| Tue 24 Mar 2009, 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: GBOOBOCJ3F01
JSE Share Code: IPS ISIN: GBOOBOCJ3F01
("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 2008.
Key points for period include:
First sales of steam and electricity under contract at the Company`s Newcastle
CHP plant to users such as City Power of Johannesburg and Eskom, the state owned
power company.
Signing of a Memorandum of Co-operation with the South African Government`s
Central Energy Fund (Pty) Limited for a key role as a private sector developer
to the integrated energy project being developed at the Coega Industrial
Development Zone, near Port Elizabeth.
Key points since the year end include:
Formal agreement with Elitheni Coal (Pty) Limited, a subsidiary of Strategic
Natural Resources PLC, for coal supply to approximately 250MW of its initial
power projects in South Africa`s Eastern Cape.
Continuing discussions over the sale of the four Fiat Avio 501 D gas turbines at
a price of approximately USD100 million, which were acquired in March 2007 and
previously earmarked for that project.
Receipt of additional funding of approximately GBP1.08 million from Independent
Power Corporation PLC in the absence of normal commercial lines of finance due
to the near collapse of financial markets.
Pending potential sale of the turbines, Board to explore medium term working
capital options.
Commenting, Stephen Hargrave, Chairman of IPSA, said:
"Over the last year the world`s financial markets have deteriorated and this has
inevitably had a negative impact on IPSA. However, the Company is adjusting its
operations and plans to match the tightened credit conditions affecting southern
Africa.
"The Company is rich in assets. It is now in the process of arranging finance to
meet its working capital needs and the Board has a reasonable expectation that
as a result the Company will be able to develop new power plant capacity to
complement its existing initial pilot plant in Newcastle, KwaZulu Natal. While
financing remains our top priority for the present, I believe that the Group has
the necessary skills and experience to achieve its ambitions."
For further information contact:
Peter Earl, CEO, IPSA Group PLC: +44 (0)20 7793
5615
Elizabeth Shaw, COO, IPSA Group PLC: +44 (0)20 7793
5615
John Llewellyn-Lloyd / Sunil Sanikop, Noble +44 (0)20 7763
& Company Ltd: 2200
(Nominated Adviser and Joint Broker)
Allan Piper, Tavistock Communications (UK PR +44 (0)20 7920
Advisers): 3150
Dino Theodorou, PSG Capital (Pty.) Limited: +27 (11) 797
(South African Sponsors) 8400
Sugitha Naidoo, College Hill (South African +27 (11) 447
PR Advisers): 3030
Or visit IPSA`s website: www.ipsagroup.co.uk
CHAIRMAN`S STATEMENT
I am pleased to present to shareholders of IPSA Group PLC the Report and
Accounts for the year to 30 September 2008.
Since my annual statement to you in March 2008, the world`s financial markets
have deteriorated at a rate that few people expected. This deterioration has
inevitably had a negative impact on IPSA, but unless these exceptional market
conditions continue for a prolonged period, I see no reason for the Group to
deviate from its strategy of building profitable electricity generating capacity
in southern Africa, where all forecasts indicate a widening long-term gap
between supply and demand.
To explain - last year I reported that the cogeneration plant in Newcastle,
KwaZulu Natal had been successfully commissioned. In normal market conditions,
this should have been sufficient to enable the Group to raise external finance
on the plant (which, to date, has been financed entirely out of shareholders`
funds) and thus release cash for the development of the next project. Extreme
tightness in financial conditions has taken a number of potential funders out of
the market altogether and has made others much more reluctant to make
commitments.
Efforts to refinance the Newcastle plant have also been hampered by the
procurement process for new power in South Africa, as in these more cautious
markets external finance will not be available until a long-term Power Purchase
Agreement ("PPA") has been signed. We have participated in the tender processes
for new capacity announced by Eskom and currently await the outcome of the
Medium Term Power Purchase Programme which is due to conclude on or before 31st
March 2009. Despite these delays to reaching full revenue generation, the plant
remains operational.
Cash flow constraints have therefore had an impact on our plans for Newcastle,
and will continue to do so until such time as we either refinance the plant or
sell the turbines originally intended for Coega as described in the next
paragraph. We have nevertheless increased the steam supply capability of the
plant and signed up a new steam supply customer during the year under review,
and we have supplied steam to our customers through to our year end and beyond
as well as supplying electricity to Eskom until the end of September 2008 under
a temporary PPA. We are very grateful for the contribution of Chris Louw and his
team at Newcastle who have worked hard to keep the project in good shape in
trying circumstances.
Over the past few months I have also reported on delays to the Coega project
near Port Elizabeth and the decision by the Board to sell the four Fiat Avio
501D gas turbines previously earmarked for that project. This decision was taken
reluctantly in view of the lack of progress in the issue of tender documents for
the project and the possibility that the state of the world`s finances may lead
to significant rephasing of the whole Coega Industrial Development Zone. Again,
in more buoyant market conditions, prospective buyers would normally have had
relatively little difficulty in raising finance to acquire these turbines from
us and we would, by now, have expected to complete a sale and realise a
significant profit. However, the withdrawal from the market of most of the key
infrastructure lenders means that although we continue to see a good level of
interest in the turbines at a price substantially above the book value, no
transaction has been concluded to date and negotiations are still continuing.
In the absence of normal commercial lines of finance, the Company has, since the
year end, received additional financial support from Independent Power
Corporation PLC ("IPC"), a company controlled by our chief executive, Peter
Earl. We are very grateful for this support. Meanwhile the Board is focused on
the key issues of securing a sale of the turbines and entering into a
commercially viable long-term PPA at Newcastle whilst we continue to work to
enhance the viability of the Elitheni coal-fired project.
As the Company`s bank loan is due for repayment at the end of September and the
sale of the turbines has not yet been concluded, the Board considers it prudent
to explore other medium term working capital options, including raising debt for
the Newcastle plant once a medium term PPA has been secured. In light of these
uncertainties, I draw your attention to the fact that the independent auditors
have included an emphasis of matter paragraph in their unqualified audit
opinion.
In summary, the near collapse of financial markets has impacted our growth plans
quite considerably, but the overall strategy of building profitable electricity
generating capacity in South Africa and neighbouring countries remains intact.
While financing remains our top priority for the present, I believe that the
Group has the necessary skills and experience to achieve its ambitions.
Stephen Hargrave
Chairman
CHIEF EXECUTIVE`S REVIEW OF OPERATIONS
The last twelve months have seen unprecedented turmoil in financial markets with
an increasing knock-on effect in the economics of the real world. South Africa
and IPSA have not been immune to these seismic changes and the Company now finds
itself adjusting its operations and growth plans to match the tightened credit
conditions affecting southern Africa.
Fortunately, however, IPSA is in the power generation and power development
business, and South Africa and its neighbours have an urgent need for more power
plants. There is therefore still an opportunity for IPSA to develop new power
plant capacity to complement its existing initial pilot plant at Newcastle.
During the financial year IPSA saw its Newcastle plant enter full commercial
operations. Sales of steam to its industrial customers, Karbochem and African
Amines, continued and we signed agreements for further steam sales to Lanxess
CISA Pty. Limited, a subsidiary of Lanxess of Germany. IPSA also entered into
its first power purchase agreements (PPAs), supplying power initially to City
Power of Johannesburg and later to Eskom under interim power sales contracts
pending clarification of the role of long term PPAs in the South African market.
Long term commercial production of electricity is expected to follow when a
satisfactory PPA is signed. The Newcastle plant has been tendered under Eskom`s
Medium Term Power Purchase Programme (the "MTPPP") along with proposed
additional capacity. The Eskom MTPPP is intended to acquire 3,000 MW of capacity
at prices between ZAR 650 and 1050 MWh for a period of 6 years with a maximum
term under the MTPPP PPA of 8 years. The deadline for award of PPAs under the
tender is currently 31st March 2009. Negotiations to put in place long term
debt finance for the business based on the steam and electricity contracts are
on-going.
During the year, IPSA made progress with its Coega project when it entered into
a memorandum of cooperation with the Central Energy Fund (CEF), the holding body
for the country`s principal state-owned energy companies. This memorandum
envisages IPSA proceeding with its proposed 1,600 MW Coega Fast Track Combined
Cycle Gas Turbine Project in close collaboration with PetroSA and iGas so as to
achieve rapid installation of new privately financed power generation capacity
in tandem with the Government of South Africa`s plans for the Coega Industrial
Development Zone to be at the heart of a new energy centre providing liquid
fuels and LNG for South Africa in Port Elizabeth.
IPSA is currently awaiting confirmation of the terms of reference for the first
800 MW of capacity to be constructed at the Coega IDZ using liquid fuels as an
initial fuel source until the anticipated arrival of an LNG regasification plant
on site.
However, given the current financial climate and the fact that the Coega project
is unlikely to receive all necessary zoning and environmental consents until the
second half of 2010, the Board has decided to sell the four Fiat Avio 501 DU
gas turbines previously earmarked for Coega in order to repay its senior debt
facility prior to 30 September 2009. At the same time the Company is taking
steps to procure identical new build 501 DU turbines from Siemens Italy with
delivery timeframes that would allow IPSA to meet the anticipated construction
programme dictated by the likely timetable. The worldwide increase in the price
of gas turbines over the last two years means that IPSA can potentially realise
a substantial uplift from the sale of the units and deploy the funds generated
from the sale in investment in equity for other projects. Since October 2008, we
have been in negotiations with selected parties for the sale of the turbines at
a price of approximately USD100m. These negotiations have yet to produce a
positive outcome for the Company but we continue to pursue options and will keep
shareholders fully informed of any significant developments.
In September 2008 IPSA and Strategic Natural Resources PLC ("SNR") agreed
outline terms for new contractual arrangements to permit IPSA both to increase
the overall scale of its coal-fired development at the proposed Indwe mine mouth
site and to accelerate the in-service date of some of its initial capacity based
on the use of Elitheni coal, not only at the mine mouth itself but also in other
parts of the Eastern Cape using rail transport to take Elitheni coal from Indwe
to other sites.
In order to accelerate the construction of its initial coal-fired capacity, IPSA
is focusing on the installation of circulating fluidized bed ("CFB") boilers of
around 75 MW each. These imported CFB boilers, which are of proven technology
and manufactured to standards accepted in South Africa, have a shorter delivery
and installation time, around two years to commissioning, compared with the four
to five year lead time of the large scale boilers favoured by Eskom and
international developers. The faster boiler delivery times and IPSA`s ability to
source matching smaller steam turbines now allows IPSA to cut the development
time at Indwe and other locations in the Eastern Cape so that its first units
can be targeted for commissioning in 2010 as "fast track" plants.
IPSA announced at the end of October 2008 that it had reached formal agreement
with Elitheni Coal (Pty) Ltd ("Elitheni"), a subsidiary of SNR, for the coal
supply to approximately 250 MW of its initial power projects in South Africa`s
Eastern Cape. At the same time, the basis of a framework agreement has also been
put in place giving IPSA the right of first refusal for further coal supplies
from Elitheni to serve the 1,000 MW of clean coal power plant capacity which
IPSA intends to develop throughout the Eastern Cape between East London and Port
Elizabeth. Under the terms of the contract which has been signed between
Elitheni and Indwe Power (Pty.) Ltd ("IPPL"), an indirect subsidiary of IPSA,
IPPL will purchase approximately 1,000,000 tonnes of coal per annum for a period
of 20 years (20 million tonnes) for use at its power projects under development
in the Eastern Cape. As further coal is proved up by Elitheni, IPPL intends to
increase coal-fired capacity under development in subsequent phases.
IPSA has also been pre-qualified to participate in Eskom`s Multi-site Baseload
IPP Programme.
IPSA is a development company and like all development companies it relies on
the availability of external financing, principally through the debt markets.
The current lending climate is making the job of the Directors far harder than
previously anticipated, especially since the end of the Company`s financial year
on 30 September 2008.
In the absence of bank lending the Company has received loans of approximately
GBP1,081,000 to date from Independent Power Corporation PLC ("IPC"), a company
controlled by myself, of which Jimmy West (Non-Executive Director of IPSA) is
Chairman and Elizabeth Shaw (Chief Operating Officer of IPSA) is also a
director.
The Company is in the process of arranging finance to meet its most recent
interest payment, which was due on 2nd January 2009, of approximately GBP330,000
in respect of its senior secured bank loan. IPC has indicated its provisional
willingness to consider making available a further loan to IPSA for this
purpose.
It has been an exceptionally torrid year but we remain confident in the future
of independent power generation in southern Africa. I am most grateful to all my
colleagues for the tremendous efforts they have all made on behalf of the
Company and all its shareholders.
Peter Earl
Chief Executive
CONSOLIDATED INCOME STATEMENTS AND STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR YEAR ENDED 30 SEPTEMBER 2008
Consolidated Income Statement Notes Year Year
ended ended
30/9/08 30/9/07
GBP`000 GBP`000
Revenue 5 2,828 37
Cost of sales (3,630) (57)
Gross profit (802) (20)
Administrative expenses 7 (1,421) (922)
Other expense 8 (2,221) (1,980)
Finance income 9 33 72
Finance expense 10 (40) -
Loss before tax (4,451) (2,850)
Tax expense / credit 11 - -
Loss for the year attributable 23 (4,451) (2,850)
to equity shareholders of the
parent
Loss per share (basic, diluted 13 (4.97p) (3.95p)
and headline)
All of the Group`s activities
are continuing activities.
Statements of recognised income
and expense
Exchange differences on 23 96 (99)
translation of foreign
operations
Loss for the year 23 (4,451) (2,850)
Total recognised income and (4,355) (2,949)
expense for the year
attributable to equity
shareholders of the parent
The accompanying accounting policies and notes form an integral part of these
financial statements.
CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2008
Notes 30/9/08 30/9/07
GBP`000 GBP`000
Assets
Non-current assets
Property, plant and equipment 14 11,574 32,724
Intangible assets 15 750 833
Deferred tax asset 17 - -
12,324 33,557
Current assets
Assets held for resale 19 32,253 -
Trade and other receivables 20 1,454 1,092
Cash and cash equivalents 21 405 703
34,112 1,795
Total assets 46,436 35,352
Equity and liabilities
Capital and reserves
attributable to equity holders
of the Company:
Share capital 22 1,792 1,792
Share premium account 23 25,267 25,267
Foreign currency reserve 23 (454) (550)
Profit and loss reserve 23 (8,328) (3,877)
Total equity 18,277 22,632
Current liabilities
Trade and other payables 24 12,017 12,720
Borrowings 25 16,142 -
28,159 12,720
Total equity and liabilities 46,436 35,352
The financial statements were approved by the Board on 20 March 2009.
The accompanying accounting policies and notes form an integral part of these
financial statements.
CONSOLIDATED CASH FLOW STATEMENT AS AT 30 SEPTEMBER 2008
Notes Year Year
ended ended
30/09/08 30/09/07
GBP`000 GBP`000
Net cash (outflow)/inflow from 26 (4,357) 7,907
operating activities before
interest
Interest received 33 72
Interest paid (40) -
Net cash (outflow)/inflow from (4,364) 7,979
operating activities
Cash flows from investing
activities
Additions to plant and equipment (1,660) (27,128)
Additions to plant under (10 416) -
construction
Cash used in investing activities (12,076) (27,128)
Cash flows from financing
activities
Issue of shares (net of costs) - 19,326
Bank loans 15,000 -
Other loans 1,142 -
Cash inflow from financing 16,142 19,326
activities
(Decrease)/increase in cash and (298) 177
cash equivalents
Reconciliation and analysis of
change in net funds
(Decrease)/increase in cash (298) 177
during year
Cash and cash equivalents at 703 526
start of year
Cash and cash equivalents at end 21 405 703
of year
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 2008
1. Principal activities and 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, the Group`s operating activities included the
generation and sale of electricity and steam by the Group`s gas fired plant in
Newcastle, Republic of South Africa and the refurbishment of 4 gas turbines
which were originally acquired for the Industrial Development Zone at Coega near
Durban.
Further details are provided in the Chairman`s Statement and the Chief
Executive`s review of operations.
2. General information
IPSA Group PLC is the Group`s ultimate parent company. It is incorporated and
domiciled in England and Wales. 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 JSE
Limited in South Africa).
3. Approval of financial statements
The consolidated financial statements for the year ended 30 September 2008 were
approved by the Board of directors on 20 March 2009.
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. The measurement bases and principal
accounting policies of the Group are set out below.
4.2 Going concern
As set out in the Chairman`s report and the Chief Executive`s review, the
directors have decided to sell the 4 steam turbines (note 19). The Company
commenced discussions with potential purchasers in October and remains in
negotiations and whilst there can be no certainty that a sale will be concluded,
the directors have a reasonable expectation that a sale will be achieved at a
price significantly above their carrying value.
The turbines provide the security for the bank loan (note 25) which is due for
repayment on 30 September 2009. In the event that it becomes likely that a sale
is not achievable by that date, the Company will either seek to obtain an
extension to the facility, or seek to obtain alternative finance failing which
the directors may be obliged to sell one or more of the turbines at a price
below that which is believed to be in the best interest of shareholders.
The directors are also pursuing alternative sources of funding which, if
obtained, would be secured on the plant owned by the Group`s wholly owned
subsidiary in South Africa. This asset is currently unencumbered. However, as
set out in the Chairman`s report and the Chief Executive`s review, the delay in
obtaining a long term Power Purchase Agreement ("PPA") and the current economic
environment has, to date, resulted in lenders being unwilling to provide finance
against the plant. The directors remain confident that Newcastle Cogeneration
(Pty.) Ltd will be awarded a PPA on terms which enable the plant to operate
profitably following which the directors expect that the Group will be able to
raise funds on the plant.
Since the year-end, the Group has obtained short term finance to meet its
day-to-day working capital requirements from Independent Power Corporation
PLC, a related party (see note 30). The directors have received indications
that additional funding from this source may be available.
The directors have concluded that the combination of these circumstances
represents a material uncertainty that casts significant doubt upon the Group`s
and the Company`s ability to continue as a going concern for the foreseeable
future. Nevertheless, after making enquiries and considering the uncertainties
described above, the directors have a reasonable expectation that the Group and
the Company does and will continue to have adequate resources to continue in
operational existence for the foreseeable future provided one or more of the
turbines is sold and / or the Newcastle plant is refinanced after the award of
an appropriate PPA. For these reasons, the directors continue to adopt the going
concern basis in preparing these financial statements.
4.3 Basis of consolidation
The Group financial statements consolidate those of the Company and its
subsidiary undertakings drawn up to 30 September 2008.
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.
Joint ventures are arrangements in which the Group has a long-term interest and
shares control under a written contractual agreement. The Group reports its
interest in jointly controlled entities using proportionate consolidation such
that the Group`s share of the assets, liabilities, income and expenses are
combined with the equivalent items in the consolidated financial statements on a
line by line basis.
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. Subsequent to initial recognition,
intangible assets are reported at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is provided to write-off the cost of
the intangible asset over its useful economic life.
4.5 Impairment of property, plant, equipment and intangible 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. Monetary
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 year to 30 September
2007 the Group`s revenue was negligible as the plant was not commissioned until
the end of that year. In the year to 30 September 2008, revenues represent sales
of Steam (which commenced at the end of September 2007) and the sale of
electricity which commenced initially in October 2007 but did not start
commercial production until February 2008.
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 year to 30 September 2007 was minimal since it
was not until shortly before that 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 Assets held for resale
Assets are categorised as assets held for resale when the directors intend that
the asset be sold rather than employed as an operating asset. Assets held for
resale are valued at lower of cost and fair value less costs to sell.
4.10 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.
4.11 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 tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts.
Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be
utilised.
Deferred income tax is provided on temporary differences arising in investments
in subsidiaries except where the timing of the reversal of the temporary
difference can be controlled and it is probable that the temporary difference
will not reverse in the foreseeable future.
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 in which case the related deferred tax is
also charged or credited directly to equity.
4.12 Financial assets
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 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.
4.13 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 expense" in the income statement except to the extent that the costs
are directly attributable to specific construction projects. 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. In
subsequent periods, they are stated at amortised cost using the effective
interest method. Finance charges, including premiums payable on settlement or
redemption, and direct issue costs are charged to the income statement on an
accruals basis using the effective interest method and are added to the carrying
amount of the instrument to the extent that they are not settled in the period
in which they arise.
4.14 Hedging instruments
The Group has not entered into any derivative financial instruments for hedging
or for any other purpose.
4.15 Equity
Equity comprises the following:
"Share capital" represents the nominal value of equity shares.
"Share premium" represents the excess over nominal value of the fair value 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.
4.16 Investment in subsidiary undertakings
The company`s investments in subsidiary undertakings are stated at cost less any
provision for impairment.
4.17 Amounts due from subsidiaries
Amounts due from subsidiaries are stated at their original value less any
provision for impairment.
4.18 Pensions
During the year under review, the Group did not operate or contribute to any
pension schemes.
4.19 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
assets, property plant and equipment and assets held for re-sale at cost. In
view of the nature of these assets, changes in technology, prices or industry
practices may result in the assumptions used in these valuations needing to be
changed.
As set out in note 4.2, the financial statements have been prepared on a going
concern basis.
4.20 Accounting standards and interpretations not yet applied
The Group has not applied any new standards or interpretations issued by the
IASB and endorsed by the EU where the effective date is for accounting periods
commencing after 1 October 2007.
The application of such standards is not anticipated to have a material impact
on the Group`s or the Company`s financial statements.
There follows a list of standards and interpretations in issue but not effective
for accounting periods commencing on 1 October 2007.
IAS 1 Presentation of Financial Statements (revised 2007) (effective 1 January
2009)
IAS 23 Borrowing Costs (revised 2007) (effective 1 January 2009)
Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation
of Financial Statements - Puttable Financial Instruments and Obligations Arising
on Liquidation (effective 1 January 2009)
IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (effective
1 July 2009)
Amendment to IFRS 2 Share-based Payment - Vesting Conditions and Cancellations
(effective 1 January 2009)
Amendments to IFRS 1 First-time Adoption of International Financial Reporting
Standards and IAS 27 Consolidated and Separate Financial Statements - Costs of
Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective 1
January 2009)
Amendment to IAS 39 Financial Instruments: Recognition and Measurement -
Eligible Hedged Items (effective 1 July 2009)
Improvements to IFRSs (effective 1 January 2009 other than certain amendments
effective 1 July 2009)
IFRS 3 Business Combinations (Revised 2008) (effective 1 July 2009)
IFRS 8 Operating Segments (effective 1 January 2009)
IFRIC 12 Service Concession Arrangements (effective 1 January 2008)
IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008)
IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction (effective 1 January 2008)
IFRIC 15 Agreements for the Construction of Real Estate (effective 1 January
2009)
IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective 1 October
2008)
IFRIC 17 Distributions of Non-cash Assets to Owners (effective 1 July 2009)
5. 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.
RSA UK Total
GBP`000 GBP`000 GBP`000
(i) Year ended 30 Sept 2008
Revenue 2,828 - 2,828
Cost of sales (3,630) - (3,630)
Administrative expenses (498) (923) (1,421)
Other expense (654) (1,567) (2,221)
Net finance income/(expense) 1 (8) (7)
Loss for the year (1,953) (2,498) (4,451)
RSA UK Intra- Total
Group
elimin-
At 30 September 2008 ations
GBP`000 GBP`000 GBP`000 GBP`000
Total assets 13,180 47,736 (14,480) 46,436
Total liabilities 16,488 26,151 (14,480) 28,159
RSA UK Intra- Total
Group
elimin-
ations
GBP`000 GBP`000 GBP`000 GBP`000
(ii) Year ended 30 Sept 2007
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)
RSA UK Intra- Total
Group
elimin-
ations
GBP`000 GBP`000 GBP`000 GBP`000
At 30 September 2007
Total assets 12,846 35,244 (12,738) 35,352
Total liabilities 14,380 11,078 (12,738) 12,720
6 Sensitivity analysis
The value of shareholder equity and the results for the Group are affected by
changes in exchange rates, prices for electricity, steam and gas and interest
rates. The following illustrates the effects of changes in these variables.
Sensitivity to exchange rates
The Group`s electricity generating assets, which also provide steam to
industrial customers, are located in South Africa and therefore the sterling
value of the revenues and costs from this activity are affected by movements in
the value of the GBP versus the ZAR.
The parent company has provided 100% of the funding for the construction of the
plant. The loans are denominated in sterling and therefore the ZAR value of the
loans is affected by movements in the value of the ZAR versus Sterling.
The parent company acquired, in 2007, 4 second hand gas turbines from an Italian
manufacturer and during the current year, the manufacturer was engaged in
refurbishing these turbines. The price of these turbines and the refurbishment
was denominated in Euro and therefore the Sterling cost of the turbines is
affected by movements in the value of Sterling versus the Euro.
The exchange rates applicable to the results for the current and prior year were
as follows:
Year to Year to
30/09/08 30/09/07
(i) Closing rate
ZAR to GBP 14.90 14.17
Euro to GBP 1.26 1.44
(ii) Average rate
GBP to ZAR 14.74 14.19
GBP to Euro 1.31 1.48
a) The effect of closing exchange rates at the year end is summarised below:
i) ZAR vs.GBP
If the closing rate of the ZAR relative to Sterling at 30 September 2008 had
been stronger or weaker by 10% with all other variables held constant,
shareholder equity would have been GBP1.1m higher (2007 - GBP1.35m) higher or
lower than reported and the loss for the year would have been GBP1.46m (2007 -
GBP1.29m) lower or higher than the loss reported.
ii) Euro vs. GBP
If the closing rate of the Euro relative to Sterling at 30 September 2008 has
been stronger or weaker by 10% with all other variables held constant,
shareholder equity would have been GBP950k (2007 - GBP1.1m) lower or higher than
reported.
b) The effect of average exchange rates during the year is estimated to be:
i) ZAR vs. GBP
If the average rate of the ZAR relative to Sterling during the year to 30
September 2008 had been stronger or weaker by 10% with all other variables held
constant, the loss for the year would have been GBP126k (2007 - GBP294k) higher
or lower than the loss reported.
ii) Euro vs. GBP
The effect of the Euro on the Group results arose from the Euro liabilities due
to the manufacturer of the 4 turbines. During the year to 30 September 2008, the
amount of Euro liability settled was Euro15.7m (2007 - GBPnil). If the rate of
the Euro vs. GBP at the date of settlement had been 10% lower of higher, the
loss for the year would have been GBP1.26m lower or higher than the reported
loss.
Sensitivity to price changes in electricity and steam revenues and gas purchases
The results of the Group are affected by the price that electricity and steam is
sold at and by the price paid for the gas which is used by the turbines.
The following table illustrates the effect on the results for the year and
shareholder equity at the year end of a 10% increase or decrease in these
prices:
Year to Year to
30/09/08 30/09/07
GBP`000 GBP`000
Selling price of electricity 116 -
Selling price of steam 167 4
Purchase price of gas 287 230
Sensitivity to interest rates
The majority of the Group`s funding has been provided by share capital. During
the year, the Group agreed a GBP15m bank loan to assist in the funding of the 4
turbines. The interest on the GBP15m loan is being added to the cost of the
turbines and as a result there is no impact of the Group`s income statement from
changes in interest rates on this loan.
The additional or lesser amount that would have been added to / deducted from
the carrying value of the 4 turbines at 30 September 2008 if interest rates had
been 10% higher or lower is GBP62k (2007 - GBPnil).
The Group also has short term loans. A 10% change in the interest rate applied
to these loans would have changed the interest expense for the year by GBP4k
(2007 - GBPnil).
7 Administrative expenses
Year Year ended
ended30/09/ 30/09/07
08
GBP`000 GBP`000
Expenditure incurred in
administrative expenses is as
follows:
Payroll and social security 728 466
Other administrative expenses 693 456
Total 1,421 922
Audit fees for the Group amounted to GBP31,614 (2007 - GBP36,000). Fees payable
to Grant Thornton UK LLP in respect of advisory services amounted to GBPnil
(2007 - GBP21,079). The advisory services in 2007 related to the Group`s listing
on the ALTX market in South Africa and were charged to the share premium
account.
8 Other expense
Year ended Year ended
30/09/08 30/09/07
GBP`000 GBP`000
Fees associated with listing on ALTX - (55)
Excess commissioning costs (a) - (2,308)
Foreign exchange (losses) / gains (b) (2,221) 383
(2,221) (1,980)
a) 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 15 months of the contract, to 30 September 2007,
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
that any further shortfalls will arise during the remaining period of the
contract.
b) Foreign exchange losses have arisen as a result of i) sterling denominated
loans by the parent company to Newcastle Cogeneration (Pty.) Ltd being converted
into ZAR at the exchange rate ruling at the balance sheet date as compared to
the exchange rates ruling at the date of the individual transactions (2008 -
GBP654,000 loss, 2007 - GBP383,000 gain) and ii) weakness of the GBP vs. the
Euro on the Euro denominated deferred consideration which was paid during the
current year for the plant acquired for the Coega project (GBP1,567,000).
9 Finance income Year ended Year ended
30/09/08 30/09/07
GBP`000 GBP`000
Interest received on bank deposits 33 72
10 Finance expense Year ended Year ended
30/09/08 30/09/07
GBP`000 GBP`000
Bank interest (see note 25) 2 -
Loan interest (see note 25) 38 -
Total 40 -
11 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:
Year ended Year ended
30/09/08 30/09/07
GBP`000 GBP`000
Loss for the year before tax (4,451) (2,850)
Standard rate of corporation tax in UK 28% 30%
Expected tax credit 1,246 855
Tax effect of consolidation 277 (185)
adjustments and rate differences
Tax losses carried forward 1,523 670
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.
12 Loss attributable to the parent company
The loss attributable to the parent company, IPSA Group PLC, was GBP1,598,000
(12 months to 30.9.07 - GBP48,000 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. The parent company loss in the year to 30 September 2008
includes exchange losses of GBP1,567,000 (2007 - GBPnil) - see note 8 above.
13 Loss per share
The 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 year.
Year ended Year ended
30/09/08 30/09/07
Loss attributable to equity 4,451,409 2,849,856
holders of the company (GBP)
Average shares in issue during the 89,564,081 72,216,664
year
Basic, diluted and headline loss (4.97p) (3.95p)
per share
14 Property, plant and equipment
Plant and Plant under Total
equipment construction
GBP`000 GBP`000 GBP`000
Cost
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
Additions in year to 30.9.08 1,660 10,416 12,076
Exchange adjustment (566) - (566)
Transfer to "Assets held for - (32,253) (32,253)
resale"
Cost at 30 September 2008 11,988 - 11,988
Depreciation
Depreciation at 30 Sept 2006 - 2 2
Classification transfer 2 (2) -
Charge for the year to 5 - 5
30.09.07
Plant and Plant under Total
equipment construction
GBP`000 GBP`000 GBP`000
Depreciation at 30 Sept 2007 7 - 7
Exchange adjustments (5) - (5)
Charge for the year to 412 - 412
30.9.08
Depreciation at 30 Sept 2008 414 - 414
Net book value at 30 Sept 08 11,574 - 11,574
Net book value at 30 Sept 07 10,887 21,837 32,724
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 were acquired by the
Company for use in the planned Coega Basin project in South Africa. During the
current year, the refurbishment work on these turbines was completed but as a
result of delays to the Coega project, the assets have been made available for
immediate sale. Additions during the year amounting to GBP10.4m include GBP618k
of directly attributable borrowing costs. 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. Initial electricity generation from this plant commenced in
October 2007 though commercial generation did not begin until February 2008.
15 Intangible assets
30/09/08 30/09/07
GBP`000 GBP`000
At beginning of year 833 833
Amortisation during the year (83) -
Cost at end of year 750 833
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 commended in October 2007. The directors estimate that the
expected life of the contract will be between 10 and 15 years. The amount of
amortisation, which has been included within `administrative expenses` in the
consolidated income statement, is based on 10% per annum straight line charge.
16 Trade and other receivables due in 30/09/08 30/09/07
more than 1 year
GBP`000 GBP`000
Group
Amount due from subsidiary - -
17 Deferred tax asset 30/09/08 30/09/07
GBP`000 GBP`000
Asset recognised in respect of tax losses - -
Unrecognised asset in respect of tax 2,434 1,045
losses
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.
18 Investments 30/09/08 30/09/07
GBP`000 GBP`000
Investment in subsidiary company 500 500
Investment in joint venture company - -
500 500
a) Investment in subsidiary company
The Company owns 100% of the issued share capital of Blazeway Engineering Ltd (a
company incorporated in England and Wales). The investment has been valued at
cost. Blazeway Engineering Ltd owns 100% of Newcastle Cogeneration (Pty.) Ltd (a
company incorporated in the Republic of South Africa).
b) Investment in joint venture company
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 is due to receive USD5m from EEH when ECCH secures funding for
a coal mine mouth electricity plant. At 30 September 2008, ECCH had not obtained
the necessary funding and accordingly the agreement to receive USD5m has lapsed.
Under the terms of the agreement, the Company now has the option to repurchase
the 50% shareholding at nil cost. Since the project has not commenced, the
investment is being carried at cost (USD100).
19 Assets held for resale 30/09/08 30/09/07
GBP`000 GBP`000
Balance at 30 September 2007 - -
Steam turbines (transferred from 32,253 -
property, plant and equipment)
Balance at 30 September 2008 32,253 -
These assets comprise 4 steam turbines which were acquired in 2007 for the Coega
project at a cost of GBP21,837,000. During the current year, the manufacturer
refurbished the turbines at a cost of GBP9.8m and GBP618,000 was added to the
cost in respect of interest on a GBP15m bank loan which was used to partly
finance the purchase and is secured by a first charge on the assets. The
turbines were initially classified as `plant under construction`. Following the
completion of their refurbishment and the decision to sell the turbines, the
asset has been reclassified as `assets held for resale`.
As set out in the Chairman`s statement, there have been delays in the timetable
for the Coega project and as a result, the Board has decided to sell these
assets.
The directors consider, on the basis of professional valuations, that the fair
value, based on `open market value` is in excess of the carrying value. `Open
market value` assumes willing buyer and willing seller.
20 Trade and other receivables 30/09/08 30/09/07
due in less than 1 year
GBP`000 GBP`000
Trade receivables 1,370 -
Prepaid taxes - 325
Other prepayments 84 767
1,454 1,092
There is a high concentration of credit risk as the trade receivables relate to
three companies. At the balance sheet date, no trade receivable were overdue.
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 in the year to 30 September 2007 was applied to the
balance outstanding at 6.5% per annum. Interest during the year to 30 September
2008 was waived due to the delay in commissioning the plant. It is the intention
of the directors to arrange for the repayment of this loan during the next 12
months subject to the availability of external finance.
21 Cash and cash equivalents
30/09/08 30/09/07
GBP`000 GBP`000
Cash at bank and in hand 54 35
Short term deposits 15 668
Short term bank deposits held as 336 -
collateral
405 703
The deposits held as collateral have been provided as security for gas purchases
by Newcastle Cogeneration (Pty.) Ltd.
22 Share capital
30/09/08 30/09/07
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 1,792
c) Reconciliation of movement in share Number GBP
capital
At 30 September 2006 54,629,630 1,092,593
Allotment in October 2006 on listing 11,499,839 229,997
on ALTX at ZAR 5.84 (40p) per share
Allotment in March 2007 at ZAR 10.67 7,500,000 150,000
(75p) per share
Allotment in March 2007 at 75p per 2,500,000 50,000
share
Allotment in September 2007 at ZAR 13,434,612 268,692
8.85 (61p) per share
At 30 September 2007 and 2008 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 23).
23 Statement of changes in total equity
Share Share Foreign Profit Total
capital premium currency and GBP`000
GBP`000 GBP`000 reserve loss
GBP`000 reserve
GBP`000
Balance at 30 Sept 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 - Sept 07 269 7,779 - - 8,048
Share Share Foreign Profit Total
capital premium currency and GBP`000
GBP`000 GBP`000 reserve loss
GBP`000 reserve
GBP`000
Effect of foreign - - (99) - (99)
exchange translation
adjustment
Loss for the year - - - (2,850) (2,850)
Balance at 30 Sept 07 1,792 25,267 (550) (3,877) 22,632
Effect of foreign - - 96 - 96
exchange translation
adjustment
Loss for the year - - - (4,451) (4,451)
Balance at 30 Sept 2008 1,792 25,267 (454) (8,328) 18,277
24 Trade and other payables
30/09/08 30/09/07
GBP`000 GBP`000
Trade payables 11,108 979
Other payables 909 11,741
12,017 12,720
Trade payables at 30 September 2008 includes an amount of Euro 11.8m /GBP9.35m
in respect of the refurbishment work which has been completed on the 4 turbines
acquired for the Coega project which, as noted in the Chairman`s statement, the
directors now intend to sell and replace. The sum of Euro 11.8m is not payable
until the turbines are either sold or commissioned. Interest at EURBOR plus 1%
per annum is due on this balance since September 2008.
Other payables at 30 September 2007 included an amount of Euro 15.6m (GBP10.9m)
which fell due on 31 March 2008, being the final instalment payment due on the 4
turbines acquired during 2007 for the proposed Coega project.
25 Borrowings
30/09/08 30/09/07
GBP`000 GBP`000
Bank loans 15,000 -
Other loans 1,142 -
16,142 -
Bank loans comprise a fully drawn facility of GBP15m which is repayable on 30
September 2009. Interest is calculated on 3 month LIBOR plus a margin of 2.25%.
The interest rate applicable at 30 September 2008 was 8.5575%. Interest charged
during the year amounted to GBP618,000. This interest has been added to the cost
of Assets held for resale. The loan is secured by a first charge on the 4
turbines.
Other loans comprise short term loans which are repayable on demand. The loans
bear interest at 8% per annum. Interest charged during the year amounted to
GBP38,000.
All borrowings are denominated in sterling.
26 Reconciliation of loss before tax 30/09/08 30/09/07
to cash outflow from operations
GBP`000 GBP`000
Loss before tax (4,451) (2,850)
Depreciation 412 5
Amortisation of intangible 83 -
Changes in working capital:
Trade and other receivables (362) (896)
Trade and other payables (703) 11,819
Exchange translation adjustments 657 (99)
Interest received (33) (72)
Interest paid 40 -
Net cash (outflow)/inflow from (4,357) 7,907
operating activities
27 Financial instruments and 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
There is a risk that the Group will encounter difficulty in meeting obligations
associated with its financial liabilities since the Group`s assets consist
primarily of plant and equipment which may take time to realise. The Group
anticipates the future cash requirements for each project and seeks to put in
place appropriate equity and debt facilities to match the funding requirements
of these projects.
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.
The financial assets and liabilities of the Group and the Company are classified
as follows:
Fair value Loans and Amortised
through receivables costGBP`0
profit and GBP`000 00
loss
GBP`000
30 September 2008
Trade and other receivables - - -
more than one year
Trade and other receivables - 1,370 -
less than one year
Cash and cash equivalents - 405 -
Trade and other payables - - (12,017)
Borrowings - - (16,142)
Totals - 1,775 (28,159)
30 September 2007
Trade and other receivables - - -
more than one year
Trade and other receivables - 325 -
less than one year
Cash and cash equivalents - 703 -
Trade and other payables - - (12,720)
Totals - 1,028 (12,720)
In the opinion of the directors, there is no significant difference between the
fair values of the Group`s and the Company`s financial assets and liabilities
and their carrying values.
28 Capital commitments
There were no outstanding capital commitments at the year end.
29 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. As the plant is now operational, no further shortfalls are
anticipated and the directors do not consider that any additional provision is
required.
30 Related party transactions
Material transactions with related parties during the period were as follows:
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 GBP23,500
(2007 - GBP11,750) was owing to Independent Power Corporation PLC at 30
September 2008.
ii)Short term loan from Independent Power Corporation PLC amounting to
GBP781,231. Interest on the loan, which is being charged at 8%, amounted to
GBP11,746 (2007 - GBPnil). The balance owing at the year end, including
interest, was GBP793,067 (2007 - GBPnil). The loan is repayable on demand.
iii)Short term loan from Secteur Holdings Ltd amounting to GBP303,750.
Interest on the loan, which is being charged at 8%, amounted to GBP25,984 (2007
- GBPnil). The balance owing at the year end, including interest, was GBP329,734
(2007 - GBPnil). The loan is repayable on demand. Mrs E Earl, P Earl`s wife, is
a director of Secteur Holdings Ltd.
iv)Payment by the Group of salaries (short term employee benefits) to key
management totalling GBP372,000 (2007 - GBP184,000).
Transactions between the Company and Newcastle Cogeneration (Pty.) Ltd included:
i) Expense recharges in relation to services provided - GBP2123k (2007 -
GBP113k).
ii) Increase in unsecured loans by the Company to Newcastle Cogeneration
(Proprietary) Ltd of GBP1.5m (2007 - GBP8.3m).
iii) Interest charge of GBPnil on loan balances outstanding -
GBPnil (2007 - 6.5% - GBP229k).
31 Directors and employee costs
Date: 24/03/2009 09:00:05 Produced by the JSE SENS Department.
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