Rurelec Regulatory News (RUR)

22 May 2006 07:01

Rurelec PLC22 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 makingon all fronts and I am confident that Rurelec will continue on its path tobecome one of the leading power generators in Latin America." For further information: Rurelec PLC Daniel Stewart Parkgreen CommunicationsPeter 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 STATEMENTFOR THE SIX MONTHS ENDED 31 DECEMBER 2005 The six months period ended 31 December 2005 was one of great progress forRurelec as the Group transformed itself from a small niche power developer intoa major force in power generation in Latin America. Rurelec is now a profitableholding company with interests in a group of four major operating power plantscomprising 436 MW of installed capacity in Bolivia and Argentina and a further344 MW under construction or advanced development. In the six months ended 31 December 2005, Rurelec reported a consolidated profitafter tax of £2,053,089. This profit is principally as a result of the fairvalue adjustment arising on the acquisition of a 50 per cent. interest inPatagonia Energy Limited and its wholly-owned subsidiary Energia del Sur S.A.The profit arising on the fair value adjustment does not contribute todistributable reserves and therefore is not available to shareholders by way ofdividend. Nevertheless it gives comfort that we were able to acquire thisvaluable asset at significantly below its worth. Energia del Sur operates a 76 MW plant in Patagonia and has produced reliablepower to the south of Argentina since being re-commissioned at the start of2005. The cost of the acquisition was £3.5m as compared to the Group's share ofnet assets acquired which have been provisionally valued at £5.5m. The most important recent development occurred in January 2006 (subsequent tothe period covered by these results) when Rurelec completed the purchase of acontrolling stake in Empresa Electrica Guaracachi S.A. ("Guaracachi") which isquoted on the La Paz Stock Exchange and which is Bolivia's largest powergenerator. Rurelec now has interests in three principal entities involved inpower generation: Energia del Sur in Argentina, and Guaracachi and Energia paraSistemas Aislados S. A. ("Energais") in Bolivia. Since all three companies sharea financial year end of 31 December, the Board of Rurelec has decided to changethe financial year end of Rurelec so that it too reports to 31 December ratherthan to 30 June as previously. In order to put that adjustment into effect, thefinancial results presented in this preliminary announcement are for the sixmonths ended 31 December 2005. Rurelec has also taken the decision, in view of the cross-border nature of itsinvestments and operations, to adopt the new IFRS accounting standards inadvance of the Alternative Investment Market's mandatory date of 2007. To finance the acquisition of Guaracachi, Rurelec placed 46.9 million newordinary shares for cash raising approximately £19 million. Earnings fromGuaracachi are in line with budget, and barring unforeseen circumstances, shouldenable the company to pay further dividends in the future. Rurelec remains committed to paying to shareholders a high proportion of itsdistributable reserves in the form of dividends, as befits an electric utilitycompany. 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 theenergy sectors in Bolivia and Argentina which encourage our operations to addvalue to Bolivia's large reserves of gas by generating power regionally.Guaracachi is Bolivia's largest domestic user of natural gas and is set toincrease its gas usage as new capacity is brought on line in 2006 to meet thecountry's increased demand for electricity. We have established a close workingrelationship 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 newexport projects to Bolivia's neighbouring countries to complement the initial120 MW Yacuiba project to export power to northern Argentina which is proceedingwith the support of the governments both of Bolivia and of Argentina. As the world discovers the high cost of relying on liquid fossil fuels, Rurelecexpects to continue to industrialise clean burning, efficient, low cost gas toprovide sustainable and affordable energy to the citizens of the Southern Coneof Latin America. At the same time, Rurelec intends to build on its earlysuccess in achieving United Nations approval for its carbon emission reductionprojects arising from investment in new high tech generation systems whichre-use the waste heat from gas turbines to produce major reductions in theemission of CO2 from our gas fired power plants. I am pleased with the progress that we are making on all of these fronts and Iam confident that Rurelec will continue on its path to become one of the leadingpower generators in Latin America. Jimmy WestChairmanDate: 22 May 2006 RURELEC PLC CHIEF EXECUTIVE'S REVIEW OF OPERATIONSFOR THE SIX MONTHS ENDED 31 DECEMBER 2005 Energia del Sur In July 2005 the Company completed the acquisition of a 50 per cent. interest inEnergia del Sur S.A., the 76 MW gas fired open cycle power plant in ComodoroRivadavia. This plant has enjoyed eliable dispatch since re-starting powerproduction at the beginning of 2005. Early in 2006, the authorities in Argentina gave their approval for theexpansion of the Energia del Sur plant by the addition of up to 50 MW of newcombined cycle capacity for commissioning as soon as possible to deal with powershortages in Patagonia. Since Rurelec acquired its interest in Energia del Sur,Rurelec management has taken responsibility for converting the expansion projectinto a waste heat recovery scheme eligible for carbon credits under the KyotoProtocol. An application is being made to the United Nations Clean DevelopmentMechanism Methodology Committee in New York for approval of the Patagoniaproject using the same methodology successfully originated by Rurelec directorsin Bolivia. Based on this previously accepted methodology, Rurelec and the othershareholders in Energia del Sur have gone ahead with the project and haveacquired from a US utility in New Jersey a steam turbine with a 50 MW capacityand an associated air cooling system designed to operate in conditions, such asthe drylands of Patagonia, where little fresh water is available for steamcooling. Both the steam turbine and the cooling system are now in the process ofbeing dismantled and shipped to Patagonia. Rurelec management estimate that thepurchase of existing US utility equipment has saved some US$10 million from thelist price of the combined cycle conversion project. The additional capacity is scheduled to be commissioned in the second half of2007. When completed, Energia del Sur will have one of the most efficient heatrates in Patagonia, and it is estimated that the expanded plant will generatebetween 100,000 and 200,000 tonnes of CO2 reductions each year. The Board of Energia del Sur continues to explore opportunities to acquireexisting gas fired plants in Argentina that are not achieving their fullpotential under their current ownership. Guaracachi Although its results are not yet consolidated within Rurelec, 2005 was anexcellent year for Empresa Electrica Guaracachi S.A. as the company reported thestrongest set of financial results in its history. It is the only foreigncontrolled power company investing significant sums in Bolivia to help achievethe national objective to industrialise and add value to Bolivia's reserves ofnatural gas. In 2005 Guaracachi took the decision to invest almost US$20 million (includingVAT and import duties) in new power capacity to meet Bolivia's pressing domesticneed for power. By the second half of 2006 this new power capacity will be online, increasing Guaracachi's installed capacity by 22 per cent. Additionally,in 2005 Guaracachi's combined cycle gas turbine (CCGT) conversion project wasgiven preliminary approval by the United Nations Clean Development MechanismMethodology Committee in New York. This is the first time a Bolivian generationcompany has obtained an approval for carbon credits under the Kyoto Protocol andit is an important precedent for Bolivia as it moves to clean-burn, lowemissions generation of electricity in a move to reduce the production of thegreenhouse gases that cause global warming. 2005 also saw Guaracachi announce its initial electricity export project forsending power to Northern Argentina from Yacuiba on a new high voltagetransmission line which will for the first time connect the two countries. Thisexport project has received the approval of the governments of both Argentinaand Bolivia. It will produce 120 MW of open cycle export power which will helpalleviate chronic power shortages in the province of Salta. Above all, it is agood case study as to how a Bolivian company can industrialise gas for thebenefit both of Bolivia and of its neighbour in Mercosur. The project isexpected to create jobs in Yacuiba and throughout the Department of Tarija. 120MW of installed capacity represents the equivalent of 15 per cent. of Bolivia'scurrent peak demand, so the project is important for the country. This is thefirst of what should be a number of export projects to be led by Guaracachi. Guaracachi produced a strong financial performance in 2005 with revenues ofUS$28.6 million up from US$25.6 million in 2004. This resulted in net income ofUS$7.92 million as against net income of US$3 million in 2004. The 2005 profitis particularly robust since it comes after making significant investment in newprojects and in upgrading existing plant capacity. As at 31 December, 2005 Guaracachi had cash deposits of some US$20 million asagainst bank debt of just over US$15 million. Demand growth for electricity in Santa Cruz continued to rise during 2005. WithBolivian growth in GDP now running at just below 5 per cent., its highest levelfor a decade, and with new energy intensive mining projects due to commenceoperations in 2006, the prospects for Guaracachi continue to be strong. The decision to create new plant capacity dedicated to the export of electricityto Bolivia's neighbours is part of a new Guaracachi policy of adding value tothe country's energy assets by industrialising gas. The Argentine Export Projectis expected to be the first of a number of similar export initiatives toBolivia's energy-hungry neighbours. Guaracachi intends to help bring electricity to those two million Boliviansliving in the countryside who have no access to electricity. Only one in fourrural households in Bolivia has mains electricity today. Guaracachi, workingwith Rurelec, plans to use its power and influence as Bolivia's largestgenerator to promote rural electrification. Guaracachi is looking to expand its community assistance projects which supportenvironmental clean-up and educational development in Santa Cruz, Sucre andPotosi. In July 2005 the shares of Guaracachi were admitted to the official list of theLa Paz stock exchange, the Bolsa Boliviana de Valores. Energais Rurelec began its life as a public company aiming to fulfil two principalfunctions in Latin America. The first was the management of public sector ruralelectrification projects and the second was the provision of new powergeneration installations for regional communities. In Bolivia both of theseactivities 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 usingWorthington dual fuel motors and General Electric Jenbacher gas engines.Following the Rurelec purchase of a controlling stake in Guaracachi, it has beenagreed to build the 6 MW isolated generation project serving Yacuiba on a siteadjacent to Guaracachi's proposed new export project. This co-location isexpected to result in overall cost savings and an acceleration of local permits,which in Bolivia can be notoriously slow to obtain. The three Jenbachers havesuccessfully been shipped from the Isle of Wight to Bolivia and are awaitingtheir generation licences for the new domestic Yacuiba power plant, on theborder with Argentina The two Energais Worthington reciprocals are disassembled in Sucre and are nowready for transportation to new Amazonian sites subject to receipt of thenecessary environmental impact assessments. At present Rurelec is exploring further expansion opportunities in Argentina andhas reserved two further Jenbacher gas engines under lease. Riberalta andGuayamerin on the Amazon Basin are in the process of finalising new powerpurchase agreements with Energias for the installation of new capacity in theseisolated areas. The company is also considering new isolated generation and ruralelectrification projects in Northern Argentina. Environmental As part of its commitment to improving the quality of life in its key areas ofgeneration, Rurelec has adopted a policy of phasing out older, lower efficiencygeneration equipment, which have higher emissions of greenhouse gases, andreplacing them with new machines of greater efficiency and lower levels ofemissions that adversely affect the environment These initiatives are not only environmentally sound but are sociallyresponsible for reinforcing the integrity and reliability of the electricitygeneration industry in the Southern Cone of Latin America. Peter EarlChief ExecutiveDate: 22 May 2006 RURELEC PLC CONSOLIDATED INCOME STATEMENT AND STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR 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) 1,198of foreign operationsProfit for the financial period 2,053,089 138,089Total recognised income and expense for the period 1,667,754 139,287 RURELEC PLC CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2005 31.12.2005 30.6.2005 Notes £ £Assets Non-current assets Property, plant and equipment 9 4,852,386 723,847Intangible assets 6,931 -Trade and other receivables 10 405,863 -Deferred tax assets 11 327,588 5,000 5,592,768 728,847Current 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 13 427,000 252,000Share premium account 14 3,567,763 764,055Foreign currency reserve 14 (384,137) 1,198Retained 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 STATEMENTFOR 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) 143,304operating activities Interest received 7,809 10,648 Net cash (outflow) / inflow from (49,600) 153,952operating activities Cash flows from investing activitiesPurchase 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) 2,978,708 816,055Dividend 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 RESULTSFOR 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 thesupply of electricity to the wholesale market and major end-users. The Groupalso buys and sells related assets as opportunities arise. During the periodunder review, all of the Group's electricity generation assets were located inSouth America. 2 General information Rurelec PLC is the Group's ultimate parent company. It is incorporated anddomiciled in England and Wales. The address of Rurelec PLC's registered officeis given on the information page. Rurelec PLC's shares are traded on theAlternative Investment Market (AIM) in London. The Company and the consolidated financial statements have been prepared inaccordance with International Financial Reporting Standards as adopted by the EUand International Financial Reporting Standards as issued by the InternationalAccounting Standards Board. The consolidated financial statements for the six months period ended 31December 2005 (including the comparatives for the year ended 30 June 2005) wereapproved 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 InternationalAccounting Standards (IAS), which in conjunction with unrevised IASs issued bythe International Accounting Standards Committee, predecessor to the IASB, isreferred to as "the IFRS Stable Platform 2005". The Group applies the IFRSStable Platform 2005 from 1 July 2004. As required under IFRS reporting, the new standards have been appliedretrospectively, i.e. with amendments to the 30 June 2005 accounts and theirpresentation in accordance with IFRS 1 First Time Adoption of InternationalFinancial Reporting Standards. Due to the adoption of IFRS, the 30 June 2005 comparatives contained in thesefinancial statements differ from those published in the financial statements forthe year ended 30 June 2005. The changes made and the relevant standards which required these changes are asfollows: a) The adoption of IFRS 3 (2004) (Business Combinations) - goodwillamortisation charged in the year ended 30 June 2005 (£5,739) has beenwritten-back to revenue reserves. b) The adoption of IAS 10 (events after the Balance Sheet Date) - under IAS10, dividend distributions to shareholders are included in "other short termfinancial liabilities" when the dividends are approved by the shareholders'meeting. As a result, the dividend paid in November 2005 and which waspreviously included as a liability at 30 June 2005 is now included as a dividendfor the current period. c) The adoption of IAS 12 under which deferred tax assets and deferred taxliabilities are shown separately and not aggregated. The adoption of other standards required under IFRS reporting has not resultedin any other alterations to the Group's accounting policies or the previouslyreported comparative figures. The following table provides a reconciliation of the changes to the figuresreported 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 2 723,847equipmentDeferred tax asset - 5,000 3 5,000Deferred tax liability (33,000) (5,000) 3 (38,000)Profit for the year 143,828 5,739 4 138,089Total 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 ofthe adoption of IFRS reporting. No changes are required to the 30 June 2004 financial statements as a result ofthe adoption of IFRS reporting. At the date of this preliminary announcement, the following standards andinterpretations were in issue but not yet effective, including IAS 1 amendment(regarding financial instruments and capital), IAS 19 amendment (employeebenefits), IAS 39 amendment (adjustments for cash flow hedge accounting and fairvalue option), IAS 39 and IFRS 4 amendment (financial guarantee contracts), IFRS7 (financial instruments disclosure) and IFRIC 5 (de-commissioning). Thedirectors anticipate that the adoption of the other standards andinterpretations will have no material impact on the financial statements of theGroup. 4 Summary of accounting policies 4.1 Basis of preparation The preliminary announcement has been prepared under the historical costconvention. The measurement bases and principal accounting policies of the Groupare set out below. The policies have changed from the previous year when the financial statementswere prepared under applicable United Kingdom Generally Accepted AccountingPrinciples (UK GAAP). The comparative information has been restated inaccordance with IFRS requirements. The changes to accounting policies and theeffect on the comparative figures are explained in note 3 above. The date oftransition to IFRS was 1 July 2004. The accounting policies that have been applied in the opening balance sheet havealso been applied throughout all periods presented in these financialstatements. It should be noted that accounting estimates and assumptions areused in preparation of the financial statements. Although these estimates arebased on management's best knowledge of current events and actions, actualresults may ultimately differ from those estimates. 4.2 Basis of consolidation The Group financial statements consolidate those of the Company, its subsidiaryundertaking and its joint venture entity drawn up to 31 December 2005. Subsidiaries are entities over which the Group has the power to control thefinancial 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 andshares control under a written contractual agreement. The Group reports itsinterests in jointly controlled entities using proportionate consolidation suchthat the Group's share of the assets, liabilities, income and expenses ofjointly controlled entities are combined with the equivalent items in theconsolidated financial statements on a line by line basis. Goodwill, or the excess of interest in acquired assets, liabilities andcontingent liabilities over cost, arising on the acquisition of the Group'sinterest in subsidiary or a jointly controlled entity is accounted for inaccordance with the Group's accounting policy for goodwill arising on theacquisition of a subsidiary (see 4.3 below). Unrealised gains on transactions between the Group and subsidiary and jointventure entities are eliminated. Unrealised losses are also eliminated unlessthe transaction provides evidence of an impairment of the asset transferred.Amounts reported in the financial statements of subsidiary and joint ventureentities have been adjusted where necessary to ensure consistency with theaccounting policies adopted by the Group. Acquisitions of subsidiaries and joint venture entities are dealt with by thepurchase method. The purchase method involves the recognition at fair value ofall identifiable assets and liabilities, including contingent liabilities of theacquired company, at the acquisition date, regardless of whether or not theywere recorded in the financial statements of the subsidiary prior toacquisition. On initial recognition, the assets and liabilities of the acquiredentity are included in the consolidated balance sheet at their fair values,which are also used as the bases for subsequent measurement in accordance withthe Group accounting policies. Investments in subsidiaries and joint venturesare 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 valueof the Group's share of the identifiable net assets acquired is capitalised andreviewed annually for impairment. Goodwill is stated after separating outidentifiable assets and liabilities. Goodwill is carried at cost lessaccumulated impairment losses. Any excess of interest in acquired assets,liabilities and contingent liabilities over cost is recognised immediately afteracquisition in the income statement. 4.4 Foreign currency translation The financial information is presented in pounds sterling, which is also thefunctional currency of the parent company. In the separate financial statements of the consolidated entities, foreigncurrency transactions are translated into the functional currency of theindividual entity using the exchange rates prevailing at the dates of thetransactions (spot exchange rate). Foreign exchange gains and losses resultingfrom the settlement of such transactions and from the translation of remainingbalances 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 ofsubsidiary and jointly controlled entities, originally presented in a currencydifferent from the Group's presentation currency, have been converted intosterling. Assets and liabilities have been translated into sterling at theclosing rate at the balance sheet date. Income and expenses have been convertedinto sterling at the average rates over the reporting period. Any differencesarising from this procedure have been charged / (credited) to the ForeignCurrency Reserve. Goodwill and fair value adjustments arising on the acquisitionof a foreign entity are treated as assets and liabilities of the foreign entityand 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 tothe customer. Revenues represent the total amount receivable by the Group forelectricity sales and, in the year to 30 June 2005, from equipment sales,excluding VAT. Revenue includes both the sale of electricity generated and alsocompensation for keeping power plants operating and available for despatch intothe grid as required. Operating expenses are recognised in the income statement upon utilisation ofthe service or at the date of their origin. All other income and expenses arereported on an accrual basis. 4.6 Dividends Dividends are recorded in the Group's financial statements in the period inwhich they are approved by the shareholders or by the Board in the case ofinterim dividends. Group dividends are recorded in the period in which they areapproved by the Board of the paying company. 4.7 Borrowing costs All borrowing costs are expensed as incurred except where the costs are directlyattributable to specific construction projects. 4.8 Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and anyprovision for impairment. No depreciation is charged during the period ofconstruction. All operational buildings and plant and equipment in the course of constructionare recorded as plant under construction until such time as they are broughtinto use by the Group. Plant under construction includes all direct expenditureand may include capitalised interest in accordance with the accounting policy onthat subject. On completion, such assets are transferred to the appropriateasset category. Repairs and maintenance are charged to the income statement during the financialperiod in which they are incurred. The cost of major renovations and overhaulsis included in the carrying amount of the assets where it is probable that theeconomic life of the asset is significantly enhanced as a consequence of thework. Major renovations and overhauls are depreciated over the expectedremaining useful life of the work. Depreciation is calculated to write down the cost or valuation less estimatedresidual value of all property, plant and equipment other than freehold land byequal annual instalments over their estimated useful economic lives. The periodsgenerally 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, whetheror not the asset is revalued. Where the carrying amount of an asset is greaterthan its estimated recoverable amount, it is written down immediately to itsrecoverable amount. 4.9 Impairment testing of property, plant and equipment, goodwill and otherintangible assets Goodwill and other intangible assets with indefinite lives are reviewed forimpairment losses annually and, for all other assets, whenever events or changesin circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised from the amount by which the carrying amount ofan asset exceeds its recoverable amount which is the higher of an asset's netselling price and its value in use. For the purposes of assessing impairment,assets are grouped at the lowest level for which there are separatelyidentifiable cash flows. 4.10 Taxation Current income tax assets and liabilities comprise those obligations to, orclaims from, fiscal authorities relating to the current or prior reportingperiod, that are unpaid at the balance sheet date. They are calculated accordingto the tax rates and tax laws applicable to the fiscal periods to which theyrelate, based on the taxable profit for the period. All changes to current taxassets or liabilities are recognised as a component of tax expense in the incomestatement or through the statement of recognised income and expense. Deferred income taxes are calculated using the liability method on temporarydifferences. This involves the comparison of the carrying amounts of assets andliabilities in the consolidated financial statements with their respective taxbases. However, in accordance with the rules set out in IAS 12, no deferredtaxes are recognised in respect of non-tax deductible goodwill. In addition, taxlosses available to be carried forward as well as other income tax credits tothe Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided for in full. Deferred tax assets arerecognised to the extent that it is probable that they will be able to be offsetagainst future taxable income. Deferred tax assets and liabilities arecalculated, without discounting, at tax rates that are expected to apply totheir respective period of realisation, provided they are enacted orsubstantively enacted at the balance sheet date. Most changes in deferred taxassets or liabilities are recognised as a component of tax expense in the incomestatement. Only changes in deferred tax assets or liabilities that relate to achange 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 otherreceivables. Cash and cash equivalents include cash at bank and in hand as well as short termhighly liquid investments such as money market instruments and bank deposits. Receivables are non-derivative financial assets with fixed or determinablepayment dates that are not quoted in an active market. They arise when the Groupprovides money, goods or services directly to a debtor with no intention oftrading the receivable. Receivables are measured initially at fair value andsubsequently re-measured at amortised cost using the effective interest method,less provision for impairment. Any impairment is recognised in the incomestatement. Trade receivables are provided against when objective evidence is received thatthe Group will not be able to collect all amounts due to it in accordance withthe original terms of the receivables. The amount of the write-down isdetermined as the difference between the asset's carrying amount and the presentvalue of estimated cash flows. 4.12 Financial liabilities Financial liabilities are obligations to pay cash or other financial instrumentsand are recognised when the Group becomes a party to the contractual provisionsof the instrument. All interest-related charges are recognised as an expense in"finance cost" in the income statement. Bank and other loans are raised forsupport of long term funding of the Group's operations. They are recognised atfair value, net of transaction costs. Finance charges, including premiumspayable on settlement or redemption, and direct issue costs are charged to theincome statement on an accruals basis using the effective interest method andare added to the carrying amount of the instrument to the extent that they arenot settled in the period in which they arise. 4.13 Hedging instruments The Group has not entered into any derivative financial instruments for hedgingor any other purpose. 4.14 Inventories Inventories comprise spare parts and similar items for use in the Group's plantand equipment. Inventories are valued at the lower of cost and net realisablevalue 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 ofconsideration received for equity shares, net of expenses of the share issue. "Foreign currency reserve" represents the differences arising from translationof 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 anypension schemes (30 June 2005 - nil). 4.17 Key assumptions and estimates The Group makes estimates and assumptions concerning the future, The resultingestimates will, by definition, seldom equal the related actual results. TheBoard has considered the critical accounting estimates and assumptions used inthe Accounts and concluded that the main area of significant risk which maycause material adjustment to the carrying value of assets and liabilities withinthe next financial year is in respect of the assumptions used to value plant andmachinery. The Board has obtained external expert valuations and estimates ofexpected useful lives for all of the Group's plant and machinery and plant underconstruction and these valuations have been used in these Accounts. However,changes in technology or industry practices may result in the assumptions usedin these valuations needing to be changed. An important area requiring estimatesand assumptions is deferred tax since there is an element of uncertainlyregarding the both the timing of the reversing of the asset or liability and thetax rate which will apply when the reversing occurs. 5 Principal activity The Group's activities comprise the acquisition and development of powergeneration assets to support rural electrification projects, initially in SouthAmerica. In addition, and as opportunities arise, the Group acquires, renovatesand sells power generation equipment. 6 Other income Other income represents the excess of the provisional fair values of the assetsless the liabilities acquired in the acquisition of the 50 per cent. interest inPatagonia Energy Limited and its subsidiary company, over the cost of acquiringthe 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 periodattributable to shareholders by the weighted average number of shares in issueduring the period. For diluted earnings per share, the weighted average numberof shares is adjusted to assume conversion of all dilutive potential ordinaryshares. The fully diluted calculation of earnings per share is unchanged fromthe basic calculation as the warrants are anti-dilutive. Income, or expenses, of a one off nature do not relate to the profitability ofthe Group on an on-going basis and underlying earnings per share excludes suchitems, with the average weighted number of shares in issue during the year asper 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 at31 December 2005 in respect of costs associated with the share issue and theacquisition 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 inthe Argentina. It is expected that the retention will either be released orcontributed 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 thetax 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 andthe nominal value of the shares issued has been credited to the share premiumaccount. c) Warrants On 18 August 2004, the company issued: i) 75,000 warrants to subscribe for ordinary shares on a 1:1 basis at 40pper share. These warrants expire on 17 August 2006. ii) 1,000,000 warrants to subscribe for ordinary shares on a 1:1 basis at60p per share (if exercised prior to 12 August 2005) or 80p per share ifexercised after 12 August 2005 but before 17 August 2006. These warrants expireon 17 August 2006. All of these warrants vested on issue, none have been exercised to date and allwere 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, butunpaid at 31 December 2005, in respect of the share issue in January 2006 andthe acquisition by the company of 50.00125% of Bolivia Integrated Energy Ltd inJanuary 2006. ii) Sundry creditors, current and non-current, represents a total amount ofUS$1,500,000 deferred consideration (current US$750,000 / £431,258, non-currentUS$750,000 / £431,257) owing by the company at 31 December 2005 in respect ofthe 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 ofthe deferred consideration, up to a maximum of US$750,000, is dependent upon theoperating profit of Energia del Sur, the 100 per cent. trading subsidiary ofPatagonia 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 ofaccelerated capital allowances. The asset was sold during the period to 31December 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 havenot been finalised but it is anticipated that the loan will bear interest at 7per cent. per annum and will be repayable in 12 equal instalments, commencing inJuly 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 Energiapara Sistemas Aislados S.A., a company registered in Bolivia under registrationnumber 107752. This company was acquired in October 2004. Energia para SistemasAislados S.A. is in the process on refurbishing electricity generation plant forinstallation in rural areas in Bolivia. b) Joint venture entity - 50 per cent. of the issued share capital of PatagoniaEnergy Limited (PEL), a company registered in the British Virgin Islands underregistration number 620522. PEL owns 100 per cent. of the share capital ofEnergia del Sur S.A. (EDS), a company registered in Argentina. EDS is agenerator and supplier of electricity to the national grid in Argentina. Theinvestment in PEL was acquired in July 2005 and has been accounted for as ajoint venture. The Group's share of the provisional fair values of the assets and liabilitiesacquired 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 asfollows - US$4.5m on completion plus up to a maximum of US$1.5m as deferredconsideration, the timing and amount payable being dependent upon the tradingresults of PEL's trading subsidiary, EDS. The payments made and the balance due is as US$ £ 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 accountingperiod, 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 6January 2006, the company raised £18,532,000 after issue expenses. Subsequent tothe placing in January 2006, the company acquired 100 per cent. of BoliviaIntegrated Energy Ltd (BIE), a company registered in the British Virgin Islandsunder 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. ofthe share capital of Empresa Electrica Guaracachi S.A. (EGSA), a companyregistered in Bolivia under the registration number 08-035910-03. EGSA operatesthree generating plants in Bolivia and supplies electricity to the wholesalemarket and major consumers. The provisional fair values of the assets, liabilities and contingentliabilities 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 notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The preliminary announcement includes the consolidated income statement,consolidated statement of recognised income and expense, the consolidatedbalance sheet, the consolidated cash flow statement and other primary statementsand associated notes that have been extracted from the group's audited financialstatements for the six months period ended 31 December 2005. Those financialstatements have not yet been delivered to the Registrar. The comparative figuresrelating to the year to 30 June 2005 are taken from the audited statutoryaccounts for that year, adjusted as described and set out in note 3 above. This information is provided by RNS The company news service from the London Stock Exchange