Final Results

Camco International Ltd 08 March 2007 Camco International Limited 8th March 2007 Preliminary report for the period from the date of incorporation on 8 February 2006 to 31 December 2006 Camco International Limited ('Camco') a market leader in the origination, co-development and placement of carbon credits is pleased to announce its maiden preliminary results for the period ended 31 December 2006. Highlights as at 31 December 2006 • Admitted to AIM in April 2006 raising £24.90 million (€37.07 million) Volume: • 102.9 million tonnes under exclusive contract in portfolio, up from 71.0 million tonnes or 45% since IPO Operational delivery: • 43.0 million tonnes have received Host Country Letters of Approval, up from 1.4 million tonnes since IPO • 34.1 million tonnes have been validated, up from 2.2 million tonnes at IPO • 2.8 million tonnes have been submitted for registration, up from 0.7 million tonnes at IPO Value: • Camco has rights to acquire 22.1 million tonnes of carbon credits • 35.8 million tonnes have Emission Reduction Purchase Agreements ('ERPA') signed • 0.9 million Voluntary Emission Reduction ('VER') credits commercialised . Verification of first CERs • Two milestone deals for the global carbon market with delivery commencing in 2007: • The world's largest clean energy project to date: Yangquan Coal Mine Methane (17.8 million tonnes) • One of the world's largest clean energy projects to date, Jinan Iron and Steel Group (12.3 million tonnes) Financials: • Revenue of €0.83 million • Loss before tax of €3.97 million • Cash position at the end of the year of €24.72 million Operations: • Acquired MCF Finance and Consulting Co Ltd in Russia • Established operations in South Africa Highlights post 31 December 2006 • 6 new projects are under exclusive contract, representing a net increase in the contracted portfolio of 1.5 million additional tonnes, after prudential adjustments • 34.2 million tonnes are in late stage negotiation. This excludes projects in the pipeline • 11.3 million tonnes have received Host Country Letters of Approval. • 30.6 million tonnes have been submitted for registration • Issuance of first CERs Commenting on the results, David Potter, Chairman said: 'This has been a good first year where we have seen strong growth in our portfolio, from 71.5 at IPO to 102.9 million tonnes. We have ensured that our portfolio is of the highest quality so that carbon credits will be reliably delivered during the 2008 to 2012 Kyoto Commitment Period. Our local presence in carbon origination markets and proven expertise in managing the delivery of carbon credits should secure maximum value for investors.' Tristan Fischer, Chief Executive, commenting on carbon market, said: 'There has been a significant increase in the amount of interest in the carbon credit market over the past year, with a strong political push to achieve a low carbon economy as evidenced by the tightening of regulations in the European Union and new policies in the USA. At the same time, the lack of political clarity surrounding the post 2012 Kyoto regulatory framework is being counteracted by a growth in the voluntary market in developed countries, including the USA.' For further information please contact: Camco International Limited +44 (0) 1534 834 600 Tristan Fischer, Chief Executive Officer Scott McGregor, Chief Financial Officer Press Gavin Anderson Ken Cronin/Kate Hill/Janine Brewis +44 (0) 20 7554 1400 About Camco Camco works with companies in the developing world to identify and develop greenhouse gas emission reduction projects, managing the entire process from project initiation to the delivery of carbon credits for sale in the international market. Camco is a market leader in China and Russia - two of the largest potential markets for Carbon Credits - as well as in Eastern Europe and Africa. Our strategy is to utilise our expertise in managing and delivering carbon credits on a local basis in an international arena. By doing this our aim is to increase our overall carbon portfolio in terms of both volume and value. Chairman's Statement A year ago Camco International was established to acquire, develop and sell the carbon assets derived from the long standing activities of our founder sponsors: Clearworld Energy, Energy for Sustainable Development and KWI. We have come a long way in the ensuing year. We commenced assembling a management team in January 2006, we floated on AIM in April and we now have the pleasure of reporting our maiden annual results to you. It has also been a year in which there have been huge strides in both the awareness of climate change as a real issue and of the commercial business response. The almost universal acceptance of the scientific evidence that global warming is a serious issue is a large step forward. Whilst there may still be disagreement about the pace of this change and the appropriate response, it has moved to centre stage with policy makers, opinion formers, the public and politicians. What is particularly interesting is the way in which public opinion and the business community have reacted by 'trying to do something'. This will inevitably have a political reverberation. Governments and politicians naturally move slowly, but it would seem that even they too have generally realised that things are changing, need focusing on and that the voters are beginning to demand action. I would anticipate significant political movement in the coming year, especially from the USA. Whilst it is still too early to see what will happen post the current Kyoto period, I believe we can safely say that Camco occupies a business space with enormous potential. However, it should be noted that there are a large number of public and private companies in this arena with a plethora of business models. There are also large amounts of investment funds seeking to capitalise on the business potential. The lesson of previous high growth sectors show us three things. Firstly, that the fundamental vision is correct: computers, technology and dotcoms, for instance. Secondly, that for early entrants the key issue is to create a soundly managed and profitable business in an environment often characterised by huge media and market attention with the attendant risks of over-hyping and overheated stock prices. Thirdly, new companies in new markets take time to fulfil their ambitions. All of this underlines the need to be responsive to a new market as it develops. In our first eight months as a public company we have tried to take these lessons to heart in building a business with sound management, reporting and control systems. In the meantime, we have endeavoured to maintain an entrepreneurial approach whilst developing our pipeline of new business and starting to broaden our footprint. During the year we expanded in other locations, by acquisition in Russia and by the establishment of an office in South Africa. At the same time we have increased our resources in China, which remains our principal source of business. The contracted tonnes in our portfolio have grown from 71 m to 103m at the end of 2006. The cost base required to achieve all of this has been larger than anticipated at the time of the IPO. Obviously, the ultimate revenues from our activities, which as indicated at the time of the IPO will start to flow in 2008 and beyond, are dependent on the carbon price which has been volatile in 2006. Whilst such volatility can be expected to continue in 2007, the strategic environment points to a higher carbon price in the medium term. This, coupled with the potential for growth in the Voluntary Emission Reduction market, enables your Board to face the future with a degree of confidence informed by the need for tight management, a conservative approach to the valuation of our pipeline and the political risk in some of the countries in which we operate. I want to pay tribute to our management team and staff in all our locations for their hard work and dedication, to our founder partners for their support and co-operation and finally to our clients and business partners. David Potter Chairman, Camco International 8th March 2007 Business overview and strategy Camco identifies potential greenhouse gas reduction projects within industrial companies and utilities, produces carbon credits from these reductions and then facilitates the sale of these carbon credits to international buyers. Greenhouse gas emissions are released locally, but the impact is global. As such, the market is influenced by policy decisions at a global and local level. Camco's business is linked to the regulated Kyoto Protocol market and the mechanisms that operate under it, such as the Clean Development Mechanism and Joint Implementation. Increased public awareness of the threat of global warming has resulted in new market opportunities for Camco in voluntary markets, including the USA and Australia. Camco's strategy is to maximise volume, operational delivery and value of carbon credits. • Camco identifies potential clients through origination teams located in the largest carbon markets • Camco maximises delivery of carbon credits by operating on an 'at risk' basis, under the same incentives as both the project sponsor and the buyer • Camco is uniquely positioned to create value through its large network of carbon credit buyers April 25th 2006 December 31st 2006 % change ------------------------------------------------------------------------------------------------------------------------ Volume of Projects under exclusive contract ( million tonnes) ------------------------------------------------------------------------------------------------------------------------ China 66.4 79.1 19% EMEA 5.1 23.9 368% Total CADAs 71.5 103.0 45% ------------------------------------------------------------------------------------------------------------------------ Operations (million tonnes) ------------------------------------------------------------------------------------------------------------------------ PDD complete 49.3 77.9 58% Host nation Letter of 1.4 43.0 3044% Approval Validated 2.2 34.1 1472% Registered 0.7 2.8 325% ------------------------------------------------------------------------------------------------------------------------ Value (in tonnes of carbon credits) ------------------------------------------------------------------------------------------------------------------------ ERPAs signed - 35.8 VERs commercialised - 0.9 ------------------------------------------------------------------------------------------------------------------------ China With one of the world's largest and fastest growing economies, energy and the environment are two critical themes in China's development planning for the 21st Century. The country's strong dependence on coal and on other fossil fuels to feed this growth mean that it is predicted that by 2009 China will be the world's number one source of greenhouse gas emissions. Camco has led the market in these sectors in China through the development of new CDM Methodologies for projects in the cement industry and in coal mine methane utilisation. In addition to reducing greenhouse gas emissions, these projects contribute significantly to China's sustainable development objectives by increasing the efficiency of resource utilisation, improving energy security, lowering local air pollution and promoting the transfer of technology. Camco has 34 projects in China under exclusive contract projected to reduce 79 million tonnes of greenhouse gas emissions to the end of 2012. In November 2006 Camco facilitated an Emissions Reduction Purchase Agreement ('ERPA') for two clean energy projects implemented by the Yangquan Coal Industry (Group) Company in Shanxi Province. These CDM projects are expected to produce 17.8 million tonnes of carbon credits to the end of 2012. The project involves the capture and utilisation of methane currently released to the atmosphere. The captured methane will be utilised to generate power and as a fuel source for a new industrial facility. In addition, Camco successfully facilitated an ERPA for the sale of carbon credits for the Jinan Iron and Steel Group Corporation. The project is expected to produce 12.3 million tonnes of carbon credits from 2007 to the end of 2012. The project is one of the largest Clean Development Mechanism ('CDM') energy efficiency projects developed in China and reduces greenhouse gas emissions through the capture and utilisation of waste gasses from the steelworks. Russia The establishment of procedures in Russia has recently been boosted by the agreement by five Russian government ministries that the Joint Implementation ('JI') is a key source of sustainable foreign direct investment. Camco is a leader in Russia, with a portfolio of 18.8 million tonnes from a diverse group of investment projects at 19 Russian projects, including two monopolies in the power and cement sector, two large pulp & paper mills, an important steel mill, and numerous sawmills. Camco is currently working with one of the leading steel producers in Russia located in the Orenburg region to modernise electric-ark furnaces and installing continuous casting machines. This will result in a more sustainable form of steel production, reduction of carbon intensive inputs and an overall reduction of 3 million tonnes of greenhouse gas emissions. South Africa South Africa is expected to become Camco's third largest market and is our most recently developed region. Energy efficiency projects and the mining sector are forecast to lead in the creation of the world's fifth largest generator of carbon credits. Nevertheless, South African projects represent less than 1% of the total global Clean Development Mechanism ('CDM') projects registered with the United Nations Framework Convention on Climate Change. In December 2004 the Designated National Authority was established within the Department of Minerals and Energy of South Africa and given a legal mandate to oversee the CDM process. Uptake of CDM opportunities in South Africa has been slow, as only the World Bank and a limited number of multinational companies were pursuing opportunities. Since 2006, there has been a rapid increase as local companies react to the CDM opportunity. Technology Camco's diverse portfolio covers multiple technology types, including renewable energy, increasing energy efficiency, and reducing emissions from industrial and organic waste streams. Sale of carbon credits Most of Camco's business is linked to the heavily regulated Kyoto Protocol market and the flexible mechanisms that operate under it. Increasing public awareness of the threat of global warming, caused by greenhouse gas emissions, has resulted in new market opportunities for Camco in the voluntary, VER markets, including those in the USA and Australia. During the second half of the year Camco saw a significant increase in the number of buyers seeking to purchase carbon credits from its projects. The most interesting new entrants were from Australia and the USA. Since neither have ratified the Kyoto Protocol nor have a compliance need to buy credits, their involvement is an important development. Camco's portfolio consists of some of the largest projects in the industry and therefore benefits from industry-leading margins, particularly in the areas of technology that Camco is strongest in, such as energy efficiency, coal mine methane and renewables. Outlook With the current Kyoto Protocol running from 2008 until 2012 and no tangible progress towards establishing a global successor, the industry has started to experience a slowdown in the development of new greenhouse gas reducing projects. This is because projects that come on stream post 2008 have less time in which to generate sufficient revenues to payback the capital invested in the GHG reducing equipment. Thus, despite the strong growth in Camco's portfolio by 63 million tonnes in 2006, it is unlikely that this level of growth will be maintained in 2007. In the event that an effective post 2012 agreement is reached in 2007, this would have a material impact on Camco's ability to develop new projects. In contrast, the Voluntary Emission Reduction market may become one of the fastest growing carbon credit commodities traded in 2007, particularly in the USA. Camco is well-placed to capitalise on this, as underlined by achieving a large VER commercialisation project in 2006. Financial review Revenue for the period was €0.83 million and came from the sale of carbon credits. Camco takes a conservative approach to revenue recognition and these sales are from contracts which have verified carbon credits. Administrative expenses of €5.52 million and loss before tax of €3.97 million are broadly in line with expectations and are a result of operating and expanding the business. Camco operates a project development business which requires an outlay of administrative costs and working capital in the initial years of a project's development, followed by revenues during the First Commitment Period of the Kyoto Protocol, between 2008-2012. Proceeds from IPO were €37.07 million, of which €3.07 million was capitalised as costs attributable to the IPO process. Carbon Development Contract assets of €12.25 million include €10.71 million due to assets capitalised on the acquisition of ClearWorld Energy's carbon projects, CAMCO GmbH and MCF Finance and Consulting Co Ltd. Camco maintains a conservative policy on cost capitalisation and only capitalises costs directly attributable to its projects. Camco has cash reserves of €24.72 million at 31 December 2006. The Group is currently highly liquid, with significant cash resources available to develop the business. Treasury policy is to hold this reserve in low risk cash deposits. The Group is entirely funded by equity which is considered appropriate given the status of the market and political risks faced by the business. Abbreviated financial statements for the period from the date of incorporation on 8 February 2006 to 31 December 2006 Consolidated income statement for the period from the date of incorporation on 8 February 2006 to 31 December 2006 Continuing operations 2006 €'000 Revenue 830 Cost of sales (673) ----------------------------------------------------------------------------------------- Gross profit 157 Administration expenses (5,522) ----------------------------------------------------------------------------------------- Loss from operations (5,365) Finance income 1,450 Finance expense (58) ----------------------------------------------------------------------------------------- Loss before tax (3,973) Taxation (2) ----------------------------------------------------------------------------------------- Loss after tax attributable to equity holders (3,975) ----------------------------------------------------------------------------------------- Basic and diluted loss per share (Cents) (3.42) ----------------------------------------------------------------------------------------- Consolidated statement of recognised income and expense for the period from the date of incorporation on 8 February 2006 to 31 December 2006 2006 €'000 Loss for the period (3,975) Exchange differences on translation of foreign operations (22) ----------------------------------------------------------------------------------------- Total recognised income and expense for the period (3,997) attributable to equity holders ----------------------------------------------------------------------------------------- Analysed in reserves as: ----------------------------------------------------------------------------------------- Retained earnings (3,975) Net expense recognised directly in equity - translation (22) reserve ----------------------------------------------------------------------------------------- (3,997) ----------------------------------------------------------------------------------------- Consolidated balance sheet as at 31 December 2006 2006 €'000 Assets Non-current assets ----------------------------------------------------------------------------------------- Property, plant and equipment 304 Goodwill on acquisition 1,156 Carbon development contracts 12,249 ----------------------------------------------------------------------------------------- Total non-current assets 13,709 Current assets ----------------------------------------------------------------------------------------- Trade and other receivables 1,608 Cash and cash equivalents 24,719 ----------------------------------------------------------------------------------------- Total current assets 26,327 ----------------------------------------------------------------------------------------- Total assets 40,036 ----------------------------------------------------------------------------------------- Liabilities Current liabilities ----------------------------------------------------------------------------------------- Trade and other payables (2,117) ----------------------------------------------------------------------------------------- Total current liabilities (2,117) Non-current liabilities ----------------------------------------------------------------------------------------- Deferred consideration (3,312) ----------------------------------------------------------------------------------------- Total non-current liabilities (3,312) ----------------------------------------------------------------------------------------- Total liabilities (5,429) ----------------------------------------------------------------------------------------- Net assets 34,607 ------------------------------------------------------------------------------------------ Equity ----------------------------------------------------------------------------------------- Share capital 1,299 Share premium 36,909 Share-based payment reserve 577 Retained earnings (3,975) Translation reserve (22) Own shares (181) ----------------------------------------------------------------------------------------- Total equity 34,607 ------------------------------------------------------------------------------------------ These financial statements were approved by the Board of directors on 6 March 2007 and were signed on its behalf by Scott McGregor, Chief Financial Officer. Consolidated cash flow statement for the period from the date of incorporation on 8 February 2006 to 31 December 2006 2006 €'000 Cash flow from operating activities ----------------------------------------------------------------------------------------- Cash receipts under carbon development contracts 313 Cash paid to suppliers and employees (6,231) Interest received 565 Income tax paid (1) ----------------------------------------------------------------------------------------- Net cash flow from operating activities (5,354) ----------------------------------------------------------------------------------------- Cash flow from investing activities ----------------------------------------------------------------------------------------- Payment for acquisition of subsidiaries (366) Repayment of loan notes issued for acquisition of (3,150) subsidiary Cash acquired with subsidiaries 248 Payment for purchase of carbon development contracts (896) Payment for purchase of property, plant and equipment (330) ----------------------------------------------------------------------------------------- Net cash flow from investing activities (4,494) ----------------------------------------------------------------------------------------- Cash flow from financing activities ----------------------------------------------------------------------------------------- Proceeds from the issue of loan notes 5,000 Repayment of loan notes (5,000) Proceeds from issuance of shares 37,074 Costs of raising capital (3,069) ----------------------------------------------------------------------------------------- Net cash flow from financing activities 34,005 ----------------------------------------------------------------------------------------- Change in cash and cash equivalents 24,157 Cash and cash equivalents at date of incorporation - Effect of exchange rate fluctuations 562 ----------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period 24,719 ----------------------------------------------------------------------------------------- Abbreviated notes to the financial statements 1 Abbreviated accounting policies A Basis of preparation The abbreviated financial statements are presented in Euros, the functional currency of Camco International Limited (the 'Company'), rounded to the nearest thousand Euros. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The most significant techniques for estimation are described in the accounting policies. The abbreviated accounting policies set out below have been applied consistently to the period presented in these abbreviated consolidated financial statements. The accounting policies have been consistently applied across the Company and its subsidiaries (together the 'Group') for the purposes of producing these abbreviated consolidated financial statements. The financial statements have been prepared on the historical cost basis. B Accounting for Carbon Development Contracts ('CDCs') The Group enters into CDCs with clients from which carbon credits are produced. Carbon credits, also known as Certified Emission Reductions ('CERs') or Emission Reduction Units ('ERUs') are generated through the highly regulated Carbon Development Mechanism ('CDM') and Joint Implementation ('JI') processes. These follow a number of steps including the approval of the project methodology and monitoring procedures, project design, project approval by the Designated National Authority, project validation by a Designated Operational Entity or equivalent ('DOE'), project acceptance by the host country, registration, verification and certification by a DOE. Verification of carbon credit production will take place at least once a year during this period. The Group works with the client at all stages of the process using proprietary knowledge and experience to negotiate this complex process. Revenue recognition Revenue from CDCs is recognised at the point that the carbon credit has been verified by a DOE and the risk of delivery into the final CDM registry or equivalent (the 'registry') is minimal. The Company expects that the verification, and delivery into the registry would take place within six months following the carbon credit production taking place. Where the Company takes ownership rights in carbon credits from CDCs, revenue will be recognised when verification, delivery and sales contracts for delivery are complete. Voluntary Emission Reductions ('VERs') and other carbon credit revenue may be generated from carbon credit projects not operating under CDM or JI processes. The regulation criteria are agreed between all parties and generally revenue is recognised from VERs when all acceptance and confirmation notices have been issued by the relevant parties and the significant risks and rewards of ownership have been transferred. The CDCs are scheduled to deliver the majority of carbon credits over the 2008-2012 phase of the Kyoto Protocol. Treatment of CDC costs CDCs acquired by the Group are recorded initially at cost (or fair value if through business combination). Subsequently, the directly attributable costs are added to the carrying amount of CDCs. These costs are only carried forward to the extent that they are expected to be recouped through the successful completion of the contracts. The costs comprise consultancy fees, license costs, technical work and directly attributable administrative costs. All other costs are expensed as incurred. Most of the Group's CDCs have not yet reached the stage at which income can be recognised. Once the income recognition criteria on these contracts are met (as described above), the CDC costs will be expensed on the basis of carbon credits delivered as a proportion of total expected carbon credit production over the contract period. Most of the contracts are expected to be terminated in 2012. 2 Administration expenses Administration expenses are analysed below. 2006 €'000 Share-based payments 577 Exceptional item - discretionary M&A expense 439 Other administration expenses 4,506 ----------------------------------------------------------------------------------------- Administration expenses 5,522 ----------------------------------------------------------------------------------------- 3 Loss per share Loss per share attributable to equity holders of the Company is calculated as follows. 2006 Cents per share ----------------------------------------------------------------------------------------- Basic and diluted loss per share (3.42) ----------------------------------------------------------------------------------------- €'000 ----------------------------------------------------------------------------------------- Loss used in calculation of basic and diluted loss per (3,975) share ----------------------------------------------------------------------------------------- Weighted average number of shares used in calculation 116,307,918 ----------------------------------------------------------------------------------------- 4 Carbon development contracts 2006 €'000 Cost at 8 February 2006 - Acquisitions 10,708 Carbon development contract costs capitalised 1,681 ----------------------------------------------------------------------------------------- Cost at 31 December 2006 12,389 ----------------------------------------------------------------------------------------- Utilisation and write-down at 8 February 2006 - Amount charged to cost of sales in the period (68) Write-down of CDC costs previously capitalised (72) ----------------------------------------------------------------------------------------- Utilisation and write-down at 31 December 2006 (140) Net book value at 8 February 2006 - ----------------------------------------------------------------------------------------- Net book value at 31 December 2006 12,249 ----------------------------------------------------------------------------------------- The write-down was recognised following a review of the carrying amounts of CDCs. Where the discounted future cash flows on the contract were deemed insufficient to support the recoverability of the asset a write-down to the lower value was made. This information is provided by RNS The company news service from the London Stock Exchange

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