Notes             2005           2004           2005         2004
                                                              £'000          £'000          £'000        £'000
ASSETS
Non-current assets
Property, plant & equipment                   15                 87             51              7           51
Investments accounted for using the equity   14,31           16,607         16,087         19,413       16,300
method
Receivables                                   13                861            976            861          976
Total non-current assets                                     17,555         17,114         20,281       17,327

Current assets
Receivables                                   11              1,022            736          2,895        1,738
Other                                         12                 34             20             17            6
Cash and cash equivalents                     10              3,865          1,156          3,866          816
Total current assets                                          4,921          1,912          6,778        2,560

Total assets                                                 22,476         19,026         27,059       19,887

LIABILITIES
Current liabilities
Payables                                      16              1,068            833            450          694
Deferred revenue                              17                154            937              -        1,874
Provisions                                    18                 22             33             16            8
Other                                         19                303            173             31           82
Total current liabilities                                     1,547          1,976            497        2,658

Non-current liabilities
Deferred revenue                              20              2,776          3,091              -            -
Total non-current liabilities                                 2,776          3,091              -            -

Total liabilities                                             4,323          5,067            497        2,658

Net assets                                                   18,153         13,959         26,562       17,229

EQUITY
Contributed equity                            21             32,211         25,583         32,211       25,583
Reserve                                       22                 14              -             14            -
Accumulated losses                            22           (14,072)       (11,624)        (5,663)      (8,354)
Total equity                                                 18,153         13,959         26,562       17,229






The above balance sheets should be read in conjunction with the accompanying notes.


                                                           Novera Energy Limited
                                                 Statements of changes in equity
                                             For the year ended 31 December 2005




                                                                   Consolidated                 Parent entity
                                                                2005           2004            2005        2004
                                           Notes               £'000          £'000           £'000       £'000
Total equity at the beginning of the                          13,959         13,701          17,229      13,701
financial year

Adjustments on adoption of AIFRS relating                          -           (25)               -           -
to: Retained profits
Employee share options                     28                     14              -              14           -
Net income recognised directly in equity                          14           (25)              14           -
(Loss)/profit for the year                                   (2,448)             96           2,691       3,341
Total recognised income and expense for                      (2,434)             71           2,705       3,341
the year

Transactions with equity holders in their
capacity as equity holders:
Contributions of equity, net of                                6,628            187           6,628         187
transaction costs-cash

Total equity at the end of the financial                      18,153         13,959          26,562      17,229
year




Total recognised income and expense for
the year is attributable to:
Members of Novera Energy Limited                           (2,434)               71            2,705        3,341











The above statements of changes in equity should be read in conjunction with the accompanying notes.




                                                           Novera Energy Limited
                                                            Cash flow statements
                                             For the year ended 31 December 2005


                                                                     Consolidated                Parent entity
                                               Notes              2005           2004           2005       2004
                                                                 £'000          £'000          £'000      £'000
Cash flows from operating activities
Receipts from customers (inclusive of goods                      2,096         12,258              -          -
and services tax)
Payments to suppliers and employees (inclusive                 (3,020)       (11,564)        (1,102)      (920)
of goods and services tax)
                                                                 (924)            694        (1,102)      (920)
Interest received                                                  127              9            126          9
Distribution received                                                -              -          1,220          -
Borrowing costs                                                      -          (676)              -          -
Development costs                                              (1,331)          (180)              -          -
Net cash (outflow)/inflow from operating       34              (2,128)          (153)            244      (911)
activities
Cash flows from investing activities
Payments for property, plant & equipment                          (96)        (2,777)            (4)        (7)
Payments to increase the investment in NMRE                    (3,136)       (16,087)        (3,157)   (16,300)
Proceeds from vending of NEEL and other                              -         28,506              -     17,609
investments
                                                                     
Proceeds from vending of assets                                    181              2            181          2
Dividend received from joint venture                             1,220             20              -          -
Transaction costs of Mynydd Clogau                               (360)              -          (360)          -
Loans to related parties                                             -          (234)        (1,871)      (234)
Repayment of borrowings -related parties                           234              -          1,253          -
Net cash (outflow)/inflow from investing                       (1,957)          9,430        (3,958)      1,070
activities
                                                               
Cash flows from financing activities
Proceeds from issues of shares and other                         6,628            266          6,628        268
securities converted to equity-net of
transaction costs

                                                                 
Repayment of finance leases                                          -        (9,102)              -          -
Net cash inflow/(outflow) from financing                         6,628        (8,836)          6,628        268
activities
                                                                 2,543            441          2,914        427

Net increase in cash and cash equivalents
Cash at the beginning of the financial year                      1,156            687            816        408
Effects of exchange rates on cash                                  166             28            136       (19)
Cash at end of year                                              3,865          1,156          3,866        816
Reconciliation of cash balances
Cash at bank                                   10                3,865          1,156          3,866        816

The above cash flow statements should be read in conjunction with the accompanying notes.



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