Rurelec Regulatory News (RUR)

Rurelec PLC

("Rurelec" or "the Company")

Audited results for the year ended 31st December 2014

Rurelec PLC (AIM: RUR), the electricity utility focused on ownership and operation of power generation plants in Latin America, announces its audited results for the year ended 31 December 2014. The annual report will be posted to shareholders on 19 June 2015.

Highlights

· Continued improvement in operations in Argentina

· Gross energy output 14 per cent. higher at Energia del Sur ("EdS") 958 GWh (2013: 840GWh)

· EdS return to profitability in US$ terms, pre-tax $1.9 million (2013: loss US$ 7.3 million)

· Change of accounting rules affects joint venture reporting for 2014, 2013 restated

· Strategic refocussing on thermal plants, disposal of Peruvian small river hydros

· Successful capital restructuring paves way for return to dividends

· Chilean projects progressing towards financial close

· Loss before tax £2.9 million (2013 restated: £36.4 million)

· Loss per share 0.52p (2013 restated: loss 7.23p)

· Net asset Value per share 10.1p (2013 restated 11.0p)

· Group borrowings fall to £3.2 million (2013 restated: £20.9 million)

· Loan facility in place to fund expansion

Commenting on the results Peter Earl, Rurelec's Chief Executive, said:

"Our performance during 2014 was hugely influenced by the result of the Bolivian arbitration award from which the Company is still suffering. The Argentinian joint venture continues to perform well contributing a positive cashflow to the Group and we successfully completed our first run-of-river hydro plant in Peru. However due to the lack of available capital we have had to sell our Peruvian assets and concentrate on our core business of clean tech gas projects in Argentina and expansion in Chile."

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Non-Executive Chairman's Statement

Dear Shareholder

It falls to me to present the results of Rurelec PLC ("Rurelec") for the financial year ended 31 December 2014, which proved to be a difficult year for the Company following the announcement in February of the disappointing result of the Permanent Court of Arbitration ("PCA") ruling in The Hague which found against Bolivia but which awarded Rurelec less than half the book value of its historical 2006 investment in Empresa Guaracachi. This in turn was followed by the further discounted settlement for $31.5 million grudgingly paid by Bolivia in June 2014, which resulted in an additional loss against the sum awarded by the PCA. It should be noted that the Board of Rurelec had expected to receive not less than US $75 million being the book value of the Bolivian investment and declared but unpaid dividends. The proceeds of the settlement were used to repay a loan which had been taken to fund both the cost of the arbitration and the Group's expansion into Peru and Chile.

During the year Larry Coben stepped down from the Board of the Company due to other commitments and we thank him for his incisive input during his three years on the Board. In April 2015 the board welcomed Pablo Galante as a new director who brings to the Board extensive experience in the energy sector both in Latin America and internationally, with particular insight into the business of fuel supply.

Outlook

In spite of the serious setback from the quantum of the PCA award and the considerable write-off against reserves which this entailed, the Board of Rurelec remains optimistic for the future of the Company. There are continuing projects in Peru and Chile as well as the potential to expand our presence in Argentina where the country's need for power encourages new plant development under US dollar denominated contracts.

The result of the Arbitration means that the Company has considerably less funding available to direct towards new projects, and this has slowed our expansion. In the light of our straightened circumstance, the Board has decided to concentrate Group funds in areas of faster growth, involving thermal plants which have the advantage of shorter lead times in construction. It is therefore intended to divest the small hydro development business in Peru which trades under the Cascade Hydro Power brand. Funds realised from the disposal of this business will be used to repay loans in connection with development activities and to bring into construction Rurelec's thermal developments in Chile and Peru.

Activities in Chile were slowed by the change in government which led to all projects being called in for review. This had an impact on the Company's power project developments in northern Chile including those with already permitted sites. The process to select a long term equity partner for projects in Chile has been caught up in these delays and by the complex transmission system in the region. These issues have now been largely overcome and the Company expects to make more rapid progress for the future.

The Company has recently signed a bridging loan facility of $12 million against the anticipated sales of the Peru hydro projects. The Company has also agreed terms but has not yet been contracted,for an alternative one year secured loan from a large organisation within the South American power industry which will allow the Group to settle the deferred payment to IPSA Group PLC and repay outstanding loans. This facility is the first stage of an intended larger cooperation with this South American company, a power generation company operating in the same field as Rurelec in Central and Latin America. The Group expects to repay all loans from the proceeds of the sale of its Peruvian hydro portfolio, but with contingency plans for repayment from other sources if the sales are delayed.

In anticipation of a planned closer co-operation with the South American group, the Board has agreed that the project development activities under Independent Power Corporation PLC ("IPC") should be spun out of Rurelec now that its task in Latin America has been completed. IPC was acquired for £4 million in June 2013 to consolidate the replacement of capacity through greenfield development of projects led by IPC during the arbitration process. The business separation will be achieved by Peter Earl acquiring outright ownership of IPC in a transaction whereby the principal assets of IPC will be transferred up to Rurelec leaving IPC with only nominal assets and fixed overheads of some £500,000 per annum. Peter Earl will step down as both a director and CEO of Rurelec and will purchase IPC and its development team for nominal consideration. Former Chairman, Andrew Morris, has agreed to take over as CEO of the Company. Both Peter Earl and IPC are entering into consultancy agreements with the Company so as to maintain continuity and a smooth handover for the next stage of Rurelec's planned return to a dividend paying company. The net effect will be to reduce overhead within Rurelec and re-establish the core business of the Group as ownership of cash-producing power plants in Latin America to be valued on the basis of income.

I look forward to the future with optimism.

Colin Emson

Chairman

18 June, 2015

Review of Financial Performance

Group Results

The Group loss after tax for the financial year under review is £2.9 million (2013 restated: £35.8 million loss). The majority of the loss is due to operational costs and the net effect of foreign exchange gains and losses on our assets. The results for the operations in Argentina, Peru, Chile and for IPC are shown below.

Group revenue was £0.3 million (2013 restated: £5.4 million). Administrative expenses amounted to £7.1 million (2013 restated £3.7 million). Operating loss was £6.9 million (2013 restated £0.1m gain. The loss before tax is £3 million (2013 restated: £35.7 million loss). The basic loss per share is 0.52p (2013: 7.23p loss). In the balance sheet the restatement of the 2013 financial statements under IFRS11 has resulted in a decrease in total assets to £91.0 million compared with the audited figures of £94.2 million. In 2014, the total assets of £74.8 million (2013 restated: £91.0 million) includes assets of £18.2 million (2013: £0), which are held for sale. In December 2014 Rurelec PLC reorganised its reserves by moving £45.0 million from the share premium account to a special reserve that can be designated as distributable once all creditors at the year end have been paid. Total equity stands at £56.5 million, or 10.1pence per share.

A more detailed analysis of the business entities is given below.

Energia del Sur S.A. Results

At the operating level the plant in Comodoro Rivadavia and therefore based on 100% of Energia del Sur S.A.'s ("EdS's") activities the gross operating profit for the year was £14.99 million (2013: £10.9 million) on revenues of £17.2 million (2013: £19.3 million). In local currency terms the revenues increased to AR$220 million (2013: AR$ 167 million) whilst the gross operating profit was AR$ 191 million (2013: AR$ 113 million). The reduction in the net loss for the year in EdS to £0.2 million (2013: £4.2 million loss) was due to change in the revenue structure with significantly more contracted energy revenue where we have no fuel costs compared to 2013 where there was significantly more spot energy sales with corresponding increase in fuel costs, which led to the increase in the operating profits for the year in 2014.

It should be noted that the results of EdS are no longer shown proportionately within the accounts in this annual report. This is because of a change in the reporting rules under the international accounting convention of the International Financial Reporting Standards ("IFRS") which requires us to report the EdS joint venture as a single line in the Consolidated Statement of Financial Position and in the Consolidated Income Statement. Further information on this can be seen in the note 28 to the accounts and in the Review of Operations.

Independent Power Corporation PLC

IPC has made a loss for the year of £4.2 million (2013: £2.1 million profit) which was partly attributable to the Group's administration costs being charged to IPC in 2014 after the group overheads were reorganised. Previously Rurelec's administration costs were charged in to Rurelec PLC itself. The activities of the company involve development work for new projects, the supply of engineering services to group and other companies and also the administration of the London office. Administration expenses for the year were £1.2 million (2013: £1.1 million). The additional cost this year relates to the writing back of accrued income for the success fee from the financial close of the Illapa project in Chile. The measurement of this accrued income was based on management estimates of the amount of work that had been completed and the proximity to achieving finance of the project. Selecting the equity partner has been affected by the change in Government and the slowdown of power projects in the country. This along with the need to be certain about accrued income has led to a one-off write back which has increased the accounting loss for the period by £3.1 million.

Rurelec Chile

The development operations in Chile have expensed limited direct costs in the year of £82k (2013: £111k). Capitalised development costs have accumulated to £0.9 million (2013: £1.0 million) on both the Central Illapa and Arica projects.

Cascade Hydro Power

In Peru, the Canchayllo run-of-river hydro plant was completed in the final days of 2014 and the value of the plant at the year-end is £8.8 million (2013 £5.7 million).

Rurelec has outstanding loans of £9.5 million (2013: £5.8 million) to the Cascade group at the period end, whilst there is a bank loan relating to the Canchayllo operating plant with the Corporacion Interamericana de Inversion ("IIC") of £4.6 million (2013: £4.2 million) and other loans of £2.8 million (2013: £0.9 million). The other assets of the Cascade group include £3.2 million (2013: £3.5 million) of bonds held by IIC and the Ministry of Minerals and Energy in connection with development projects.

During 2014 the Board took the decision to sell the Peruvian assets and has therefore reported these assets in accordance with IFRS standards as assets held for sale. The equity sale of the Canchayllo plant has been agreed for a total of £4.4 million with the IIC debt of £4.6 million remaining with the plant.

Review of Operations

The first half of the year was devoted to the recovery of the sum - disappointingly low - awarded by the Arbitration Tribunal, reduced even further by the Bolivian Government's threats not to pay unless Rurelec accepted a further cash discount. All the same, the Group was able to emerge from the four year nationalisation nightmare with a number of projects under development in Peru and Chile. In the second half of the year your executives were able to concentrate on developing the business, even in the straitened circumstances arising from the pitiful award. The main source of cashflow for the Group during this period has arisen from its joint venture operations in Argentina.

Argentina

Operations at the power plant continue to allow EdS to show an excellent availability record. Gross energy output was 14per cent. higher at approximately 958 GWh (2013: 840 GWh), since no maintenance outage was experienced. The average heat rate of the plant was 8.33 MMBTU/MWh (2013: 8.43), a slight drop due to normal degradation following the outage in 2013. The Ministry of Energy has enacted further changes in the electricity sector, largely driven by the weak performance of the distribution sector, the increase in demand and the widening gap between the official and unofficial exchange rates.

The major impact of the changes for EdS has been the deduction of a maintenance reserve payment each month, which we have negotiated to recover starting May 2015, thus increasing cashflow in the coming year. The average notional cost of gas per MWh generated was AR$176.67 (2013: AR$118.36), in US$ terms the gas cost has moved to US$21.46 per MWh from US$21.5 in 2013. The average price of electricity in peso terms increased by 43 per cent. to AR$378.73 (2013: AR$265.17) however it has decreased by 4.5 per cent. in dollar terms, US$46.00 (2013: US$48.17) as a result of the weakening of the peso. The Resolution 220 contract is the main driver of the strengthening performance at the EBITDA level, as the proportion of US$ based revenue is boosted by the exchange rate as well as the removal of gas (a US$ expense) from the revenue line and the increased proportion of peso based expense. Turnover at EdS during 2014 was AR$220 million from AR$ AR$166.5 in 2013. No CERs were registered in 2014 as the low CER prices currently do not cover the cost of registration. Gross margin increased in peso terms to AR$191 million from AR$115 million. Large foreign exchange losses due to the impact of the revaluation of US$ borrowings arising from the weakening peso exchange rate once again increased the after tax loss. Even with the foreign exchange loss of AR$52.5 million (2013: AR$46 million) the loss for the year was AR$2.4 million (2013: loss of AR$36 million). This improvement was significantly due to the change in the structure of the energy sales now more reliant on the Resolution 220 Contract rather than spot sales, which incur fuel costs. Cashflow was strong, allowing EdS to remit US$5.4 million to the UK during the year, however, the electricity sector is still held back by cashflow restrictions imposed as a result of the low tariffs of the two largest electricity distribution companies. CAMMESA has struggled to maintain timely payment of invoices to generators since the middle of the year.

Exchange rates in Q1 2014 saw the biggest correction as the Government finally allowed the official peso exchange rate to move towards the unofficial exchange rate. At the start of the year it was AR$6.2 to the US$, by year end it was AR$8.23 with most of the fall during January 2014 after a 17per cent devaluation in that month alone. The deterioration in the exchange rate was having an impact on our receivables, until a new directive was brought in to compensate generators for the impact for the late payment of their invoices.

The following table sets out the Group's share of its interest in the joint venture in Argentina following the changes in the accounting for joint ventures to the equity accounting method:

Chile

Arica

Final approval for the use of the gas turbine was received in May 2014. However, as a result of further objections made locally during the latter half of 2014, we have decided to relinquish the approval for the GT and revert to the original diesel engine-based technology of the initial approval. Limited construction worked has commenced and the environmental approval has been secured. On this revised basis, dispatch levels for the plant, when constructed, are expected to be higher than originally envisaged when using high efficiency engines. With little new generation other than solar plants planned for the northern part of the SING system, we expect the project to be an important contributor to securing electricity supply in the local area.

Central Illapa

Development of the Illapa project has progressed slower than anticipated, principally due to the definition of the transmission interconnection taking longer than expected. This issue has now been resolved and selection of a joint venture partner and financing for the project is underway and will be pursued with financial completion expected during 2015.

Peru

During 2014 the construction of the 5.3 MW Canchayllo project continued and the plant was successfully commissioned on 31 December 2014 after much hard work on the part of our Cascade Hydro staff in Peru and Harbin, the original equipment manufacturer. The cost of the plant was approximately 20 per cent more than originally budgeted but with a higher installed capacity than originally projected. The Canchayllo plant was financed with equity from Rurelec and debt from the IIC. In addition, the Cascade team was successful in winning PPAs for a further 30 MW of new projects, although we elected to fund only one project to close a power purchase agreement in the 2014 PPA round. The two other projects have had to be held back for the next round which planned for later this year.

With significant funding required for bonding and construction of hydro plants in the tender process, we expect to reduce exposure to this sector by selling Canchayllo and our development company Cascade Hydro Power SAC. This still leaves us with the opportunity to develop large hydro in the form of Rurelec's 255 MW Santa Rita project and thermal generation in Peru. The Proinversion tender for awarding large hydro PPAs was announced in February 2015 and Rurelec is active now in preparing a qualifying bid in partnership with a strong financial partner currently being selected.

Independent Power Corporation

During 2014 IPC directed much of its activities to projects under development by clients in Ghana having received the disappointing news that it was unsuccessful in the Gibraltar tender for which it had qualified. IPC is also in advanced negotiations for a similar third party project in Ivory Coast.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group, apart from the construction risks involved in building the hydro plant in Peru and possible changes in demand and pricing for electricity in the markets in South America in which the Group operates, relate to political risk and uncertainties in the financial markets.

a) Political risk - As evidenced by the decision in May 2010 by the Government of Bolivia to nationalise the Group's interest in Guaracachi, there exists significant political risk in areas in which the Group operates. The Group has sort to mitigate this risk by diversifying the countries in which it operates.

b) Financial markets - Whilst project finance may be available in the markets in which the Group operates, the Group's expansion plans remain dependent on raising project finance from a combination of local partners and lending institutions. The Group is seeking to broaden its base of potential partners and lending institutions.

c) Exposure to foreign currency - The Group's activities are in South America and therefore the Group's results will be affected by exchange rate movements and local inflation rates. Furthermore, past experience has shown that exchange controls restrictions can sometimes be applied and these may have an impact on the Group's ability to repatriate funds to the parent company. The Group seeks to limit these risks by raising funds in the currency of the operating units.

d) Efficient operation - The Group has an effective maintenance programme and has entered into long term service agreements to reduce these risks as appropriate.

The Strategic Report was approved by the Board of Directors on 18th June, 2015 and were signed on its behalf by PRS Earl (Chief Executive).

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION company number: 4812855

for the year ended 31 December 2014

The financial statements were approved by the Board of Directors on 18th June, 2015 and were signed on its behalf by P.R.S. Earl (Chief Executive) and A.J.S. Morris (Group Finance Director).

PARENT COMPANY STATEMENT OF FINANCIAL POSITION

For the year ended 31 December 2014

The financial statements were approved by the Board of Directors on 18th June, 2015 and were signed on its behalf by P. Earl (Chief Executive) and A. Morris (Group Finance Director).

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2014

COMPANY STATEMENT OF CASH FLOWS

for the year ended 31 December 2014

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2014

COMPANY STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2014

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2014

1 General information, basis of preparation and new accounting standards

1a General information

Rurelec PLC is the Group's ultimate parent company. It is incorporated and domiciled in England and Wales. Rurelec's shares are traded on the AIM market of the London Stock Exchange PLC.

The nature of the Group's operations and its principal activities are the generation of electricity in South America.

1b Basis of preparation, including going concern

The Company and the consolidated financial statements have been prepared in compliance with International Financial Reporting Standards ("IFRSs") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union and company law applicable to companies reporting year ended 31 December 2014. The Directors have continued to adopt the going concern basis for the preparation of these financial statements, having received settlement from the Bolivian Government in 2014 allowing the repayment of the Birdsong loan in June 2014. During 2015 the Group continues to receive funds from Argentina in service of the loans to the Joint Venture, whilst also selling the assets of the Group in Peru.

The Group has agreed but not contracted a bridging loan facility of $12 million that will be drawn down in the event that the arrangements for an alternative one year secured loan from a large organisation within the South American power industry is not signed within the time limits required by the company's creditors. It is expected that the Group will reach satisfactory agreement with this large organisation such that the proceeds of this loan will be used to meet current obligations and provide working capital for the Group. The Group expects to repay the loan from the proceeds of the sale of its Peruvian assets. On the basis of these loan facilities the Directors have assessed that the Group has sufficient working capital based on their review of cashflow forecasts for a period of at least 12 months from the signing of the financial statements.

Restatement of 2013 accounts

The 2013 financial results have been restated for the application of IFRS 11 Joint Arrangements. In previous years the group has accounted for interests in joint ventures under the proportionate consolidation approach. Under IFRS 11 the Group's interest needs to be included in the consolidated accounts by equity accounting. This change in accounting policy has had the effect of increasing the net assets of the Group by £3.3 million at 31 December 2013 and £0.2 million as at 1 January 2013 and also has reduced the loss by £3.3 million in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2013. The investment in the Joint Venture is held at nil as the Group is not recognising additional losses over and above that investment. More information on the effect of IFRS 11 can be seen in note 28.

1c New accounting standards

At the date of authorisation of these financial statements certain new standards, amendments and interpretations to existing standards have been published but are not yet effective. The Group has not early adopted any of these pronouncements. The new Standards, amendments and Interpretations that are expected to be relevant to the Group's financial statements are as follows:

Applicable for financial

Standard/interpretation Content years beginning on/after

IFRS 9 (2014) Financial instruments: 01/01/2018

Standards and amendments to existing standards effective 1 January 2014

The following standards, amendments and interpretations became effective in 2014:

Standard/ interpretation Content Applicable for financial years beginning on or after

Amendments to IAS 36* Recoverable Amount Disclosures for

Non-Financial Assets 01/01/2014

IFRS 10* Consolidated Financial Statements 01/01/2014

IFRS 11 Joint Arrangements 01/01/2014

IFRS 12* Disclosure of Interests in Other Entities 01/01/2014

IAS 27* (Revised) Separate Financial Statements 01/01/2014

IAS 28* (Revised) Investments in Associates and Joint Ventures 01/01/2014

Amendment to IFRS 10, Transition Guidance 01/01/2014

IFRS 11 and IFRS 12*

Amendment to IFRS 10* Investment Entities 01/01/2014

Amendments to IAS 32* Offsetting Financial Assets and Financial Liabilities 01/01/2014

IFRIC Interpretation 21* Levies 01/01/2014

* The adoption of these Standards and Interpretations has had no material impact on the financial statements of the Group other than for the disclosure of joint venture.

IFRS 9, 'Financial instruments: Classification and measurement'

The Directors do not anticipate that the adoption of these standards and interpretations in future periods will have any material impact on the financial statements of the Group.

2 Summary of significant accounting policies

2.1 Basis of consolidation

The Group financial statements consolidate the results of the Company, the equity accounting under IFRS 11 in the Argentina joint venture, the Group's 100 per cent. interest in the Chilean entity and the Peruvian assets held for sale.

Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. Management has reviewed its control assessments in accordance with IFRS 10 and has concluded that there is no effect on the classification as subsidiaries or joint ventures of any of the Group's investees held during the period or comparative periods covered by these financial statements.

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2014. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Generally there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control that is when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.

The Group reports its interests in joint venture using the equity method of accounting, except when the investment is classified as held for sale.

Under the equity method, investments in joint ventures are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the joint venture, less any impairment in the value of individual investments. Losses of a joint venture in excess of the Group's interest in that joint venture are not recognised, unless the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.

Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the joint venture recognised at the date of acquisition is recognised as goodwill.

The goodwill, if any is included within the carrying amount of the investment and is assessed annually for impairment as part of the investment. Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately as a profit or loss.

Unrealised gains on transactions between the Group and its joint venture are eliminated to the extent of the Group's interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Unrealised gains on transactions between the Group and subsidiary entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiary and joint venture entities have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Acquisitions of subsidiaries are dealt with by the acquisition method. This method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the acquired company, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the entity prior to acquisition. On initial recognition, the assets and liabilities of the acquired entity are included in the consolidated statement of financial position at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group's accounting policies. Investments in subsidiaries are stated at cost in the statement of financial position of the Company.

2.2 Goodwill

Goodwill representing the excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is capitalised and reviewed annually for impairment. Goodwill is stated after separating out identifiable assets and liabilities. Goodwill is carried at cost less accumulated impairment losses. Any excess of interest in acquired assets, liabilities and contingent liabilities over fair value is recognised immediately after acquisition through the income statement.

2.3 Foreign currency translation

The financial information is presented in pounds sterling, which is also the functional currency of the parent company.

In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions ("spot exchange rate"). Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of remaining balances at year-end exchange rates are recognised in the income statement within 'other expense'.

In the consolidated financial statements, all separate financial statements of subsidiary and joint venture, originally presented in a currency different from the Group's presentation currency, have been converted into sterling. Assets and liabilities have been translated into sterling at the closing rate at the reporting date. Income and expenses have been converted into sterling at the average rates over the reporting period. Any differences arising from this procedure have been recognised in other comprehensive income and accumulated in the Foreign Currency Reserve.

2.4 Income and expense recognition

Revenue represents amounts receivable for goods or services provided in the normal course of business, net of trade discounts, VAT and other sales-related taxes, and excluding transactions with or between Group companies. Revenues from the sale of electricity are recorded based upon output delivered at rates specified under contract terms or prevailing market rates as applicable. Revenue is recognised on the supply of electricity when a contract exists and supply has taken place. Revenue received for keeping power plants operating and available for despatch into the grid as required is recognised on a straight-line basis over the contractual period. During the year under review and the prior year, no revenues were derived from the sale of equipment purchased with a view to subsequent resale

Operating expenses are recognised in the income statement upon utilisation of the service or at the date of their origin. All other income and expenses are reported on an accrual basis.

Independent Power Corporation PLC a 100 per cent. subsidiary of Rurelec PLC undertakes engineering and development exercises for the Group and third parties. Income and expenses are recognised as they occur, however there are accrued income amounts which relate to success fees on completing the engineering and development of projects that are paid on financial close of the project. The amounts of accrued income are subjective and are determined by management dependent on the level of completion of the relevant project and the expected timing of financial close.

2.5 Dividends

Dividends, other than those from investments in associates and joint ventures, are recognised at the time the right to receive payment is established. No dividends were paid or received during the year (2013: nil). 

2.6 Borrowing costs

All borrowing costs are expensed as incurred except where the costs are directly attributable to specific construction projects, in which case the interest cost is capitalised as part of those assets.

2.7 Property, plant and equipment

Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. No depreciation is charged during the period of construction.

All operational buildings and plant and equipment in the course of construction are recorded as plant under construction until such time as they are brought into use by the Group. Plant under construction includes all direct expenditure and may include capitalised interest in accordance with the accounting policy on that subject. On completion, such assets are transferred to the appropriate asset category.

Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations and overhauls is included in the carrying amount of the assets where it is probable that the economic life of the asset is significantly enhanced as a consequence of the work. Major renovations and overhauls are depreciated over the expected remaining useful life of the work.

Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment other than freehold land which is not depreciated by equal annual instalments over their estimated useful economic lives. The periods generally applicable are:

Buildings 25 to 50 years

Plant and equipment 3 to 15 years

Material residual values are updated as required, but at least annually. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

2.8 Impairment of tangible and intangible assets

At each reporting date, the Group reviews the carrying amount of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the income statement. The Group recognises a cash-generating unit by its ability to independently earn income. The Group carries each cash-generating unit in an individual special purpose company so they are easily recognised.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the income statement.

2.9 Non-current Assets Held for Sale and Discontinued Operations 

In general IFRS 5 outlines how to account for non-current assets held for sale such that  assets (or disposal groups) held for sale are not depreciated, are measured at the lower of carrying amount and fair value less costs to sell, and are presented separately in the statement of financial position.

The following conditions must be met for an asset (or 'disposal group') to be classified as held for sale: IFRS 5.6-8

· management is committed to a plan to sell

· the asset is available for immediate sale

· an active program to locate a buyer is initiated

· the sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)

· the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value

· actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn

The assets need to be disposed of through sale. When the Group is committed to a sale involving loss of control of a subsidiary that qualifies for held-for-sale classification under IFRS 5 the Group classifies all of the assets and liabilities of that subsidiary as held for sale, even if the entity will retain a non-controlling interest in its former subsidiary after the sale. Non-current assets or disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Assets classified as held for sale, and the assets and liabilities included within a disposal group classified as held for sale, are presented separately on the face of the statement of financial position.  The sum of the post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognised on the measurement to fair value less cost to sell or fair value adjustments on the disposal of the assets (or disposal group) is presented as a single amount on the face of the statement of comprehensive income.

2.10 Taxation

Current income tax assets and liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the reporting date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the period. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement or through the statement of changes in equity.

Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with the rules set out in IAS 12, no deferred taxes are recognised in respect of non-tax deductible goodwill. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided for in full with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided that they are enacted or substantially enacted at the reporting date.

Deferred tax is provided on differences between the fair value of assets and liabilities acquired in an acquisition and the carrying value of the assets and liabilities of the acquired entity and on the differences relating to investments in subsidiary and joint venture companies if the difference is a temporary difference and is expected to reverse in the foreseeable future.

Changes in deferred tax assets and liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

2.11 Financial assets

The Group's financial assets include cash and cash equivalents, loans and receivables.

Cash and cash equivalents include cash at bank and in hand as well as short term highly liquid investments such as bank deposits.

Loans and receivables are non-derivative financial assets with fixed or determinable payment dates that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Receivables are measured initially at fair value and subsequently re-measured at amortised cost using the effective interest method, less provision for impairment. Any impairment is recognised in the income statement.

Trade receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the assets carrying amount and the present value of estimated cash flows.

2.12 Financial liabilities

Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the Group becomes a party to the contractual provisions of the instrument. All transaction costs are recognised immediately in the income statement.

A financial liability is derecognised only when the obligation is extinguished, that is when the obligation is discharged, cancelled or expires.

Bank and other loans are raised for support of long-term funding of the Group's operations. They are recognised initially at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method. Finance charges, including premiums payable on settlement or redemption, and direct issue costs are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

2.13 Inventories

Inventories comprise spare parts and similar items for use in the Group's plant and equipment. Inventories are valued at the lower of cost and net realisable value on a first in, first out basis.

2.14 Shareholders' equity

Equity attributable to the shareholders of the parent company comprises the following:

"Share capital" represents the nominal value of equity shares.

"Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of

expenses of the share issue.

"Foreign currency reserve" represents the differences arising from translation of investments in overseas subsidiaries.

"Share option reserve" represents the fair value of options granted and outstanding at the year-end.

"Retained earnings" represents retained profits.

"Other reserves" comprises the reduction of the share premium account.

2.15 Pensions

During the year under review, the Group did not operate or contribute to any pension schemes (2013: nil).

2.16 Segment reporting

In identifying its operating segments, management follows the Group's geographic locations and are reported in a manner consistent with the Chief Operating Decision Maker. The activities undertaken by segments are the generation of electricity in their country of incorporation within South America.

Each of the operating segments is managed separately as the rules and regulations vary from country to country.

The measurement policies used by the Group for segment reporting under IFRS 8 are the same as those used in the financial statements.

3 Key assumptions and estimates

When preparing the financial statement, management make a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities income and expenses. The actual results may differ from the judgements, estimates and assumptions made and will seldom equal the estimated results. The areas which management consider are likely to be most affected by the significant judgements, estimates and assumptions on recognition and measurement of assets, liabilities, income and expenses are:

a) Useful lives of depreciable assets - management review, with the assistance of external expert valuers, the useful lives of depreciable assets at each reporting date. This review includes consideration of the book value of plant under construction which at the year-end amounted to £3.7 million. Actual results, however, may vary due to changes in technology and industry practices.

b) Impairment - management review tangible and intangible assets at each balance sheet date to determine whether there is any indication that those assets have suffered an impairment loss. This review process includes making assumptions about future events, circumstances and operating results. The actual results may vary from those expected and could therefore cause significant adjustments to the carrying value of the Group's assets. Details of the assumptions underlying management's forecasts for the Group's main Cash Generating Unit ("CGU") are set out in note 15.

c) Deferred tax assets and liabilities - there exists an element of uncertainty regarding both the timing of the reversing of timing differences and the tax rate which will be applicable when the reversing of the asset or liability occurs.

d) Asset acquisitions - where the Group acquires assets or a company which is not considered to be a business as defined by IFRS 3, the transaction is accounted for as an asset acquisition and not a business combination.

e) Management have assessed that we do not control the Argentine Joint Venture and therefore have treated the joint venture in accordance with IFRS 11 (see note 28). This assessment is based on the lack of power over the investee and due to the exposure to variable returns from its involvement with the investee.

f) Accrued Income - Management makes assessments as to the amounts of accrued income that is recognised in the Group's accounts. The amounts recognised are based on what is expected to be received in total and relate to success fees from projects developed by the Group. These amounts are then reviewed with adjustments for the level of completion of the project and the likelihood of reaching financial close when the amounts will become due. These are judgements made by management of the Group and the actual results may differ from these judgemental assessments.

4 Segment Analysis

Management currently identifies the Group's four geographic operating segments; Argentina, Chile, Peru and the head office in the UK, as operating segments as further described in the accounting policy note. These operating segments are monitored and strategic decisions are made on the basis of segment operating results. However even though the Argentine operation has been accounted for under the equity accounting method as a Joint Venture under IFRS 11 the segmental analysis is shown in this note 4 but then removed in consolidation adjustments to provide the results in accordance with IFRS 11. More details on the effect of this has been shown in note 28.

The following tables provide an analysis of the operating results, total assets and liabilities, capital expenditure and depreciation for 2014 and 2013 for each geographic segment.

The impairment relating to the IPC goodwill recognised on consolidation is regarded as relating to the UK operating segment. This is due to the Chief Operating Decision Maker reviewing the results of IPC within the UK operating segment.

5 Exchange rate sensitivity analysis

The key exchange rates applicable to the results were as follows:

If the exchange rate of sterling at 31 December 2014 had been stronger or weaker by 10 per cent with all other variables held constant, shareholder equity at 31 December 2014 would have been £3.3 million (2013: £0.9 million, restated 2013 £0.2 million) lower or higher than reported.

If the average exchange rate of sterling during 2014 had been stronger or weaker by 10 per cent with all other variables held constant, the profit for the year would have been £0.1 million (2013: £0.4 million, restated 2013: £0.05 million) higher or lower than reported.

6 Cost of sales

7 Administrative expenses

1 Audit services include £74k paid to the auditors for the audit of the Company and the Group financial statements and £nil paid to the Company's auditors for non-audit professional services provided to the Company in connection with the review of overseas activities (2013 £75.5k). Fees paid to other auditors, in respect of the audit of joint venture companies, amounted to £35k (2013: £11.5k).

8 Employee costs

c) Directors' remuneration, including social security costs

The total remuneration paid to the Directors was £717,000 (2013: £615,000). The total remuneration of the highest paid Director was £226,000 (2013: £230,000). Other emoluments paid were health insurance costs, there were no bonuses, pension costs or share based payments paid during the year (2013: nil)

9 (a) OTHER EXPENSE

3 Foreign exchange Gains / (losses) have arisen in Argentina on US$ denominated loans and in the UK on US$ denominated receivables.

9 (b) OTHER expense

1The loss on the settlement with the Plurinational Government of Bolivia has been arrived at further to the agreement in April 2014 from meetings held between the senior management of Rurelec plc and the Attorney General of Bolivia. The agreed settlement is $31.5m or £19.1m which is made up of £17.5m compensation claim and interest of £1.6m. The carrying value of the claim, excluding interest and reimbursement of costs, as at 31 December 2012 was £47.0m and therefore the loss was £29.5m. The amount shown for 2014 of £376k loss was the adjustment of what was accrued in 2013 and paid in 2014.

2The arbitration costs were not awarded to Rurelec and so £4.9m has been taken as a charge in 2013, in 2014 these costs were reduced by £259k in agreement with the suppliers.

3Following goodwill impairment testing for IPC an impairment of £691k has been charged in the year, see note 15 for further details.

9 (c) OTHER expense

1The Birdsong loan included a contingent value right which amounted to 15% of the Bolivian claim plus interest. In 2014 there was a £416k write back of CVR costs these are included in other income.

2The Birdsong lender charges for extending the loan past 31st December 2013 have been accrued in 2013.

10 FINANCE INCOME & expense

1 Inter-group interest arises on loans by the Company to its 50 per cent owned joint venture companies (PEL and EdS). The loans by the Company to PEL and EdS exceed the loans of the other 50 per cent shareholder by £27.6 million (2013: £26.9 million). Interest on inter-group loans has been charged at rates of between 8 per cent and 19 per cent.

2 Interest paid/payable includes interest on bank borrowings and other loans in Peru and Argentina. The details of the amounts due under the loans are shown in note 26.

Sensitivity analysis arising from changes in borrowing costs is set out in note 26.

11 Tax expense

The relationship between the expected tax expense at basic rate of 21.50 per cnt. per cent (31 December 2013: 23.25 per cent.) and the tax expense actually recognised in the income statement can be reconciled as follows: