Preliminary Results
Embargoed until 07:00 am on 12 March 2009
EcoSecurities Group plc
Preliminary results for the year ended 31 December 2008
Dublin, Ireland - EcoSecurities Group plc ('EcoSecurities' or the
'Group'), one of the world's leading companies in the business of
sourcing, developing and trading carbon credits from greenhouse gas
emission reduction projects, today announces its preliminary results
for the year ended 31 December 2008 and trading statement to
28 February 2009.
Contracted forward sales mitigate the impact of low CER prices
Highlights for 2008
* Rise in consolidated revenue to ¤69.5m for 2008, an increase of
nearly 10 times over 2007. Revenue recognised in respect of
4,539,000 CERs and 523,000 VERs in the year (284,000 CERs and
170,000 VERs for 2007).
* Net revenue for the year of ¤8.7m (¤0.7 for 2007) before
inventory and purchase contract provisions and including
secondary trading income.
* Loss before income tax for the year of ¤18.4m (¤46.0m for 2007)
excluding the effect of inventory and purchase contract
provisions and the recognition of mark to market losses on
foreign exchange hedges, where the corresponding gain is not
yet recognised.
* Issuance from the pre-2012 portfolio was 791,000 CERs net to
EcoSecurities during 2008 (288,000 CERs for 2007).
* On a net basis to EcoSecurities, the pre-2012 CER portfolio's
127 registered projects are capable of producing 35 million
CERs (72 projects and 13 million CERs at 31 December 2007),
representing 34% (10% at 31 December 2007) of the Group's
portfolio.
* Of the registered projects, projects capable of producing
26 million CERs for EcoSecurities are already operational
(9 million CERs at 31 December 2007).
* Continued control of costs has reduced administrative expenses
to ¤30.7m for the year (¤36.6m for 2007).
* Cash balance at 31 December 2008 of ¤38.7m (¤88.1m at
31 December 2007). Inventory on hand of ¤29.2m comprising
1,710,000 CERs and 2,122,000 VERs.
Current trading and outlook
* The policy of forward sales has resulted in contracted future
revenues of ¤461m with an associated Net Trading Margin of
¤201m.
* The weighted average sale price of the forward sales was ¤13.66
per CER and the acquisition price of the pre-2012 CER portfolio
was ¤7.85 per CER at 28 February 2009.
* Issuances currently anticipated for 2009 remain in line with
EcoSecurities' expectations at the time of the interim
statement in September 2008.
* EcoSecurities continues to reduce its administrative expenses
and retains a strong cash position which amounted to ¤61.1m at
28 February 2009, reflecting the collection of cash from
deliveries post year end. Inventory on hand of 801,000 CERs.
The Group's contracted projects and portfolio of pre-2012 CERs on a
net basis can be analysed as follows:
28 February 2009 31 December 2008
Project cycle landmark (cumulative No. of Million No. of Million
values) projects CERs projects CERs
Contracted 466 140 482 144
Due diligence 81 36 85 41
Portfolio 385 104 397 103
Operational stage:
Financed 339 89 352 90
Construction started 336 87 337 86
Operations started 220 51 202 52
CDM stage:
PDD complete 289 71 287 71
Submitted to validation 265 68 267 69
HNA obtained 243 66 241 67
Validated 167 46 164 43
Submitted to registration 165 46 162 43
Registered 133 35 127 35
Verified 32 7 26 4
Issuing 31 6 26 4
Mark Nicholls, Chairman of EcoSecurities, commented: "EcoSecurities'
policy of selling forward a portion of its portfolio has
significantly reduced risk from volatile carbon market prices because
a large part of its revenue is effectively insulated from the current
low market price of CERs. Issuances anticipated for 2009 remain in
line with expectations. EcoSecurities continues to reduce its cost
base while maintaining a healthy cash balance. This positions us well
to capture further growth opportunities."
The Group's preliminary results for the year ended 31 December 2008
accompany this press release.
Analyst meeting
The Group is holding a meeting for analysts today at 09:00 GMT. The
presentation will also be available via a dial in facility on 0808
109 077 for UK callers or +44 20 3003 2666 for non-UK callers, each
will need to quote Conference ID: "EcoSecurities". The presentation
slides will be available on the EcoSecurities' website
http://www.ecosecurities.com/Home/Investor_relations/default.aspx
15 minutes prior to the commencement of the meeting. A replay
facility will be available shortly after the presentation on +44 (0)
20 8196 1998 access number: 6074700#, for a period of seven days.
For further information, please contact:
EcoSecurities Group plc +353 1 613 9814
Pedro Moura-Costa, President
Adrian Fernando, COO
James Thompson, CFO
RBS Hoare Govett Limited +44 20 7678 8000
Justin Jones
Hugo Fisher
Citigate Dewe Rogerson +44 20 7638 9571
Kevin Smith
Ged Brumby
Notes to Editors
CDM = Clean Development Mechanism, the provision of the Kyoto
Protocol that governs project level carbon credit transactions
between developed and developing countries.
CDM EB = CDM Executive Board, supervisor of the CDM under the
authority and guidance of, and fully accountable to, the Conference
of the Parties serving as the Meeting of the Parties to the Kyoto
Protocol.
CER = Certified Emission Reduction, carbon credits created by Clean
Development Mechanism projects. One CER corresponds to one tonne of
CO2e emission reductions.
COP/MOP = The conference of parties and the meeting of parties to the
UNFCCC serving as the meeting of the parties to the Kyoto Protocol.
DOE = Designated Operational Entity, an organisation accredited by
the CDM Executive Board. A DOE has two key functions: to validate and
subsequently request registration of a proposed CDM project and to
verify Emission Reductions from a registered CDM project activity.
DNV = Det Norske Veritas, a DOE used by EcoSecurities.
EU ETS = European Union Emissions Trading Scheme, a market based 'cap
and trade' system for greenhouse gases adopted by the European Union
member states.
Gross = In respect of contracted and portfolio acquisitions of
emission reductions, includes the total project volumes without
adjustment for EcoSecurities' share of emission reductions from
individual contracts.
Net = In respect of contracted and portfolio acquisitions of emission
reductions, adjusts for EcoSecurities' share of emission reductions
from individual contracts.
Net revenue = The sum of gross profit and other income each disclosed
in the income statement.
Net Trading Margin = Represents the net spread on principal
arrangements, net agency fees (after commission to third parties) and
project development margins, and excludes indirect cost inputs and
fixed cost allocations.
PDD = Project Design Document.
UNFCCC = UN Framework Convention on Climate Change.
VER = Verified Emission Reduction, carbon credits created through
voluntary emission reduction projects. One VER corresponds to one
tonne of CO2e emission reductions.
EcoSecurities is a world leading company in the business of sourcing,
developing and trading carbon credits. EcoSecurities structures and
guides greenhouse gas emission reduction projects through the project
cycle, working with both project developers and buyers of carbon
credits.
EcoSecurities has experience with projects in the areas of renewable
energy, agriculture and urban waste management, industrial efficiency
and forestry. With a network of offices and representatives in over
25 countries on five continents, EcoSecurities has amassed one of the
industry's largest and most diversified portfolios of carbon
projects.
Utilising its highly diversified portfolio, EcoSecurities is able to
structure carbon credit transactions to fit any buyers' needs, and
has executed transactions with both private and public sector buyers
in Europe, North America and Japan.
Working at the forefront of carbon market development, EcoSecurities
has been involved in the development of many of the global carbon
market's most important milestones, including developing the world's
first CDM project to be registered under the Kyoto Protocol.
EcoSecurities has been at the forefront of most of the significant
policy and scientific developments in this field.
EcoSecurities Group plc is listed on the London Stock Exchange AIM
(ticker ECO).
Additional information is available at www.ecosecurities.com.
Chairman's statement
The first half of 2008 was characterised by a steady increase in the
price of CERs with prices peaking at over ¤23 in July 2008. However,
the second half saw the onset of the worldwide economic downturn and
a fall in the price of CERs to under ¤14 at the year end.
Subsequently, the price has continued to fall to a level of around ¤8
per CER in February 2009.
EcoSecurities, however, has had a long standing policy for its
pre-2012 CER portfolio of hedging against such variations and has
consistently sold forward a proportion of the anticipated CER
issuances from its pre-2012 portfolio. This policy is proving its
worth as EcoSecurities now has a high level of visibility of
financial returns and a large part of its near term revenue should be
unaffected by the current low market price of CERs. In addition,
EcoSecurities' portfolio is ideally positioned to benefit from an
increase in the price of CERs from 2011 onwards.
This policy has enabled the added value of sourcing, developing and
trading CERs to be realised irrespective of the current, adverse
carbon price movements.
EcoSecurities believes that CER prices will recover once the current
sell off of 2008 and 2009 EUA allocations under the EU ETS has ceased
and the worldwide economic downturn starts to reverse. However, the
global carbon market still faces key policy challenges. In the CDM
the Copenhagen COP/MOP in December 2009 is scheduled to determine the
format of the successor phase to the Kyoto Protocol and, in the US,
we await agreement on a national greenhouse gas cap and trade system
following the recent inauguration of President Obama. In the near
term the functioning of the CDM has progressed with the launch of the
Project Developer Forum in which EcoSecurities played a pivotal role.
In addition, the CDM EB has set timelines for most processes within
the CDM cycle and more recently increased further the number of staff
within the UNFCCC secretariat.
EcoSecurities has consistently sought to reduce its portfolio risk by
maintaining a well diversified portfolio both by geography and by
technology. Furthermore, the technology split of the portfolio has
increased its resilience to the economic downturn. The portfolio has
a low exposure to the construction industry and other cyclical
sectors.
In December 2008 Credit Suisse nominated Robert Flicker as a
Non-Executive Director. Robert is head of the bank's American
Commodities Markets for environmental products and power and
EcoSecurities welcomes him to the Board. Credit Suisse remains a
committed investor in EcoSecurities.
Bruce Usher has expressed the wish to step down as Chief Executive
Officer when a suitable successor is appointed. The Board has engaged
an international executive search firm and the process of identifying
suitable candidates has commenced. Mr Usher, who is stepping down to
pursue personal interests, remains fully committed to the Company and
will continue as Chief Executive Officer until his successor is in
post.
EcoSecurities has continued to stand at the forefront of the carbon
market, winning Environmental Finance magazine's "Best CDM/JI Project
Developer - Kyoto Projects" for the second year in a row as well as
winning "Best Voluntary Market Project Developer". In addition, the
quality of EcoSecurities' work has been recognised with ISO 9001
certification, in the UK and Mexico offices, for the management of
the processes for monitoring and verification of greenhouse gas
emission reductions. It is anticipated that this certification will
be rolled out to the Group's other offices.
During 2008 EcoSecurities concentrated on reducing its cost base
while preserving its capacity for project registration, verification
and issuance. EcoSecurities believes that it is important to maintain
a presence in key geographical regions and in activities such as the
secondary trading business and VERs, particularly in the US.
Significant cost reductions were therefore achieved whilst retaining
EcoSecurities' platform for future growth. The emphasis on cost
savings will continue in 2009.
With EcoSecurities' visibility of revenues provided by the forward
sales contracts, its reduced cost base and strong balance sheet, the
Group is well positioned not only to trade successfully during the
current period of low CER prices and worldwide economic downturn but
also to take advantage of the recovery of CER prices anticipated in
the latter part of the first commitment period of the Kyoto Protocol.
While current conditions in the carbon market are challenging and are
expected to remain so for the short term, they have illustrated the
resilience of the Group's business model and its ability to withstand
the impact of unfavourable movements in the CER price. This policy
ensures that EcoSecurities preserves its core capabilities and
remains well-placed to capture the further growth opportunities which
the Board believes will be presented by the continuing evolution of
the global carbon market.
Executive Directors' review
Introduction
Trading conditions in the carbon market have changed dramatically
since EcoSecurities reported its first half results in September
2008. The steady increase in the CER price over the first half and
into July was followed by a period of volatility into September.
Thereafter, the worldwide economic downturn had a marked effect with
the market price of CERs falling rapidly. However, EcoSecurities has
mitigated the effects of low CER prices to a large extent through its
policy of forward sales for its pre-2012 CER portfolio.
Strategy
EcoSecurities' policy for its pre-2012 CER portfolio has been to
hedge against price variations and the Group has sold forward a
proportion of its anticipated CER issuances from its pre-2012
portfolio. This policy has resulted in sales contracted at
28 February 2009 for delivery over the period from 2009 to 2013 of
¤461m. As a result of EcoSecurities' forward sales contracts,
production of CERs from its pre-2012 portfolio over 2009 and 2010
will largely be delivered to forward sale counterparties.
Accordingly, this policy has given EcoSecurities a high level of
visibility of revenue in spite of the low market price of CERs and
the worldwide economic downturn. In addition, EcoSecurities is
ideally positioned to benefit from an increase in the price of CERs
from 2011 onwards as the production from the Group's pre-2012 CER
portfolio increases.
EcoSecurities has continued to focus on the issuance and monetisation
of the existing pre-2012 CER portfolio and has made good progress
during 2008.
In the second half of 2008, the Group continued its cost reduction
measures and further concentrated resources towards key operations
for the monetisation of the pre-2012 CER portfolio including enhanced
spending on implementation activities and China. Together with an
emphasis on the other activities of secondary trading, VERs and the
US business, EcoSecurities' platform for future growth remains
robust.
Revenue and production
2008 represented the first period of significant issuance from the
EcoSecurities' pre-2012 portfolio. Group revenue for the year was
¤69.5m, an increase of nearly 10 fold over 2007. Sales of CERs
amounted to ¤65.1m and represented 4,539,000 CERs. Sales of CERs were
principally directed at fulfilling existing forward sales but spot
sales of 956,000 CERs were made. Net issuances for the year amounted
to 791,000 CERs to EcoSecurities representing an increase from
288,000 CERs in 2007 and the gross number of CERs issued by projects
managed by EcoSecurities amounted to 1,920,000, up from 659,000 in
2007.
As announced with the interim statement in September 2008, portfolio
issuance expectations decreased during the first half of 2008 due to
continued regulatory delays. However, despite the effects of the
temporary suspension from accreditation of DNV, one of EcoSecurities'
principal DOEs, the issuances in the second half of 2008 and the
issuances currently anticipated for 2009 remain in line with these
revised expectations.
In addition to the rapid increase in the production of CERs, the
performance of the secondary trading business and VERs was pleasing
with VER sales for 2008 amounting to ¤3.4m, more than double the
level for 2007. Activity in the US started to gain further momentum
marked by the first issuance of VERs from a US based project.
At the end of 2008 EcoSecurities took the decision to close its
consulting office in Portland USA as from February 2009 as part of
the cost reduction efforts. This decision affected neither the US
emission reduction business based in New York, the US
commercialisation team based also in Portland nor our consulting
business outside the US. Through the ongoing provision of strategic
advisory, capacity building services, carbon footprinting and
greenhouse gas neutrality services to the public and private sector
clients, such as the United Nations World Food Programme and
Volkswagen, the consulting team's knowledge enhances the policy
understanding of EcoSecurities' dedicated CDM policy experts. In
addition the carbon foot printing and greenhouse gas neutrality
services offer useful synergies with the VER sales team. Consulting
continues to assist with the identification and development of CDM
and VER project opportunities supporting the Group's origination
activity.
Gross profit for 2008 was ¤4.6m, an increase of more than 6 fold over
the 2007 figure of ¤0.7m. The cost of sales per CER was in excess of
that of the portfolio average as 3,828,000 CERs sold in the year had
been purchased on the secondary market at higher prices.
CER and VER prices have continued to fall since the year end and
inventory and purchase contract provisions of ¤3.1m, largely against
VER and secondary trading inventory, have been charged in arriving at
the gross profit for the year reported above. The net revenue for the
year, before charging the inventory and purchase contract provisions
and including the secondary trading income which is treated as other
income in the income statement, was ¤8.7m.
In the second half of 2008, the Community Independent Transaction Log
was connected to the International Transaction Log. The delay in this
connection had prevented the delivery of certain CERs to EU based
buyers and the receipt of cash from them. Since the connection,
delivery of the CERs and cash settlement has been achieved
unhindered.
At 28 February 2009, forward sales amounted to 34 million CERs. The
total expected revenue for the period 2009 to 2013 in respect of
contracted sales amounted to ¤461m and represents a net trading
margin of ¤201m. At 31 December 2008, the weighted average sale price
of the contracted sales currently scheduled for delivery in the
period 2009 to 2013 was ¤13.60 per CER.
During the second half of 2008 and in 2009, as the price of CERs
fell, EcoSecurities actively managed its sale contracts to reflect
the near term anticipated issuances from the pre-2012 CER portfolio.
The breakdown of contracted sales by year of delivery is as follows:
Year of delivery Forward sales
Million CERs
2009 5.5
2010 8.2
2011 7.6
2012 8.3
2013 4.4
This summary excludes any put options held by EcoSecurities where the
strike price is below the current market price of ¤9.62 per CER.
The forward sales are largely to Japanese and European utilities, a
major Japanese trading company buying on behalf of the Japanese
government, European and Japanese government agencies and major
European banks.
The value of the forward sales contracts denominated in Japanese Yen
has increased by ¤13.9m, of which ¤2.9m was in respect of delivery
options, as a result of movements in the euro/yen exchange rate. The
foreign exchange risk of these forward sales, other than the delivery
options, have been hedged and so this gain will be largely offset by
movements in the hedges of ¤9.7m. The gain arising as a result will
be recognised, under EcoSecurities' accounting convention, upon the
delivery of the relevant CERs, whereas the associated unrealised loss
on the foreign exchange hedges has been accounted for in full on a
mark to market basis in the income statement for the year.
Excluding the effect of the inventory and purchase contract
provisions and the recognition of mark to market losses on foreign
exchange hedges, where the corresponding gain is not yet recognised,
the loss before income tax for the year was ¤18.4m. The reported loss
before tax for the year was ¤31.2m (¤43.3m for 2007).
Portfolio advances
The net portfolio of pre-2012 CERs (which excludes agency contracts
and only includes EcoSecurities' share of principal contracts) can be
analysed as follows:
31 December 2008 31 December 2007
Project cycle landmark (cumulative No. of Million No. of Million
values) projects CERs projects CERs
Contracted 482 144 405 150
Due diligence 85 41 37 20
Portfolio 397 103 368 130
Operational stage:
Financed 352 90 328 104
Construction started 337 86 285 88
Operations started 202 52 135 39
CDM stage:
PDD complete 287 71 234 73
Submitted to validation 267 69 217 66
HNA obtained 241 67 176 55
Validated 164 43 111 24
Submitted to registration 162 43 104 23
Registered 127 35 72 13
Verified 26 4 16 3
Issuing 26 4 12 2
The weighted average acquisition price of the pre-2012 CER portfolio
at 31 December 2008 was ¤7.84 per CER.
At 31 December 2008 the Group had inventory of 1,710,000 CERs (2007
837,000 CERs) and 2,122,000 VERs (2007 942,000 VERs). In addition the
Group had contracted purchases of 896,000 CERs (2007 420,000 CERs)
for delivery prior to 31 March 2009.
At 31 December 2008, 127 projects had been registered with the CDM
Executive Board, up from 72 projects at the end of 2007. On a net
basis to EcoSecurities, these 127 projects are capable of producing
35 million CERs (2007 13 million CERs), representing 34% of the
Group's net pre-2012 CER portfolio (2007 10%). At 31 December 2008,
164 projects (2007 111 projects) had been validated and these
projects are capable of producing 43 million pre-2012 CERs on a net
basis (2007 24 million CERs), representing 42% of the portfolio (2007
18%). Of the registered projects, projects capable of producing
26 million CERs (2007 9 million CERs) for EcoSecurities are already
operational.
EcoSecurities has consistently maintained a diversified portfolio of
project technologies and this deliberate approach reduces the
exposure of the portfolio to specific methodology risks. In addition,
the technology split of the portfolio has rendered it particularly
resilient to the economic downturn as a result of the portion of the
portfolio made up of renewable energy (hydro, wind, geothermal),
other efficient energy generation (CCGT) and nitric acid production
(N2O). The proportion of the portfolio made up of these sectors is
65%. The portfolio has only a low exposure to the construction
industry and other industrial sectors.
During the year EcoSecurities has seen a rapid increase in the
generation of emission reductions from its CDM portfolio projects.
However, the time taken for projects to achieve registration and to
start issuing has continued to increase in line with the revised
expectations announced in September 2008.
Consistent with EcoSecurities' expectation of an active market beyond
2012, the Group's post-2012 CER portfolio grew to 132 million CERs at
31 December 2008 from 103 million CERs at 31 December 2007. The
Group's VER contracted portfolio amounted to 9 million VERs at
31 December 2008 (11 million at 31 December 2007).
The Group's contracted carbon credit projects at 31 December 2008 can
be broken down as follows:
+-------------------------------------------------------------------+
| Carbon credit type | Gross volume | Net entitlement to |
| | Million tCO2e | Group |
| | | Million tCO2e |
|------------------------------+---------------+--------------------|
| CERs to 2012 (principal) | 107 | 99 |
|------------------------------+---------------+--------------------|
| CERs to 2012 (agency) | 10 | 1 |
|------------------------------+---------------+--------------------|
| CERs to 2012 (project | 3 | 3 |
| development) | | |
|------------------------------+---------------+--------------------|
| Subtotal pre-2012 CER | 120 | 103 |
| portfolio | | |
|------------------------------+---------------+--------------------|
| Pre-2012 CERs (due | 43 | 41 |
| diligence) | | |
|------------------------------+---------------+--------------------|
| Subtotal contracted pre-2012 | 163 | 144 |
| CERs | | |
|------------------------------+---------------+--------------------|
| CERs post-2012 (options and | 136 | 132 |
| ERPAs) | | |
|------------------------------+---------------+--------------------|
| VERs | 9 | 9 |
|------------------------------+---------------+--------------------|
| Total volume contracted | 308 | 285 |
+-------------------------------------------------------------------+
Of the post 2012 CER portfolio, 97% of the contracted volume
represents options to purchase at the discretion of the Group.
On 28 November 2008 the CDM Executive Board temporarily suspended
DNV's accreditation for validations and verification of CDM projects.
At the time of its suspension DNV was appointed by EcoSecurities as
verifier on 15 projects comprising 460,000 CERs, all of which were
scheduled for issuance in the first quarter of 2009, and as validator
on 34 projects comprising 9 million CERs in the net pre-2012
portfolio. The CDM EB subsequently reinstated DNV's accreditation on
13 February 2009. The impact on EcoSecurities for 2008 was limited
but the issuance of some CERs from EcoSecurities' projects may now be
delayed from the first quarter of 2009 to the second.
Overheads
EcoSecurities reduced its cost base in the middle of 2008 and has
continued to make further savings thereafter. This rationalisation
affected neither capacity for project registration, verification and
issuance nor key geographical regions. As a result administration
expenses for 2008 have remained below budget and represent a decrease
of 16% from the level of 2007.
The Group has also continued to maintain its presence in the
secondary trading business and VERs, particularly in the US, thus
retaining EcoSecurities' platform for future growth.
Outlook
At 28 February 2009, forward sales amounted to 34 million CERs. The
total future expected revenue (including January and February 2009
sales) in respect of already contracted forward sales amounted to
¤461m (¤558m at 31 December 2007) and subject to the production
levels of the pre-2012 CER portfolio, represents a net trading margin
of ¤201m (¤280m at 31 December 2007).
Portfolio issuances currently anticipated for 2009 remain in line
with our expectations at the time of the interim statement in
September 2008.
EcoSecurities continues to reduce its administrative expenses and
retains a strong level of cash which amounted to ¤38.7m at
31 December 2008 and ¤61.1m at 28 February 2009.
As a result of EcoSecurities' policy of hedging a significant portion
of its pre-2012 CER portfolio and as a result of the ongoing cost
control measures, the Group is well positioned and resilient to a
prolonged period of weak CER prices and it is equally well positioned
to take advantage of the anticipated medium term recovery in carbon
market pricing.
EcoSecurities remains well-placed to capture the further growth
opportunities which the Board believes will be presented by the
continuing evolution of the global carbon market.
Financial review
Income statement
Group revenue rose to ¤69.5m from ¤7.2m for 2007. The increase was
largely due to delivery of CERs in satisfaction of existing forward
sales contracts of ¤48.5m (¤4.6m for 2007) and ¤19.6m (¤1.4m for
2007) of spot sales and VERs. Delivery volumes increased 11 fold to
5.1 million tCO2e. Consulting revenue remained at a similar level to
2007.
Gross profit increased to ¤4.6m from ¤0.7m for 2007 on the back of
increased revenue. The gross margin reduced overall to 7% (10% for
2007) as a result of ¤3.1m of provisions required at the year end
against inventory and purchase contracts as discussed below. The
gross margin also reflects the mix of sales, the cost prices of CERs
and the significant proportion of secondary purchased CERs included
in 2008 revenues. Of the 4,539,000 CERs sold in the year,
3,828,000 CERs were purchased on the secondary market.
Other income of ¤1.0m represents the margin earned from secondary
trading during the year relating to 402,000 EUAs and 1,510,000 CERs.
Reported net revenue for the year was ¤5.6m.
CER and VER prices have continued to fall since the year end and
inventory and purchase contract provisions of ¤3.1m, largely against
VER and secondary trading inventory, have been included in the
financial statements for the year. The net revenue for the year,
before charging the inventory and purchase contract provisions and
including the secondary trading income which is treated as other
income in the income statement, amounted to ¤8.7m.
Administrative expenses decreased by 16% despite an increase in the
average staff numbers from 276 in 2007 to 290 in 2008 and a one-off
charge of ¤0.4m in respect of the Portland consulting office, which
was closed shortly after the year end as part of the cost reduction
efforts. The decrease in administrative expenses reflected the impact
of several cost control measures implemented during the year and
which further concentrated overheads towards key operations for the
monetisation of the pre-2012 CER portfolio including enhanced
spending on implementation activities and in China. The principal
component of administrative expenses remains staff and related costs.
Finance income amounted to ¤4.8m, of which ¤2.4m related to interest
income earned on the Group's cash deposits, ¤1.0m of mark to market
gains relating to the value of the option to purchase CERs granted to
Credit Suisse in 2005 and ¤1.4m to foreign currency gains in respect
of monetary assets and liabilities throughout the Group.
Finance expense amounted to ¤10.9m, of which ¤9.7m related to mark to
market exchange losses arising on euro/yen currency hedges on forward
sales contracts denominated in yen for delivery after the year end.
The euro/yen hedge mark to market losses are more than offset by
gains on corresponding forward sales contracts. However, the
unrealised loss has been recognised in the income statement for the
year whereas the corresponding gain will be recognised in the future
when the relevant deliveries are made.
Excluding the effect of the inventory and purchase contract
provisions and the recognition of mark to market losses on foreign
exchange hedges, where the corresponding gain is not yet recognised,
the loss before income tax for the year was ¤18.4m. The reported loss
before tax for the year was ¤31.2m (¤43.3m for 2007).
The Group's tax charge of ¤1.0m results largely from foreign taxes
payable by subsidiaries. At the year end, accumulated tax losses of
¤94m were available to offset future profits.
The loss for the financial year attributable to equity holders
amounted to ¤32.2m, a reduction of ¤12.9m over the prior year, which
resulted principally from increased revenue and gross margin, reduced
administrative expenses and lower levels of net finance expenses.
Balance sheet
Inventory has been reported at the lower of cost and net realisable
value and comprised 1,710,000 issued CERs and 2,122,000 issued VERs
at average book value of ¤14.17 per CER and ¤2.35 per VER. The
majority of the CER inventory (1,569,000 CERs) is for future delivery
in satisfaction of contracted forward sales.
Trade and other receivables decreased by ¤4.0m over the prior year to
¤17.0m and included ¤12.7m of trade receivables from sales delivered
at the end of 2008 and which were realised in cash in the first two
months of 2009. During 2008 the CITL link to the ITL became live and
¤4.2m of receivables held at the end of 2007 awaiting the link were
all realised in cash in 2008.
Trade and other payables reduced by ¤1.6m and reflect the Group's
policy of payment of approved expenditure within agreed payment
terms.
Borrowings of ¤1.0m represent an interest bearing facility drawn down
in EcoSecurities Carbon I Limited, the special purpose entity which
is consolidated within the Group's accounts but in which the Group
has only a minority shareholding.
The Group entered into a borrowing facility in December 2008 allowing
for collateralised financing of an amount up to the prevailing
equivalent market value of 2,000,000 CERs. At 31 December 2008 the
facility equated to ¤27m. This facility was undrawn at the year end.
The derivative financial liability predominately represents the
unrealised mark to market value of the euro/yen foreign exchange
hedges at the year end.
Capital increase
During the year Cargill Inc. exercised a warrant granted in 2005 to
subscribe for ordinary shares for ¤2.4m consideration. There were
also 1.5 million ordinary shares issued on the exercise of stock
options by employees and in respect of the consideration for past
acquisitions.
Cash flow
The Group's unrestricted cash balance at the year end was ¤38.6m, a
reduction of ¤30.0m over 2007. ¤24.7m of the reduction related to
increased working capital in respect of trade receivables and
inventory, ¤2.7m was utilised in settlement of a transaction entered
into in 2007, ¤2.4m was received on the exercise of the warrant
referred to above and the Group continued to incur expenditure to
develop the portfolio and increase the number of projects maturing
through the CDM process and generating emission reductions.
Restricted cash balances reduced to ¤0.1m at the year end, down from
¤19.4m at the prior year end as a result of the release of collateral
in respect of forward sales and letters of credit.
Hedging and treasury policies
The Group has consistently adopted a prudent approach to treasury and
commercial hedging in accordance with its internal policies that
cover certain commodity price and foreign exchange exposures. The
policy of selling forward a proportion of its net production of
pre-2012 CERs has given EcoSecurities a high level of visibility of
revenue in spite of the low market price of CERs.
The Group's policy has been to place cash deposits with secure, low
risk financial institutions.
Consolidated income statement
For the year ended 31 December 2008
2008 2007
¤'000 ¤'000
Revenue 69,476 7,222
Cost of sales (64,915) (6,499)
Gross profit 4,561 723
Other income 1,027 -
Administrative expenses
Administrative expenses (30,736) (36,633)
Loss from operating activities (25,148) (35,910)
Finance expense (10,867) (14,464)
Finance income 4,825 7,043
Loss before income tax (31,190) (43,331)
Income tax expense (1,021) (1,748)
Loss for the financial year attributable to
equity holders of the Group (32,211) (45,079)
Loss per share
Basic and diluted loss per share (¤ cent) (28.0) (44.0)
Consolidated statement of recognised income and expense
For the year ended 31 December 2008
2008 2007
¤'000 ¤'000
Loss for the financial year (32,211) (45,079)
Currency translation reserve movement (1,485) (432)
Total recognised income and expense for the
year attributable to equity holders of the
Group (33,696) (45,511)
Consolidated balance sheet
At 31 December 2008
2008 2007
¤'000 ¤'000
Assets
Non-current assets
Intangible assets 8,001 4,039
Property, plant and equipment 4,432 4,712
Deferred tax assets 369 229
Trade and other receivables 920 834
Total non-current assets 13,722 9,814
Current assets
Inventory 29,208 10,916
Derivative financial assets - 2,641
Trade and other receivables 16,984 20,973
Cash and cash equivalents 38,745 88,076
Total current assets 84,937 122,606
Total assets 98,659 132,420
Shareholders' equity
Issued share capital 294 282
Share premium 175,655 173,127
Share-based payment reserve 1,234 902
Currency translation reserve (1,991) (506)
Other reserves (573) (573)
Retained loss (102,179) (70,019)
Total shareholders' equity attributable to
shareholders of the Group 72,440 103,213
Liabilities
Non-current liabilities
Trade and other payables 3,000 3,040
Interest bearing loans and borrowings 1,000 -
Deferred tax liabilities 134 186
Total non-current liabilities 4,134 3,226
Current liabilities
Trade and other payables 10,571 12,137
Derivative financial liabilities 10,456 1,505
Current tax creditors 460 1,411
Provisions 598 10,928
Total current liabilities 22,085 25,981
Total liabilities 26,219 29,207
Total equity and liabilities 98,659 132,420
Summary consolidated cash flow statement
For the year ended 31 December 2008
2008 2007
¤'000 ¤'000
Cash flows from operating activities
Loss for the financial year (32,211) (45,079)
Income tax expense 1,021 1,748
Finance income (4,825) (7,043)
Finance expense 10,867 14,464
Settlement in cash of CER delivery obligation (2,710) -
Depreciation of property, plant and equipment 1,060 587
Amortisation of intangible assets 172 137
Impairment of intangible assets 605 1,323
Write-down of inventory 2,846 429
Write-off of tangible assets 144 -
Share-based payment expense 383 307
Foreign exchange movement 5,767 (994)
Change in inventory (21,139) (11,345)
Change in trade and other receivables (3,577) (8,773)
Change in trade and other payables (423) 3,610
Change in provisions (219) 816
Interest paid (158) (334)
Tax paid (2,163) (974)
Net cash used in operating activities (44,560) (51,121)
Cash flows from investing activities
Interest received 2,607 3,262
Acquisition of businesses - (170)
Purchase of property, plant and equipment (974) (2,849)
Investment in intangible assets (4,788) (8,214)
Net cash used in investing activities (3,155) (7,971)
Cash flows from financing activities
Proceeds from the issue of ordinary share
capital 2,500 100,045
Payment of share issue transaction costs - (3,502)
Proceeds from issue of new loans 1,000 -
Repayment of borrowings - (7,866)
Movement in restricted cash deposits 19,337 (13,136)
Net cash generated from financing activities 22,837 75,541
Net (decrease)/increase in cash and cash
equivalents (24,878) 16,449
Cash and cash equivalents at start of year 68,629 54,045
Effect of foreign exchange rate fluctuations on
cash and cash equivalents (5,116) (1,865)
Cash and cash equivalents at end of year 38,635 68,629
Notes to the financial information
1. Basis of Preparation
This preliminary financial information has been derived from the
Group's consolidated financial statements for the year ended 31
December 2008 which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the EU. The accounting policies applied in preparing the
Group's consolidated financial statements for the year ended 31
December 2008 are as published in the Annual Report for 2007.
The audited financial statements for 2008 will be issued in due
course and will include an unqualified opinion from our
auditors, KPMG Chartered Accountants.
2. Segment reporting
(a) Business segments
The Group has defined the following two business segments based
on its operating activities as follows:
(i) Emission reductions
This segment comprises emission reduction project activities
where the Group contracts with project developers in order to
acquire or sell emission reductions on their behalf, or
development activities where the Group develops its own interest
in emission reduction projects as either lead project entity or
as part of a collaboration.
(ii) Consulting
This segment provides emission reduction advisory services to
commercial and governmental organisations.
+----------------------------------------------------------------------------------------+
| | | | | | | |
| | | 2008 | | | 2007 | |
|--------------------------+----------+----------+--------+----------+----------+--------|
| | Emission|Consulting| | Emission|Consulting| |
| |reductions| services| Total|reductions| services| Total|
|--------------------------+----------+----------+--------+----------+----------+--------|
| | ¤'000| ¤'000| ¤'000| ¤'000| ¤'000| ¤'000|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Revenue | 68,477| 999| 69,476| 6,061| 1,161| 7,222|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Other income | 1,027| -| 1,027| -| -| -|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Segment cost | (88,883)| (2,727)|(91,610)| (36,019)| (2,300)|(38,319)|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Segments results | (19,379)| (1,728)|(21,107)| (29,958)| (1,139)|(31,097)|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Unallocated Group expenses| | | (4,041)| | | (4,813)|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Loss before financing | | | | | | |
|costs | | |(25,148)| | |(35,910)|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Net finance (expense) / | | | | | | |
|income | | | (6,042)| | | (7,421)|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Income tax expense | | | (1,021)| | | (1,748)|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Loss for the financial | | | | | | |
|year | | |(32,211)| | |(45,079)|
|--------------------------+----------+----------+--------+----------+----------+--------|
| | | | | | | |
|--------------------------+----------+----------+--------+----------+----------+--------|
|Segment assets | 58,371| 1,543| 59,914| 61,447| 1,133| 62,580|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Unallocated Group assets | | | 38,745| | | 69,840|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Total assets | | | 98,659| | | 132,420|
|--------------------------+----------+----------+--------+----------+----------+--------|
| | | | | | | |
|--------------------------+----------+----------+--------+----------+----------+--------|
|Segment liabilities | (24,115)| (914)|(25,029)| (25,545)| (387)|(25,932)|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Unallocated Group | | | | | | |
|liabilities | | | (1,190)| | | (3,275)|
|--------------------------+----------+----------+--------+----------+----------+--------|
|Total liabilities | | |(26,219)| | |(29,207)|
|--------------------------+----------+----------+--------+----------+----------+--------|
| | | | | | | |
|--------------------------+----------+----------+--------+----------+----------+--------|
|Capital expenditure | 5,701| 61| 5,762| 10,998| 65| 11,063|
|--------------------------+----------+----------+--------+----------+----------+--------|
| | | | | | | |
|--------------------------+----------+----------+--------+----------+----------+--------|
|Depreciation and | | | | | | |
|amortisation | 1,143| 89| 1,232| 627| 97| 724|
|--------------------------+----------+----------+--------+----------+----------+--------|
| | | | | | | |
|--------------------------+----------+----------+--------+----------+----------+--------|
|Impairments, provisions | | | | | | |
|and write-offs | 3,656| 516| 4,172| 1,323| -| 1,323|
+----------------------------------------------------------------------------------------+
(b) Geographical segments
The Group's emission reduction business is conducted on a global
scale, with presence in all major continents. The Group employs
significant assets overseas which are reported by continent. The
consulting business is undertaken throughout the Group supported
from offices in the UK, US, Brazil and Netherlands.
2008 2007
Other Total Capital Other Total Capital
Revenue income assets expenditure Revenue income assets expenditure
¤'000 ¤'000 ¤'000 ¤'000 ¤'000 ¤'000 ¤'000 ¤'000
Europe 46,551 1,027 92,818 4,906 6,104 - 117,891 9,646
North
America 2,926 - 2,194 484 1,064 - 9,710 26
South
America 124 - 362 3 45 - 1,002 69
Africa 206 - 28 - 9 - 55 10
Asia 19,669 - 3,257 369 - - 3,762 1,312
69,476 1,027 98,659 5,762 7,222 - 132,420 11,063
In presenting the information on the basis of geographical
segments, segment assets are based on the geographical location
of the assets. Segment revenue is based on the geographical
location of customers.
3. Finance income and expense
Finance expense of ¤10.9m predominately relates to mark to market
exchange losses arising principally on euro/yen currency hedges
relating to forward sales contracts denominated in yen for
delivery after the year end. Finance income of ¤4.8m principally
comprises of interest income on bank deposits, fair value
movement on derivative financial instruments and foreign exchange
gains.
4. Loss per share
Basic loss per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year.
The weighted average number of ordinary shares is calculated as
follows:
2008 2007
Number Number
('000) ('000)
Issued ordinary shares
At start of year 112,969 92,657
Effect of shares issued during the year 2,295 9,730
Weighted average number of shares for year 115,264 102,387
Basic and fully diluted loss per share is calculated as follows:
2008 2007
¤'000 ¤'000
Loss for the year attributable to equity (32,211) (45,079)
shareholders of the Company (¤'000)
Weighted average number of shares ('000) 115,264 102,387
Loss per share (¤ cent) (28.0) (44.0)
5. Cash and cash equivalents
2008 2007
¤'000 ¤'000
Cash at bank and in hand 16,361 33,875
Short term bank deposits 22,274 34,754
Cash and cash equivalents for the purposes of the
cash flow statements 38,635 68,629
Restricted cash 110 19,447
Cash and cash equivalents 38,745 88,076
Restricted cash deposits
At 31 December 2008, the Group had posted cash collateral of ¤0.1m
(2007: ¤19.4m), which is reflected in cash and cash equivalents as
restricted cash at year end. This cash collateral is in respect of
a letter of credit issued under a facility that requires that
collateral be posted in the form of cash against all outstanding
obligations.
Short term bank deposits
The Group's short term bank deposits are invested in money market
deposits which match the forecasted functional currency
requirements of the business. Details of these deposits are as
follows:
Weighted
Balance Average Weighted
invested Interest Average
¤'000 rate term
Euro 17,241 1.32% 10 days
Sterling 5,033 1.30% 8 days
22,274
6. Issued share capital, share premium and reserves
Share
Issued Based Currency
Share Share Payment Translation Other Retained
capital premium reserve reserve reserves loss Total
¤'000 ¤'000 ¤'000 ¤'000 ¤'000 ¤'000 ¤'000
At 1 January
2008 282 173,127 902 (506) (573) (70,019) 103,213
New shares
issued in
year:
-on exercise
of share
options 4 100 - - - - 104
-on exercise
of warrants 8 2,388 - - - - 2,396
- in
connection
with
acquisition - 40 - - - - 40
Total
recognised
income and
expense - - - (1,485) - (32,211) (33,696)
Share-based
payment
expense - - 383 - - - 383
Transfer on
exercise of
share
options - - (51) - - 51 -
At 31
December
2008 294 175,655 1,234 (1,991) (573) (102,179) 72,440
---END OF MESSAGE---
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