30 Jun 2008 07:00
Ramco Energy plc
Final results for the year ended 31 December 2007
New strategy implemented - Ramco Energy, the Energy Investment Company, dual focus strategy on oil and gas and renewable energy:
Lansdowne Oil & Gas - spun off from Ramco in 2006 focusing on Ireland; considerable progress has already been made with new licence awards and its first acquisition last December of Milesian Oil & Gas, further widening its portfolio.
North Sea - through the acquisition in May 2008 of Eagle HC Ramco gained its first exposure to North Sea exploration acreage. The portfolio of nine royalties includes the 21/8-3 well, announced as a discovery in late 2007 by Lundin, in UKCS Block 21/8. A further well is currently drilling on that acreage
Mesopotamia Petroleum Company - focusing on oil service opportunities in Iraq, an area which will undoubtedly be one of the major growth stories as the country opens up to western technology
SeaEnergy Renewables - created to exploit global opportunities for large-scale offshore wind farm development, securing the only team in the world with a deepwater offshore wind farm track record.
Financials:
First full year under International Financial Reporting Standards
Profit attributable to shareholders for the financial year of £0.5m (2006: loss of £5.7m)
Gross loss fell to £1.0m (2006: loss of £4.0m)
Gain on sale of interest in Lansdowne Oil and Gas of £3.8m
Write down in relation to Montenegro of £0.8m
Cash balance as at 31 December 2007 of £2.1m
Short term borrowing facility of £2m agreed
Steve Remp, Chairman of Ramco, said:
"The past year has been invigorating, focusing as we have for the first time in several years, on new activities rather than past problems.
It's been frustrating not being able to share with shareholders our efforts and progress at laying the foundations for our planned recovery and turnaround. It was best to keep our powder dry until we had achieved material results.
My vision is that Ramco will be a player in both renewable energy and in Iraq and I will do my utmost to make that happen. For just one of these initiatives to emerge as a success would be a notable achievement in itself."
30 June 2008
ENQUIRIES:
| Ramco Energy plc | ||
| Chris Moar | Finance Director | 01224 748480 |
|
| ||
| John East & Partners Limited | ||
| Simon Clements | 020 7628 2200 | |
| Bidhi Bhoma | ||
| College Hill | ||
| Nick Elwes | 020 7457 2020 | |
| Paddy Blewer |
RAMCO ENERGY plc
ANNUAL REPORT 2007
CHAIRMAN'S STATEMENT
The past year has been invigorating, focusing as we have for the first time in several years, on new activities rather than past problems. Having successfully managed our way through the twin, potentially terminal, threats of a failed gas project and seven long years of US litigation, which we eventually won last year, we are now ready to put our heads above the parapet and update shareholders with the status of our various initiatives and hard work which the team has been focusing on to re-build the Company. The foundations for the re-building process started well before we had actually resolved all of the past difficulties.
Ramco did not become the largest company on AIM in the late 1990's without an extremely able and dedicated team of people. Those key individuals involved in the Company's past successes are still with Ramco and retain their enthusiasm and commitment to the future of the Company and each other.
At the peak of our success we were effectively a very successful energy investment company and acted as a catalyst to the opening of the Caspian to western investment. In retrospect we were largely unsuccessful in the exploration and production ("E&P") efforts which followed. We have to recognise that we cannot play catch-up with the E&P successes of Tullow, Cairn, Heritage, Dana and others. I take my hat off to their huge and impressive achievements.
Our strategy is now to return to our roots and concentrate on what we do well. Our strategy is to establish ourselves as an energy investment company focused on initiating and maturing oil and gas ventures and now marine renewables, through SeaEnergy.
Integral to this new strategy has been the recent corporate activity and initiatives which we have undertaken. The Board is delighted to have recently completed the acquisition of Eagle HC, giving Ramco its first exposure to the North Sea outside of our past service activity. I am particularly excited to have formed SeaEnergy Renewables and secured the only team in the world with a deepwater offshore wind farm track record. The future of wind power will increasingly be both offshore and in deeper water. We are working hard to advance our position in Iraq, but as I said when we embarked on that adventure, the political situation remains uncertain and this may not be a short term process.
Nothing stays the same and so part of the re-birth is a new logo which I believe more accurately reflects our new direction and purpose and description of how we are positioning ourselves: Ramco Energy - The Energy Investment Company.
Financial Highlights
The full year financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") for the first time.
Consolidated Group turnover for 2007 was £nil (2006 £nil). This reflects the sale of the Group's only producing asset, its interest in the Seven Heads gas field, in February 2006. Under IFRS, this business, including its turnover of £1.0 million, has been presented as a discontinued operation in the 2006 comparative figures.
A profit attributable to ordinary shareholders for the financial year of £0.5 million was achieved in 2007 compared with a loss of £5.7 million in 2006. This profit has predominantly arisen from transactions in the shares of Lansdowne. The Group recorded a gain on the sale of shares in Lansdowne of £1.6 million in 2007 (2006 £nil). The Group also recorded a gain of £2.3 million (2006 £nil) on a deemed disposal, when its holding in Lansdowne was further diluted by an issue of new shares by Lansdowne.
Gross loss fell from £4.0 million in 2006 to £1.0 million in 2007, reflecting the reduced level of expenditure written off in respect of intangible exploration assets. The gross loss for the year includes expenditure written off in relation to Montenegro of £0.8 million (2006 £4.0 million).
The Directors do not recommend the payment of a dividend (2006 £nil).
The Group's net cash flow from continuing operating activities was an outflow of £2.7 million for 2007 and an outflow of £3.1 million for 2006.
Net cash inflow from investing activities was £2.3 million (2006 £0.6 million), including £2.6 million (2006 £nil) relating to the sale of shares in Lansdowne.
Total cash inflows from financing activities in 2007 were £0.4 million, compared to a net outflow of £0.8 million in 2006. Proceeds from the issue of new share capital in 2007 were £0.4 million (2006 £0.3 million).
Ireland
In April 2006, through the AIM flotation of Lansdowne Oil & Gas plc ("Lansdowne"), we started the process of spinning off our remaining Irish exploration assets. I am pleased with the progress that Lansdowne has made; new exploration licences have been awarded to Lansdowne and it has widened its portfolio through the acquisition of Milesian Oil & Gas Limited ("Milesian"), completed at the end of 2007.
That transaction, and the recent placing of new shares announced by Lansdowne, has seen our holding fall to 38.9 per cent. We longer have a controlling interest and consequently the accounts of Lansdowne are not consolidated, but instead we include our share of its results as an associated company.
Lansdowne has also recently completed a seismic acquisition programme in the Celtic Sea. The programme was completed ahead of schedule and under budget. I would be delighted if the outcome of that programme results in further dilution to our holding through the need to issue additional new shares in Lansdowne as a part of the deferred consideration for the Milesian acquisition. For that situation to occur the seismic over the Milesian acreage needs to support best case potentially recoverable prospective resources of at least 63 MMBOE.
Lansdowne is working towards a multi-well drilling programme in the Celtic Sea and the recently announced farm-in option granted over a part of its Midleton / East Kinsale licence is a step in that direction. The proximity to existing infrastructure and favourable market and fiscal terms in Ireland further enhances its prospects.
I am in no doubt that if Lansdowne's reserves potential was situated in the North Sea rather than the Celtic Sea, it would command a significantly higher valuation than it does currently. As further progress is made we expect that gap to close.
North Sea
In May 2008, the Company acquired Eagle HC Limited for an initial consideration of £1.25 million, of which £250,000 was satisfied by the issue of 943,396 ordinary shares in Ramco, with the balance being satisfied by the issue of further ordinary shares in Ramco at a value equal to the average closing mid-market price for the nine business days following this announcement.
Further consideration of £0.5 million became payable by Ramco upon the spudding of the next well on the royalty acreage. This occurred in June 2008 and consequently a further 1,317,292 ordinary shares in Ramco were issued on 24 June 2008. A further £0.5 million becomes payable when cash flow from the royalty portfolio commences. All such contingent consideration can be settled at Ramco's option, either in cash or through the issue of new shares in Ramco at the average closing mid-market price for the 15 business days immediately prior to the issue of the shares.
This acquisition has, through its royalty portfolio, given Ramco its first exposure to the upside of the North Sea at a modest cost and no requirement to fund ongoing activity. The portfolio of nine royalties includes a royalty over UKCS block 21/8 within which the 21/8-3 well was, in late 2007, announced as a discovery by Lundin, the operator of that licence. A further well on that block was spudded on 20 June, this year and a positive outcome will further enhance the value of our royalty portfolio.
Iraq
There has been much speculation about our desire to enter Iraq. We decided early on against competing head on with the more than 100 big international oil companies all positioning themselves for the much publicised short-term lifting contracts which the Ministry of Oil has announced in the absence of ratified oil and gas legislation. Our strategy in forming Mesopotamia Petroleum Company ("MPC") has been to focus on oil service opportunities where Ramco and its co-founder in MPC have extensive experience.
JPMorgan Cazenove Limited has been engaged by MPC to assist in raising its future funding requirements, as and when needed.
Montenegro
Since my last statement we have made no further progress in our joint ventures with Montenegrin company JugoPetrol Kotor ("JPK") and its parent Hellenic Petroleum ("Hellenic"). The Government of Montenegro has not reversed its unilateral decision to terminate JPK's concession over the Ulcinj area (Block 3) and, together with JPK and Hellenic; we have reserved our position on the validity of that decision.
While JPK's concession with respect to the Prevlaka area (Blocks 1 and 2) in which we hold a 40 per cent. interest, has not been formally terminated, the Government has, to date, failed to consider JPK's amended exploration programme. In this case we have also joined with JPK and Hellenic in reserving our position on the Government's action and inaction. Against that background we have decided that it is imprudent to continue to carry any costs with respect to Prevlaka and £803,000 of past costs has been expensed in 2007. We are therefore carrying no costs on Montenegro into 2008.
Montenegro, given its position in the heart of Europe combined with huge oil and gas potential, had the possibility to be the follow-on to Azerbaijan for Ramco but the difficulties we have encountered there have frustrated the realisation of that potential. Nevertheless I would very much like to see us active again in offshore Montenegro, an area which we know extremely well.
Azerbaijan
Shareholders who have been with us since the heady days of 1992 may recall that in that year Ramco submitted a feasibility study for the development of the Guneshli Field in the Azerbaijan sector of the Caspian Sea. Later that year, in collaboration with Pennzoil, Ramco committed to the construction of a gas compression facility offshore Baku which would allow Azerbaijan, for the first time, to use its own gas production for domestic use. This was one of the first major Western funded infrastructure projects in the region. The plan agreed with Azerbaijan was that the cost of construction and commissioning (which exceeded $150 million) would be recovered out of the production from a development project on the Guneshli Field which Pennzoil and Ramco would undertake.
The Azerbaijan government decided to unitise the deepwater section of Guneshli with two adjacent fields thus depriving Pennzoil and Ramco of a significant opportunity to recover the expenditure already incurred on the gas compression station. In 1994 Pennzoil and Ramco however negotiated a means of recovering costs expended on the gas compression project, including the right to participate in any major project on the shallow water section of Guneshli ("SWG") in priority to any other foreign company. Pennzoil later negotiated a separate agreement with the State Oil Company of the Azerbaijan Republic ("SOCAR") under which Pennzoil relinquished its rights under the earlier agreement while preserving Ramco's right.
Between 1997 and 1999 Ramco pursued a collaboration with Conoco which was negotiating with SOCAR to undertake a development of SWG. Ramco's rights under the 1994 agreement were recognised in this collaboration. In 1999 when Conoco withdrew from negotiations, a similar collaboration followed with Total which expired in 2001.
Since 2001 Ramco has continued to assert its interest in the development of SWG and has annually reminded SOCAR of its rights under the 1994 agreement. This area is once again on Ramco's agenda following the announcement by SOCAR in 2007 of initiatives to develop SWG involving foreign companies, which is one of the trigger conditions for our rights under the 1994 agreement. The other is a minimum capital amount which SOCAR's plan meets. The Company wrote to SOCAR formally asserting Ramco's rights and, in the absence of an appropriate response, warned SOCAR that we would have no alternative but to resort to arbitration under the 1994 agreement.
SOCAR has failed to provide any substantive response and on 13 June 2008 Ramco filed with the Stockholm Chamber of Commerce a request for arbitration under the UNCITRAL arbitration rules. All costs in connection with the SWG project and legal fees incurred to 31 December 2007 have been expensed at that date.
I regret very much that it has been necessary to resort to a formal legal process when we would much prefer the negotiation of an amicable solution. Ramco played a pivotal role in representing Azerbaijan to western oil majors in 1990 which led to the formation of the Azerbaijan International Operating Company, AIOC and development of the super giant ACG field. Our rights in SWG flow from that very early stage in Azerbaijan's development.
Renewables
One of the most potentially exciting recent initiatives is our marine renewables venture, SeaEnergy.
This venture had its genesis in my long-term friendship with Joel Staadecker and our mutual interest in the future direction of marine renewables technology. When my Ramco board colleagues and I recognised how well marine renewables would fit within the dual focus of Ramco as an energy investment company, we decided to join forces with the team which had built and installed the two largest offshore wind turbines in the world in the Moray Firth in north-east Scotland and SeaEnergy Renewables was founded!
The global wind industry is thought to be growing currently at a compound annual growth rate of between 10 and 15 per cent. More importantly, new EU mandated, renewable energy supply targets have recently been established which in the UK, is thought to represent approximately 33 gigawatts of new capacity and approximately £80 billion in project development costs. If these targets are to be met, much of this renewable energy supply will almost certainly have to come from offshore wind farm developments.
There are undoubtedly significant challenges to overcome, but SeaEnergy aims to be a part of that process. It has secured the world's only project development team with experience in developing deepwater offshore wind turbines. The SeaEnergy team most recently completed the Beatrice Wind Farm development for Talisman Energy and Scottish and Southern Energy. The world's first deepwater wind turbines, the Beatrice project involved the installation of the two largest wind turbines ever deployed in offshore waters (5MW each).
SeaEnergy aims to develop, own and operate large-scale offshore wind farms globally and is currently focused on securing leases on which to develop several large-scale wind farms in UK waters. These leases will be granted as a part of the recently announced UK Crown Estate round three leasing programme and in a separate process for Scottish territorial waters. SeaEnergy is currently working on its applications for sites in these areas and expects that the awards will take place before year-end 2008.
This is a business which we at Ramco understand well because much of the technology involved in the turbine sub-structure, offshore installation and maintenance come from the offshore oil and gas industry where Ramco excelled for many years.
Outlook
The past few years have been extremely challenging for shareholders and employees alike. Nevertheless we have maintained a loyal and dedicated group of shareholders who refused to give up and urged us on. My thanks go to them for that support. No one wants to see them rewarded more than I do.
It's been frustrating not being able to share with shareholders our efforts and progress at laying the foundations for our planned recovery and turnaround. It was best to keep our powder dry until we had achieved material results.
I believe that there is an outstanding future for SeaEnergy in the years ahead. I took the view, several years ago as we began to chart the course for our come-back, that the two most significant energy stories of the next two or three decades would be the global growth in renewable energy and the opening of Iraq to western technology, a country with possibly the largest oil reserves in the world and yet significantly under-explored. The potential impact of state-of-the art technology on both renewables and Iraq is huge. My vision is that Ramco will be a player in both and I will do my utmost to make that happen. For just one of these initiatives to emerge as a success would be a notable achievement in itself.
We are also looking for new exploration opportunities elsewhere and have recently engaged Exploration Geosciences Limited as our technical advisors to assist in that process.
This is an exciting time for the Company. We have a sound and dynamic strategy. We have the team in place which has done it before, and we have the projects and initiatives in place which we believe will deliver results over time.
Stephen Remp
Executive Chairman
Ramco Energy plc
Final results for the year to 31 December 2007
Consolidated Balance Sheet
As at 31 December 2007
| 2007 | 2006 | ||
| Note | £'000 | £'000 | |
| Assets | |||
| Non- current assets | |||
| Intangible exploration/appraisal assets | 4 | 39 | 1,849 |
| Property, plant & equipment | 5 | 162 | 202 |
| Investments | 6 | 2,980 | - |
| 3,181 | 2,051 | ||
| Current assets | |||
| Trade and other receivables | 328 | 328 | |
| Cash and cash equivalents | 2,068 | 2,027 | |
| 2,396 | 2,355 | ||
| Total assets | 5,577 | 4,406 | |
| Liabilities | |||
| Current liabilities | |||
| Trade and other payables | (1,788) | (1,467) | |
| Provisions | (1) | (25) | |
| (1,789) | (1,492) | ||
| Net current assets | 607 | 863 | |
| Non-current liabilities | |||
| Other non-current liabilities | (30) | (608) | |
| Net assets | 3,758 | 2,306 | |
| Shareholders' equity | |||
| Share capital | 7 | 3,689 | 3,502 |
| Share premium | 7 | 69,633 | 69,405 |
| Deficit on retained earnings | 8 | (69,564) | (70,945) |
| Total equity attributable to equity holders of the parent | 3,758 | 1,962 | |
| Minority interest | - | 344 | |
| Total equity | 3,758 | 2,306 |
Ramco Energy plc
Consolidated Income Statement
For the year ended 31 December 2007
| 2007 | 2006 | ||
| Note | £'000 | £'000 | |
| Continuing operations | |||
| Cost of sales | (21) | (78) | |
| Write-off of intangible exploration assets | 4 | (937) | (3,950) |
| Gross loss | (958) | (4,028) | |
| Operating expenses | (2,301) | (2,797) | |
| Gain on listing of subsidiary | - | 1,345 | |
| Gain on sale of shares in subsidiary | 9 | 1,568 | - |
| Gain on deemed disposal of subsidiary arising from dilution | 9 | 2,272 | - |
| Operating profit / (loss) | 581 | (5,480) | |
| Finance income | 105 | 113 | |
| Finance costs | (7) | (45) | |
| Finance income - net | 98 | 68 | |
| Share of loss of associates | (77) | - | |
| Profit / (loss) before income tax | 602 | (5,412) | |
| Income tax expense | - | - | |
| Profit / (loss) from continuing operations | 602 | (5,412) | |
| Discontinued operation | |||
| Loss from discontinued operation (net of tax) | (81) | (267) | |
| Profit / (loss) for year | 521 | (5,679) | |
| Attributable to: | |||
| Equity holders of the group | 720 | (5,628) | |
| Minority interests | (199) | (51) | |
| Profit / (loss) for the year | 521 | (5,679) | |
| Earnings / (loss) per share | 3 | ||
| Basic | 2.05p | (16.4)p | |
| Diluted | 1.95p | (16.4)p | |
| Continuing operations | |||
| Earnings / (loss) per share | |||
| Basic | 2.28p | (15.62)p | |
| Diluted | 2.17p | (15.62)p |
Ramco Energy plc
Consolidated Statement of Changes in Equity
For the years ended 31 December 2007
| Attributable to equity holders of the parent | ||||||
| Group | Share capital £'000 | Share premium £'000 | Retained earnings £'000 | Total Equity £'000 | Minority Interest £'000 | Total equity £'000 |
| Year ended 31 December 2006 | ||||||
| At 1 January 2006 | 3,314 | 69,294 | (65,393) | 7,215 | - | 7,215 |
| Loss for the financial year | - | - | (5,628) | (5,628) | (51) | (5,679) |
| Share based payments charge | - | - | 76 | 76 | 2 | 78 |
| Issues of new shares - gross consideration | 188 | 111 | - | 299 | - | 299 |
| Disposal to minority interest | - | - | - | - | 393 | 393 |
| At 31 December 2006 | 3,502 | 69,405 | (70,945) | 1,962 | 344 | 2,306 |
| Year ended 31 December 2007 | ||||||
| At 1 January 2007 | 3,502 | 69,405 | (70,945) | 1,962 | 344 | 2,306 |
| Profit for the financial year | - | - | 720 | 720 | (199) | 521 |
| Share based payments charge | - | - | 82 | 82 | 5 | 87 |
| Issues of new shares - gross consideration | 187 | 228 | - | 415 | - | 415 |
| Disposal to minority interest | - | - | 579 | 579 | 426 | 1,005 |
| Deemed disposal of subsidiary | - | - | - | - | (576) | (576) |
| At 31 December 2007 | 3,689 | 69,633 | (69,564) | 3,758 | - | 3,758 |
Ramco Energy plc
Consolidated Statement of Cash Flows
For the year ended 31 December 2007
| Note | 2007 | 2006 | |
| £'000 | £'000 | ||
| Cash flows from operating activities | |||
| Continuing operations | 10 | (2,670) | (2,979) |
| Discontinued operation | 10 | - | 539 |
| Interest paid | (4) | (74) | |
| Net cash used in operating activities | (2,674) | (2,514) | |
| Cash flows from investing activities | |||
| Interest received | 71 | 95 | |
| Proceeds from sale of property, plant and equipment | 102 | 1,567 | |
| Proceeds from sale of shares in subsidiary | 9 | 2,612 | - |
| Proceeds from sale of licence | - | 763 | |
| Acquisition of intangible exploration assets | (127) | (410) | |
| Acquisition of property, plant and equipment | (3) | (147) | |
| Deemed disposal of subsidiary | (352) | - | |
| Discontinued operation | - | (1,251) | |
| Net cash generated by investing activities | 2,303 | 617 | |
| Cash flows from financing activities | |||
| Proceeds from issuance of ordinary shares | 415 | 299 | |
| Issue of share capital in subsidiary to minority interests | - | 1,738 | |
| Payment of finance lease liabilities | (4) | - | |
| Discontinued operation | - | (2,869) | |
| Net cash used in financing activities | 411 | (832) | |
| Effect of exchange rate fluctuations on cash held | 1 | (43) | |
| Net increase /(decrease) in cash and cash equivalents | 41 | (2,772) | |
| Opening cash and cash equivalents | 2,027 | 4,799 | |
| Closing cash and cash equivalents | 2,068 | 2,027 | |
Notes to the Financial Statements
For the year ended 31 December 2007
1. Basis of presentation
The consolidated financial information for the year ended 31 December 2007 has been prepared on the basis of International Financial Reporting Standards ("IFRS") accounting policies to be adopted in the financial statements for the year ended 31 December 2007. The impact of adopting IFRS is discussed in note 13.
The final results have been prepared on the going concern basis which assumes that the Company and its subsidiaries will continue in operational existence for the foreseeable future.
The Directors have prepared cash flow forecasts for the Group for the period ending 12 months from the date of approval of these financial statements. These indicate that the Group will have adequate cash resources to meet its obligations, as they fall due. However, there remains uncertainty as to whether the Group can be considered a going concern in that the Group currently has no revenue streams. There is a limited amount of funding for certain projects.
Although uncertainties exist, the Directors consider that it is appropriate to adopt a going concern assumption in preparing these financial statements as;
The Group has now accumulated, and continues to develop, a portfolio of energy investments which will either be developed in the medium term into revenue generating businesses or realised for cash if necessary. If the Board feels that it is appropriate, the Group may also raise new funding to support the development of this portfolio by accessing the capital markets. Further potential sources of funding are the warrants which the Group has issued since June 2005;
The portfolio includes investments in associated companies with interests in oil and gas exploration interests, investments in potentially substantial oil service businesses and marine renewable energy developments;
The oil and gas projects in associated company, Lansdowne, are the most developed projects and the investment in that company represents the most readily realisable asset. Lansdowne has recently secured a farm out arrangement in respect of one of its exploration assets and is working on securing funding for work programme obligations on its other assets through farm-out arrangements or the issue of new shares or a combination of both. Lansdowne aims to have a funded drilling programme in place for 2009.The Board are confident that Lansdowne will continue to secure farm-in partners to fund it's drilling programme.
The portfolio also includes a direct interest in exploration royalties in the UK North Sea and Eastern Europe. One of these royalties relates to an undeveloped discovery and depending on further imminent drilling results, some of the royalties may become saleable assets in the short term or revenue generating in their own right in the medium term. There is no certainty as to the outcome of the drilling results;
The Board expect the energy investment portfolio to continue to grow and the recently announced transaction to acquire Eagle Hydrocarbons, and the related planned expansion of the Board, will support these efforts.
1. Basis of presentation continued
Our interests in oil services are through our associate, MPC, which is in discussions aimed at establishing a joint venture with a drilling capability which, the Directors believe, would have an immediate and material effect on lifting Iraqi oil production. The political situation remains uncertain and this may not be a short term process. JPMorgan Cazenove Limited has been engaged to assist MPC in raising its future funding requirements, as and when required and
The marine renewable energy interests are at a relatively early stage but the Group has already secured finance to employ a team with unique offshore experience and development projects and the related finance are now being vigorously pursued.
If for any reason the uncertainties described above cannot be successfully resolved, the going concern basis may no longer be applicable and adjustments to the Group profit and loss account and Group balance sheet would be required to record additional liabilities and write down assets to their recoverable amounts.
The financial information set out in these financial statements does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The consolidated balance sheet as at 31 December 2007 and the consolidated profit and loss account, consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's financial statements. Those financial statements have received an unqualified report from the auditors but have not yet been delivered to the Registrar of Companies. The 2007 statutory accounts contained no statement under section 237(2) or (3) of the Companies Act 1985.
2. Segmental Reporting
The group has two primary business segments being Oil & Gas and Renewable Energy.
| Central and Eastern Europe £,000 | Ireland £'000 | Total oil & gas £'000 | Renewable energy £'000 | Corporate unallocated expenses and gains £'000 | Group £'000 | |
| 2007 | ||||||
| Revenue | - | - | - | - | - | - |
| Operating (loss) / profit | (1,349) | 4,261 | 2,912 | (116) | (2,215) | 581 |
| Share of associates | (57) | (20) | (77) | - | - | (77) |
| Finance income net | 98 | |||||
| Operating loss from discontinued operations | (81) | |||||
| Profit for the year | 521 | |||||
| 2006 | ||||||
| Revenue | - | - | - | - | - | - |
| Operating (loss) / profit | (4,560) | 569 | (3,991) | - | (1,489) | (5,480) |
| Finance income net | 68 | |||||
| Operating loss from discontinued operations | (267) | |||||
| Loss for the year | (5,679) | |||||
Discontinued operations relate to the Seven Heads gas field which was sold in February 2006.
2. Segmental Reporting continued
| Group | Central and Eastern Europe £,000 | Ireland £'000 | Total oil & gas £'000 | Renewable energy £'000 | Total continuing operations £'000 | Discontinued Operations £'000 | Corporate unallocated £'000 | Group £'000 |
| 2007 | ||||||||
| Segment assets | 105 | 2,935 | 3,040 | - | 3,040 | - | 2,537 | 5,577 |
| Segment liabilities | (19) | (15) | (34) | (2) | (36) | (1,145) | (636) | (1,817) |
| 2006 | ||||||||
| Segment assets | 2,045 | 897 | 2,942 | - | 2,942 | - | 1,464 | 4,406 |
| Segment liabilities | (57) | (97) | (154) | - | (154) | (1,064) | (882) | (2,100) |
| Group | Central and Eastern Europe £,000 | Ireland £'000 | Total Oil & Gas £'000 | Renewable Energy £'000 | Total continuing operations £'000 | Discontinued Operations £'000 | Corporate unallocated £'000 | Group £'000 |
| 2007 | ||||||||
| Capital Expenditure | ||||||||
| P,P&E | - | - | - | - | - | - | 2 | 2 |
| Intangibles | - | 127 | 127 | - | 127 | - | - | 127 |
| Non cash expenses | ||||||||
| Depreciation | - | - | - | - | - | - | 21 | 21 |
| Gain on sale of shares in subsidiary | - | 1,568 | 1,568 | - | 1,568 | - | - | 1,568 |
| Gain on deemed disposal of subsidiary | - | 2,272 | 2,272 | - | 2,272 | - | - | 2,272 |
| Group | Central and Eastern Europe £,000 | Ireland £'000 | Total Oil & Gas £'000 | Renewable Energy £'000 | Total continuing operations £'000 | Discontinued Operations £'000 | Corporate unallocated expenses and gains £'000 | Group £'000 |
| 2006 | ||||||||
| Capital Expenditure | ||||||||
| P,P&E | - | - | - | - | - | - | 181 | 181 |
| Intangibles | 9 | 417 | 426 | - | 426 | - | 426 | 426 |
| Non cash expenses | ||||||||
| Depreciation | - | - | - | - | - | 135 | 70 | 205 |
| Gain on listing of subsidiary | - | 1,345 | 1,345 | - | 1,345 | - | 1,345 | 1,345 |
3. Earnings per Ordinary Share
Earnings per share attributable to equity holders of the Company arise from continuing and discontinued operations as follows:
| (pence per share) | ||
| 2007 | 2006 | |
| Earnings per share attributable to equity holders of the Company arise from continuing as follows: | ||
| - basic | 2.28 | (15.62) |
| - diluted | 2.17 | (15.62) |
| Loss per share for loss from discontinued operation attributable to the equity holders of the Company | ||
| - basic | (0.23) | (0.78) |
| - diluted | (0.22) | (0.78) |
| Earnings/(loss) per share for profit/(loss) from continuing and discontinued operations attributable to the equity holders of the Company | ||
| - basic | 2.05 | (16.4) |
| - diluted | 1.95 | (16.4) |
The calculations were based on the following information.
| £'000 | £'000 | |
| Earnings attributable to equity holders of the Company | ||
| - continuing operations | 801 | (5,360) |
| - discontinued operation | (81) | (269) |
| - continuing and discontinued operations | 720 | (5,629) |
| Weighted average number of shares in issue | ||
| - basic | 35,176,637 | 34,317,614 |
| - diluted | 36,843,304 | 34,317,614 |
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Company has three classes of potential ordinary shares; share options, warrants and the Schlumberger debt deferral agreement. As explained below, only certain warrants are dilutive for the current year.
Share options
Only share options that are exercisable at the reporting date are potential ordinary shares. The lowest exercise price of exercisable share options is 34p per share. This is above the average market price of the shares in issue for the period. On that basis none of the share options are considered dilutive.
Warrants
In August 2005 warrants over 3,000,000 ordinary shares were issued to the Group's lenders, with an exercise price of 34p. This is above the average market price of the shares in issue for the year and so the warrants are not dilutive.
In June 2007 warrants over 5,000,000 ordinary shares were issued to LC Capital Master Fund, with an exercise price of 14p per share. This is below the average market price of the shares in issue for the year and so the warrants are dilutive.
3. Earnings per Ordinary Share continued
Debt deferral agreement
Based on the number of shares required to settle the debt and the interest expense accrued in the year, the debt deferral agreement with Schlumberger is anti-dilutive.
4. Intangible assets
| Total | |
| Exploration / appraisal assets | £'000 |
| Year ended 31 December 2006 | |
| Opening net book amount at 1 January 2006 | 6,278 |
| Additions | 426 |
| Disposal | (763) |
| Costs written off | (4,092) |
| Closing net book amount at 31 December 2006 | 1,849 |
| Year ended 31 December 2007 | |
| Opening net book amount at 1 January 2007 | 1,849 |
| Additions | 127 |
| Deemed Disposal (note 9) | (1,000) |
| Costs written off | (937) |
| Closing net book amount at 31 December 2007 | 39 |
Oil and gas project expenditures, including geological, geophysical and seismic costs, are accumulated as intangible fixed assets prior to the determination of commercial reserves. At 31 December 2007, intangible fixed assets totalled £39,000 (31 December 2006 £1.8 million).
5. Property, plant and equipment
| Land and buildings | |||||
| Freehold £'000 | Long-leasehold £'000 | Plant, fixtures and equipment £'000 | Total £'000 | ||
| Cost | |||||
| At 1 January 2006 | 1,519 | 1,113 | 1,361 | 3,993 | |
| Additions | - | - | 181 | 181 | |
| Disposals | (1,519) | - | (1,066) | (2,585) | |
| At 31 December 2006 | - | 1,113 | 476 | 1,589 | |
| Accumulated depreciation | |||||
| At 1 January 2006 | 4 | 960 | 1,213 | 2,177 | |
| Charge for the year | - | 133 | 72 | 205 | |
| Disposals | (4) | - | (991) | (995) | |
| At 31 December 2006 | - | 1,093 | 294 | 1,387 | |
| Net book amount | |||||
| At 31 December 2006 | - | 20 | 182 | 202 | |
| Cost | |||||
| At 1 January 2007 | - | 1,113 | 476 | 1,589 | |
| Additions | - | - | 2 | 2 | |
| Disposals | - | (1,113) | - | (1,113) | |
| At 31 December 2007 | - | - | 478 | 478 | |
| Accumulated depreciation | |||||
| At 1 January 2007 | - | 1,093 | 294 | 1,387 | |
| Charge for the year | - | - | 22 | 22 | |
| Disposals | - | (1,093) | - | (1,093) | |
| At 31 December 2007 | - | - | 316 | 316 | |
| Net book amount | |||||
| At 31 December 2007 | - | - | 162 | 162 | |
6. Investments
| £'000 | |
| Investments in associates | |
| At 1January 2006 and 21 December 2006 | - |
| At 1 January 2007 | - |
| Arising on deemed disposal of subsidiary (note 9) | 2,950 |
| Additions | 107 |
| Share of loss for year | (77) |
| At 31 December 2007 | 2,980 |
The group's share of the results of its principal associates and its aggregated assets and liabilities are as follows:
| Name | Country of incorporation | Status | Assets | Liabilities | Revenues | Profit / (Loss) | % interest held in ordinary shares by group |
| 2007 | |||||||
| Lansdowne Oil & Gas plc | England | AIM listed | 3,713 | (783) | - | (20) | 42.8%* |
| Mesopotamia Petroleum Company Limited | England | Private | 74 | (24) | - | (57) | 32.7% |
| 3,787 | (807) | - | (77) |
* Following a placing of shares by Lansdowne Oil & Gas plc in May 2008 the group's interest reduced to 38.9%.
7. Share capital and premium
| Date | Number of shares (thousands) | Ordinary Shares £'000 | Share Premium £'000 | Total £'000 | |
| At 1 January 2006 | 33,145 | 3,314 | 69,294 | 72,608 | |
| 5 April 2006 | Issue of new shares | 520 | 52 | 96 | 148 |
| 1 June 2006 | Issue of new shares | 1,353 | 136 | 15 | 151 |
| At 31 December 2006 | 35,018 | 3,502 | 69,405 | 72,907 | |
| 30 November 2007 | Issue of new shares | 1,870 | 187 | 228 | 415 |
| At 31 December 2007 | 36,888 | 3,689 | 69,633 | 73,322 |
The total authorised number of ordinary shares is 70 million shares (2006: 40 million shares) with a par value of 10 pence per share. All issued shares are fully paid.
On 30 November 2007, 1,870,000 new ordinary shares of 10p each were issued for 22.2p per share, in satisfaction of deferred remuneration due to Executive Directors.
On 14 May, 2008 the Company allotted and issued 943,396 new ordinary shares of 10p each at a price of 26.5 pence per ordinary shares as initial consideration for the acquisition of Eagle HC Limited (note 12).
The principal trading market for the shares in the UK is the London Stock Exchange's Alternative Investment Market ("AIM") on which the shares have been traded since 14 November 1996.
The following table sets forth, for the calendar quarters indicated, the reported highest and lowest price for the shares on AIM, as reported by the London Stock Exchange.
|
2007 | 2006 | |||
| Pence per share | Pence per share | |||
| High | Low | High | Low | |
| First quarter | 20.5 | 16.0 | 33.0 | 24.0 |
| Second quarter | 26.0 | 16.5 | 35.0 | 13.0 |
| Third quarter | 21.0 | 16.25 | 31.0 | 21.5 |
| Fourth quarter | 21.0 | 15.5 | 25.0 | 16.5 |
8. Retained earnings
| £'000 | |
| Year ended 31 December 2007 | |
| At 1 January 2007 | (70,945) |
| Profit for the financial year | 720 |
| Share based payments charge | 82 |
| Disposal to minority interest | 579 |
| At 31 December 2007 | (69,564) |
| Year ended 31 December 2006 | |
| At 1 January 2006 | (65,393) |
| Loss for the financial year | (5,628) |
| Share based payments charge | 76 |
| At 31 December 2006 | (70,945) |
9. Investment in Lansdowne Oil & Gas plc
a) Gain on listing of shares
On 21 April 2006 the Group successfully listed Lansdowne Oil and Gas plc ("Lansdowne") on the Alternative Investment Market of the London Stock Exchange. The Group's interest in Lansdowne reduced from 100 per cent to 86.25 per cent after the placing of 2,815,951 ordinary shares outwith the Group to minority interests. This raised a total of £2,350,000 in cash, before cash expenses of £611,000 and share based expenses of £136,000. The reduction in interest in Lansdowne constituted a "deemed disposal" at Group level and resulted in a gain as calculated below.
| £'000 | |
| Group's share of net assets and proceeds after listing (86.25% of Lansdowne) | 2,468 |
| Group's share of net assets before listing (100% of Lansdowne) | (1,123) |
| Group gain on deemed disposal | 1,345 |
The minority interests' share of net assets and proceeds after listing (13.75% of Lansdowne) was £395,000.
(b) Gain on disposal of shares
On 26 June 2007 Ramco Hibernia Limited, a wholly owned subsidiary of the Company, sold 5,225,000 ordinary shares (25.1 per cent) in Lansdowne at a price of 50p per share to LC Capital Master Fund, generating a cash consideration of £2,612,000. As part of the sale and purchase agreement, the Group granted LC Capital Master Fund warrants over 5,000,000 ordinary shares in Ramco Energy plc, at an exercise price of 14p. The exercise price was set at a discount of 4p to the prevailing market price of the shares at the date of sale. The fair value of these warrants was calculated as a discount to the cash consideration. This yields a net consideration that is a reasonable approximation to the fair value of the Lansdowne shares. The sale reduced the Group's ownership of Lansdowne to 61.15 per cent and generated a gain on sale as calculated below
| £'000 | |
| Cash consideration | 2,612 |
| Discount attributed to sale and warrants | (578) |
| Net consideration for sale of shares | 2,034 |
| Selling costs | (40) |
| Net assets disposed to minority interest | (426) |
| Group gain on sale of share | 1,568 |
(c) Gain on deemed disposal of shares
On 29 November 2007 Lansdowne Oil & Gas plc issued 8,921,118 new ordinary shares as consideration pursuant to an acquisition agreement under which it acquire the whole issued share capital of Milesian Oil & Gas Limited. As Ramco Hibernia Limited did not receive any of the new shares issued, the group's interest in Lansdowne Oil & Gas plc reduced from 61.15% to 42.8% and a gain on deemed disposal arose as follows:
| £'000 | |
| Group's share of net assets after issue of consideration shares | 2,950 |
| Group's share of net assets before issue of consideration shares | (906) |
| Group gain on deemed disposal | 2,044 |
| Other gain realised on deemed disposal | 228 |
| Gain per income statement | 2,272 |
10. Reconciliation of profit / (loss) before income tax to cash used in operations
| 2007 | 2006 | |
| £'000 | £'000 | |
| Profit / (loss) for year from continuing operations | 602 | (5,412) |
| Adjustments for: | ||
| Depreciation of property, plant and equipment | 22 | 205 |
| Intangible assets written off | 937 | 4,092 |
| (Gain)/loss on sale of property, plant and equipment | (82) | 23 |
| Gain on sale of shares in subsidiary | (1,568) | |
| Gain on deemed disposal of subsidiary | (2,272) | (1,345) |
| Equity settled share-based payment transactions | 78 | 78 |
| Gain on dilution of investment | (107) | - |
| Share of associate loss | 77 | - |
| Operating cash flows before movements in working capital | (2,313) | (2,359) |
| Change in trade and other receivables | (119) | 383 |
| Change in trade and other payables | (116) | (773) |
| Change in provisions | (24) | (162) |
| Cash outflow generated by operations | (2,572) | (2,911) |
| Net finance income | (98) | (68) |
| Net cash used in continuing operating activities | (2,670) | (2,979) |
| 2007 | 2006 | |
| £'000 | £'000 | |
| Loss for year from discontinued operation | - | (267) |
| Adjustments for: | ||
| Loss on sale of discontinued operation, net of tax | - | 734 |
| Net finance expense | (81) | 102 |
| Operating cash flows before movements in working capital | (81) | 569 |
| Change in trade and other receivables | - | (215) |
| Change in trade and other payables | 81 | 185 |
| Change in provisions | - | 30 |
| Cash used in operations | - | 569 |
| Interest paid | - | (30) |
| Net cash from discontinued operating activities | - | 539 |
11. Related party transactions
(a) Directors
During 2005 and 2006 Executive Directors, SE Remp and SR Bertram, voluntarily waived contractual salary and pension contributions totalling £357,000. In addition Executive Directors deferred, pending re-financing of the Company, a total of £631,000 of remuneration over the 30 months to 30 June, 2007 as summarised below.
| As at 31 December | ||
| 2007 | 2006 | |
| £'000 | £'000 | |
| SE Remp | - | 445 |
| SR Bertram | - | 170 |
| CG Moar | - | 16 |
| - | 631 | |
No guarantees were given by the Company and no interest was charged on the outstanding balances. The Directors concerned used the net sums due to them, after tax and National Insurance, to purchase new shares in the Company in December 2007.
(b) Directors
The Company reimbursed expenses totalling £35,000 incurred by S E Remp personally in connection with SeaEnergy Renewables Limited prior to that subsidiary commencing to trade.
(c) Associates
During the year to 31 December 2007 the Group made payments for administrative expenses on behalf of its associate company Mesopotamia Petroleum Company Limited ("MPC") of £114,000 (2006:£nil). The balance owed by MPC to the Group as at 31 December 2007 is £20,000 (2006: £nil). It is unsecured and is to be settled in cash within six months of the reporting date. No interest is charged and no guarantee has been given.
During the year to 31 December 2007 the Group made payments for administrative expenses on behalf of its associate company Lansdowne Oil & Gas plc ("Lansdowne") of £7,000 (2006:£nil). The balance owed by Lansdowne to the Group as at 31 December 2007 is £111,000 (2006: £121,000). It is unsecured and is to be settled in cash within six months of the reporting date. No interest is charged and no guarantee has been given.
12. Post balance sheet events
Acquisition of Eagle HC Limited
On 14 May 2008 the group acquired Eagle HC Limited ("Eagle") for an initial consideration of £1.25 million to be satisfied in new shares of the Company, of which £250,000 was satisfied by the issue of 943,396 ordinary shares in the Company, with the balance being satisfied by the issue of further ordinary shares in the Company at a value equal to the average closing mid-market price for the nine business days following the announcement of the group's results for the year ended 31 December 2007.
Further consideration of £0.5 million became payable upon the spudding of the next well on the royalty acreage. This occurred in June 2008 and consequently a further 1,317,292 ordinary shares in the Company were issued on 24 June 2008. A further £0.5 million becomes payable when cash flow from the royalty portfolio commences. All such contingent consideration can be settled at the Company's option, either in cash or through the issue of new shares at the average closing mid-market price for the 15 business days immediately prior to the issue of the shares.
13. Explanation of Transition to IFRS
The Group is presenting its full year results under IFRS for the first time in these financial statements, with a date of transition of 1 January 2006. The following reconciliations and explanatory information describe the adjustments made to the equity and profit or loss of the comparable full year period on transition to IFRS. Explanatory narrative information for reconciling items (a) to (h) is given immediately after the reconciliations.
Reconciliation of Opening Consolidated Balance Sheet at Date of Transition on 1 January 2006
| UK GAAP £'000 | IAS 16 IFRS 5 Disposal Groups (b) £'000 | Property Plant & Equipment (c) £'000 | IFRS 7 Financial Instruments (g) £'000 | Current / Non-current (h) £'000 | Total IFRS Adjustments £'000 | IFRS £'000 | |
| Assets | |||||||
| Non-current assets | |||||||
| Intangible exploration/appraisal assets | 6,278 | - | - | - | - | - | 6,278 |
| Property, plant & equipment - development producing assets | 9,893 | (9,893) | - | - | - | (9,893) | - |
| Property, plant & equipment - other | 1,674 | - | 142 | - | - | 142 | 1,816 |
| 17,845 | (9,893) | 142 | - | - | (9,751) | 8,094 | |
| Current assets | |||||||
| Financial asset - Bank guarantee | - | - | - | 33,836 | - | 33,836 | 33,836 |
| Trade and other receivables | 1,648 | (955) | - | - | - | (955) | 693 |
| Cash and cash equivalents | 4,799 | (516) | - | - | - | (516) | 4,283 |
| Assets classified as held for sale | - | 11,148 | - | - | - | 11,148 | 11,148 |
| 6,447 | 9,677 | - | 33,836 | - | 43,513 | 49,960 | |
| Total assets | 24,292 | (216) | 142 | 33,836 | - | 33,762 | 58,054 |
| Liabilities | |||||||
| Current liabilities | |||||||
| Derivative financial liability | - | - | - | (33,836) | - | (33,836) | (33,836) |
| Trade and other payables | (3,417) | 619 | - | - | - | 619 | (2,798) |
| Loans and borrowings | (8,201) | 5,332 | - | - | - | 5,332 | (2,869) |
| Provisions | - | - | - | - | (168) | (168) | (168) |
| Liabilities classified as held for sale | - | (11,148) | - | - | - | (11,148) | (11,148) |
| (11,618) | (5,197) | - | (33,836) | (168) | (39,201) | (50,819) | |
| Non-current liabilities | |||||||
| Long term provisions | (5,385) | 5,197 | - | - | 168 | 5,365 | (20) |
| (5,385) | 5,197 | - | - | 168 | 5,365 | (20) | |
| Total liabilities | (17,003) | - | - | (33,836) | - | (33,836) | (50,839) |
| Net assets | 7,289 | (216) | 142 | - | - | (74) | 7,215 |
| Equity | |||||||
| Share capital | 3,314 | - | - | - | - | - | 3,314 |
| Share premium | 69,294 | - | - | - | - | - | 69,294 |
| Retained earnings | (65,319) | (216) | 142 | - | - | (74) | (65,393) |
| Total equity | 7,289 | (216) | 142 | - | - | (74) | 7,215 |
There were no IFRS adjustments to the consolidated balance sheet as at 31 December 2006.
13. Explanation of Transition to IFRS continued
Reconciliation of Consolidated Income Statement for the Year to 31 December 2006
| Required IFRS adjustments | Choices made under IFRS | ||||||||
| UK GAAP £'000 | IFRS5 Discontinued Operations (a) £'000 | IFRS 5 Disposal Groups (b) £'000 | IAS 16 Property Plant & Equipment (c) £'000 | Exceptional Items Geography (d) £'000 | FX on cash Or trading (e) £'000 | Subsidiary Overheads (f) £'000 | Total IFRS Adjustments £'000 | IFRS £'000 | |
| Continuing operations | |||||||||
| Revenue | 986 | (986) | - | - | - | - | - | (986) | - |
| Cost of sales | (1,943) | 337 | 27 | - | - | - | 1,501 | 1,865 | (78) |
| Write off of intangible exploration assets | (3,950) | - | - | - | - | - | - | - | (3,950) |
| Gross loss | (4,907) | (649) | 27 | - | - | - | 1,501 | 879 | (4,028) |
| Operating expenses | (1,130) | - | - | (142) | - | (24) | (1,501) | (1,667) | (2,797) |
| Foreign exchange | (73) | 6 | - | - | - | 67 | - | 73 | - |
| Gain on listing of subsidiary | - | - | - | - | 1,345 | - | - | 1,345 | 1,345 |
| Operating loss | (6,110) | (643) | 27 | (142) | 1,345 | 43 | - | 630 | (5,480) |
| Exceptional items | 422 | 734 | 189 | - | (1,345) | - | - | (422) | - |
| Finance income | 113 | - | - | - | - | - | - | - | 113 |
| Finance expense | (104) | 102 | - | - | - | (43) | - | 59 | (45) |
| Loss before taxation | (5,679) | 193 | 216 | (142) | - | - | - | 267 | (5,412) |
| Taxation | (74) | 74 | - | - | - | - | - | 74 | - |
| Loss from continuing operations | (5,753) | 267 | 216 | (142) | - | - | - | 341 | (5,412) |
| Discontinued operation | |||||||||
| Loss from discontinued operation (net of tax) | - | (267) | - | - | - | - | - | (267) | (267) |
| Loss for year | (5,753) | - | 216 | (142) | - | - | - | 74 | (5,679) |
| Attributable to: | |||||||||
| Equity holders of the group | (5,702) | - | 216 | (142) | - | - | - | 74 | (5,628) |
| Minority interests | (51) | - | - | - | - | - | - | - | (51) |
| Loss for the year | (5,753) | - | 216 | (142) | - | - | - | 74 | (5,679) |
| Loss per share | |||||||||
| Basic and fully diluted | (16.6)p | 0.2p | (16.4)p | ||||||
| Continuing operations | |||||||||
| Loss per share | |||||||||
| Basic and fully diluted | (15.2)p | (0.4)p | (15.6)p | ||||||
13. Explanation of Transition to IFRS continued
(a) IFRS 5: Presentation of discontinued operations
Discontinued operations are presented as a single line in the income statement, representing the total of the post-tax profit or loss for the period and any post-tax gains or losses recognised on measurement or remeasurement to fair value less costs to sell. This amount is analysed in the notes into revenue, expenses, pre-tax profit, related tax expense, gains or losses on measurement or remeasurement to fair value less costs to sell and the related tax expense. Turnover and costs in the consolidated income statement now only relate to continuing operations.
(b) IFRS 5: Disposal groups classified as held for sale
At the date of transition the subsidiary Ramco Celtic Sea Limited ("RCSL") met the definition of a disposal group held for sale because it was available for immediate sale and the actual sale occurred within 12 months of that date. On 2 February 2006 the Company concluded the sale of RCSL, which held its 86.5% interest in the Seven Heads gas field, for £5.3 million, net of expense, to Marathon International Petroleum Hibernia Limited.
Disposal groups are presented separately on the face of the balance sheet. The assets and liabilities of a disposal group are reclassified separately as line items separate from, but within, current assets and liabilities. A disposal group that is held for sale is measured at the lower of its carrying amount and fair value less costs to sell. If the fair value less costs to sell is greater than the disposal group's carrying value then no further adjustment is made. However, the proceeds from the sale of RCSL went straight to lender as part of the waiver agreement. In substance the fair value less costs to sell was zero at 1/1/2006. At this time the
carrying amount of RCSL was £216,000. Therefore, the RCSL disposal group was impaired by £216,000 so that the assets held for sale were the same magnitude as the liabilities held for sale. This resulted in a debit to retained earnings at the date of transition to IFRS and a corresponding reduction in the loss on sale in the 2006 consolidated income statement for the same amount.
Disposal groups that are classified as held for sale are not depreciated. Therefore, the depreciation of £27,000 charged to costs of sale during 2006 on the Seven Heads asset was reversed in the 2006 consolidated income statement. The impact of this was to increase the loss on disposal by £27,000.
The overall change to the loss on disposal was a decrease of £189,000.
13. Explanation of Transition to IFRS continued
(c) International Accounting Standard ("IAS") 16: Property, plant and equipment
IAS 16 requires the residual values and depreciation assumptions of property, plant and equipment to be reviewed at each reporting date rather than just at the purchase date. This is in line with IFRS's intention to align carrying amounts in financial statements to their fair value.
The residual value of the Queen's Road offices as at 1 January 2006 can be reliably estimated as the actual proceeds of sale of £1.5 million in June 2006, less the selling costs of £33,000. The effect of adjusting the residual value on the date of transition is given in the table below.
| £'000 | |
| UK GAAP - residual value assessed as nil | |
| Cost as at 1 January 2006 | 1,518 |
| Accumulated depreciation as at 1 January 2006 | (121) |
| Depreciation during 2006 | (14) |
| Net book value on disposal | 1,383 |
| Net selling price in June 2006 | (1,467) |
| Gain on disposal | (84) |
| IFRS - residual value assessed as £1,467,000 | |
| Cost as at 1 January 2006 | 1,518 |
| Accumulated depreciation as at 1 January 2006 | (4) |
| Depreciation during 2006 | - |
| Net book value on disposal | 1,514 |
| Net selling price in June 2006 | (1,467) |
| Loss on disposal | (47) |
Impact of transition to IFRS
| Adjustment to opening accumulated depreciation as at 1 January 2006 | 117 |
| Change to depreciation in 2006 income statement | 14 |
| Total change to depreciation and gain/loss on disposal | 131 |
The Queen's Road offices held fixtures with purchase costs of £25,000, all of which were fully depreciated as at 1 January 2006. These fixtures were sold during 2006 for gross proceeds of £59,000. The residual value was above cost so, under IAS 16, no depreciation should have been charged. Adding this to the £117,000 from the offices, the total impact of IAS 16 on opening reserves at the date of transition is a credit of £142,000. As both depreciation and gain or loss on sale of property, plant and equipment are in the same income statement caption; there is a corresponding increase in the 2006 administrative costs of £142,000.
13. Explanation of Transition to IFRS continued
(d) Disclosure of exceptional items
IFRS does not recognise the concept of "extraordinary" items. However, when items of income and expense are material, IFRS does require their nature and amount to be disclosed separately on the face of the income statement. Therefore, the line for exceptional items in the profit and loss account has been removed and replaced with descriptions of individually material items in the income statement. Furthermore, the material items in the income statement are now all above the line for operating profit or loss.
(e) Foreign exchange differences
In recent years the effect of foreign exchange differences has not been material so the line for foreign exchange differences has been removed from the face of the IFRS income statement. The foreign exchange loss on trading balances has been moved to "Operating expenses" and the foreign exchange loss on cash or cash equivalents has been moved to "Finance expense".
(f) Subsidiary overheads
Though not required under IFRS reporting, the Group has chosen to use the transition to IFRS to change the presentation of overheads from Group subsidiary companies. Prior to transition these costs were included within costs of sales so that the administrative costs shown in the consolidated accounts were exclusively those of the parent Company. Given the reduced level of revenue in recent years, the Group has decided that it is now more relevant to present these costs below the "Gross profit/ (loss)" line and have, therefore, included them within "Operating expenses".
(g) IFRS 7: Financial instruments
At the date of transition the fair value of derivative financial instruments was a liability of £33.8 million on the gas price hedges linked to the Seven Heads gas field. The hedges covered a three year period from January 2004 to December 2006, making the entire liability current as at 1 January 2006. The fair value was determined using the forward price curves available from the International Petroleum Exchange, which is the market on which gas contracts are
traded, and was discounted at a rate of 7 per cent; being the rate at which the Group could have obtained borrowings at 1 January 2006. The Group was unable to meet the fixed obligations of these hedges. However, they were guaranteed by the Group's bankers. A current financial asset, also for £33.8 million, was recognised to reflect the guarantee. The hedges were closed out during 2006, with no net effect on the consolidated income statement.
(h) Current and non-current classification
IFRS requires the current and non-current portions of assets and liabilities to be shown separately on the face of the balance sheet. Consequently, the current portions of provisions were reclassified on the IFRS consolidated balance sheets at the dates given in the reconciliations.
14. Comparative information
The comparative financial information is based on statutory accounts for the year ended 31 December 2006. Those accounts, upon which the auditors have issued an unqualified opinion, have been delivered to the Registrar of Companies.
15. Annual Report and Financial Statements
The Annual Report and Financial Statements will be posted to shareholders shortly and is available from the company's website www.ramco-plc.com and from Britannia House, Endeavour Drive, Arnhall Business Park, Westhill, Aberdeenshire AB32 6UF.