Final Results
Rurelec PLC
22 May 2006
FOR IMMEDIATE RELEASE
22 May 2006
Rurelec PLC
('Rurelec' or 'the Company')
PRELIMINARY RESULTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2005 (audited)
Highlights
• Acquisition of 50 per cent. joint venture interest in power generation
company in Argentina
• Placing of shares raising approximately £19m to fund the acquisition of
a controlling interest in Bolivia's largest generator, which closed in
January 2006, after the period under review
• Financial year end changed to 31 December following the Bolivian
acquisition
• Group turnover in 6 months to 31 December 2005 - £1.9m
• Group after tax profit of £2.1m, including one-off 'other income' of
£2.1m arising from fair value adjustments on assets acquired in Argentina
• Net Asset Value per share rose to 26.7p at 31 December 2005 (30 June
2005: 9.2p), an increase of 190 per cent.
• First dividend of 0.5p per share paid to shareholders on record at 18
November 2005
Jimmy West, Chairman, said: 'I am pleased with the progress that we are making
on all fronts and I am confident that Rurelec will continue on its path to
become one of the leading power generators in Latin America.'
For further information:
Rurelec PLC Daniel Stewart Parkgreen Communications
Peter Earl, CEO Paul Shackleton Ana Ribeiro
+44 (0)20 7793 7676 +44(0) 20 7776 6550 +44 (0) 20 7493 3713
RURELEC PLC
CHAIRMAN'S STATEMENT
FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
The six months period ended 31 December 2005 was one of great progress for
Rurelec as the Group transformed itself from a small niche power developer into
a major force in power generation in Latin America. Rurelec is now a profitable
holding company with interests in a group of four major operating power plants
comprising 436 MW of installed capacity in Bolivia and Argentina and a further
344 MW under construction or advanced development.
In the six months ended 31 December 2005, Rurelec reported a consolidated profit
after tax of £2,053,089. This profit is principally as a result of the fair
value adjustment arising on the acquisition of a 50 per cent. interest in
Patagonia Energy Limited and its wholly-owned subsidiary Energia del Sur S.A.
The profit arising on the fair value adjustment does not contribute to
distributable reserves and therefore is not available to shareholders by way of
dividend. Nevertheless it gives comfort that we were able to acquire this
valuable asset at significantly below its worth.
Energia del Sur operates a 76 MW plant in Patagonia and has produced reliable
power to the south of Argentina since being re-commissioned at the start of
2005. The cost of the acquisition was £3.5m as compared to the Group's share of
net assets acquired which have been provisionally valued at £5.5m.
The most important recent development occurred in January 2006 (subsequent to
the period covered by these results) when Rurelec completed the purchase of a
controlling stake in Empresa Electrica Guaracachi S.A. ('Guaracachi') which is
quoted on the La Paz Stock Exchange and which is Bolivia's largest power
generator. Rurelec now has interests in three principal entities involved in
power generation: Energia del Sur in Argentina, and Guaracachi and Energia para
Sistemas Aislados S. A. ('Energais') in Bolivia. Since all three companies share
a financial year end of 31 December, the Board of Rurelec has decided to change
the financial year end of Rurelec so that it too reports to 31 December rather
than to 30 June as previously. In order to put that adjustment into effect, the
financial results presented in this preliminary announcement are for the six
months ended 31 December 2005.
Rurelec has also taken the decision, in view of the cross-border nature of its
investments and operations, to adopt the new IFRS accounting standards in
advance of the Alternative Investment Market's mandatory date of 2007.
To finance the acquisition of Guaracachi, Rurelec placed 46.9 million new
ordinary shares for cash raising approximately £19 million. Earnings from
Guaracachi are in line with budget, and barring unforeseen circumstances, should
enable the company to pay further dividends in the future.
Rurelec remains committed to paying to shareholders a high proportion of its
distributable reserves in the form of dividends, as befits an electric utility
company. Rurelec was the first power utility to have its shares admitted to AIM.
As 2006 advances, Rurelec continues to benefit from the important changes in the
energy sectors in Bolivia and Argentina which encourage our operations to add
value to Bolivia's large reserves of gas by generating power regionally.
Guaracachi is Bolivia's largest domestic user of natural gas and is set to
increase its gas usage as new capacity is brought on line in 2006 to meet the
country's increased demand for electricity. We have established a close working
relationship with the new government of Bolivia, led by President Evo Morales,
and as a result Guaracachi expects to be in a position to announce important new
export projects to Bolivia's neighbouring countries to complement the initial
120 MW Yacuiba project to export power to northern Argentina which is proceeding
with the support of the governments both of Bolivia and of Argentina.
As the world discovers the high cost of relying on liquid fossil fuels, Rurelec
expects to continue to industrialise clean burning, efficient, low cost gas to
provide sustainable and affordable energy to the citizens of the Southern Cone
of Latin America. At the same time, Rurelec intends to build on its early
success in achieving United Nations approval for its carbon emission reduction
projects arising from investment in new high tech generation systems which
re-use the waste heat from gas turbines to produce major reductions in the
emission of CO2 from our gas fired power plants.
I am pleased with the progress that we are making on all of these fronts and I
am confident that Rurelec will continue on its path to become one of the leading
power generators in Latin America.
Jimmy West
Chairman
Date: 22 May 2006
RURELEC PLC
CHIEF EXECUTIVE'S REVIEW OF OPERATIONS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
Energia del Sur
In July 2005 the Company completed the acquisition of a 50 per cent. interest in
Energia del Sur S.A., the 76 MW gas fired open cycle power plant in Comodoro
Rivadavia. This plant has enjoyed eliable dispatch since re-starting power
production at the beginning of 2005.
Early in 2006, the authorities in Argentina gave their approval for the
expansion of the Energia del Sur plant by the addition of up to 50 MW of new
combined cycle capacity for commissioning as soon as possible to deal with power
shortages in Patagonia. Since Rurelec acquired its interest in Energia del Sur,
Rurelec management has taken responsibility for converting the expansion project
into a waste heat recovery scheme eligible for carbon credits under the Kyoto
Protocol. An application is being made to the United Nations Clean Development
Mechanism Methodology Committee in New York for approval of the Patagonia
project using the same methodology successfully originated by Rurelec directors
in Bolivia.
Based on this previously accepted methodology, Rurelec and the other
shareholders in Energia del Sur have gone ahead with the project and have
acquired from a US utility in New Jersey a steam turbine with a 50 MW capacity
and an associated air cooling system designed to operate in conditions, such as
the drylands of Patagonia, where little fresh water is available for steam
cooling. Both the steam turbine and the cooling system are now in the process of
being dismantled and shipped to Patagonia. Rurelec management estimate that the
purchase of existing US utility equipment has saved some US$10 million from the
list price of the combined cycle conversion project.
The additional capacity is scheduled to be commissioned in the second half of
2007. When completed, Energia del Sur will have one of the most efficient heat
rates in Patagonia, and it is estimated that the expanded plant will generate
between 100,000 and 200,000 tonnes of CO2 reductions each year.
The Board of Energia del Sur continues to explore opportunities to acquire
existing gas fired plants in Argentina that are not achieving their full
potential under their current ownership.
Guaracachi
Although its results are not yet consolidated within Rurelec, 2005 was an
excellent year for Empresa Electrica Guaracachi S.A. as the company reported the
strongest set of financial results in its history. It is the only foreign
controlled power company investing significant sums in Bolivia to help achieve
the national objective to industrialise and add value to Bolivia's reserves of
natural gas.
In 2005 Guaracachi took the decision to invest almost US$20 million (including
VAT and import duties) in new power capacity to meet Bolivia's pressing domestic
need for power. By the second half of 2006 this new power capacity will be on
line, increasing Guaracachi's installed capacity by 22 per cent. Additionally,
in 2005 Guaracachi's combined cycle gas turbine (CCGT) conversion project was
given preliminary approval by the United Nations Clean Development Mechanism
Methodology Committee in New York. This is the first time a Bolivian generation
company has obtained an approval for carbon credits under the Kyoto Protocol and
it is an important precedent for Bolivia as it moves to clean-burn, low
emissions generation of electricity in a move to reduce the production of the
greenhouse gases that cause global warming.
2005 also saw Guaracachi announce its initial electricity export project for
sending power to Northern Argentina from Yacuiba on a new high voltage
transmission line which will for the first time connect the two countries. This
export project has received the approval of the governments of both Argentina
and Bolivia. It will produce 120 MW of open cycle export power which will help
alleviate chronic power shortages in the province of Salta. Above all, it is a
good case study as to how a Bolivian company can industrialise gas for the
benefit both of Bolivia and of its neighbour in Mercosur. The project is
expected to create jobs in Yacuiba and throughout the Department of Tarija. 120
MW of installed capacity represents the equivalent of 15 per cent. of Bolivia's
current peak demand, so the project is important for the country. This is the
first of what should be a number of export projects to be led by Guaracachi.
Guaracachi produced a strong financial performance in 2005 with revenues of
US$28.6 million up from US$25.6 million in 2004. This resulted in net income of
US$7.92 million as against net income of US$3 million in 2004. The 2005 profit
is particularly robust since it comes after making significant investment in new
projects and in upgrading existing plant capacity.
As at 31 December, 2005 Guaracachi had cash deposits of some US$20 million as
against bank debt of just over US$15 million.
Demand growth for electricity in Santa Cruz continued to rise during 2005. With
Bolivian growth in GDP now running at just below 5 per cent., its highest level
for a decade, and with new energy intensive mining projects due to commence
operations in 2006, the prospects for Guaracachi continue to be strong.
The decision to create new plant capacity dedicated to the export of electricity
to Bolivia's neighbours is part of a new Guaracachi policy of adding value to
the country's energy assets by industrialising gas. The Argentine Export Project
is expected to be the first of a number of similar export initiatives to
Bolivia's energy-hungry neighbours.
Guaracachi intends to help bring electricity to those two million Bolivians
living in the countryside who have no access to electricity. Only one in four
rural households in Bolivia has mains electricity today. Guaracachi, working
with Rurelec, plans to use its power and influence as Bolivia's largest
generator to promote rural electrification.
Guaracachi is looking to expand its community assistance projects which support
environmental clean-up and educational development in Santa Cruz, Sucre and
Potosi.
In July 2005 the shares of Guaracachi were admitted to the official list of the
La Paz stock exchange, the Bolsa Boliviana de Valores.
Energais
Rurelec began its life as a public company aiming to fulfil two principal
functions in Latin America. The first was the management of public sector rural
electrification projects and the second was the provision of new power
generation installations for regional communities. In Bolivia both of these
activities are being channelled through the Company's wholly-owned subsidiary,
Energia para Sistemas Aislados S.A. - Energais.
Rurelec has initiated projects in Trinidad and Yacuiba in Bolivia using
Worthington dual fuel motors and General Electric Jenbacher gas engines.
Following the Rurelec purchase of a controlling stake in Guaracachi, it has been
agreed to build the 6 MW isolated generation project serving Yacuiba on a site
adjacent to Guaracachi's proposed new export project. This co-location is
expected to result in overall cost savings and an acceleration of local permits,
which in Bolivia can be notoriously slow to obtain. The three Jenbachers have
successfully been shipped from the Isle of Wight to Bolivia and are awaiting
their generation licences for the new domestic Yacuiba power plant, on the
border with Argentina
The two Energais Worthington reciprocals are disassembled in Sucre and are now
ready for transportation to new Amazonian sites subject to receipt of the
necessary environmental impact assessments.
At present Rurelec is exploring further expansion opportunities in Argentina and
has reserved two further Jenbacher gas engines under lease. Riberalta and
Guayamerin on the Amazon Basin are in the process of finalising new power
purchase agreements with Energias for the installation of new capacity in these
isolated areas.
The company is also considering new isolated generation and rural
electrification projects in Northern Argentina.
Environmental
As part of its commitment to improving the quality of life in its key areas of
generation, Rurelec has adopted a policy of phasing out older, lower efficiency
generation equipment, which have higher emissions of greenhouse gases, and
replacing them with new machines of greater efficiency and lower levels of
emissions that adversely affect the environment
These initiatives are not only environmentally sound but are socially
responsible for reinforcing the integrity and reliability of the electricity
generation industry in the Southern Cone of Latin America.
Peter Earl
Chief Executive
Date: 22 May 2006
RURELEC PLC
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
Consolidated income statement 6 months ended 12 months ended
31 December 2005 30 June 2005
Notes £ £
Revenue 1,863,940 1,000,000
Cost of sales (1,501,541) (666,666)
Gross profit 362,399 333,334
Administrative expenses (308,079) (172,893)
Other income 6 2,066,603 -
Finance income 7,809 10,648
Profit before tax 2,128,732 171,089
Tax expense (75,643) (33,000)
Profit for the period 14 2,053,089 138,089
Earnings per share (basic) 8 10.28p 1.14p
Earnings per share (diluted) 8 10.28p 1.14p
Statement of recognised income and expense
Exchange differences on translation (385,335) 1,198
of foreign operations
Profit for the financial period 2,053,089 138,089
Total recognised income and expense
for the period 1,667,754 139,287
RURELEC PLC
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2005
31.12.2005 30.6.2005
Notes £ £
Assets
Non-current assets
Property, plant and equipment 9 4,852,386 723,847
Intangible assets 6,931 -
Trade and other receivables 10 405,863 -
Deferred tax assets 11 327,588 5,000
5,592,768 728,847
Current assets
Inventories 459,643 -
Trade and other receivables 10 2,578,111 239,412
Cash and cash equivalents 12 424,043 463,348
3,461,797 702,760
Total assets 9,054,565 1,431,607
Equity and liabilities
Equity attributable to equity
holders of the parent
Share capital 13 427,000 252,000
Share premium account 14 3,567,763 764,055
Foreign currency reserve 14 (384,137) 1,198
Retained earnings 14 2,084,471 138,132
Total equity 5,695,097 1,155,385
Non-current liabilities
Trade and other payables 15 431,257 -
Deferred tax liabilities 16 - 38,000
Total non-current liabilities 431,257 38,000
Current liabilities
Trade and other payables 15 2,477,589 238,222
Borrowings 17 450,622 -
Total current liabilities 2,928,211 238,222
Total liabilities 3,359,468 276,222
Total equity and liabilities 9,054,565 1,431,607
RURELEC PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
6 months ended 12 months ended
31 December 2005 30 June 2005
Notes £ £
Net cash (outflow) / inflow from 18 (57,409) 143,304
operating activities
Interest received 7,809 10,648
Net cash (outflow) / inflow from (49,600) 153,952
operating activities
Cash flows from investing activities
Purchase of plant and equipment (387,114) (414,592)
Acquisition of interest in JV /
subsidiary 19 (2,610,126) (292,110)
Less: cash balance in JV 135,577
(2,474,549)
Net cash used in investing activities (2,861,663) (706,702)
Net cash outflow before financing
activities (2,911,263) (552,750)
Cash flows from financing activities
Issue of shares (net of costs) 2,978,708 816,055
Dividend paid 7 (106,750) -
Net cash in from financing
activities 2,871,958 816,055
(Decrease) / increase in cash and
cash equivalents (39,305) 263,305
Reconciliation and analysis of
change in net funds
(Decrease) / increase in cash
during period (39,305) 263,305
Cash and cash equivalents at
start of period 463,348 200,043
Cash and cash equivalents at
end of period 424,043 463,348
RURELEC PLC
NOTES TO THE STATEMENT OF PRELIMINARY RESULTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
1 Nature of operations
Rurelec PLC and its subsidiary and joint venture entities ('The Group')
principal activity is the operation of electricity generation assets and the
supply of electricity to the wholesale market and major end-users. The Group
also buys and sells related assets as opportunities arise. During the period
under review, all of the Group's electricity generation assets were located in
South America.
2 General information
Rurelec PLC is the Group's ultimate parent company. It is incorporated and
domiciled in England and Wales. The address of Rurelec PLC's registered office
is given on the information page. Rurelec PLC's shares are traded on the
Alternative Investment Market (AIM) in London.
The Company and the consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as adopted by the EU
and International Financial Reporting Standards as issued by the International
Accounting Standards Board.
The consolidated financial statements for the six months period ended 31
December 2005 (including the comparatives for the year ended 30 June 2005) were
approved by the Board of directors on 22 May 2006.
3 Adoption of International Financial Reporting Standards
In 2003 and 2004 the IASB issued a series of new IFRS and revised International
Accounting Standards (IAS), which in conjunction with unrevised IASs issued by
the International Accounting Standards Committee, predecessor to the IASB, is
referred to as 'the IFRS Stable Platform 2005'. The Group applies the IFRS
Stable Platform 2005 from 1 July 2004.
As required under IFRS reporting, the new standards have been applied
retrospectively, i.e. with amendments to the 30 June 2005 accounts and their
presentation in accordance with IFRS 1 First Time Adoption of International
Financial Reporting Standards.
Due to the adoption of IFRS, the 30 June 2005 comparatives contained in these
financial statements differ from those published in the financial statements for
the year ended 30 June 2005.
The changes made and the relevant standards which required these changes are as
follows:
a) The adoption of IFRS 3 (2004) (Business Combinations) - goodwill
amortisation charged in the year ended 30 June 2005 (£5,739) has been
written-back to revenue reserves.
b) The adoption of IAS 10 (events after the Balance Sheet Date) - under IAS
10, dividend distributions to shareholders are included in 'other short term
financial liabilities' when the dividends are approved by the shareholders'
meeting. As a result, the dividend paid in November 2005 and which was
previously included as a liability at 30 June 2005 is now included as a dividend
for the current period.
c) The adoption of IAS 12 under which deferred tax assets and deferred tax
liabilities are shown separately and not aggregated.
The adoption of other standards required under IFRS reporting has not resulted
in any other alterations to the Group's accounting policies or the previously
reported comparative figures.
The following table provides a reconciliation of the changes to the figures
reported at 30 June 2005 arising from the adoption of IFRS reporting:
a) Group As previously IFRS Notes As restated
reported adjustment
£ £ £
Intangible assets 147,294 (147,294) 1 -
Property, plant and 570,814 153,033 2 723,847
equipment
Deferred tax asset - 5,000 3 5,000
Deferred tax liability (33,000) (5,000) 3 (38,000)
Profit for the year 143,828 5,739 4 138,089
Total equity 1,042,896 112,489 5 1,155,385
Notes:
1. IFRS 3 - re-classification to fixed assets
2. IFRS 3 - re-classification to fixed assets and write-back of goodwill
amortisation
3. IAS 12 - deferred tax assets shown separately from deferred tax
liabilities
4. IFRS 3 - write-back of goodwill amortisation
5. IFRS 3 and IAS 10 - write-back of goodwill amortisation (IFRS 3 -
£5,739) and exclusion of proposed dividend (IAS 10 - £106,750).
No changes are required to the 30 June 2005 cash flow statement as a result of
the adoption of IFRS reporting.
No changes are required to the 30 June 2004 financial statements as a result of
the adoption of IFRS reporting.
At the date of this preliminary announcement, the following standards and
interpretations were in issue but not yet effective, including IAS 1 amendment
(regarding financial instruments and capital), IAS 19 amendment (employee
benefits), IAS 39 amendment (adjustments for cash flow hedge accounting and fair
value option), IAS 39 and IFRS 4 amendment (financial guarantee contracts), IFRS
7 (financial instruments disclosure) and IFRIC 5 (de-commissioning). The
directors anticipate that the adoption of the other standards and
interpretations will have no material impact on the financial statements of the
Group.
4 Summary of accounting policies
4.1 Basis of preparation
The preliminary announcement has been prepared under the historical cost
convention. The measurement bases and principal accounting policies of the Group
are set out below.
The policies have changed from the previous year when the financial statements
were prepared under applicable United Kingdom Generally Accepted Accounting
Principles (UK GAAP). The comparative information has been restated in
accordance with IFRS requirements. The changes to accounting policies and the
effect on the comparative figures are explained in note 3 above. The date of
transition to IFRS was 1 July 2004.
The accounting policies that have been applied in the opening balance sheet have
also been applied throughout all periods presented in these financial
statements. It should be noted that accounting estimates and assumptions are
used in preparation of the financial statements. Although these estimates are
based on management's best knowledge of current events and actions, actual
results may ultimately differ from those estimates.
4.2 Basis of consolidation
The Group financial statements consolidate those of the Company, its subsidiary
undertaking and its joint venture entity drawn up to 31 December 2005.
Subsidiaries are entities over which the Group has the power to control the
financial and operating policies so as to obtain benefits from its activities.
The Group obtains and exercises control through voting rights.
Joint ventures are arrangements in which the Group has a long-term interest and
shares control under a written contractual agreement. The Group reports its
interests in jointly controlled entities using proportionate consolidation such
that the Group's share of the assets, liabilities, income and expenses of
jointly controlled entities are combined with the equivalent items in the
consolidated financial statements on a line by line basis.
Goodwill, or the excess of interest in acquired assets, liabilities and
contingent liabilities over cost, arising on the acquisition of the Group's
interest in subsidiary or a jointly controlled entity is accounted for in
accordance with the Group's accounting policy for goodwill arising on the
acquisition of a subsidiary (see 4.3 below).
Unrealised gains on transactions between the Group and subsidiary and joint
venture entities are eliminated. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset transferred.
Amounts reported in the financial statements of subsidiary and joint venture
entities have been adjusted where necessary to ensure consistency with the
accounting policies adopted by the Group.
Acquisitions of subsidiaries and joint venture entities are dealt with by the
purchase method. The purchase method involves the recognition at fair value of
all identifiable assets and liabilities, including contingent liabilities of the
acquired company, at the acquisition date, regardless of whether or not they
were recorded in the financial statements of the subsidiary prior to
acquisition. On initial recognition, the assets and liabilities of the acquired
entity are included in the consolidated balance sheet at their fair values,
which are also used as the bases for subsequent measurement in accordance with
the Group accounting policies. Investments in subsidiaries and joint ventures
are stated at cost in the balance sheet of the Company.
4.3 Goodwill
Goodwill representing the excess of the cost of acquisition over the fair value
of the Group's share of the identifiable net assets acquired is capitalised and
reviewed annually for impairment. Goodwill is stated after separating out
identifiable assets and liabilities. Goodwill is carried at cost less
accumulated impairment losses. Any excess of interest in acquired assets,
liabilities and contingent liabilities over cost is recognised immediately after
acquisition in the income statement.
4.4 Foreign currency translation
The financial information is presented in pounds sterling, which is also the
functional currency of the parent company.
In the separate financial statements of the consolidated entities, foreign
currency transactions are translated into the functional currency of the
individual entity using the exchange rates prevailing at the dates of the
transactions (spot exchange rate). Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation of remaining
balances at year-end exchange rates are recognised in the income statement under
'other income' or 'other expenses', respectively.
In the consolidated financial statements, all separate financial statements of
subsidiary and jointly controlled entities, originally presented in a currency
different from the Group's presentation currency, have been converted into
sterling. Assets and liabilities have been translated into sterling at the
closing rate at the balance sheet date. Income and expenses have been converted
into sterling at the average rates over the reporting period. Any differences
arising from this procedure have been charged / (credited) to the Foreign
Currency Reserve. Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the foreign entity
and translated into sterling at the closing rate.
4.5 Income and expense recognition
Revenue is recognised upon the performance of services or transfer of risk to
the customer. Revenues represent the total amount receivable by the Group for
electricity sales and, in the year to 30 June 2005, from equipment sales,
excluding VAT. Revenue includes both the sale of electricity generated and also
compensation for keeping power plants operating and available for despatch into
the grid as required.
Operating expenses are recognised in the income statement upon utilisation of
the service or at the date of their origin. All other income and expenses are
reported on an accrual basis.
4.6 Dividends
Dividends are recorded in the Group's financial statements in the period in
which they are approved by the shareholders or by the Board in the case of
interim dividends. Group dividends are recorded in the period in which they are
approved by the Board of the paying company.
4.7 Borrowing costs
All borrowing costs are expensed as incurred except where the costs are directly
attributable to specific construction projects.
4.8 Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation and any
provision for impairment. No depreciation is charged during the period of
construction.
All operational buildings and plant and equipment in the course of construction
are recorded as plant under construction until such time as they are brought
into use by the Group. Plant under construction includes all direct expenditure
and may include capitalised interest in accordance with the accounting policy on
that subject. On completion, such assets are transferred to the appropriate
asset category.
Repairs and maintenance are charged to the income statement during the financial
period in which they are incurred. The cost of major renovations and overhauls
is included in the carrying amount of the assets where it is probable that the
economic life of the asset is significantly enhanced as a consequence of the
work. Major renovations and overhauls are depreciated over the expected
remaining useful life of the work.
Depreciation is calculated to write down the cost or valuation less estimated
residual value of all property, plant and equipment other than freehold land by
equal annual instalments over their estimated useful economic lives. The periods
generally applicable are:
- Buildings: 25 to 50 years
- Plant and equipment: 3 to 15 years
Material residual values are updated as required, but at least annually, whether
or not the asset is revalued. Where the carrying amount of an asset is greater
than its estimated recoverable amount, it is written down immediately to its
recoverable amount.
4.9 Impairment testing of property, plant and equipment, goodwill and other
intangible assets
Goodwill and other intangible assets with indefinite lives are reviewed for
impairment losses annually and, for all other assets, whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised from the amount by which the carrying amount of
an asset exceeds its recoverable amount which is the higher of an asset's net
selling price and its value in use. For the purposes of assessing impairment,
assets are grouped at the lowest level for which there are separately
identifiable cash flows.
4.10 Taxation
Current income tax assets and liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date. They are calculated according
to the tax rates and tax laws applicable to the fiscal periods to which they
relate, based on the taxable profit for the period. All changes to current tax
assets or liabilities are recognised as a component of tax expense in the income
statement or through the statement of recognised income and expense.
Deferred income taxes are calculated using the liability method on temporary
differences. This involves the comparison of the carrying amounts of assets and
liabilities in the consolidated financial statements with their respective tax
bases. However, in accordance with the rules set out in IAS 12, no deferred
taxes are recognised in respect of non-tax deductible goodwill. In addition, tax
losses available to be carried forward as well as other income tax credits to
the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided for in full. Deferred tax assets are
recognised to the extent that it is probable that they will be able to be offset
against future taxable income. Deferred tax assets and liabilities are
calculated, without discounting, at tax rates that are expected to apply to
their respective period of realisation, provided they are enacted or
substantively enacted at the balance sheet date. Most changes in deferred tax
assets or liabilities are recognised as a component of tax expense in the income
statement. Only changes in deferred tax assets or liabilities that relate to a
change in value of assets or liabilities that is charged directly to equity
(such as the revaluation of land) are charged or credited directly to equity.
4.11 Financial assets
The Group's financial assets include cash and cash equivalents, trade and other
receivables.
Cash and cash equivalents include cash at bank and in hand as well as short term
highly liquid investments such as money market instruments and bank deposits.
Receivables are non-derivative financial assets with fixed or determinable
payment dates that are not quoted in an active market. They arise when the Group
provides money, goods or services directly to a debtor with no intention of
trading the receivable. Receivables are measured initially at fair value and
subsequently re-measured at amortised cost using the effective interest method,
less provision for impairment. Any impairment is recognised in the income
statement.
Trade receivables are provided against when objective evidence is received that
the Group will not be able to collect all amounts due to it in accordance with
the original terms of the receivables. The amount of the write-down is
determined as the difference between the asset's carrying amount and the present
value of estimated cash flows.
4.12 Financial liabilities
Financial liabilities are obligations to pay cash or other financial instruments
and are recognised when the Group becomes a party to the contractual provisions
of the instrument. All interest-related charges are recognised as an expense in
'finance cost' in the income statement. Bank and other loans are raised for
support of long term funding of the Group's operations. They are recognised at
fair value, net of transaction costs. Finance charges, including premiums
payable on settlement or redemption, and direct issue costs are charged to the
income statement on an accruals basis using the effective interest method and
are added to the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
4.13 Hedging instruments
The Group has not entered into any derivative financial instruments for hedging
or any other purpose.
4.14 Inventories
Inventories comprise spare parts and similar items for use in the Group's plant
and equipment. Inventories are valued at the lower of cost and net realisable
value on a first-in, first-out basis.
4.15 Equity
Equity comprises the following:
'Share capital' represents the nominal value of equity shares.
'Share premium' represents the excess over nominal value of the fair value of
consideration received for equity shares, net of expenses of the share issue.
'Foreign currency reserve' represents the differences arising from translation
of investments in overseas subsidiaries.
'Profit and loss reserve' represents retained profits.
4.16 Pensions
During the period under review, the Group did not operate or contribute to any
pension schemes (30 June 2005 - nil).
4.17 Key assumptions and estimates
The Group makes estimates and assumptions concerning the future, The resulting
estimates will, by definition, seldom equal the related actual results. The
Board has considered the critical accounting estimates and assumptions used in
the Accounts and concluded that the main area of significant risk which may
cause material adjustment to the carrying value of assets and liabilities within
the next financial year is in respect of the assumptions used to value plant and
machinery. The Board has obtained external expert valuations and estimates of
expected useful lives for all of the Group's plant and machinery and plant under
construction and these valuations have been used in these Accounts. However,
changes in technology or industry practices may result in the assumptions used
in these valuations needing to be changed. An important area requiring estimates
and assumptions is deferred tax since there is an element of uncertainly
regarding the both the timing of the reversing of the asset or liability and the
tax rate which will apply when the reversing occurs.
5 Principal activity
The Group's activities comprise the acquisition and development of power
generation assets to support rural electrification projects, initially in South
America. In addition, and as opportunities arise, the Group acquires, renovates
and sells power generation equipment.
6 Other income
Other income represents the excess of the provisional fair values of the assets
less the liabilities acquired in the acquisition of the 50 per cent. interest in
Patagonia Energy Limited and its subsidiary company, over the cost of acquiring
the shares in Patagonia Energy Limited - see note 19.
7 Dividends 6 months 12 months
31.12.2005 30.6.2005
£ £
Amounts recognised as distributions to equity
holders during the period:
Final dividend for the year ended 30 June 2005 106,750 -
of 0.5p per share paid to shareholders on record
at 18 November 2005
8 Earnings per share
Basic earnings per share is calculated by dividing the profit for the period
attributable to shareholders by the weighted average number of shares in issue
during the period. For diluted earnings per share, the weighted average number
of shares is adjusted to assume conversion of all dilutive potential ordinary
shares. The fully diluted calculation of earnings per share is unchanged from
the basic calculation as the warrants are anti-dilutive.
Income, or expenses, of a one off nature do not relate to the profitability of
the Group on an on-going basis and underlying earnings per share excludes such
items, with the average weighted number of shares in issue during the year as
per the calculation of the basic earnings per share.
6 months 12 months
31.12.2005 30.6.2005
Profit attributable to equity holders £2,053,089 £138,089
of the company
Total shares in issue (average during 19,970,924 12,121,096
the period)
Basic EPS 10.28p 1.14p
Diluted EPS 10.28p 1.14p
Profit attributable to equity holders
of the company (as above) £2,053,089 £132,350
Less: non-recurring 'other income' (£2,066,603) -
Underlying (loss) / profit (£13,514) £132,350
attributable to equity holders
of the company
Underlying EPS (0.07p) 1.14p
9 Property, plant and Land Plant and Plant under Total
equipment equipment construction
£ £ £ £
Cost at 1 July 2004 - - - -
Additions - - 414,592 414,592
Assets acquired on - - 309,255 309,255
acquisition
Cost at 1 July 2005 - - 723,847 723,847
Assets acquired on 114,927 4,036,160 - 4,151,087
acquisition
Additions - 181,276 205,838 387,114
Exchange differences (7,346) (278,044) - (285,390)
Cost at 31 December 2005 107,581 3,939,392 929,685 4,976,658
9 Property, plant and equipment Continued
Land Plant and Plant under Total
equipment construction
£ £ £ £
Depreciation at 1 July 2004 - - - -
Charge for year - - - -
Depreciation at 1 July 2005 - - - -
Charge for period - 128,360 - 128,360
Exchange differences - (4,088) - (4,088)
Depreciation at 31 December - 124,272 - 124,272
2005
Net book value - 31 December 107,581 3,815,120 929,685 4,852,386
2005
Net book value - 30 June - - 723,847 723,847
2005
Trade and other receivables 31.12.2005 30.6.2005
£ £
Current
Trade debtors 1,041,767 175,000
Other debtors and prepayments (see below) 1,279,983 64,412
Pre-paid taxes 256,361 -
2,578,111 239,412
Other debtors and prepayments include £982,509 of fees prepaid by the Company at
31 December 2005 in respect of costs associated with the share issue and the
acquisition by the Company of Bolivia Integrated Energy Ltd in January 2006.
Non-current
Trade debtors 405,863 -
Non-current trade debtors represents retentions by the Electricity Regulator in
the Argentina. It is expected that the retention will either be released or
contributed towards ongoing capital projects.
11 Deferred tax assets 31.12.2005 30.6.2005
£ £
Asset at 1 July 2005 5,000 -
Arising on acquisition 372,600 -
(Charged) / credited to tax expense (28,447) 5,000
Exchange difference (21,565) -
Asset at 31 December 2005 327,588 5,000
The Group deferred tax asset arises principally from timing differences on the
tax treatment of plant and machinery maintenance expenditure in Argentina.
12 Cash and cash equivalents 31.12.2005 30.6.2005
£ £
Cash at bank and in hand 137,350 33,348
Short-term bank deposits 286,693 430,000
424,043 463,348
13 Share capital 31.12.2005 30.6.2005
£ £
a) Authorised
30,000,000 ordinary shares of 2p each 600,000 250,000
b) Allotted, called up and fully paid
21,350,000 ordinary shares of 2p 427,000 252,000
each (30 June 2005 - 12,600,000
ordinary shares of 2p each)
Reconciliation of movement in share capital Number £
during the period
At 1 July 2004 10,000,000 200,000
Allotment on 18 August 2004 2,000,000 40,000
Allotment on 5 November 2004 600,000 12,000
Balance at 30 June 2005 12,600,000 252,000
Allotment on 29 July 2005 (see below) 8,750,000 175,000
At 31 December 2005 21,350,000 427,000
13 Share capital Continued
The difference between the total consideration arising from shares issued and
the nominal value of the shares issued has been credited to the share premium
account.
c) Warrants
On 18 August 2004, the company issued:
i) 75,000 warrants to subscribe for ordinary shares on a 1:1 basis at 40p
per share. These warrants expire on 17 August 2006.
ii) 1,000,000 warrants to subscribe for ordinary shares on a 1:1 basis at
60p per share (if exercised prior to 12 August 2005) or 80p per share if
exercised after 12 August 2005 but before 17 August 2006. These warrants expire
on 17 August 2006.
All of these warrants vested on issue, none have been exercised to date and all
were outstanding at 17 May 2006.
14 Statement of changes in shareholders' equity
Share Share Foreign Retained Total
capital premium exchange earnings equity
£ £ £ £ £
At 1 July 2004 200,000 - - 43 200,043
Allotment on 18 40,000 760,000 - - 800,000
August 2004
Allotment on 5 12,000 243,000 - - 255,000
November 2004
Share issue - (238,945) - - (238,945)
costs
written-off
Translation - - 1,198 - 1,198
difference
Profit for the - - - 138,089 138,089
year
Balance at 30 252,000 764,055 1,198 138,132 1,155,385
June 2005
Balance at 1 252,000 764,055 1,198 138,132 1,155,385
July 2005
Allotment on 29 175,000 3,325,000 - - 3,500,000
July 2005
Share issue - (521,292) - - (521,292)
costs
written-off
Dividend paid - - - (106,750) (106,750)
Translation - - (385,335) - (385,335)
differences
Profit for the - - - 2,053,089 2,053,089
period
Balance at 31 427,000 3,567,763 (384,137) 2,084,471 5,695,097
December 2005
15 Trade and other payables 31.12.2005 30.6.2005
£ £
Current
Trade creditors (see note i below) 1,273,915 222,434
Accruals 593,645 12,500
Taxes 178,771 3,288
Sundry creditors (see note ii below) 431,258 -
2,477,589 238,222
Non-current
Sundry creditors (see note ii below) 431,257 -
431,257 -
i) Trade creditors includes fees of £1,042,973 invoiced to the company, but
unpaid at 31 December 2005, in respect of the share issue in January 2006 and
the acquisition by the company of 50.00125% of Bolivia Integrated Energy Ltd in
January 2006.
ii) Sundry creditors, current and non-current, represents a total amount of
US$1,500,000 deferred consideration (current US$750,000 / £431,258, non-current
US$750,000 / £431,257) owing by the company at 31 December 2005 in respect of
the purchase by the company of 50 per cent. of Patagonia Energy Limited.
US$750,000 was paid in April 2006. The timing of further payments in respect of
the deferred consideration, up to a maximum of US$750,000, is dependent upon the
operating profit of Energia del Sur, the 100 per cent. trading subsidiary of
Patagonia Energy Limited.
16 Deferred tax liabilities 31.12.2005 30.6.2005
£ £
Balance at 1 July 2005 38,000 -
(Released to) / charged to income statement (38,000) 38,000
Balance at 31 December 2005 - 38,000
The deferred tax liability arose in the year to 30 June 2005 as a result of
accelerated capital allowances. The asset was sold during the period to 31
December 2005 to the Company's subsidiary, Energia para Sistemas Aislados S.A.
Borrowings 31.12.2005 30.6.2005
£ £
Loan from Electricity Regulator 450,622 -
On 21 June 2005, the Electricity Regulator in Argentina advanced Ar$4,760,000
(£901,244) to Energia del Sur S.A. The interest rate and repayment terms have
not been finalised but it is anticipated that the loan will bear interest at 7
per cent. per annum and will be repayable in 12 equal instalments, commencing in
July 2006. The Group's share of the loan is £450,622, being 50 per cent..
18 Reconciliation of profit before tax to cash generated from operations
6 months 12 months
31.12.2005 30.6.2005
£ £
Result for the period before tax 2,128,732 171,089
Add: Depreciation and amortisation 129,833 -
Deduct: Other income (2,066,603) -
Changes in working capital:
Inventories 33,353 -
Trade and other (1,367,379) (239,412)
receivables - current
Trade and other 1,092,464 222,275
payables - current
Interest received (7,809) (10,648)
Net cash (outflow) / inflow (57,409) 143,304
from operating activities
19 Subsidiary and Joint Venture
The Group's investment in subsidiary and joint venture entities is as follows:
a) Subsidiary company - 100 per cent. of the issued share capital of Energia
para Sistemas Aislados S.A., a company registered in Bolivia under registration
number 107752. This company was acquired in October 2004. Energia para Sistemas
Aislados S.A. is in the process on refurbishing electricity generation plant for
installation in rural areas in Bolivia.
b) Joint venture entity - 50 per cent. of the issued share capital of Patagonia
Energy Limited (PEL), a company registered in the British Virgin Islands under
registration number 620522. PEL owns 100 per cent. of the share capital of
Energia del Sur S.A. (EDS), a company registered in Argentina. EDS is a
generator and supplier of electricity to the national grid in Argentina. The
investment in PEL was acquired in July 2005 and has been accounted for as a
joint venture.
The Group's share of the provisional fair values of the assets and liabilities
acquired were as follows:
£
Property, plant and machinery 4,151,087
Patents 8,947
Inventories 521,794
Current assets 1,338,951
Cash 135,577
Deferred tax assets 372,600
Future tax assets 160,598
Current liabilities (904,776)
Non-current liabilities (240,696)
Total net assets acquired 5,544,082
Excess of net assets acquired over cost ('negative (2,066,603)
goodwill')
Purchase consideration 3,477,479
19 Subsidiary and Joint Venture Continued
The book value of property, plant and machinery prior to acquisition was £4.55m.
The book values of other assets and liabilities equates to their fair values.
The purchase agreement provides for the purchase consideration to be paid as
follows - US$4.5m on completion plus up to a maximum of US$1.5m as deferred
consideration, the timing and amount payable being dependent upon the trading
results of PEL's trading subsidiary, EDS.
The payments made and the balance due is as US$ £
follows:
On completion 4,500,000 2,610,126
In April 2006 750,000 431,258
Unpaid at 17 May 2006 750,000 431,257
6,000,000 3,472,641
Exchange difference 4,838
Total cost 3,477,479
If the investment in PEL had been made at the beginning of the accounting
period, the revenue and Group profit for the period would have been higher by
£313,000 and £32,000 respectively.
20 Post balance sheet
Following a placing of 46,938,775 Ordinary 2p shares at 42p per share on 6
January 2006, the company raised £18,532,000 after issue expenses. Subsequent to
the placing in January 2006, the company acquired 100 per cent. of Bolivia
Integrated Energy Ltd (BIE), a company registered in the British Virgin Islands
under registration number 510247. The purchase price was £17.323m (US$30m)
payable on completion plus deferred consideration up to a maximum of US$5m
(£2.875m). BIE owns, through an intermediary subsidiary, 50.00125 per cent. of
the share capital of Empresa Electrica Guaracachi S.A. (EGSA), a company
registered in Bolivia under the registration number 08-035910-03. EGSA operates
three generating plants in Bolivia and supplies electricity to the wholesale
market and major consumers.
The provisional fair values of the assets, liabilities and contingent
liabilities acquired is:
Assets £'000
Non-current:
Property, plant and machinery 45,000
Materials and supplies 5,941
Deferred tax asset 291
Deferred charges 617
Investments 19
Total non-current 51,868
Current:
Trade and other receivables 2,739
Cash and cash equivalents 9,807
Total current assets 12,546
Total assets 64,414
Liabilities
Non-current:
Employee indemnity provision (690)
Deferred tax liability (437)
Long term financial obligations (6,448)
Bank borrowings (1,989)
Total non-current (9,564)
Current:
Trade and other payables (1,790)
Short term financial obligations (481)
Bank borrowings (883)
Stabilisation fund (1,495)
Income tax liability (306)
Total current liabilities (4,955)
Total liabilities (14,519)
Net assets acquired 49,895
Less: minority interest (49.99875 per cent.) (24,947)
Group's share of net assets acquired 24,948
21 Financial information
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985.
The preliminary announcement includes the consolidated income statement,
consolidated statement of recognised income and expense, the consolidated
balance sheet, the consolidated cash flow statement and other primary statements
and associated notes that have been extracted from the group's audited financial
statements for the six months period ended 31 December 2005. Those financial
statements have not yet been delivered to the Registrar. The comparative figures
relating to the year to 30 June 2005 are taken from the audited statutory
accounts for that year, adjusted as described and set out in note 3 above.
This information is provided by RNS
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