11 Aug 2008 07:00
For immediate release
11 August 2008
Leaf Clean Energy Company
("Leaf" or "the Company"),
Annual Results for the period ended 30 June 2008
Leaf, a company incorporated for the purpose of acquiring interests in, owning, operating and managing clean energy companies and projects predominantly in North America, is pleased to announce its annual results for the period from 14 May 2007 (date of incorporation) to 30 June 2008.
Highlights:
*Substantial progress has been made since the half-year report. At the year-end the Company had deployed US$55.0 million of capital in three separate investments. Since the year end, the Company has invested a further US$57.5 million, taking the total aggregate amount of investment to US$112.5 million across six separate transactions. The current portfolio is shown below:
| Portfolio Company | Business | Investment Amount (US$'million) |
| Greenline Industries, Inc. | Biodiesel technology provider | 20.0 |
| SkyFuel, Inc. | Design and deployment of concentrating solar power systems | 15.0 |
| Range Fuels, Inc. | Cellulosic ethanol production facility | 20.0 |
| Multitrade Rabun GAP LLC | Nominal 20MW biomass power plant | 21.6 |
| Miasole, Inc. | Developer of thin film solar products | 15.0 |
| Energia Escalona | Run-of-river hydro plant in Mexico | 20.9 |
| Total | 112.5 |
* In addition to these fully-executed transactions, Leaf has agreed Heads of Terms on a number of additional projects, of which two have since been reviewed by your Board and approved for financial close. These two represent a total investment of nearly US$70 million and include traditional alternative fuels and landfill gas, further demonstrating the breadth of our portfolio and are expected to be completed within one month of this report. In total, the investments closed and approved for closing amount to approximately US$182.5 million.
* Leaf is also undertaking due diligence and negotiations on a projected pipeline of investments not yet approved for closing but at an advanced stage of negotiations which totals approximately US$232 million, and the Company expects to be substantially invested by 31 December 2008.
* As noted in the Company's Admission Document, Leaf has the right to finance its investments through a combination of debt and equity. To date, no third party debt financing has been utilised and the Board believes that the Company will still be able to obtain debt to equity ratio as initially anticipated at IPO.
For further information, please contact:
Simon Shaw Director, Energy & Climate Advisors +44 (0) 20 7553 2361
Daniel Shapiro, Director, Energy & Climate Advisors +1 225 987 7408
Ivonne Cantu / Oliver Goad Cenkos Securities plc +44 (0) 20 7397 8900
Chairman's Statement
It gives me great pleasure to write to shareholders in the first Annual Report of Leaf Clean Energy Company ("Leaf" or the "Company") since our listing on the Alternative Investment Market of the London Stock exchange. It has been an exciting period of development for the Company and one in which there have been noteworthy achievements.
The initial strategy set out at the time of the Company's launch was straightforward: to acquire equity positions in clean energy assets and companies primarily in North America, which we felt gave investors a chance to realise substantial long-term capital appreciation. In particular, we viewed the developing political and societal dynamics in the United States around climate change and independence from fossil fuels as important drivers of continuing growth in our target sectors. This investment strategy is developing well and the Company is well on the way to meeting its goals.
The Company has sought to build a diverse portfolio of privately-negotiated acquisitions of interests in clean energy projects and companies. At the year-end the Company had deployed US$55 million of capital in three separate investments. Since then the Company has invested a further US$57.5 million, taking our total aggregate amount of investment to US$112.5 million across six separate transactions.
Since our half-year report, the Company has acquired a substantial interest in SkyFuel, Inc. for US$15 million. SkyFuel is an emerging world leader in the design and deployment of concentrating solar power systems. We have also made a US$20 million investment in Range Fuels, a company focused on building the first commercial cellulosic ethanol production facility; and a US$21.6 million investment in Multitrade Rabun Gap, a 20MW biomass power generation development. Most recently, the Company closed on a US$15 million investment in Miasole, a leader in the development of thin film solar products; and US$20.9 million in Escalona, a run-of-river hydro plant in Mexico.
In addition to these fully-executed transactions, our advisers, Energy & Climate Advisors ("E&CA"), a joint venture between EEA Fund Management and Shaw Capital, a subsidiary of The Shaw Group, Inc., has agreed Heads of Terms on a number of additional projects, of which two have since been reviewed by your Board and approved for financial close. These two represent a total investment of nearly US$70 million and include traditional alternative fuels and landfill gas, further demonstrating the breadth of our portfolio. E&CA has expressed a great degree of confidence that this set of investments will achieve completion within one month of the date of this report. In total, the investments closed and approved for closing amount to approximately US$182.5 million.
Beyond these near-term investments, the Company is moving ahead with due diligence and negotiations on numerous projects. The projected pipeline of investments not yet approved for closing but at an advanced stage of negotiations totals approximately US$232 million, which is well in line with the Company's target capital deployment.
The economic background in which your Company operates has changed over the last twelve months and this has lead to E&CA taking a more cautious view in reviewing certain investments particularly where pricing power and consumer purchasing power are key investment considerations. Overall the background for our chosen area of investment continues to be supported by high energy prices and policy background.
A significant factor in the success of the Company in this first year has been our ability to implement our investment strategy in a methodical and well calibrated manner. This depended on E&CA building a talented team of professionals and being able to originate and successfully execute transactions on what we believe are good commercial terms. In this regard, we are delighted with the ongoing progress of E&CA who has been able to develop a diverse portfolio in a complex and difficult arena involving many different technologies and markets.
In summary, the Company continues to make good progress through this stage of building its portfolio. Our team members have their collective noses to the grindstone, originating and executing on deals which it is hoped will generate significant value for our investors. We continue to believe strongly that the political and regulatory developments are in the investors favour given the generally positive view of the public for the clean energy space, and that our original strategy remains valid. Political developments continue apace with both presidential candidates more positively disposed to climate and environmentally friendly energy security policies. We also
believe that North America will grow more carbon-constrained, which could lead to increased opportunities for the Company and its portfolio companies.
In conclusion, your Board is of the view that the Company is on target to be substantially invested by the end of this calendar year.
Peter Tom
Chairman
8 August 2008
Management Company's Report
The first annual reporting period for Leaf Clean Energy Company, has been a particularly eventful one. From a standing start slightly over a year ago, Energy & Climate Advisors, the Appointed Representative (acting on behalf of EEA Fund Management in its role as Asset Adviser of Leaf), has made substantial progress in identifying, developing and ultimately closing on investment opportunities for the Company.
The Company's current portfolio can be divided into five categories:
Closed Investments - Closed Investments refer to fully executed transactions where Leaf has effected a direct investment. In these instances, Leaf has acquired an economic interest in a clean energy asset or company.
Board Approved Investments Pending Closing - Board Approved Investments Pending Closing refer to transactions that have reached a mature state of development and where due diligence has been successfully completed, heads of terms executed and investment approval obtained from the Leaf Board of Directors.
Executed Heads of Terms - Executed Heads of Terms refers to transactions that have undergone significant due diligence and where the Leaf Board has agreed to basic terms and conditions for investment. In this category, deal terms are set out in a letter of interest whereby the parties commit to seek closing in good faith and on an exclusive basis.
Negotiating Terms - The Negotiating Terms category refers to prospective transactions that have positively completed initial due diligence and are currently undergoing active negotiation of exclusive heads of terms. The investment opportunities represented in this category are comprised of a limited subset of on-going negotiations that in E&CA's view have a high probability of reaching agreement.
Due Diligence Commenced - The Due Diligence Commenced category refers to potential investments that have been positively identified and are currently undergoing review.
There have been no major impacts on Net Asset Value of Leaf Clean Energy Company with the year-end Net Asset Value being 196.9 cents per share. E&CA made a recommendation to the Board of Directors of Leaf that the Closed Investments be carried in the Company's accounts at their most recent transaction price, which is equivalent to cost of US$55 million. This "at cost" valuation of Leaf's interests in the Closed Investments reflects the recent vintage of the transactions and the non-existence to E&CA's knowledge of any material event or transaction that would alter the value of the investments.
The initial share capital raised from the public offering in June 2007 was £200 million. This was at a time when the US dollar was depreciating against sterling. Between June 28, 2007 when the first allotment of shares took place and the year ending June 30, 2008 the US dollar has appreciated against sterling by about 0.62%. E&CA has over the last year converted approximately 74% of Leaf's sterling cash balances to US dollars. The aim has been to maintain an average rate that would generally result in lower losses from this appreciation in the US dollar.
1. Closed Investments
Leaf has executed on six Closed Investments representing a combined amount of US$112.5 million invested by Leaf to date. The Closed Investments are as follows:
| Project | Status | Close | Sector | US$'million |
| Greenline Industries | Closed | 14 March 2008 | Biodiesel technology | 20.0 |
| Range Fuels | Closed | 2 April 2008 | Cellulosic ethanol | 20.0 |
| SkyFuel | Closed | 24 April 2008 | Solar thermal | 15.0 |
| Multitrade Rabun Gap | Closed | 24 July 2008 | Biomass energy | 21.6 |
| Miasolé | Closed | 31 July 2008 | Solar PV | 15.0 |
| Energia Escalona | Closed | 5 August 2008 | Hydropower | 20.9 |
| Total | 112.5 |
This Management Company's Report will examine each of Leaf's portfolio companies in turn.
1.1 Greenline Industries
The Company completed the purchase of US$20.0 million of newly issued Series A convertible redeemable preferred equity in Greenline Industries, Inc. ("Greenline") on March 14, 2008. Greenline is a California based biodiesel technology company focused on selling waterless, modular and scalable biodiesel processor lines that cost less per gallon to install than similarly sized site-assembled processor lines. Greenline currently produces modular biodiesel processor lines with production capacities of 3 to 10 million gallons per year (MGPY), which can be stacked and scaled up to 100 MGPY. The Company's licensed processing technology has been in continuous operation since 2001 and it has installed multiple plants across the United States and Europe.
The Company's investment was designed to provide Leaf with well-targeted exposure to the biodiesel industry through an investment in technology and fabrication, without having direct exposure to the related commodity markets. This interest in Greenline allows Leaf to access the small- to mid-scale biodiesel production markets both in the US and elsewhere in the world where self-supply opportunities and stranded feedstock situations are driving sales. Greenline is the industry leader in modular waterless biodiesel technology and has assembled an experienced management team to grow the business profitably.
1.2 Range Fuels
On April 2, 2008, Leaf acquired US$20.0 million of Series B convertible preferred stock in Range Fuels Inc. ("Range Fuels"). Range Fuels is a leading cellulosic technology and production company, which utilises a proprietary two-step thermo-chemical conversion process to produce ethanol, methanol, and other fuels from cellulose-based biomass. Range Fuels' method for converting biomass to syngas has several advantages over traditional gasification technologies. Range Fuels' conversion technology allows for significant flexibility with respect to the type and size of the feedstock. To date, the process has successfully converted around 30 different feedstock types to syngas including wood chips, agricultural waste, municipal waste, sawdust and paper pulp.
Range Fuels was founded in June 2006 and is backed by Khosla Ventures and Morgan Stanley. The company is headquartered in Colorado and currently employs approximately 100 people. Range Fuels has also built a fully integrated, well-instrumented pilot plant with a dry wood feed capacity of 2.5 tons per day in Broomfield, Colorado. The pilot facilities, which have attained one of the first known successful conversions of biomass to ethanol, have produced positive initial results using the company's thermo-chemical conversion process.
In E&CA's view the public policy debate in the United States over transportation fuels has identified cellulosic ethanol production as a promising and important part of any solution to oil dependency and the environmental concerns associated with fossil fuels. The Company's investment in Range Fuels was designed to provide investors with measured exposure to what we view as a leading venture in this space with many first mover advantages. In fact, Range Fuels has broken ground on a 100 MGPY commercial-scale plant in the State of Georgia, which is expected to be the world's first commercial cellulosic plant. Progress on the plant has been in line with expectations.
1.3 SkyFuel
On April 24, 2008, Leaf purchased US$15.0 million of newly issued Series B convertible redeemable preferred equity in SkyFuel, Inc. ("SkyFuel"). SkyFuel is a development stage technology company focused on being the low cost provider of modular thermal concentrated solar power technologies for utility scale power plants. To this end, SkyFuel is developing parabolic trough (SkyTrough™) and linear Fresnel technology systems. In addition, SkyFuel's has developed ReflecTech™ - a highly-reflective, silver-metallised outdoor weatherable film designed for solar energy concentrators as well as other reflector applications. ReflecTech™ is designed to replace costly glass surfaced solar panels with panels made of a highly reflective silvered aluminium surface and is in itself expected to be a considerable driver for sales. SkyFuel has been in operation since 2005 and is headquartered in Albuquerque, New Mexico, and maintains a research and development facility in Colorado.
It is E&CA's view that SkyFuel's position as a low-cost supplier of proven technology differentiates it from competitors. For instance, it has successfully developed interest in the market for its FuelSaver technology, which combines the concentrating solar plant with an existing combined cycle plant to improve the overall cycle performance and plant efficiency by a reduction in fuel usage. SkyFuel has achieved this positioning through its management team's ability to incrementally drive down costs in existing technology through structural, process, and installation improvements as well as utilising ReflecTech™ to effect cost savings over glass panels. Since Leaf's investment, the company has been progressing in line with E&CA's expectations and management strategy of commercialising the SkyTrough™, its first generation system that utilises proven parabolic trough technologies, while conducting R&D on the Linear Power Tower™, its second generation system that has the potential to substantially lower the cost of solar power generation. The company has also made significant advances in generating sales demand for its ReflecTech™ product.
1.4 Multitrade Rabun Gap
Multitrade Rabun Gap, LLC ("MRG") is a special purpose entity formed to construct and operate a 20MW nameplate wood-fuelled biomass facility in Rabun Gap, Georgia. The Company has recently contributed US$4.1 million in capital and agreed a construction loan of US$17.5 million of which US$0.7 million has been drawn down this past July 24, 2008. The MRG facility has a significant amount of existing equipment on site, including the boiler, which was previously used to supply steam and electricity to a textile manufacturing operation. MRG is also located in an area with a substantial supply of biomass feedstock and it will rely on native renewable fuel from the local forest industry. It is anticipated that power from the plant will be sold to a Georgia co-operative under a long term power purchase agreement.
E&CA views this biomass project to be advantageous to the investment strategy of Leaf. One attractive feature of this opportunity is that the MRG site includes an existing wood fuelled boiler and appurtenances. The wood fuelled boiler facility was previously used to supply steam and electricity to a textile manufacturing operation, before the operation was shut down in August 2006. Further, the contracts for wood supply, water, wastewater, and ash disposal are fully negotiated and the necessary permits are in place. It is our view that this project will generate attractive power sales revenues and provide exposure to increasing valuations of working green energy assets in the United States.
1.5 Miasolé
On July 31, 2008 the Company invested US$15.0 million in Miasolé as part of a Series E convertible preferred stock round which was well supported by both financial sponsors and strategic investors. Miasolé was formed in 2001 with the goal of dramatically reducing the cost of photovoltaic products. Since then, the company has developed a proprietary and low-cost thin-film deposition technology and manufacturing process for thin-film solar photovoltaic (PV) products. Miasolé designs and manufactures cells and modules using a proprietary manufacturing process that deposits a thin layer of copper indium gallium selenide (CIGS) semiconductor material on both flexible as well as rigid substrates. This manufacturing process and strong management team should position it to achieve a total module manufacturing costs at competitive levels with the lowest in the solar PV industry. It is our view that Miasolé will leverage its expertise in semiconductor manufacturing and deep understanding of CIGS material to successfully manufacture new and versatile solar products at competitive pricing. Miasolé is headquartered in Santa Clara, California and currently employs approximately 170 people.
In E&CA's view, Leaf will benefit from the increased exposure to the growing solar energy market, but in a differentiated sector from its previous investment in the space with SkyFuel. The company is growing quickly to meet the demand in the market. Miasolé has installed two 20MW nameplate capacity production lines in its Santa Clara facility and is currently expanding this capacity by an additional 80MW, which it expects to bring on line within a year, followed by an additional 400MW.
1.6 Energia Escalona
Energia Escalona ("Escalona") is a special purpose entity formed to construct and operate a 9.3MW capacity run-of-river hydroelectric facility on the Las Minas River near Veracruz, Mexico. On August 5, 2008, the Company committed US$20.9 million in equity and a construction loan. Escalona will utilise constant river flow from the upstream discharge of Las Minas Hydropower Station, a 15MW plant that has been operated for over 40 years by Comision Federal de Electricidad ("CFE"), the state-owned electric utility. The project will aid Mexico's efforts to increase renewable energy's contribution to the domestic energy portfolio with minimal environmental impact as well as improve the existing infrastructure for local communities near the project site.
E&CA views this low-impact hydroelectric technology as favourable because of high availability and favourable economics. This technology has been used commercially for years and Escalona has been able to secure the relevant contracts and permits for water supply and electricity purchase so as to minimise risk to Leaf. In addition, the EPC contract structure mitigates Leaf's exposure to construction cost overruns. We believe the structure of Escalona will provide a stable cash flow stream over the life of the project.
2. Board Approved Investments Pending Closing
E&CA is tasked with originating, screening, negotiating and executing on investment transactions on behalf of Leaf. During the latter stages of this development cycle, E&CA may recommend that the Board approve an investment and authorise the commensurate deployment of capital. Board approval is generally requested once a project opportunity reaches enough maturity that its basic terms and conditions are agreed and due diligence completed. The Leaf Board of Directors may at its discretion approve the project at which point E&CA will seek to advance the transaction to completion in a timely manner.
As of the date of this report, the Leaf Board of Directors has approved two transactions for immediate investment and which are currently pending closing. These deals represent an aggregate investment amount by Leaf of approximately US$70 million. Each of the Board Approved Investments Pending Closing are currently in the process of finalising definitive documents and are all on track to becoming Closed Transactions by their respective planned close dates.
The Board Approved Investments Pending Closing include a landfill gas project and a sugar cane ethanol development company in Brazil. All of these projects are expected to close within the next month, which will bring the Company's total investments to US$182.5 million.
3. Executed Heads of Terms
In addition to the transactions that have obtained Leaf Board of Directors approval and are now pending closing, and in terms of investing the balance of the funds available for investment, E&CA has entered into heads of terms with two other projects. Due diligence on these projects is continuing and E&CA has not at this time submitted these opportunities for Board approval. The aggregate total investment size of these transactions is likely to be in the range of US$110 million depending on the final deal structure. In respect of one of these projects definitive documents and due diligence is in process of being finalised and there is a real probability that these projects may be submitted to the Leaf Board and closed within two to three weeks of the publication of this report. The second project has the potential to close within 45 days.
4. Negotiating Terms
E&CA is also in the process of negotiating Heads of Terms with a further five companies. These opportunities in prospective investments are in the biomass, hydroelectricity, recycling and energy efficiency sectors. If agreement can be reached on the relevant terms, E&CA expects that these projects could potentially reach definitive documentation and closing within 60 - 90 days. These investments if completed would result in further investments of U$122 million.
5. Due Diligence Commenced
E&CA has also commenced due diligence on a number of additional opportunities representing over US$250 million of potential investments.
As noted herein, the opportunity pipeline has continued to develop since the half-year report provided in March 2008.
Energy and Climate Advisors
Appointed Representative to EEA Fund Management
8 August 2008
Consolidated Income Statement
For the period from 14 May 2007 (date of incorporation) to 30 June 2008
| Notes | Period ended 30 June 2008 | ||
| US$'000 | |||
| Income | |||
| Interest income on cash balances | 7 | 18,647 | |
| Net foreign exchange loss | (1,958) | ||
| Total investment income | 16,689 | ||
| Management fees | 8.1 | (7,762) | |
| Legal and professional fees | (488) | ||
| Directors' remuneration | 16 | (366) | |
| Administration fees | 8.3 | (262) | |
| Other expenses | (193) | ||
| Operating expenses | (9,071) | ||
| Net income from operations | 7,618 | ||
| Income tax expense | 3.12 | - | |
| Retained profit for the period from continuing operations | 7,618 | ||
| Basic and diluted earnings per share (cents) | 13 | 3.81 |
Consolidated Balance Sheet
| Notes | At 30 June 2008 | |
| US$'000 | ||
| Investments at fair value through profit or loss | 9 | 55,000 |
| Total non-current assets | 55,000 | |
| Trade and other receivables | 10 | 315 |
| Cash and cash equivalents | 11 | 340,752 |
| Total current assets | 341,067 | |
| Total assets | 396,067 | |
| Issued share capital | 12 | 40 |
| Share premium | 12 | 386,067 |
| Retained earnings | 7,618 | |
| Total equity | 393,725 | |
| Trade and other payables | 14 | 2,342 |
| Total current liabilities | 2,342 | |
| Total liabilities | 2,342 | |
| Total equity & liabilities | 396,067 | |
| Net Asset Value per share (cents) | 5 | 196.9 |
Consolidated Statement of Changes in Equity
For the period from 14 May 2007 (date of incorporation) to 30 June 2008
| GROUP | Share capital | Share premium | Retained earnings | Total |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Balance at beginning of period | - | - | - | - |
| Shares issued in the period | 40 | 399,873 | - | 399,913 |
| Share issue costs | - | (13,806) | - | (13,806) |
| Retained profit for the period | - | - | 7,618 | 7,618 |
| Balance at end of period | 40 | 386,067 | 7,618 | 393,725 |
Consolidated Cash Flow Statement
For the period from 14 May 2007 (date of incorporation) to 30 June 2008
| Period ended 30 June 2008 | |||
| US$'000 | |||
| Operating activities | |||
| Interest received | 18,449 | ||
| Operating expenses paid | (6,900) | ||
| Net cash generated from operating activities | 11,549 | ||
| Investing activities | |||
| Purchase of investments at fair value through profit or loss | (54,950) | ||
| Cash used in investing activities | (54,950) | ||
| Financing activities | |||
| Proceeds from the issue of shares | 399,913 | ||
| Share issue costs | (13,806) | ||
| Net cash generated from financing activities | 386,107 | ||
| Net increase in cash and cash equivalents | 342,706 | ||
| Cash and cash equivalents at start of period | - | ||
| Foreign exchange loss on cash and cash equivalents | (1,954) | ||
| Cash and cash equivalents at 30 June 208 | 340,752 | ||
| Reconciliation of net income from operations to net cash generated from operating activities | Period ended 30 June 2008 | ||
| US$'000 | |||
| Net income from operations | 7,618 | ||
| Adjustments for: | |||
| Foreign exchange loss on cash and cash equivalents | 1,954 | ||
| Movement in trade and other receivables | (315) | ||
| Movement in trade and other payables | 2,292 | ||
| Net cash generated from operating activities | 11,549 |
Notes to the Consolidated Financial Statements
1 The Company
Leaf Clean Energy Company (the "Company") was incorporated and registered in the Cayman Islands on 14 May 2007. The Company was established to invest in clean energy projects, predominantly in North America. Clean energy includes activities such as the production of alternative fuels, renewable power generation and the use of technologies to reduce the environmental impact of traditional energy. The Company seeks to achieve long term capital appreciation primarily through making privately negotiated acquisitions of interest (principally equity but also equity-related and subordinated or mezzanine debt securities) in both projects and companies which own assets or which participate in the clean energy sector and through the generation and commercialisation of carbon credits derived from these projects.
Pursuant to an Admission Document dated 22 June 2007 there was an original placing of up to 200,000,000 Ordinary Shares of GB£0.0001 each for GB£1 each.
The Shares of the Company were admitted to trading on the AIM market of the London Stock Exchange ("AIM") on 28 June 2007 when dealings also commenced.
The Company's agents and the Asset Adviser perform all significant functions. Accordingly, the Company itself has no employees.
2 The Subsidiaries
During the period and for efficient portfolio management purposes, the Company established the following subsidiary companies:-
| Country of incorporation | Percentage of shares held | |
| Leaf Bioenergy Company | Cayman Islands | 100% |
| Leaf Solar Company | Cayman Islands | 100% |
| Leaf Range Fuels Company* | Cayman Islands | 100% |
| Leaf SkyFuels Company* | Cayman Islands | 100% |
*Indirect subsidiaries
3 Significant Accounting Policies
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below.
The annual report of the Company for the period ended 30 June 2008 comprises the Company and its subsidiaries (together referred to as the "Group").
3.1 Basis of presentation
These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") promulgated by the International Accounting Standards Board ("IASB"). Management has concluded that the report fairly represents the entity's financial position, financial performance and cash flows.
These consolidated financial statements are presented in United States Dollars ("US$"), which is the Company's functional currency. All financial information presented in US$ has been rounded to the nearest thousand.
3.2 Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
The most significant area requiring estimation and judgement by the Directors is the valuation of unquoted investments, see note 9.
3.3 Foreign currency translation
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are re-translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on re-translation are recognised in profit or loss.
Assets and liabilities of the Group's overseas operations are measured using their functional currency, being the currency of the primary economic environment in which they operate.
On consolidation, the assets and liabilities of the Group's overseas operations are translated into US Dollars, the presentation currency, at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the group's foreign exchange translation reserve. Such exchange differences are recognised in the income statement in the period in which the operation is sold.
3.4 Investments
The Group has designated its investments as at fair value through profit or loss on initial recognition. Gains and losses arising from changes in fair value of investments, including foreign exchange movements, are included in net profit or loss for the period.
Unquoted investments are valued using recognised valuation methodologies, based on the International Private Equity and Venture Capital Guidelines, which reflect the amount for which an asset could be exchanged between knowledgeable, willing parties on an arm's length basis. The portfolio valuation methodology is at the end of this RNS.
Quoted investments are stated at market price. However, as at 30 June 2008 the Group did not hold any quoted investments.
3.5 Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term highly liquid investments that are readily converted to known amounts of cash and which are subject to an insignificant risk of changes in value.
3.6 Revenue and expense recognition
Interest income is recognised on a time-proportionate basis using the effective interest rate method.
Dividends receivable on equity and non-equity shares, which carry significant equity rights, are recognised as revenue when the shareholders' right to receive payment has been established, normally ex-dividend date. When no ex-dividend date is available, dividends receivable on or before the period end are treated as revenue for the period. Provision is made for any dividends not expected to be received. Fixed returns on debt securities and loans are recognised on an effective interest rate basis, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.
Expenses are accounted for on an accrual basis. Expenses are charged to the income statement. This includes expenses directly related to making an investment which is held at fair value through profit or loss.
3.7 Share issue costs
Costs directly related to the issue of shares are deducted from equity.
3.8 Basis of consolidation
Subsidiaries
Subsidiaries are those enterprises controlled by the Company. Control exists where the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases.
Associates
An associate is an entity over which the Group is in a position to exercise significant influence but not control or joint control, through the financial and operating policy decisions of the investee entity. As the Company is an investment company, and its investments held in associates are designated as held at fair value through profit or loss, the provisions of IAS 28 'Investments in Associates' do not apply. Such investments are measured at fair value, with changes in fair value recognised in profit or loss in the period in which they occur.
Joint ventures
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. As the Company is an investment company, and its interests held in joint ventures are designated as held at fair value through profit or loss, the provisions of IAS 31 'Interests in Joint Ventures' do not apply. Such interests are measured at fair value, with changes in fair value recognised in profit or loss in the period in which they occur.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
3.9 Dividends payable
Dividends payable are recognised as a liability in the period in which they are declared and approved.
3.10 Other receivables
Trade and other receivables are stated at their recoverable amount.
3.11 Trade and other payables
Trade and other payables are stated at their cost.
3.12 Income tax expense
Cayman Islands taxation
The Company has received from the Governor-in-Cabinet of the Cayman Islands, an undertaking that, for a period of 20 years from 5 June 2007 no laws of the Cayman Islands imposing any tax on profits, income, gains or appreciation shall apply to the Company and that no such tax or any tax in the nature of estate duty or inheritance tax shall be payable on the shares, debentures or other obligations of the Company. Under the current Cayman Islands law, no tax will be charged on profits or gains of the Company and dividends of the Company would be payable to Shareholders resident in or outside the Cayman Islands without deduction of tax.
3.13 Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC (International Financial Reporting Interpretations Committee) have issued the following standards and interpretations with an effective date after the date of these financial statements:
|
| Effective date |
| (accounting periods | |
| International Accounting Standards (IAS/IFRS) | commencing after) |
| IFRS 8 Operating segments | 1 January 2009 |
| IAS 23 Amendment - Borrowing costs | 1 January 2009 |
| IFRIC13 Customer loyalty programmes | 1 July 2008 |
IFRS 8 introduces the "management approach" to segment reporting, with information based on internal reports. Management are currently assessing the impact of this on the disclosures to be presented regarding segmental reporting.
The Directors do not expect the adoption of the other standards and interpretations to have a material impact on the Group's financial statements in the period of initial application.
4 Segment Reporting
The Group operates in one business and geographic segment, being investment in clean energy projects predominantly in North America.
5 Net Asset Value per Share
The net asset value per share as at 30 June 2008 is US$1.97 based on consolidated net assets of US$393,724,686 and 200,000,000 ordinary shares in issue as at that date.
6 Related Party Transactions
The Asset Adviser, Management Company and Administrator are considered to be related parties due to the significance of the contracts with these parties. Details of the fee arrangements with these parties are given in note 8.
7 Interest Income on Cash Balances
| 2008 | ||
| US$'000 | ||
| Interest income receivable on Sterling cash balances | 16,279 | |
| Interest income receivable on US Dollar cash balances | 2,368 | |
| 18,647 |
8 Charges and Fees
8.1 Management fees
Annual fees
Under the Asset Advisory Agreement, the Management Company receives an annual management fee from the Company, payable quarterly in advance, equating to 0.5% per quarter of the Net Asset Value of the Company as determined in accordance with such agreement, as at the quarter end dates (being 31 March, 30 June, 30 September and 31 December).
Management fees for the period ended 30 June 2008 amounted to US$7,762,180 and the amount accrued but not paid at the period end is US$1,970,256.
Performance fees
The Management Company may also, pursuant to the Asset Advisery Agreement, become entitled to receive from the Company an annual performance fee calculated by reference to Total Shareholder Return over the course of a performance period, starting on Admission.
Any performance fee will become payable once annualised Total Shareholder Return in any performance period exceeds an annual rate of 9% ("the Hurdle"). Once the Hurdle is exceeded, the performance fee will become payable in an amount equal to 20% of any aggregate return over and above the Hurdle subject to a high watermark. Total Shareholder Return is calculated on the basis of the increase in market capitalisation of the Company, allowing for dividend and other distributions paid to Shareholders in the relevant performance period.
There were no performance fees payable for the period ended 30 June 2008.
8.2 Nominated Adviser and Broker fees
Pursuant to the Placing and in its capacity as AIM Sponsor, the Nominated Adviser and Broker was entitled to receive a fee of £6,000,000 (3% of the placing proceeds) and a corporate finance fee of £200,000. This is included in share issue costs, which are deducted from equity.
As Nominated Adviser and Broker to the Company for the purposes of the AIM Rules, the nominated advisor and broker is entitled to receive an annual fee of £40,000 from the first anniversary of Admission payable in advance on 1 January each year, plus costs and expenses.
8.3 Administrator and Registrar fees
Equity Trust Fund Services (Luxembourg) S.A ("Equity Trust") was appointed Administrator of the Company with effect from Admission up to 31 May 2008. The Administrator was entitled to an administration fee, payable quarterly in arrears and calculated in respect of each quarter, on the net assets of the Company at the end of relevant quarter, with a minimum fee of US$15,000 per quarter at the rate of 0.08% where the Net Asset Value of the Company at the end of the relevant quarter is less than US$100,000,000; 0.06% where the Net Asset Value of the Company at the end of the relevant quarter is greater than or equal to US$100,000,000 but less than US$200,000,000; and at the rate of 0.05% per annum where the Net Asset Value of the Company at the end of the relevant quarter is greater than or equal to US$200,000,000.
Administration fees charged by Equity Trust for the period ended 30 June 2008 amounted to US$239,955 and the amount accrued but not paid at the period end is US$118,369.
EHM Service Providers Limited was appointed Administrator of the Company with effect from 1 June 2008. The Administrator is entitled to an administration fee, payable quarterly in arrears and calculated in respect of each quarter or other period, with a minimum fee of GBP25,000 per quarter at the rate of 0.08% per annum where the total assets of the Company less borrowings is less than US$100,000,000; 0.07% where the total assets of the Company less borrowings at the end of the relevant quarter is greater than or equal to US$100,000,000 but less than US$200,000,000; and at the rate of 0.06% per annum where the total assets of the Company less borrowings at the end of the relevant quarter is greater than or equal to US$200,000,000.
EHM Service Providers Limited administration fees for the period amounted to US$22,300 and were outstanding as at 30 June 2008.
Computershare Investor Services (Channel Islands) Limited was appointed the Registrar of the Company with effect from Admission in accordance with the registry agreement dated 7 June 2007 to maintain the Company's members register in Jersey. The Registrar was entitled to an initial fee of £500 to cover set up costs and an annual fee of £3,500. The annual fee is payable quarterly by the Company in arrears.
8.4 Audit fees
Audit fees payable for the period ending 30 June 2008 were US$49,755.
9 Investments at fair value through profit or loss
Investments are stated at fair value through profit or loss on initial recognition. All investee companies are incorporated in United States of America and are unquoted.
| US$'000 | ||
| Greenline Industries, Inc. | 20,000 | |
| SkyFuel, Inc. | 15,000 | |
| Range Fuels, Inc. | 20,000 | |
| 55,000 |
Investments comprise preferred stock, carrying a cumulative preferred dividend, preferential return of capital and capped rights to share in profits. The Directors, with advice from the Asset Adviser, have determined that the fair value of each investment is equivalent to cost, on the basis that all investments have been recently acquired.
| US$'000 | ||
| Balance brought forward | - | |
| Purchases at cost | 55,000 | |
| Disposal proceeds | - | |
| Gains/(losses) on investments | - | |
| Balance carried forward | 55,000 |
10 Trade and Other Receivables
| 30 June 2008 | ||
| US$'000 | ||
| Interest receivable | 197 | |
| Prepayments | 118 | |
| Total | 315 |
11 Cash and Cash Equivalents
| 30 June 2008 | ||
| US$'000 | ||
| Short term fixed deposits | 340,752 | |
| Bank current account balances | - | |
| Total | 340,752 |
The short-term deposits are subject to interest rates between 2.15% and 5.84% per annum and are fixed for periods ranging up to 3 months from the balance sheet date.
12 Share Capital
| Ordinary Shares of GB£0.0001 each | Number | US$ |
| In issue at the start of the period | - | - |
| Issued during the period | 200,000,000 | 39,940 |
| In issue at 30 June 2008 | 200,000,000 | 39,940 |
The authorised share capital of the Company is £25,000 divided into 250 million Ordinary Shares of £0.0001 each.
Under the terms of the placement on 22 June 2007, the Company issued 200,000,000 shares of £0.0001 each par value at a price of GB£1 each. The difference between the issue price and the par value has been transferred to share premium account, net of share issue expenses.
Share capital and premium received has been translated to US Dollars at the exchange rate prevailing at the date of receipt of the proceeds.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regards to the Company's assets.
Share issue costs
Share issue costs, which have been written-off against share premium account, comprise the following:
| US$'000 | ||
| Cenkos Securities plc - commission on funds raised | 12,475 | |
| Cenkos Securities plc - corporate fee | 416 | |
| Legal fees and other share issue costs | 915 | |
| Total share issue costs | 13,806 |
Cenkos Securities plc is the Nominated Adviser and Broker and acted as Placing Agent.
Capital management
The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board manages the Company's affairs to achieve shareholder returns through capital growth rather than income, and monitors the achievement of this through growth in net asset value per share.
Company capital comprises share capital, share premium and reserves. The Company is not subject to externally imposed capital requirements.
13 Basic and Diluted Earnings per Share
Basic and diluted earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period:
| 30 June 2008 | |
| Profit attributable to equity holders of the Company (US$'000) | 7,618 |
| Weighted average number of ordinary shares in issue (thousands) | 200,000 |
| Basic and fully diluted earnings per share (cents per share) | 3.81 |
There is no difference between the basic and diluted earnings per share for the period as there are no potential dilutive ordinary shares.
14 Trade and Other Payables
| 30 June 2008 | ||
| US$'000 | ||
| Management fees payable | 1,970 | |
| Administration fees payable | 141 | |
| Other creditors | 181 | |
| Investment payable | 50 | |
| Total | 2,342 |
15 Exchange Rates
The following exchange rates were used to translate assets and liabilities into the reporting currency at 30 June 2008:
| GBP Sterling to US$ | 1.9902 |
16 Directors' Remuneration
Details of the Directors' annual remuneration (in GB Sterling) are as follows:
| Basic annual remuneration | |
| GB£ | |
| Peter Tom | 60,000 |
| Bran Keogh | 25,000 |
| J. Curtis Moffatt | 30,000 |
| Peter O'Keefe | 30,000 |
| Nora Brownell | 30,000 |
The Directors are each entitled to receive reimbursement of any expenses in relation to their appointment. Total fees and expenses paid to the Directors for the period ended 30 June 2008 amounted to US$366,125.
17 Financial Instruments
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, market price risk and interest rate risk), credit risk and liquidity risk.
Market price risk
The project companies in which the Group invests operate in sectors that may be affected by the prevailing prices of electricity, oil, natural gas and other commodities. As energy and fuels derived from non-renewable sources become more expensive or scarce, renewable energy and alternative fuels become more valuable. Conversely, if non-renewable energy and fuels become more abundant or, for other reasons become less expensive, the value of renewable or alternative fuels may be negatively affected. As a result, the performance of the project companies is likely to be dependent upon prevailing prices for these commodities, which have been historically, and may continue to be, volatile and subject to wide variations for a variety of reasons beyond the control of the Group or the Asset Adviser. These factors include the level of consumer product demand, weather conditions, governmental regulations in producing and consuming countries, the price and availability of alternative fuels, the supply of oil and natural gas, and overall geo-political and economic conditions. Therefore, volatility of commodity prices may adversely affect the value of the Group's investments.
Market price risk is managed by the Asset Adviser, in accordance with parameters set by the Board.
All of the Group's investments comprise interests in companies which are not publicly traded or freely marketable. The Group may also be restricted from selling certain securities by contract or regulatory considerations. Such investments may therefore be difficult to value or realise. Any such realisation may involve significant time and expense.
If the value of the Group's investment portfolio increased/decreased by 5%, the net assets of the Group would increase/decrease by US$2,747,450.
Foreign exchange risk
The Group is exposed to foreign exchange risk with regard to transactions made in Sterling and balances held in Sterling.
An analysis of net assets by currency exposure is as follows:
| Net Assets US$'000s | |
| US Dollars | 284,207 |
| Sterling | 109,518 |
| Total | 393,725 |
An appreciation of the Sterling against the US Dollar of 5% would have increased net assets by $5.5m. A decrease of 5% would have an equal and opposite effect.
Interest rate risk
The Group is exposed to cash flow interest rate risk on cash balances which are all short term fixed deposits. The weighted average interest rates on short term fixed deposits as at 30 June 2008 were:
| 30 June 2008 | |
| % | |
| Cash balances | |
| US Dollars | 2.41 |
| Sterling | 5.44 |
The table below summarises the Group's exposure to interest rate risks. It includes the Groups' financial assets and liabilities at the earlier of contractual re-pricing or maturity date, measured by the carrying values of assets and liabilities:
| Less than 1month | 1-3 months | 3 months to 1 year | 1-5 years | Over 5 years | Non-interest bearing | Total | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| Financial Assets | |||||||
| Financial assets at fair value through profit or loss | - | - | - | - | - | 55,000 | 55,000 |
| Trade and other receivables | - | - | - | - | - | 315 | 315 |
| Cash and cash equivalents | 149,461 | 191,291 | - | - | - | 340,752 | |
| Total financial assets | 149,461 | 191,291 | - | - | - | 55,315 | 396,067 |
| Financial Liabilities | |||||||
| Trade and other payables | - | - | - | - | - | 2,342 | 2,342 |
| Total financial liabilities | - | - | - | - | - | 2,342 | 2,342 |
| Total interest rate sensitivity gap | 149,461 | 191,291 | - | - | - |
No interest rate sensitivity analysis has been provided as no financial assets or liabilities are subject to fair value interest rate risk.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Group.
The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. This relates also to financial assets carried at amortised cost, as they have a short term maturity.
At the reporting date, the Group's financial assets exposed to credit risk amounted to the following:
| 30 June 2008 | |
| US$'000 | |
| Financial assets at fair value through profit or loss | 55,000 |
| Trade and other receivables | 315 |
| Cash and cash equivalents | 340,752 |
| 396,067 |
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. Management does not expect any counterparty to fail to meet its obligations. No impairment provisions had been made as at the year end and no debtors were past their due date.
Cash balances are held with P-1* financial institutions.
*-A Moody's rating of Prime-1 (P-1) means that the issuer has a superior ability to repay short-term debt for the obligations.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they fall due, under both normal and stressed conditions, without incurring unacceptable losses. The Group's liquidity position is monitored by the Asset Adviser and the Board of Directors.
Residual undiscounted contractual maturities of financial liabilities:
| Less than 1 month | 1-3 months | 3 months to 1 year | 1-5 years | Over 5 years | No stated maturity | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| Financial liabilities | ||||||
| Trade and other payables | 2,342 | - | - | - | - | - |
| 2,342 | - | - | - | - | - |
Fair values
All assets and liabilities at 30 June 2008 are considered to be stated at fair value.
19 Post Balance Sheet Events
On 24 July 2008 the Company through its subsidiaries acquired an interest in Virginia-based Multitrade Rabun GAP LLC. The investment in Multritrade Rabun GAP LLC was a US$4.09m capital contribution and a loan commitment of US$17.5m of which US$0.7m was drawn down at the time of the capital contribution.
On 31 July 2008 the Company through its subsidiaries acquired an interest in California-based Miasole, Inc. The investment in Miasole, Inc. consisted of a US$15m purchase of Series E preferred stock.
On 5 August 2008 the Company through its subsidiaries acquired an interest in Energia Escalona based in Mexico. The capital contribution commitment to Energia Escalona was US$20.9m. Of this committed contribution, US$1.3m was contributed to Energia Escalona at the time of closing this deal.
20 Capital Commitments
As at 30 June 2008 there were no capital commitments in relation to investments. There has since been a capital commitment of $17.5m to Multitrade Rabun GAP LLC as well as a US$20.9 million commitment to Energia Escalona of which US$1.3m has been drawn down. Please refer to note 19 for further details.
Portfolio valuation methodology
Investments are measured at the Directors' estimate of fair value at the reporting date, in accordance with IAS 39 'Financial Instruments: Recognition and measurement'. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
Unquoted investments
Unquoted investments are valued by applying an appropriate valuation technique, which makes maximum use of market-based information, is consistent with models generally used by market participants and is applied consistently from period to period, except where a change would result in a better estimation of fair value. The Company primarily invests in unquoted direct investments.
Unquoted direct investments
Unquoted direct investments have characteristics similar to private equity investments, in that the value is generally crystallised through the sale or flotation of the entire business, rather than the sale of an individual instrument. Valuations of such investments are based upon the "International Private Equity and Venture Capital Valuation Guidelines", using the following model:
Determine the enterprise value using an appropriate valuation methodology and adjust for surplus assets, excess or unrecorded liabilities and other relevant factors.
Deduct any financial instruments ranking ahead of the highest ranking instrument held by the company.
Apply a marketability discount where appropriate to give the net attributable enterprise value. Such a marketability discount relates to the investment rather than the underlying business and reflects the compensation that willing buyers will demand for the risk arising from the lack of marketability. Factors that will be considered in determining the marketability discount are the closeness to a realisation event, the investors' influence over the timing of realisation and the difficulty and risk of actions required to put the business into a saleable condition. It is a rebutted presumption that a 30% discount is to be applicable to all unquoted direct investments. This presumption may be rebutted if the available evidence and consideration of the foregoing factors indicate that a different marketability discount would be appropriate or that no marketability discount should be applied. Where a discount is applied, it will normally fall in the range of 10% to 30%.
Apportion the net attributable enterprise value between the relevant financial instruments according to their rankings and allocate to the company's holding in each of these financial instruments.
Given the uncertainties inherent in estimating the fair value of unquoted direct investments, a degree of caution is applied in exercising judgements and making the necessary estimates.
Enterprise value is normally determined using one of the following valuation methodologies:
Price of recent investment
Where the investment being valued was made recently, its cost will generally provide a good indication of fair value. Where there has been any recent investment in the investee company, the price of that investment will provide a basis of the valuation. Where the price at which a third party has invested is being considered as the basis of valuation, the background to the transaction will be taken into account to indicate whether or not the price was representative of the fair value at the time. This methodology is likely to be appropriate only for a limited period after the date of the relevant transaction. The period will depend on the specific circumstances of each investment, but one year is usually applied.
Earnings multiple
This methodology involves the application of an earnings multiple to the maintainable earnings of the business being valued. This methodology is likely to be appropriate for an investment in an established business with an identifiable stream of continuing earnings that can be considered to be maintainable.
Maintainable earnings are taxed at the standard tax rate. Generally, the latest historical accounts are used unless reliable forecast results for the current year are available. The earnings multiple used is determined by reference to market-based multiples appropriate for the business and correlate to the period and calculation of earnings of the company being valued. In determining an appropriate earnings multiple, reference may be made to a single comparator company, or a number of companies, or the earnings multiple of a quoted stock market sector or sub-sector where there are similar business activities, markets, served, size, geography and applicable tax rate.
Net assets
The net asset methodology involves deriving the value of a business by reference to the fair value of its net assets. This is likely to be appropriate for a business whose value derives mainly from the underlying value of its assets rather than its earnings, such as property holding companies and investment businesses. It may also be appropriate for a business that is not making an adequate return on assets and for which a greater value can be realised by liquidating the business and selling its assets. Third party valuations may be used to give the fair value of a certain asset or group of assets.