| Tue 11 Mar 2008, 9:00 | | IPS - IPSA Group Plc - Final Results |
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IPS
IPSA
IPS - IPSA Group Plc - Final Results
IPSA GROUP PLC
(Incorporated and registered in England and Wales)
(Registration number 5496202)
AIM Share Code: IPSA ISIN: GB00B0CJ3F01
JSE Share Code: IPS ISIN: GB00B0CJ3F01
(`IPSA` or `the Company`)
Final Results
IPSA, the AIM and AltX dual listed independent power plant developer with
operations in southern Africa, today announces its final results for the year to
30 September 2007.
Highlights of the period include:
- Listing of IPSA`s shares on the ALTx market of the Johannesburg Stock
Exchange thereby facilitating the first phase of the Company`s broad-based
black economic empowerment programme
- Commissioning of, and first commercial revenues from, the first gas-fired
independent power plant in South Africa
- Acquisition, refurbishment and upgrade of four Fiat Avio 501 D gas turbines
with an aggregate generating capacity of around 500MW for the Coega project
- Initiation of the Elitheni Clean Coal Power Project at Indwe in the Eastern
Cape
Highlights since the year end include:
- Sale of a 50% interest in the Elitheni Clean Coal Power Project to Exodus
Africa for a premium of US$5 million.
- Memorandum of Co-operation with the South African Government`s Central
Energy Fund for a key role as private sector power plant developer to the
integrated energy project being developed at the Coega Industrial
Development Zone outside Port Elizabeth
- The appointment of the Standard Bank of South Africa as its mandated lead
arranger on the financing of its 1,600 MW Coega Fast Track Combined Cycle
Gas Turbine Project in Port Elizabeth
- Currently in advanced negotiations to finance, through bank debt, the third
and final tranche (c.Euro15.6m) to satisfy the acquisition of the four
Fiat Avio 501 D gas turbines. Shareholders will be informed once this
funding has formally been put in place.
Commenting, Stephen Hargrave, Chairman of IPSA, said:
"The Company has made excellent progress towards meeting the challenge of
installing and commissioning fast track gas turbine capacity to meet the ever-
widening gap between supply and demand for power in South Africa. We believe
that we have the skills, the resources and the drive to help resolve South
Africa`s energy crisis. The relationship with or broadly-based black economic
empowerment partners, Amandla Resources, is working very well and we are looking
forward to reporting further substantial progress in the near future."
For further information please contact:
Peter Earl, CEO, IPSA Group PLC +44 (0) 20 7793 5600
Elizabeth Shaw, COO, IPSA Group PLC +44 (0) 20 7793 5600
Nick Naylor / Jamie Boyd, Noble & Company Limited +44 (0) 20 7763 2200
(Nominated Adviser and Joint Broker)
Sean Lunn, Hichens, Harrison (South Africa) Ltd +2721 950 2711
(Joint Broker)
Allan Piper, First City Financial +44 (0) 20 7242 2666
(UK Public Relations Advisers)
Jacques de Bie, College Hill (South Africa) +2711 447 3030
(South African Public Relations Advisers)
CHAIRMAN`S STATEMENT
I am pleased to present to shareholders of IPSA Group PLC the Report and
Accounts for the year to 30 September 2007. As anticipated, during this period
the Group made an operating loss of GBP942,000 (2006 - GBP364,000) as IPSA
continued to bring South Africa`s first independent gas fired power plant into
full production. In addition, we have taken a one-off charge of GBP2.3m in
respect of surplus gas costs, further details of which are set out in note 8.
During 2007 the Company made significant progress in its aim to become the
leading private sector participant in the development, ownership and management
of independent power generation plants in Southern Africa. It successfully
commissioned its CHP (combined heat and power) generation plant in Newcastle,
KwaZulu Natal. It also acquired 500 MW of gas turbine capacity for its Coega
Combined Cycle Gas Turbine (CCGT) Project as well as signing a Memorandum of Co-
operation with the South African Government`s Central Energy Fund in order to
integrate IPSA`s project into the national energy plan for the Industrial
Development Zone at Coega.
Another important landmark was the listing in October 2006 of the Company`s
shares on the AltX market of the Johannesburg Stock Exchange, becoming the first
AIM company to have its shares jointly quoted in this way. This dual listing
facilitated the Company`s first phase of its broadly based black economic
empowerment ("BBBEE") programme and in September 2007 the Company placed
13,434,612 new shares with Metropolitan Life. The placing was carried out at a
premium to the market price at the time and Metropolitan Life granted an option
over the shares (representing 15% of the issued share capital) to Amandla Energy
Resources (the trading name of Market Demand Trading 456 Pty. Ltd) ("Amandla
Energy").
In January 2008, we welcomed Rizelle Sampson, a director and shareholder of
Amandla Energy, as a new member of the Board. Rizelle has extensive business and
civil service experience which will facilitate the Group`s involvement in major
projects. We estimate that about 35% of the Company`s shares are now in South
African ownership and we look forward to taking further steps towards an even
more broadly-based share ownership on a project by project basis.
During the year IPSA initiated its Elitheni Clean Coal Power Project at Indwe in
the Eastern Cape and in November 2007 entered into a joint venture for its
development with Exodus Africa, a United States based, privately held integrated
energy company with its headquarters in Houston, Texas. IPSA expects to realise
some US $5 million on the sale of 50 per cent of its interest in this project.
The Elitheni project has been increased from 400 MW to 500 MW as a result of
favourable drilling results from IPSA`s coal partner, Strategic Natural
Resources PLC. IPSA and Exodus are now planning to accelerate the development of
the initial 250 MW mine mouth plant in order to bring this capacity on line as
quickly as possible.
No review of 2007 would be complete without an analysis of the rapid erosion of
South Africa`s power generation reserve capacity which by the end of the year
caused protracted and serious load-shedding throughout the country. Gross
domestic product is estimated to have risen by a 5.14 per cent in 2007 and 5.6
per cent in 2006. Economic growth inevitably leads to an increased demand for
electricity. However with insufficient new power generation capacity being
constructed - and South Africa needs a minimum of 3,000 MW of new capacity every
year just for the supply-demand balance to stand still - power cuts across
South Africa were inevitable. South Africa still needs a further 6,000 MW to
replace the reserve capacity that has been eroded by many years of inaction.
While Eskom has announced a number of important initiatives to build new coal-
fired power plants, the lead time for coal-fired capacity is such that it will
be up to seven years before the full benefit of this investment programme will
be felt.
It is IPSA`s challenge to install and commission fast track gas turbine capacity
to meet the ever-widening gap between supply and demand for power in South
Africa. We believe that we have the skills, the resources and the drive to help
resolve what is now being called South Africa`s energy crisis. Our colleagues in
South Africa have worked particularly hard to bring the Newcastle project on
Istream and to develop new projects at Coega and elsewhere. On behalf of all
shareholders, I thank all employees for the efforts they have made on our behalf
since the Company`s formation. We look forward to sharing with them the rewards
of future success.
Stephen Hargrave
Chairman
CHIEF EXECUTIVE`S REPORT
South Africa is currently facing unprecedented shortages of power. In 2007 load
shedding became a national phenomenon following intermittent regional power cuts
in 2006. However January 2008 saw the beginning of what has been termed a
national power crisis. The lack of available power is primarily the result of
capacity shortages following many years when no new power plants were built in
South Africa.
IPSA`s 2007 financial year was important against this background since it saw
the entry into service of IPSA`s Newcastle Co-generation Power Plant, recording
its first modest revenues. Since the year end, the plant has supplied
electricity to City Power under a peaking contract and is now supplying
electricity to the grid. In the meantime the Company has agreed substantive
terms for a new and additional steam contract with CISA, a major chemical
company on the Newcastle industrial site. As a result, IPSA is going ahead with
plans to increase its installed capacity on site from 18 MW of nominal capacity
to 26 MW as a first stage of expansion, installing six Deutz gas engines. These
are expected to come into service in the middle of 2008 and will provide a fast
solution for increasing power capacity in the shortest possible space of time
while IPSA continues to negotiate further power purchase agreements (PPA`s) for
larger projects in the north-east of the country.
During the financial year ended 30 September 2007, IPSA completed the
commissioning of the Newcastle combined heat and power plant, the first gas-
fired independent power plant ("IPP") in South Africa. In addition the Company
successfully listed its shares on Altx, the alternative exchange of the
Johannesburg Stock Exchange, and was the first AIM company to do so.
In the same period, the Group also acquired 500 MW of gas-fired turbines costing
Euro31.2m (approximately GBP21.3 million) which are intended for the Coega IPP
development project. The initial payments for these were financed through two
capital raisings intended to strengthen the balance sheet of IPSA and to provide
the capital base needed for its long term expansion.
The first was the placing of 10 million shares at 75 pence per share with
British and South African institutions in March 2007 conducted simultaneously in
London and Johannesburg. This placing was comfortably over-subscribed in both
markets.
The second was the placing of 13.4 million shares at 60 pence per share with
Metropolitan Life of South Africa working with a broadly based black economic
empowerment ("BBBEE") group, Amandla Energy Resources. The BBBEE placing
represented 15 per cent of the enlarged IPSA share capital and assisted the
Company in meeting its objective of including BBBEE qualifying shareholders at
both the corporate and the project level in accordance with South African
national policy.
The balance of funds (Euro15.6m) due on the units at the end of March 2008 will
be financed through bank debt secured either on the assets themselves at Company
level, or through refinancing our wholly-owned subsidiary, Newcastle
Cogeneration (Pty.) Limited, which is currently fully financed with our equity.
Coega remains the flagship project of IPSA. Initially conceived as an 800 MW
combined cycle gas turbine development, the original plant design was increased
to 1,600 MW following discussions with the Department of Minerals and Energy.
1,600 MW is now the base case for the project split into two phases.
Phase One consists of two separate power plant blocks of no less than 500 MW
each on two different sites at Coega`s Industrial Development Zone ("IDZ").
This 1,000 MW phase will see the two blocks running in open cycle as peaking
units providing back-up power to the IDZ and to the national grid using liquid
fuels. The open cycle units can be installed quickly by comparison with all
other large scale power plants, an important consideration at a time of load-
shedding and power cuts. IPSA believes that the first 500 MW could be installed
in 2009 with the second 500 MW soon thereafter.
Phase Two will occur when Coega`s IDZ brings on stream its planned liquefied
natural gas ("LNG") re-gasification plant after 2011. In this second phase, 600
MW of combined cycle capacity is installed running off the waste heat produced
from the 1,000 MW capacity of the two initial blocks of gas turbines. Capturing
waste heat from gas turbines increases the thermal efficiency of the CCGT units
and thereby makes them eligible for carbon credits in the form of certified
emissions reductions ("CERs") under the United Nations Clean Development
Mechanism established under the Kyoto Protocol. The waste heat recapture uses
more of the calorific value of the fuel used in power generation than in a
conventional power plant, improving the thermal efficiency from some 37 per cent
to around 56 per cent.
This means a huge reduction in green house gas emissions for every unit of
electricity produced. IPSA is in negotiations for all of the leases, permits and
PPA`s required to get the Coega project to financial close. However, in December
2007, IPSA signed an important Memorandum of Cooperation for a public-private
partnership at Coega with the Government of South Africa`s Central Energy Fund,
the holding company of PetroSA and iGas. In January 2008 IPSA appointed Standard
Bank as financial arranger for the Coega IPP.
IPSA`s other principal power project is the Elitheni Clean Coal Project. This
project is based on an exclusivity agreement signed in 2007 with Elitheni Coal
(Pty.) Limited ("Elitheni Coal"), a subsidiary of Strategic Natural Resources
PLC ("SNR"), for the right to use all coal for power generation. Originally
conceived as a 400 MW mine mouth power plant, the project was scaled up to 500
MW by IPSA in 2007 based on favourable coal reserve reports and now consists of
two separate blocks of 250 MW each. The first block of 250 MW is being pursued
as a fast track project following the announcement that Elitheni Coal has a
minimum of 15 million tonnes of extractable coal, based on drilling of just 4
per cent of Elitheni Coal`s mining licence territory. A baseload coal-fired
power plant of 250 MW needs 1 million tonnes of coal a year, and so the first
block has sufficient proven extractable reserves to get to financial close.
Elitheni Coal is continuing its drilling programme.
Just after the end of its financial year, IPSA sold a 50 per cent interest in
its Elitheni Clean Coal project company to Exodus Africa, a Houston based power
developer with coal-fired power development experience and working closely with
BBBEE interests. IPSA expects to realise some US$5 million from the sale. IPSA
and Exodus are in negotiations with South African institutions for development
funding of the Elitheni Clean Coal Power Plant.
Since the start of 2008 the power market in South Africa has begun to recognize
the urgency of installing new power capacity. Power plants cannot be built
overnight. They are complex pieces of infrastructure with long lead times for
planning, environmental consents and ordering of critical capital equipment such
as turbines, generators, boilers and transformers. IPSA`s management has a
strong track record in using "grey market" equipment to cut lead times and to
install fast track power blocks. However, South Africa is not alone in the
world in facing power generation shortages: lead times for turbines and boilers
are being extended across the globe as other countries compete for equipment
delivery. IPSA is well placed to deliver fast open cycle capacity at Coega and
at Elitheni but its management is facing ever greater challenges to repeat the
success of finding fast solutions for turbine procurement. The greater realism
in South Africa as it faces a winter of continued load-shedding means that some
of the regulatory obstacles IPSA has faced in getting its capacity dispatched
into the national grid will not be repeated in 2008 and 2009.
We therefore look to the future with optimism and we expect to announce other
new power generation projects, supplying Eskom, municipalities and mining
companies as they seek to meet electricity demand with new IPP capacity supplied
by IPSA.
Peter Earl
Chief Executive
CONSOLIDATED INCOME STATEMENT AND STATEMENTS OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 30 SEPTEMBER 2007
Consolidated income statement 12 months 15 months
Ended ended
30.9.07 30.9.06
Notes GBP`000 GBP`000
Revenue 4.6 37 -
Cost of sales (57) -
Gross profit (20) -
Administrative expenses 7 (922) (364)
Other expense 8 (1,980) (738)
Finance income 9 72 75
Loss before tax (2,850) (1,027)
Tax expense / credit 10 - -
Loss for the year / period attributable 21 (2,850) (1,027)
to equity shareholders of the parent
Loss per share (basic and diluted) 12 (3.95p) (1.88p)
All of the Group`s activities are continuing activities.
Statements of recognised income and expense
a) Group
Exchange differences on translation 21 (99) (451)
of foreign operations
Loss for the financial year / period 21 (2,850) (1,027)
Total recognised income and expense
for the year / period (2,949) (1,478)
attributable to equity shareholders of the parent
b) Company
Loss for the financial year / period 21 (48) (109)
Total recognised income and expense (48) (109)
for the year / period attributable to equity shareholders of the parent
Consolidate balance sheet 30.9.07 30.9.06
Notes GBP`000 GBP`000
Assets
Non-current assets
Property, plant and equipment 13 32,724 5,601
Intangible assets 14 833 833
Deferred tax asset 16 - -
33,557 6,434
Current assets
Trade and other receivables 18 1,092 196
Cash and cash equivalents 19 703 526
1,795 722
Total assets 35,352 7,156
Equity and liabilities
Capital and reserves attributable to
equity holders of the Company
Share capital 20 1,792 1,093
Share premium account 21 25,267 6,640
Foreign currency reserve 21 (550) (451)
Profit and loss reserve 21 (3,877) (1,027)
Total equity 22,632 6,255
Current liabilities
Trade and other payables 22 12,720 901
Total equity and liabilities 35,352 7,156
The financial statements were approved by the Board on March 2008.
12 months 15 months
Ended ended
30.9.07 30.9.06
Notes GBP`000 GBP`000
Net cash inflow / (outflow) from 23 7,907 (846)
operating activities before interest
Interest received 72 75
Net cash inflow / (outflow) from 7,979 (771)
operating activities
Cash flows from investing activities
Purchase of plant and equipment (27,128) (5,603)
Net cash from subsidiary acquired - 67
Payment of deferred consideration - (400)
Net cash used in investing activities (27,128) (5,936)
Cash flows from financing activities
Issue of shares (net of costs) 19,326 7,233
Net cash inflow from financing activities 19,326 7,233
Increase in cash and cash equivalents 177 526
Reconciliation and analysis of change in net funds
Increase in cash during year / period 177 526
Cash and cash equivalents at start of year / period 526 -
Cash and cash equivalents at end of
year / period 19 703 526
The accompanying accounting policies and notes form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2007
1 Nature of operations
IPSA Group PLC and its subsidiaries` ("Group") principal activity is the
construction, development and operation of electricity generation assets and the
supply of electricity to the wholesale market and major end-users. During the
year under review, all of the Group`s operating activities were located in the
Republic of South Africa and comprised the construction of the plant situated in
Newcastle.
2 General information
IPSA Group PLC is the Group`s ultimate parent company. It is incorporated and
domiciled in England and Wales. The address of IPSA Group PLC`s registered
office is given on the information page, page 2. IPSA Group PLC`s shares are
traded on the Alternative Investment Market (AIM) in London and, since October
2006, the shares have had a dual listing on AltX (the Alternative Exchange of
the Johannesburg market).
The consolidated financial statements for the year ended 30 September 2007 were
approved by the Board of directors on 7th March 2008.
3 Adoption of International Financial Reporting Standards
The financial statements have been prepared in accordance with applicable
International Financial Reporting Standards ("IFRS") as adopted by the European
Union and the IFRSs as issued by the International Accounting Standards Board.
4 Summary of accounting policies
4.1 Basis of preparation
The financial statements have been prepared under the historical cost convention
and in accordance with applicable International Financial Reporting Standards
("IFRS") as adopted by the European Union and the IFRSs as issued by the
International Accounting Standards Board. The measurement bases and principal
accounting policies of the Group are set out below.
4.2 Going concern
As set out in the Chief Executive`s review, there is a short term requirement to
finance the Euro15.6m final payment due on 31 March 2008 in respect of the 4
turbines purchased during the year. In addition, there is the ongoing
requirement to fund future capital expenditure for the planned major project
developments, initially the Coega Fast-Track Project and the Elitheni Clean Coal
Power Project.
The directors are considering a number of alternatives with respect to short-
term funding. The Company has received an indicative offer of bank finance which
satisfies the directors that the Company and the Group have adequate resources
to continue to operate in the foreseeable future and accordingly the directors
regard the `going concern` basis for preparation of the financial statements as
appropriate.
4.3 Basis of consolidation
The Group financial statements consolidate those of the Company and its
subsidiary undertakings drawn up to 30 September 2007.
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.
Unrealised gains on transactions between the Group and subsidiaries 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 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 purchase method. The purchase
method involves the recognition at fair value of all identifiable assets and
liabilities, including contingent liabilities of the acquired company, at the
acquisition date, regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the acquired entity are included in
the consolidated balance sheet at their fair values, which are also used as the
bases for subsequent measurement in accordance with the Group accounting
policies.
4.4 Intangible assets acquired as part of a business combination
In accordance with IFRS 3: Business Combinations, an intangible asset acquired
in a business combination is deemed to have a cost to the Group of its fair
value at the acquisition date. The fair value of an intangible asset reflects
market expectations about the probability that the future economic benefits
embodied in the asset will flow to the Group. Where an intangible asset might be
separable, but only together with a related tangible or intangible asset, the
group of assets is recognised as a single asset separately from the goodwill
where the individual fair values of the assets in the group are not reliably
measured. Where the individual fair value of the complementary assets is
reliably measurable, the Group recognises them as a single asset, provided the
individual assets have similar lives.
4.5 Impairment of property, plant, equipment and intangible fixed assets
At each balance sheet date, the Group reviews the carrying amount of its
tangible 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 profit or loss, unless the relevant asset is carried
at a revalued amount, in which case the impairment loss is treated as a
revaluation decrease.
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 so 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 (cash-generating unit) in prior years. A reversal of an
impairment loss is recognised immediately in profit or loss, unless the relevant
asset is carried at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase.
4.6 Foreign currency translation
The financial information is presented in pounds sterling, which is also the
functional currency of the parent company.
In the separate financial statements of the consolidated entities, foreign
currency transactions are translated into the functional currency of the
individual entity using the exchange rates prevailing at the dates of the
transactions (spot exchange rate). Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation of remaining
balances at year-end exchange rates are recognised in the income statement under
"other income" or "other expenses", respectively.
In the consolidated financial statements, all separate financial statements of
subsidiary entities, originally presented in a currency different from the
Group`s presentation currency, have been converted into sterling. Assets and
liabilities have been translated into sterling at the closing rate at the
balance sheet date. Income and expenses have been converted into sterling at the
average rates over the reporting period. Any differences arising from this
procedure have been charged / (credited) through the statement of recognised
income and expenditure to the Foreign Currency Reserve.
4.7 Income and expense recognition
Revenue from the sale of goods and services is recognised when i) the Group has
transferred to the buyer the significant risks and rewards of ownership of the
goods and services which is when supply has been made, ii) the amount of revenue
can be reliably measured and iii) the costs incurred or to be incurred in
respect of the transaction can be measured reliably. In the fifteen month period
to 30 September 2006 the Group`s revenue was nil as there were no sales to
external customers. In the year to 30 September 2007, revenues represent sales
of Steam which commenced at the end of September. Supply of Electricity did not
commence until after the year end.
Operating expenses are recognised in the income statement upon utilisation of
the service or at the date of their origin. All other income and expenses are
reported on an accrual basis.
4.8 Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation and any
provision for impairment. No depreciation is charged during the period of
construction.
All operational plant and equipment in the course of construction is recorded as
plant under construction until such time as it is brought into use by the Group.
Plant under construction includes all direct expenditure. On completion, such
assets are transferred to the appropriate asset category.
Depreciation is calculated to write down the cost or valuation less estimated
residual value of all property, plant and equipment other than freehold land by
equal annual instalments over their estimated useful economic lives. The periods
generally applicable are:
Plant and equipment: 3 to 15 years
The depreciation charged in the period to 30 September 2007 was minimal since it
was not until shortly before the year end that the plant became operational.
Material residual values are updated as required, but at least annually, whether
or not the asset is revalued. Where the carrying amount of an asset is greater
than its estimated recoverable amount, it is written down immediately to its
recoverable amount.
4.9 Borrowing costs
All borrowing costs, and directly attributable borrowing costs, are expensed as
incurred except where the costs are directly attributable to specific
construction projects, in which case the costs are capitalised as part of those
assets.
4.10 Taxation
Current income tax assets and liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date. They are calculated according
to the tax rates and tax laws applicable to the fiscal periods to which they
relate, based on the taxable profit for the period. All changes to current tax
assets or liabilities are recognised as a component of tax expense in the income
statement or through the statement of recognised income and expense.
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor on the
initial recognition of an asset or liability unless the related transaction is a
business combination or affect tax or accounting profit. Temporary differences
include those associated with shares in subsidiaries and joint ventures if
reversal of these temporary differences can be controlled by the Group and it is
probable that reversal will not occur in the foreseeable future. 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 substantively enacted at the
balance sheet date.
Changes in deferred tax assets or 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 (such as revaluation of land) in which
case the related deferred tax is also charged or credited directly to equity.
4.11 Financial assets
Financial assets categorised as at fair value through profit or loss are
recognised initially at fair value with transaction costs expensed through the
income statement.
The Group`s financial assets include cash and cash equivalents, trade and other
receivables.
Cash and cash equivalents include cash at bank and in hand as well as short term
highly liquid investments such as money market instruments and bank deposits.
Receivables are non-derivative financial assets with fixed or determinable
payment dates that are not quoted in an active market. They arise when the Group
provides money, goods or services directly to a debtor with no intention of
trading the receivable. Receivables are measured initially at fair value and
subsequently re-measured at amortised cost using the effective interest method,
less provision for impairment. Any impairment is recognised in the income
statement.
Trade receivables are provided against when objective evidence is received that
the Group will not be able to collect all amounts due to it in accordance with
the original terms of the receivables. The amount of the write-down is
determined as the difference between the asset`s carrying amount and the present
value of estimated cash flows.
4.12 Financial liabilities
Financial liabilities are obligations to pay cash or other financial instruments
and are recognised when the Group becomes a party to the contractual provisions
of the instrument. All interest related charges are recognised as an expense in
"finance cost" in the income statement. Bank and other loans are raised for
support of long term funding of the Group`s operations. They are recognised
initially at fair value, net of transaction costs. Finance charges, including
premiums payable on settlement or redemption, and direct issue costs are charged
to the income statement on an accruals basis using the effective interest method
and are added to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.
4.13 Hedging instruments
The Group has not entered into any derivative financial instruments for hedging
or for any other purpose.
4.14 Equity
Equity comprises the following:
- "Share capital" represents the nominal value of equity shares
- "Share premium" represents the excess over nominal value of the fair value
of consideration received for equity shares, net of expenses of the share
issue
- "Foreign currency reserve" represents the differences arising from
translation of investments in overseas subsidiaries
- "Profit and loss reserve" represents retained earnings
4.15 Pensions
During the year under review, the Group did not operate or contribute to any
pension schemes.
4.16 Key assumptions and estimates
The Group makes estimates and assumptions concerning the future. The resulting
estimates will, by definition, seldom equal the related actual results. The
Board has considered the critical accounting estimates and assumptions used in
the financial statements and concluded that the main area of significant risk
which may cause material adjustment to the carrying value of assets and
liabilities within the next financial year is in respect of the assumptions used
to value intangible and tangible fixed assets. The Board has valued intangible
and tangible fixed assets at cost. However, given the assets represent
agreements and plant under construction in respect of the supply of electricity
over an extended period, changes in technology, prices or industry practices may
result in the assumptions used in these valuations needing to be changed.
4.17 Accounting standards and interpretations not yet applied
The directors, together with their advisers, are in the process of evaluating
the impact of standards and / or interpretations that have not yet become
effective. Listed below are those standards and / or interpretations most likely
to impact the Group:
(i) Amendment to IAS 1 - `Presentation of Financial Statements - Capital
Disclosures` (effective for 2007/08)
(ii) IFRS 7 - `Financial Instruments - Disclosures` (effective for 2007/08)
(iii) IFRIC 8 - `Scope of IRFS 2 (share based payments)` (effective for
2007/08)
(iv) IFRIC 11 - `IFRS 2 Share Based Payments` (effective for 2007/08)
(v) IFRIC 10 - `Interim Financial Reporting and Impairment` (already
effective)
(vi) IFRIC 11 - `IFRS 2 Group and Treasury Share Transactions` (effective
for 2007/08)
(vii) IFRS 9 - `Operating Segments` (effective for 2008/09)
Based on the Group`s current business model and accounting policies it is felt
that these standards and / or interpretations are unlikely to have a material
impact on the Group`s earnings or shareholders` funds.
5 Principal activity
The Group`s activities comprise the acquisition and development of power
generation assets in southern Africa.
6 Segment analysis
The following table provides a segmental analysis by geographic region. At
present, there is only one geographic and business segment.
Activities in RSA relate to Newcastle Cogeneration (Pty.) Ltd and activities in
UK relate to IPSA Group PLC and Blazeway Engineering Ltd.
i) Year ended RSA UK Intra-Group Total
30 September 2007 eliminations
GBP`000 GBP`000 GBP`000
GBP`000
Revenue 37 - - 37
Cost of sales (57) - - (57)
Administrative expenses (260) (662) - (922)
Other income / expense (2,016) 36 (1,980)
Finance income 4 578 510) 72
Loss for the year (2,292) (48) (510) (2,850)
At 30 September 2007 RSA UK Intra-Group Total
eliminations
GBP`000 GBP`000 GBP`000
GBP`000
Total assets 12,846 37,980 (15,474) 35,352
Total liabilities 14,380 11,078 (12,738) 12,720
ii) 15 months to RSA UK Intra-Group Total
30 September 2006 eliminations
GBP`000 GBP`000 GBP`000
GBP`000
Administrative expenses (28) (336) - (364)
Other expenses (1,120) (69) 451 (738)
Finance income 8 296 (229) 75
Loss for the period (1,140) 109) 222 (1,027)
At 30 September 2006 RSA UK Intra-Group Total
eliminations
GBP`000 GBP`000 GBP`000
GBP`000
Total assets 6,021 7,812 (6,677) 7,156
Total liabilities 7,160 189 (6,448) 901
7 Administrative expenses 12 months 15 months
Ended ended
30.9.07 30.9.06
GBP`000 GBP`000
Expenditure incurred in administrative expenses is as follows:
Payroll and social security 466 185
Other administrative expenses 456 179
Total 922 364
Audit fees for the Group amounted to GBP36,000 (2006 - GBP20,000). Fees payable
to Grant Thornton UK LLP in respect of advisory services amounted to GBP21,079
(2006 - GBP80,474) in connection with the Company`s listing on the AltX Exchange
(2006 - AIM). These advisory fees have been treated as share issue costs and
have been charged to the share premium account.
8 Other expense 12 months 15 months
Ended ended
30.9.07 30.9.06
GBP`000 GBP`000
Fees associated with listing on AltX (2006 - AIM) (55) (69)
Excess commissioning costs (a) (2,308) -
Foreign exchange gains / (losses) (b) 383 (669)
(1,980) (738)
Excess commissioning costs represents payments made and an accrual for payments
due to 30 September 2007 under a gas supply contract. Under the terms of the
contract, which expires in June 2011, Newcastle Cogeneration (Pty.) Ltd is
required to purchase minimum quantities of gas in each 12 month period ending on
30 June. During the first 12 months of the contract, to 30 June 2007, and in the
first 3 months of the current year, Newcastle Cogeneration (Pty.) Ltd was unable
to purchase and use the required minimum quantities as a result of delays in
obtaining the requisite licences to supply electricity into the national grid in
South Africa. It is not anticipated than any further shortfalls will arise
during the remaining period of the contract.
Foreign exchange gains (2006 - losses) have arisen as a result of ZAR
denominated assets and liabilities being converted into sterling at the exchange
rate ruling at the balance sheet date as compared to the exchange rates ruling
at the date of the individual transactions.
9 Finance income 12 months 15 months
Ended ended
30.9.07 30.9.06
GBP`000 GBP`000
Interest received on bank deposits 72 75
10 Tax expense / credit
No UK corporation tax or foreign tax is payable on the results of the Group. The
relationship between the expected tax credit and the tax credit actually
recognised is as follows:
12 months 15 months
Ended ended
30.9.07 30.9.06
GBP`000 GBP`000
Loss for the year / period before tax (2,850) (1,027)
Standard rate of corporation tax in UK 30% 30%
Expected tax credit 855 308
Tax effect of consolidation adjustments
and rate differences (185) 67
Tax losses carried forward (670) (375)
No deferred tax asset has been recognised at the balance sheet date due to
uncertainty as to the timing of the expected utilisation of the tax losses.
11 Loss attributable to the parent company
The loss attributable to the parent company, IPSA Group PLC, was GBP48,000 (15
months to 30.9.06 - GBP109,000 loss). As permitted by Section 230 of the
Companies Act 1985, no separate profit and loss account is presented in respect
of the parent company.
12 Loss per share
The basic and diluted loss per share is calculated by dividing the loss for the
period attributable to shareholders by the weighted average number of shares in
issue during the period.
12 months 15 months
ended ended
30.9.07 30.9.06
Loss attributable to equity holders of the
Company GBP2,849,856 GBP1,026,798
Average shares in issue during
the year / period 72,216,664 54,629,630
Basic loss per share (3.95p) (1.88p)
13 Property, plant and equipment Plant and Plant under Total
Equipment construction
GBP`000 GBP`000 GBP`000
a) Group
Cost
Additions in period to 30.9.06 - 5,603 5,603
Cost at 30 September 2006 - 5,603 5,603
Additions in year to 30.9.07 27,128 27,128
Classification transfers 10,894 (10,894) -
Cost at 30 September 2007 10,894 21,837 32,731
Depreciation
Depreciation charge for the
period to 30.9.06 - 2 2
Depreciation at 30 September 2006 - 2 2
Classification transfer 2 (2) -
Charge for the year to 30.9.07 5 - 5
Depreciation at 30 September 2007 7 - 7
Net book value at 30 September 2007 10,887 21,837 32,724
Net book value at 30 September 2006 - 5,601 5,601
b) Company
Cost
Cost at 30 September 2006 - - -
Additions in the year to 30.9.07 - 21,837 21,837
Cost at 30 September 2007 - 21,837 21,837
Depreciation
Depreciation at 30 September 2006 - - -
Charge for the year to 30.9.07 - - -
Depreciation at 30 September 2007 - - -
Net book value at 30 September 2007 - 21,837 21,837
Net book value at 30 September 2006 - - -
Property, plant and equipment has been valued at cost. No depreciation is
charged until plant becomes operational. At 30 September 2007, plant under
construction represents 4 Siemens Tornado turbines which have been acquired by
the Company for use in the planned Coega Basin project in South Africa. At 30
September 2006, plant under construction comprised the turbine which is now in
use in Newcastle. This equipment was brought into initial production in
September 2007 with the generation of steam. Electricity generation from this
plant commenced in October 2007.
14 Intangible assets 30.9.07 30.9.06
GBP`000 GBP`000
At beginning of year / period 833 -
Additions arising on acquisition of subsidiary - 833
Cost at end of year / period 833 833
The intangible asset represents the directors` estimate of the fair value of a
contract, owned by Newcastle Cogeneration (Pty.) Ltd at the date of acquisition,
to supply steam from the electricity generating plant. Amortisation over the
life of the contract will commence during the current year as the plant becomes
fully operational.
15 Trade and other receivables 30.9.07 30.9.06
due in more than 1 year GBP`000 GBP`000
a) Group - -
b) Company
Amount due from subsidiary 2,339 2,339
The amount due from subsidiary an interest free loan.
16 Deferred tax asset 30.9.07 30.9.06
GBP`000 GBP`000
Asset recognised in respect of tax losses - -
Unrecognised asset in respect of tax losses 1,045 375
In view of the uncertainty over the timing of the utilisation of the tax losses,
the Directors consider that it would be inappropriate to recognise the potential
deferred tax asset at this early stage in the development of the Group.
17 Investments 30.9.07 30.9.06
GBP`000 GBP`000
At beginning of year / period 500 -
Additions - 500
At end of year / period 500 500
The Company owns 100% of the issued share capital of Blazeway Engineering Ltd.
The investment has been valued at cost. Blazeway Engineering Ltd owns 100% of
Newcastle Cogeneration (Pty.) Ltd.
18 Trade and other receivables 30.9.07 30.9.06
due in less than 1 year GBP`000 GBP`000
a) Group
Pre-paid taxes 325 162
Other prepayments 767 34
1,092 196
b) Company
Pre-paid taxes 18 6
Other prepayments 17 34
Amounts due from subsidiary 12,739 4,443
12,774 4,483
Amounts due from subsidiary represent short term finance to Newcastle
Cogeneration (Pty.) Ltd in order to provide funding for the development of the
plant in Newcastle. Interest is being applied to the balance outstanding at 6.5%
per annum. It is the intention of the directors to arrange for the repayment of
this loan during the next 12 months.
19 Cash and cash equivalents 30.9.07 30.9.06
GBP`000 GBP`000
a) Group
Cash at bank and in hand 35 18
Short term bank deposits 668 508
703 526
b) Company
Cash at bank and in hand 28 15
Short term bank deposits 502 476
530 491
20 Share capital 30.9.07 30.9.06
GBP`000 GBP`000
a) Authorised
150,000,000 ordinary shares of 2p each 3,000 3,000
b) Allotted, called-up and fully paid
89,564,081 ordinary shares of 2p each 1,792 1 ,093
(2006 - 54,629,630 shares)
c) Reconciliation of movement in share capital Number GBP
On incorporation (1 July 2005) - 2 ordinary
shares of GBP1 each 2 2
Subdivision of each ordinary GBP1 share into 50 shares
of 2p each 98 -
in September 2005
Allotment in consideration of acquisition of Blazeway
24,999,900 499,998
Engineering Ltd in September 2005 at par
Allotment on admission to the AIM market of
the London 29,629,630 592,593
Stock Exchange in September 2005 at 27p per share
At 30 September 2006 54,629,630 1,092,593
Allotment in October 2006 on listing on
AltX Exchange 11,499,839 229,997
at ZAR 5.84 (40p) per share
Allotment in March 2007 7,500,000 150,000
at ZAR 10.67 (75p) per share
Allotment in March 2007 2,500,000 50,000
at 75p per share
Allotment in September 2007 13,434,612 268,692
at ZAR 8.85 (61p) per share
At 30 September 2007 89,564,081 1,791,282
The difference between the total consideration, less related costs, arising from
shares issued and the nominal value of the shares issued has been credited to
the share premium account (note 21).
21 Statement of changes in shareholders` equity
Share Share Foreign Profit and
Total
Capital premium currency loss
reserve reserve
GBP`000 GBP`000 GBP`000 GBP`000
GBP`000
a) Group
On incorporation - - - - -
Allotment - September `05 500 - - - 500
Allotment - September `05 593 6,640 - - 7,233
Effect of foreign exchange - - (451) - (451)
translation adjustment
Loss for the period - - - (1,027) (1,027)
Balance at 30 September 2006 1,093 6,640 (451) (1,027) 6,255
Allotment - October `06 230 3,575 - - 3,805
Allotment - March `07 200 7,273 - - 7,473
Allotment - September `07 269 7,779 - - 8,048
Effect of foreign exchange - - (99) - (99)
translation adjustment
Loss for the year - - - (2,850) (2,850)
Balance at 30 September 2007 1,792 25,267 (550) (3,877) 22,632
b) Company
On incorporation - - - - -
Allotment - September `05 500 - - - 500
Allotment - September `05 593 6,640 - - 7,233
Loss for the period - - - (109) (109)
Balance at 30 September 2006 1,093 6,640 - (109) 7,624
Allotment - October `06 230 3,575 - - 3,805
Allotment - March `07 200 7,273 - - 7,473
Allotment - September `07 269 7,779 - - 8,048
Loss for the year - - - (48) (48)
Balance at 30 September 2007 1,792 25,267 - (157) 26,902
22 Trade and other payables 30.9.07 30.9.06
GBP`000 GBP`000
a) Group
Trade payables 979 856
Other payables 11,741 45
12,720 901
b) Company
Trade payables 131 145
Other payables 10,947 44
11,078 189
Other payables includes an amount of Euro15.6m (GBP10.9m) due on 31 March 2008,
being the final instalment payment due on the 4 turbines acquired during 2007
for the proposed Coega Basin project.
23 Reconciliation of loss before tax to cash 30.9.07 30.9.06
outflow from operations GBP`000 GBP`000
a) Group
Loss before tax (2,850) (1,027)
Depreciation 5 2
Changes in working capital
Trade and other receivables (896) (196)
Trade and other payables 11,819 901
Exchange translation adjustment (99) (451)
Interest received (72) (75)
Net cash inflow / (outflow) from operating activities 7,907 (846)
b) Company
Loss before tax (48) (109)
Changes in working capital
Trade and other receivables 5 (40)
Trade and other payables 10,889 189
Interest receivable (579) (296)
Net cash inflow/(outflow) from operating activities 10,267 (256)
24 Financial risk management
The Group is exposed to a variety of financial risks which result from both its
operating and investing risks. The Group`s risk management is coordinated to
secure the Group`s short to medium term cash flows by minimising the exposure to
financial markets. The Group does not actively engage in the trading of
financial assets for speculative purposes nor does it write options. The most
significant risks to which the Group is exposed are described below:
a) Foreign currency risk
The Group is exposed to translation and transaction foreign exchange risk.
Foreign exchange differences on retranslation of these assets and liabilities
are taken to the income statement of the Group. The Group`s principal trading
operations are based in South Africa and as a result the Group has exposure to
currency exchange rate fluctuations in the Rand relative to Sterling.
b) Interest rate risk
Group funds are invested in short term deposit accounts, with a maturity of less
than three months, with the objective of maintaining a balance between
accessibility of funds and competitive rates of return.
c) Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is
available to meet foreseeable needs and to invest cash assets safely and
profitably.
d) Credit risk
Generally, the maximum credit risk exposure of financial assets is the carrying
amount of the financial assets as shown on the face of the balance sheet (or in
the detailed analysis provided in the notes to the financial statements). Credit
risk, therefore, is only disclosed in circumstances where the maximum potential
loss differs significantly from the financial asset`s carrying amount. The
Group`s trade and other receivables are actively monitored to avoid significant
concentrations of credit risk.
e) Fair values
In the opinion of the directors, there is no significant difference between the
fair values of the Group`s and the Company`s assets and liabilities and their
carrying values with the exception of property, plant and equipment where the
directors consider, on the basis on the professional valuations performed, that
the fair values, based on `open market values` are in excess of the carrying
values. `Open market value` assumes a willing buyer and a willing seller.
25 Capital commitments
The Company has acquired (note 13) 4 gas turbines which are being prepared for
the proposed Coega Basin project. A contract to `zero hour` these turbines has
been entered into at a cost of GBP7m.
26 Contingent liabilities
Newcastle Cogeneration (Pty.) Ltd is party to a `take or pay` contract to
purchase gas. Under the terms of the contract, which commenced on 1 July 2006,
Newcastle Cogeneration (Pty.) Ltd is required to make minimum annual purchases
amounting to a total of ZAR121m over the life of the contract, which expires on
30 June 2011. For the reasons set out in note 8, there was a shortfall in the
year to 30 June 2007 which has been written-off, together with the shortfall in
the 3 months period to 30 September 2007. As the plant is now operational, no
further shortfalls are anticipated and the directors do not consider that any
additional provision is required.
27 Related party transactions
Material transactions with related parties during the period were as follows:
(i) Payment by the Company of GBP60,000 to Independent Power Corporation PLC
under a "Shared Services Agreement" for the provision of offices and other
administrative services. P Earl and E Shaw are shareholders and directors
of Independent Power Corporation PLC and J West is a director. A sum of
GBP11,750 (2006 - GBP22,670) was owing to Independent Power Corporation PLC
at 30 September 2007.
(ii) Payment by the Group of salaries to key management totalling
GBP184,000 (2006 - GBP153,000).
Transactions between the Company and Newcastle Cogeneration (Pty.) Ltd included:
(i) Expense recharges in relation to services provided - GBP113k (2006 -
GBP114k).
(ii) Unsecured loans by the Company to Newcastle Cogeneration (Proprietary)
Ltd of GBP12.7m (2006 - GBP6.8m).
(iii) Interest charges (at 6.5%) on loan balances outstanding - GBP510k
(2006 - GBP229k).
28 Directors and employee costs 30.9.07
GBP`000
Aggregate remuneration of all employees and directors 224
Remuneration paid to the directors Salary Other Total
who served during the year: emoluments
GBP`000 GBP`000
GBP`000
S Hargrave (non-executive) 34 - 34
N Bryson (non-executive) - 15 15
P Earl 39 - 39
J Eyre 39 - 39
E Shaw 39 - 39
J West (non-executive) 3 15 18
Total 154 30 184
`Other` remuneration includes GBP15,000 paid to Balmyle Ltd, a company
controlled by N Bryson and GBP15,000 paid to Jimmy West Associates Ltd, a
company controlled by J West.
The average number of employees in the Group, including directors, was 15. At 30
September 2007, the total number of employees in the Group was 17.
29 Post balance sheet date events
a) On 11 October 2007, Elitheni Clean Coal Holdings Ltd (ECCH) was incorporated
under the British Virgin Islands Companies Act 2004 (company number 1437070) as
a wholly owned subsidiary of the Company. On 28 November 2007, the Company sold
50% of its interest in ECCH to Exodus Elitheni Holdings LLC (EEH) on terms such
that the Company will receive $5m from EEH when ECCH secures funding for its
proposed project.
b) On 24 January 2008, the Company entered into a Memorandum of Understanding
with the Central Energy Fund (Pty.) Ltd (CEF), the wholly owned subsidiary of
the Government of South Africa for a key role as a private sector power plant
developer to the integrated energy project being developed at the Coega
Industrial Development Zone (IDZ) outside Port Elizabeth.
Further details of these transactions are set out in the Chief Executive`s
review of operations.
10 March 2008
Standard Bank
AltX Sponsor to IPSA Group PLC
Noble & Company Limited
AIM Nominated Advisor and Joint Broker to IPSA Group PLC
Date: 11/03/2008 09:00:04 Produced by the JSE SENS Department.
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