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IPS - IPSA Group Plc - Audited Results for the 18 month period ended 31 March
2011
IPSA GROUP PLC
(Incorporated and registered in England and Wales)
(Registration Number 5496202)
AIM Share Code IPSA ISIN GB00BOCJ3F01
JSE Share Code IPS ISIN GB00BOCJ3F01
("IPSA" or "the company")
AUDITED RESULTS FOR THE 18 MONTH PERIOD ENDED 31 MARCH 2011
IPSA, the AIM and Altx dual listed independent power plant developer with
operations in southern Africa, today announces its audited results for the 18
month period ended 31 March 2011.
Highlights:
- Revenue of GBP0.8m (2009 - GBP1m) derived mainly from electricity supplied
during a ten week period (22 June 2010 to 31 August 2010)
- Group after tax loss of GBP5.2m for the extended reporting period (2009 -
GBP5.5m).
- MTPPP contract signed with Eskom in August 2010.
- New gas supply contract signed with Spring Lights Gas (Pty.) Limited in
March 2011.
- Since the period end, IPSA`s Newcastle cogeneration power plant returned to
operation, producing electricity under the MTPPP contract and steam under a
new short term supply agreement.
- Indicative offers for all 4 of the Turbines are now under active
consideration by the Board.
Commenting, Richard Linnell, Chairman of IPSA, said:
"The period ended 31 March 2011 has been extremely difficult. However we now
have indicative offers for the Turbines and though there can be no guarantee
that these negotiations will conclude on the terms currently being considered,
or at all, the prospects are now much more encouraging. The support of our
shareholders and creditors has enabled us to recommence operations at the plant
in South Africa, which is an important milestone for us. Although the working
capital position will remain tight until the sale of the Turbines is complete,
the operations in South Africa are now generating some cash at the operating
level."
Copies of the Company`s Report and Accounts for the period ended 31 March 2011
are being posted to shareholders today.
Additional copies of this Report and Accounts may be requested directly from the
Company. The report and accounts will be available on the Company`s website:
www.ipsagroup.co.uk today in accordance with Rule 26 of the AIM Rules for
Companies.
The financial information set out in this announcement does not constitute the
company`s statutory accounts for the period ended 31 March 2011 or for the year
ended 30th September 2009 but is derived from those accounts. Statutory accounts
for 2009 have been delivered to the registrar of companies, and those for 2011
will be delivered in due course. The auditors have reported on those accounts;
their reports were (i) unqualified, (ii) include an emphasis of matter on going
concern without qualifying their report, and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
CHAIRMAN`S STATEMENT
I am pleased to present to the shareholders of IPSA Group PLC (the "Group") the
Report and Accounts for the period to 31 March 2011, my first as Chairman.
I joined the Board as Chairman in April 2010, at which time the Group was
seeking alternative financing plans for the plant at Newcastle, as well as
planning the sale of the 4 Siemens Westinghouse 701 DU gas turbines (the
"Turbines") acquired for the Coega project in 2007. Progress on both fronts has
been slow, hampered by the state of world financial markets and the delays in
implementing the medium term power purchase programme ("MTPPP") in South Africa.
The impact of this on our business is plain to see in these results.
Turnover during the 18-month period was GBP0.8m (2009 - GBP1.0m) and the loss
before tax was GBP5.2m (2009 - loss GBP5.5m). The total comprehensive loss was
GBP5.7m (2009 - loss GBP6.6m).
The major achievement during the period was the execution of the MTPPP agreement
in August 2010, though unfortunately the benefit did not flow until after the
year end. However, I am pleased to say that the Newcastle plant restarted
operations on 24 March 2011 and is now operating well and we recently commenced
short term steam supply. We have been able to deal with the working capital
requirement for the start-up of the plant, but that has left few funds for the
development of any business in addition to the existing Newcastle plant over the
past 18 months.
The process for the disposal of the Turbines has been a long one, given the
state of the financial markets and until recently a complete absence of project
finance for power plant developments. However, we have seen keen interest in
the Turbines over the last few months and the Directors believe that the process
is finally nearing its conclusion. Indicative offers have been received which
indicate that funds may come in over the next six months, if accepted on the
proposed terms. However, there can be no guarantee that these negotiations will
conclude on the terms that are currently being considered, or at all. We will
therefore update shareholders as soon as we are in a position to do so.
South African electricity demand is heavily influenced by activity levels in the
commodities sector, and talk of capacity constraints has begun to reappear as
the commodities markets have picked up again in recent months. Modest expansion
of the Newcastle plant is now under consideration, with any capacity additions
likely to be funded by debt secured on the business rather than through
additional funds from shareholders.
In October 2010 we announced the cancellation of the coal contract at the
Elitheni Mine in the Eastern Cape since we felt that it was inappropriate to
continue to hold the position given the difficulties of financing a coal-fired
power station on an undeveloped mine in our financial state. In anticipation of
the Turbines being sold we can now look at developing new power projects in
southern Africa.
I draw your attention to the fact that the independent auditors have again
included an emphasis of matter paragraph in their unqualified audit opinion.
Richard Linnell
Chairman
30 June 2011
CHIEF EXECUTIVE`S REVIEW OF OPERATIONS
NewCogen
During the 18 month period ending on 31 March 2011, Newcastle Cogeneration
(Pty.) Limited ("NewCogen") generated approximately 8,500 MWh of electricity for
sale to Eskom, most of which was produced between 22 June and 31 August 2010.
During this period Sasol Gas supported us with an ad hoc gas contract for the
period of the FIFA World Cup, and the plant consumed 130,000 GJ.
On 31 August 2010 we announced the signing of the MTPPP contract with Eskom and
I am pleased that we finally commenced generation and supply under this contract
on 24 March 2011. Our new gas supplier is Spring Lights Gas (Pty.) Limited
("Spring Lights") with whom we entered into a five year contract which will
terminate in March 2016 unless extended by mutual agreement.
Inflation in South Africa resulted in the MTPPP contract rising by 5.8% from
April this year. The increase in the oil price over the first 6 months of the
year resulted in an 8.1% increase in the price of gas from 1 July. We are
considering a hedging contract to mitigate the future impact of increases in the
Brent Crude price.
In December 2010, Sasol Gas Limited served an application for summary judgment
against NewCogen, which was withdrawn but discussions between our respective
legal representatives are ongoing. If not settled, the dispute is to be referred
to arbitration later in the year, or early in 2012.
On 24 March 2011 the NewCogen plant was successfully restarted following another
capital increase of GBP1.0m in February, which was used to fund the working
capital required (principally the security required for the gas supply agreement
with Spring Lights) for commencement of operations. A new short term steam
supply contract has recently been agreed. Meanwhile, negotiations to put in
place a new long term steam agreement continue. We are also exploring
opportunities to increase the capacity at the Newcastle site through the
installation of gas engines and an upgrade of the existing electrical capacity.
This would assist us in maintaining the electricity output at contract levels
whilst operating at peak periods only when the higher electricity tariff is
paid.
The Turbines
A number of offers for the Turbines are under consideration. Although the
Marketing Agreement entered into in March 2010 terminated on 21 February 2011,
IPSA continues to work with both Standard Bank and TurboCare to ensure a timely
disposal of the Turbines with a view to paying off all of the Company`s
outstanding creditors after repayment of the GBP15.0 million loan plus GBP2.2m
of accrued but unpaid interest due to Standard Bank and approximately GBP14.8
million due to TurboCare for the refurbishment and storage of the Turbines. IPSA
intends to complete all payments as soon as receipt of proceeds of sale permit
with a view to leaving the Company debt free.
Other Projects
In spite of the lack of funds available to us to take significant steps towards
initiating new generation projects, the Directors have continued to maintain an
active interest in developing further generation capacity in southern Africa.
There are a number of potential opportunities arising, particularly in South
Africa, as the reserve margin narrows once more as a result of increased mining
and other energy intensive manufacturing activity. In addition, the South
African Government has announced its intention to ensure that 92% distribution
penetration (access to the electricity grid) is achieved by 2014, as well as
reducing emissions in the electricity generation sector and reducing its
reliance on coal in the generation mix.
Recent policy developments announced in South Africa indicate that 2011 will see
significant progress for independent power producers ("IPP`s"). A new ring-
fenced independent system and market operator ("ISMO") will be put in place
under the ISMO Bill to be promulgated this year. With the ISMO in place, a new
IPP procurement process is planned, to start in Q3 of 2011. Further
clarifications of the process are necessary but we continue to monitor the
situation.
IPSA will continue to review its development opportunities and intends to take
advantage of its position as the owner of South Africa`s first gas fired IPP
when the moment is right to expand from its existing base.
Peter Earl
Chief Executive
30 June 2011
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the 18 month period ended 31 March 2011
Notes 18 months 12 months
31/3/11 30/9/09
GBP`000 GBP`000
Revenue 5 801 1,039
Cost of sales 7 (2,671) (2,227)
Gross loss (1,870) (1,188)
Administrative 8 (1,876) (985)
expenses
Operating loss (3,746) (2,173)
Other income / 9 955 (1,792)
(expense)
Finance income 10 1 18
Finance expense 11 (2,448) (1,519)
Loss before tax (5,238) (5,466)
Tax expense 12 - -
Loss after tax (5,238) (5,466)
Other comprehensive
income
Exchange differences (492) (1,108)
on
translation of foreign
operation
Total comprehensive (5,730) (6,574)
loss
attributable to equity
shareholders
Loss per ordinary 14 (5.47p) (5.92p)
share
(basic, diluted and
headline)
The accompanying accounting policies and notes form an integral part of these
financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2011
Notes 31/3/11 30/9/09
GBP`000 GBP`000
Assets
Non-current assets
Intangible 15 - 666
Property, plant and 16 13,319 13,978
equipment
13,319 14,644
Current assets
Trade and other 19 2,966 2,380
receivables
Cash and cash 20 33 136
equivalents
2,999 2,516
Non-current assets 21 31,629 32,253
classified as assets
held for sale
Total assets 47,947 49,413
Equity and liabilities
Equity attributable to equity holders of the
parent:
Share capital 22 2,150 1,900
Share premium account 26,767 26,027
Foreign currency (2,054) (1,562)
reserve
Profit and loss (19,032) (13,794)
reserve
Total equity 7,831 12,571
Current liabilities
Trade and other 23 21,055 19,553
payables
Borrowings 24 19,061 17,289
40,116 36,842
Total equity and 47,947 49,413
liabilities
The financial statements were approved by the Board on 30 June 2011.
P R S Earl E R Shaw
Director Director
Company registration number: 5496202
The accompanying accounting policies and notes form an integral part of these
financial statements
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
at 31 March 2011
Notes 31/3/11 30/9/09
GBP`000 GBP`000
Assets
Non-current assets
Investments 17 500 500
Trade and other 18 22,310 19,833
receivables
22,810 20,333
Current assets
Trade and other 19 2,049 2,286
receivables
Cash and cash 20 17 20
equivalents
2,066 2,306
Non-current assets 21 31,629 32,253
classified as assets
held for sale
Total assets 56,505 54,892
Equity and
liabilities
Equity attributable to equity holders of the
parent:
Share capital 22 2,150 1,900
Share premium account 26,767 26,027
Profit and loss (7,470) (4,867)
reserve
Total equity 21,447 23,060
Current liabilities
Trade and other 23 16,342 14,559
payables
Borrowings 24 18,716 17,273
35,058 31,832
Total equity and 56,505 54,892
liabilities
The financial statements were approved by the Board on 30 June 2011.
P R S Earl E R Shaw
Director Director
Company registration number: 5496202
The accompanying accounting policies and notes form an integral part of these
financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
for the 18 month period ended 31 March 2011
18 months 12 months
31/3/11 30/9/09
GBP`000 GBP`000
Loss for the period (5,238) (5,466)
Add back net finance 2,447 1,501
expense
Adjustments for:
Depreciation 1,317 813
Impairment of intangible 666 84
asset
Translation and other (1,648) (4,296)
unrealised
exchange gains
Change in trade and (586) (925)
other receivables
Change in trade and 1,179 7,195
other payables
Cash used in operations (1,863) (1,094)
Interest paid (243) (81)
Net cash used in operations (2,106) (1,175)
Cash flows from investing
activities
Purchase of plant and (55) (30)
equipment
Deposit (non refundable) 624 -
on asset held for sale
569 (30)
Cash flow from financing
activities
Loan note issued 650 -
Other loans received 418 618
Other loans repaid (624) (550)
Issue of shares 1,000 870
Issue costs (10) (2)
1,434 936
Decrease in cash (103) (269)
and cash equivalents
Cash and cash equivalents 136 405
at start of period
Cash and cash equivalents 33 136
at end of period
The accompanying accounting policies and notes form an integral part of these
financial statements
COMPANY STATEMENT OF CASH FLOWS
for the 18 month period ended 31 March 2011
18 months 12 months
31/3/11 30/9/09
GBP`000 GBP`000
Loss for the period (2,603) (3,112)
Add back net finance 219 501
expense
Adjustments for:
Change in trade and 236 (1,631)
other receivables
Change in trade and 1,573 4,190
other payables
Cash used in operations (575) (52)
Interest (paid) / received (60) 16
Net cash used in operations (635) (36)
Cash flows from investing
activities
Loan to subsidiary (1,126) (1,234)
Deposit (non refundable) 624 -
on asset held for sale
(502) (1,234)
Cash flow from financing
activities
Loan note issued 650 -
Other loans received 118 624
Other loans repaid (624) (550)
Issue of shares 1,000 870
Issue costs (10) (2)
1,134 942
Decrease in cash (3) (328)
and cash equivalents
Cash and cash equivalents 20 348
at start of period
Cash and cash equivalents 17 20
at end of period
The accompanying accounting policies and notes form an integral part of these
financial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the 18 month period ended 31 March 2011
Share Share Foreign Profit and Total
capital premium currency loss equity
account reserve reserve
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
At 1.10.08 1,792 25,267 (454) (8,328) 18,277
Loss for the year - - - (5,466) (5,466)
Other - - (1,108) - (1,108)
comprehensive
income / (loss)
Total recognised - - (1,108) (5,466) (6,574)
expense
for the year
Issue of shares 108 762 - - 870
Share issue costs - (2) - - (2)
Total transactions 108 760 - - 868
with owners
At 30.9.10 1,900 26,027 (1,562) (13,794) 12,571
Loss for the - - - (5,238) (5,238)
period
Other - - (492) - (492)
comprehensive
income / (loss)
Total recognised - - (492) (5,238) (5,730)
expense
for the period
Issue of shares 250 750 - - 1,000
Share issue costs - (10) - - (10)
Total transactions 250 740 - - 990
with owners
At 31.3.11 2,150 26,767 (2,054) (19,032) 7,831
COMPANY STATEMENT OF CHANGES IN EQUITY
for the 18 month period ended 31 March 2011
Share Share Foreign Profit and Total
capital premium currency loss equity
account reserve reserve
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
At 1.10.08 1,792 25,267 - (1,755) 25,304
Loss for the year - - - (3,112) (3,112)
Total recognised - - - (3,112) (3,112)
expense
for the year
Issue of shares 108 762 - - 870
Share issue costs - (2) - - (2)
Total transactions 108 760 - - 868
with owners
At 30.9.10 1,900 26,027 - (4,867) 23,060
Loss for the - - - (2,603) (2,603)
period
Total recognised - - - (2,603) (2,603)
expense
for the period
Issue of shares 250 750 - - 1,000
Share issue costs - (10) - - (10)
Total transactions 250 740 - - 990
with owners
At 31.3.11 2,150 26,767 - (7,470) 21,447
The accompanying accounting policies and notes form an integral part of these
financial statements
Notes to the Financial Statements
for the 18 month period ended 31 March 2011
1 Principal activities and nature of operations
The principal activity of IPSA Group PLC and its subsidiaries (the "Group") 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 period under review, the Group`s operating activities included the
generation and sale of electricity by the Group`s gas fired plant in Newcastle,
Republic of South Africa. Due to continued delays in obtaining an electricity
generating contract from Eskom and securing gas supplies, electricity generation
was suspended in the prior period and re-commenced, initially under a temporary
licence during June, July and August 2010 before becoming fully operational
under a long term supply agreement on 24 March 2011.
The Company continued to seek suitable acquirers for the Turbines which were
originally acquired in early 2007 for the then proposed Industrial Development
Zone at Coega near Port Elizabeth, RSA. Due to the delays in this project
reported in prior periods, the Group decided that the shareholders` best
interests would be served by disposing of the Turbines. As a result of the
continuing weakness in the capital markets for project finance, the disposal
process has taken much longer than anticipated. A conditional contract for the
sale of one Turbine was exchanged in December 2009. This sale did not complete
though the Company received the benefit of the non-refundable deposit of $1.0m.
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. The address of IPSA Group PLC`s registered
office is given on the information page. 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).
3 Approval of financial statements
The consolidated financial statements for the period ended 31 March 2011 were
approved by the Board of Directors on 30 June 2011.
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 statement and the Chief Executive`s review, the
Company`s subsidiary in South Africa is now party to a Medium-Term Power
Purchase ("MTPPP") Agreement with Eskom and since 24 March 2011 has been
generating electricity and producing positive cash flow, before depreciation.
The Directors are in the process of negotiating a steam supply agreement which,
if agreed, will result in the plant operating profitably after depreciation.
Completion of the sale of the Turbines on the indicative terms proposed will
enable the Company to repay the borrowings from Standard Bank and other lenders,
settle the amounts owed to Turbocare under the refurbishment agreement and
provide sufficient working capital for the foreseeable future.
Following the sale of the Turbines, the Group`s only cash generating asset will
be its subsidiary in South Africa, until new projects are developed. The timing
of receiving repayments of the GBP22.0m funding provided by the Company for the
construction of the plant and future dividends from South Africa is dependent
upon concluding a steam off-take agreement, refinancing the plant and reaching a
satisfactory settlement of the GBP3.6m plus interest claim by Sasol under the
previous "take-or-pay" gas supply agreement, which was terminated by Sasol in
July 2009. The claim is being disputed by the Directors and it is expected that
the matter will be referred to arbitration later this year or early in 2012.
Accordingly, until the sale of the Turbines is completed, there remains a
material degree of uncertainty regarding the Company and the Group`s ability to
continue as a going concern.
The Directors have concluded that the combination of these circumstances
represent a material uncertainty that casts significant doubt upon the company`s
ability to continue as a going concern. Nevertheless the Directors do consider
that there is a reasonable expectation that the sale will complete on the terms
proposed and that third party funding will be available to finance the plant in
South Africa. The Directors have considered the uncertainties described above
and they have a reasonable expectation that the Group and Parent Company have
adequate resources to continue in operational existence for the foreseeable
future. For these reasons, they continue to adopt the going concern basis in
preparing the annual report and accounts.
4.3 Basis of consolidation
The Group financial statements consolidate those of the Company and its
subsidiary undertakings drawn up to 31 March 2011.
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. 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.
The 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 (or 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 period ended 31 March 2011 the Group`s revenue comprised the sale of
electricity, initially under a temporary licence granted during June to August
2010 and, from 24 March 2011, under the MTPPP Agreement with Eskom.
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
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 Non-current assets classified as held for sale
Assets are categorised as non-current assets classified as held for sale when
the Directors intend that the asset be sold rather than employed as an operating
asset. Non-current assets classified as held for sale are valued at the 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; and
- "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 measured initially at fair value plus
transaction costs and thereafter at amortised costs.
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 areas of significant risk
which may cause material adjustment to the carrying value of assets and
liabilities within the next financial year are in respect of:
the value of the power plant in NewCogen, where recoverable, has been assessed
on a value in use basis amount based on the assumptions that a) the MTPPP
contract with Eskom will continue for the foreseeable future and b) a discount
rate of 13%, no impairment to these assets has occurred. (The value in use
calculation shows a recoverable amount exceeding carrying value by GBP2.2m. The
discount rate would need to increase to 15% before the carrying value was less
that the recoverable amount); and
the value of non-current assets classified as held for sale where it has been
assumed that the contracts in prospect will complete at not less than their
carrying value; and
the going concern basis for the preparation of these financial statements,
further details of which are set out in note 4.2.
4.20 Accounting standards and interpretations not yet applied
The Group has adopted the following new interpretations, revisions and
amendments to IFRSs issued by the International Accounting Standards Board,
which are relevant to and effective for the Group`s financial statements for
accounting periods beginning 1 October 2009:
- IAS 1 Presentation of Financial Statements (Revised 2007);
- Amendment to IFRS 7 Financial Instruments: Disclosures - improved
disclosures about financial instruments; and
- IFRS 8 Operating Segments.
The adoption of IAS 1 Presentation of Financial Statements (Revised 2007)
requires, in some circumstances, presentation of a comparative balance sheet at
the beginning of the first comparative period. Management considers that this is
not required in these financial statements as the 30 September 2009 consolidated
statement of financial position is the same as that previously published.
The following new standards, amendments and interpretations are effective for
the first time in these financial statements but none have had a material effect
on the Group:
- IAS27 (revised) Consolidated Financial Statements;
- Amendment to IAS 39 Financial Instruments: Recognition and Measurement:
Eligible Hedged Items;
- IFRIC 17 Distributions of Non-cash Assets to Owners;
- Revised IFRS 1 First-time Adoption of international Financial Reporting
Standards;
- IFRIC 18 Transfer of Assets from Customers;
- Improvements to IFRSs (2009);
- Group Cash-settled Share-based Payment Transactions (Amendments to IFRS 2);
and
- Additional Exemptions for First-time Adopters (Amendments to IFRS 1).
New standards and interpretations currently in issue but not effective for
accounting periods commencing on 1 October 2009 are:
- IFRS 9 Financial Instruments (effective 1 January 2013);
- IAS 24 (Revised 2009) Related Party Disclosures (effective 1 January 2011);
- Amendment to IAS 32 Classification of Rights Issues (effective 1 February
2010);
- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
(effective 1 July 2010);
- Prepayments of a Minimum Funding Requirement - Amendments to IFRIC 14
(effective 1 January 2011);
- Improvements to IFRS issued May 2010 (some changes effective 1 July 2010,
others effective 1 January 2011);
- Disclosures - Transfers of Financial Assets - Amendments to IFRS 7
(effective 1 July 2011); and
- Deferred Tax: Recovery of Underlying Assets - Amendments to IAS 12 Income
Taxes* (effective 1 January 2012).
The Directors do not anticipate that the adoption of these standards and
interpretations in future periods will have any material impact on the financial
statements of the Group.
5 Segment analysis
The Group has adopted IFRS 8 `Operating Segments` with effect from 1 October
2009. IFRS 8 requires operating segments to be identified on the basis of
internal reports that are regularly reviewed by the Board.
Management currently identifies two geographic operating segments, being
operations is RSA (comprising the business of generating electricity and steam)
and the head office in the UK. These operating segments are monitored and
strategic decisions are made on the basis of segment operating results.
The following table provides a segmental analysis.
Period ended RSA UK Inter- Total
31.3.11 group
GBP`000 GBP`000 GBP`000 GBP`000
Revenue 801 - - 801
Cost of sales (2,671) - - (2,671)
Gross loss (1,870) - - (1,870)
Administrative (336) (1,540) - (1,876)
expenses
Other income / 1,800 (845) - 955
(expense)
Finance expense (879) (218) (1,350) (2,447)
Loss for the (1,285) (2,603) (1,350) (5,238)
period
Total assets 14,573 50,195 (16,821) 47,947
Total 21,856 35,081 (16,821) 40,116
liabilities
Year ended RSA UK Inter- Total
30.9.09 group
GBP`000 GBP`000 GBP`000 GBP`000
Revenue 1,039 - - 1,039
Cost of sales (2,227) - - (2,227)
Gross loss (1,188) - - (1,188)
Administrative (563) (422) - (985)
expenses
Other income / 396 (2,188) - (1,792)
(expense)
Finance expense (99) (502) (900) (1,501)
Loss for the (1,454) (3,112) (900) (5,466)
period
Total assets 14,918 50,190 (15,695) 49,413
Total 20,705 31,832 (15,695) 36,842
liabilities
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.
i) 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 sterling 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
loan is affected by movements in the value of the ZAR versus sterling.
In 2007 the Parent Company acquired the Turbines from an Italian manufacturer.
The cost of the refurbishment, storage and interest charges is denominated in
euro and the sterling liability outstanding during the period and at the period
end is therefore affected by movements in the exchange rate between sterling and
euro.
The exchange rates applicable to the results for the current period and prior
year were as follows:
Period to Year to
31.3.11 30.9.09
Closing rate
ZAR to GBP 10.95 11.8300
Euro to GBP 1.14 1.09
Average rate
ZAR to GBP 11.42 14.00
Euro to GBP 1.15 1.15
The Group`s exposure to foreign 31.3.11 30.9.09
currency risk is as follows
ZAR
Net assets of non- GBP9.5m GBP9.9m
Sterling
functional
currency entities
Euro
Monetary GBP14.8m GBP14.0m
liabilities not
held
in entities`
functional
currency
A 10% change in
the value of
Sterling on loss
for the period
ZAR GBP1.4m GBP1.2m
Euro GBP1.3m GBP1.2m
A 10% change in
the value of
Sterling on net
equity
ZAR GBP0.8m GBP1.1m
Euro GBP1.3m GBP1.3m
ii) Sensitivity to price changes in electricity sold and gas purchased
The results of the Group are affected by the price that electricity is sold at
and by the price paid for the gas which is used by the turbines.
If the price of electricity sold during the period had been 10% higher or lower,
the loss for the period would have been GBP80k (2009 - GBP104k) lower or higher.
If the price paid for gas used during the period had been 10% higher or lower,
the loss for the period would have been GBP63k (2009 - GBP118k) higher or lower.
iii) Sensitivity to interest rates
The majority of the Group`s funding has been provided by share capital. In 2008,
the Group agreed a GBP15.0m floating rate bank loan to assist in the funding of
the Turbines. If the interest rate on the loan had been 10% higher or lower
during the period, the effect on the finance expense for the period would have
been to increase or decrease the finance expense by GBP124k (2009 - GBP100k).
The Group has other short term loans. A 10% change in the interest rate applied
to these loans would have changed the interest expense for the period by GBP12k
(2009 - GBP8k).
7 Cost of sales Period Year ended
ended
31.03.11 30.09.09
GBP`000 GBP`000
Gas 634 1,179
Depreciation 1,238 673
Other 799 375
2,671 2,227
8 Administrative expenses Period Year ended
ended
31.03.11 30.09.09
GBP`000 GBP`000
Payroll and social security 1,113 401
Other administrative expenses 716 540
Audit fees 47 44
1,876 985
Audit fees comprise GBP31k (2009 - GBP33k) paid to the Company`s auditors and
GBP16k (2009 - GBP11k) paid to the auditors in respect of the audit of
subsidiary companies.
9 Other income / expense Period Year ended
ended
31.03.11 30.09.09
GBP`000 GBP`000
Storage and insurance charges1 (1,267) (762)
Adjustment on gas "take-or-pay" 1,240 (2,968)
contract2
Foreign currency gains on inter- 1,226 3,352
group loans3
Other foreign currency gains / 422 (1,414)
(losses)4
Impairment charge5 (666) -
955 (1,792)
1 These costs relate to storage and insurance of the Turbines.
2 In prior periods, the plant in Newcastle was unable to supply electricity due
to the absence of an electricity offtake agreement with the result that the gas
purchased for the plant was less than the minimum offtake level required under
the "take-or-pay" contract. At 30 September 2009 an accrual was made in respect
of the shortfall in that year. The adjustment at 31 March 2011 represents a
reduction in the accrual following a review of the accrual.
3 The Company`s loan to NewCogen is a sterling denominated loan. The gain arises
as a result of the strengthening of the ZAR versus sterling.
4 Exchange gains and losses arise on the euro liability to Turbocare. At 31
March 2011, sterling had strengthened (2009 - weakened) against the euro giving
rise to an exchange gain (2009 - loss).
5 Following the cessation of steam generation in 2009, the steam supply contract
was terminated and accordingly the carrying value of the contract has been
impaired to nil - see also note 15.
10 Finance income Period Year ended
ended
31.03.11 30.09.09
GBP`000 GBP`000
Interest received on bank deposits 1 18
11 Finance expense Period Year ended
ended
31.03.11 30.09.09
GBP`000 GBP`000
Bank interest 1,242 997
Loan note interest 41 -
Other loans interest 113 82
Other interest 1,052 440
2,448 1,519
Bank interest comprises interest of the Standard Bank loan of GBP15.0m (see also
note 24).
Loan note interest comprises interest of the GBP650k loan note (see also note
24).
Other loans interest comprises interest on other loans (see also note 24).
Other interest represents an accrual for interest payable on the overdue sum due
to Turbocare and an accrual for interest which may become payable to Sasol in
the event that settlement or the arbitration proceedings result in full payment
to Sasol of the amounts claimed.
12 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:
Period Year ended
ended
31.03.11 30.09.09
GBP`000 GBP`000
Loss for the year before tax 5,238 5,446
Expected tax credit based on 1,467 1,525
standard rate of UK corporation tax
of 28%
Tax losses carried forward 1,467 1,525
No deferred tax asset has been recognised owing to uncertainty as to the timing
and utilisation of the tax losses. In the event that a deferred tax asset was
recognised at the balance sheet date, it is estimated that the value of the
deferred tax asset would be GBP5.3m (2009 - GBP3.9m) in respect of the Group and
GBP2.1m (2009 - GBP1.4m) in respect of the Company.
13 Loss attributable to the parent company
The loss attributable to the Parent Company, IPSA Group PLC, was GBP2.6m (2009 -
GBP3.1m loss). As permitted by Section 408 of the Companies Act 2006, no
separate profit and loss account is presented in respect of the Parent Company.
The Parent Company loss in the period to 31 March 2011 includes exchange gains
of GBP0.4m (2009 exchange loss - GBP1.4m).
14 Loss per share
The loss per share is calculated by dividing the loss for the year attributable
to shareholders by the weighted average number of shares in issue during the
period / year.
Period Year ended
ended
31.03.11 30.09.09
Loss attributable to equity holders GBP5.2m GBP5.5m
of the Company
Average number of shares in issue 95.8m 92.3m
Basic, diluted and headline loss 5.47p 5.92p
per share
There is no difference between the basic and diluted loss per share as the 6.8m
warrants outstanding during the period were exercisable at a price either at or
above the share price of the Company and therefore had no dilution effect.
15 Intangible assets 31.03.11 30.09.09
GBP`000 GBP`000
Net book value at beginning of 666 750
period / year
Amortisation during the year - (84)
Adjustment following impairment (666) -
review
Net book value at end of period / - 666
year
The intangible asset represented the Directors` estimate of the fair value of a
contract, owned by NewCogen at the date of acquisition, to supply steam from the
electricity generating plant. As a result of the termination of the contract
following cessation of the supply of steam, the Directors have written-off the
asset.
16 Plant and equipment 31.03.11 30.09.09
GBP`000 GBP`000
Cost
At beginning of period / year 15,312 11,988
Addition in period / year 55 30
Disposal (510) -
Exchange adjustment 1,218 3,294
At end of period / year 16,075 15,312
Depreciation
At beginning of period / year 1,334 414
Charge for the period / year 1,317 813
Exchange adjustment 105 107
At end of period / year 2,756 1,334
Net book value at start of period / 13,978 11,574
year
Net book value at end of period / 13,319 13,978
year
Property, plant and equipment has been valued at cost. It represents the 18 MW
plant in NewCogen.
17 Investments 31.03.11 30.09.09
GBP`000 GBP`000
Investment in subsidiary companies 500 500
i) Investment in Blazeway Engineering Ltd
The Company owns 100% of the issued share capital of Blazeway Engineering Ltd (a
company incorporated in England and Wales, company number 5356014). The
investment has been valued at cost. Blazeway Engineering Ltd owns 100% of
Newcastle Cogeneration (Pty.) Ltd (a company incorporated in the RSA).
ii) Investment in Elitheni Clean Coal Holdings Ltd
The Company owns 100% of the issued share capital of Elitheni Clean Coal
Holdings Ltd ("ECCH"), a company incorporated under the British Virgin Islands
Companies Act 2004 (company number 1437070). ECCH owns 100% of the issued share
capital of Indwe Power (Pty.) Ltd ("IPPL"), a company incorporated in RSA. ECCH
was incorporated as a vehicle to acquire land which, subject to planning
approvals, was intended as a potential site for the construction of a coal fired
generating plant to be owned by IPPL. During the period, the company acquired an
option over suitable land at a cost, including fees, of GBP133k. However, the
Directors decided to allow the option to lapse following the decision to
terminate the coal supply agreement between IPPL and Strategic Natural Resources
PLC. The cost of acquiring the option has been written-off.
18 Trade and other receivables due 31.03.11 30.09.09
in
more than 1 year GBP`000 GBP`000
a) Group - -
b) Company
Amount due from subsidiary 22,310 19,833
Imputed interest at the rate of 3 month LIBOR plus 1.5%, amounting to GBP1.4m,
has been added to the loan during the period (2009 - GBP900k). ZAR 30m / GBP2.7m
of the loan has been subordinated in favour of other creditors of NewCogen.
19 Trade and other receivables due 31.03.11 30.09.09
in
less than 1 year GBP`000 GBP`000
a) Group
Trade receivables 112 75
Gas deposit1 685 -
Vat receivable2 2,040 2,126
Other receivables and prepayments 129 179
2,966 2,380
b) Company
Trade receivable - 75
Vat receivable2 2,040 2,126
Other receivables and prepayments 9 85
2,049 2,380
1 This comprises a non interest bearing deposit on ZAR 7.5m which has been paid
to NewCogen`s gas supplier as collateral against amounts owing in respect of gas
supplied.
2 Vat receivable represent amounts of Vat charged by Turbocare for the
refurbishment and storage of the Turbines. In the opinion of the Directors,
supported by independent advice, Vat is not due on the refurbishment or storage
costs since the supply relates to work done on equipment which will be exported.
The Directors are in discussion with Turbocare to seek their agreement that Vat
should not have been charged in which case this amount will be reduced from the
liability owing to Turbocare which is set out in note 23.
All trade and other receivables are unsecured and are not past their due dates.
In the opinion of the Directors, the fair values of receivables are not
materially different to the carrying values shown above.
20 Cash and cash equivalents 31.03.11 30.09.09
GBP`000 GBP`000
a) Group
Cash at bank and in hand 33 38
Short term bank deposits - 98
33 136
b) Company
Cash at bank and in hand 17 20
21 Assets held for sale 31.03.11 30.09.09
GBP`000 GBP`000
4 Siemens Gas Turbines 31,629 32,253
These assets comprise the 4 Turbines which were acquired in 2007 for the Coega
project at a cost of GBP21.8m. During 2008, the manufacturer refurbished the
Turbines at a cost of GBP9.8m and GBP0.6m was added to the cost in respect of
interest on a GBP15.0m bank loan which was used to partly finance their purchase
and is secured by a first charge on the assets. Following the completion of
their refurbishment and the delay in the timetable for the Coega project, it was
decided in 2008 to sell the Turbines and since then the asset has been
reclassified as `assets held for sale`.
The Directors consider, on the basis of the contracts in prospect, 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.
22 Share capital 31.03.11 30.09.09
GBP`000 GBP`000
a) Authorised
150,000,000 ordinary shares of 2p 3,000 3,000
each
b) Fully paid
107,504,018 ordinary shares of 2p 2,150 1,900
each
(2009 - 95,004,081)
c) Movement Number GBP`000
At 1 October 2008 95,004,081 1,900
At 30 September 2009 95,004,081 1,900
Allotment in February 2011 12,500,000 250
At 31 March 2011 107,504,081 2,150
The shares allotted in February 2011 were issued at 8p per share for cash. The
premium, net of GBP10k of expenses has been credited to the share premium
account.
At the period end, a total of 6.8m warrants were outstanding, exercisable as
follows - 6.5m between the repayment date of the GBP650k loan note (see note 24
below) and 30 months thereafter at 8p per share and 300k at any time before 16
June 2012 at 15p per share.
23 Trade and other payables 31.03.11 30.09.09
GBP`000 GBP`000
a) Group
Trade payables1and 2 20,008 18,922
Other payables3 1,047 631
21,055 19,553
b) Company
Trade payables1and 2 15,401 14,493
Other payables 941 66
16,342 14,559
Trade payables include:
1 An amount of Euro16.8m / GBP14.8m (2009 - Euro15.3m / GBP14.0m) owing to
Turbocare in respect of the refurbishment work (which was completed in 2008 on
the Turbines originally acquired for the Coega project) plus storage charges and
interest (calculated at 1 month EURIBOR plus 1% per annum on the amount
outstanding). Included within the Euro16.8m is an amount of Euro2.3m of Vat (see
note 192 above) which the Directors do not regard as being due. Euro12.0m
(Euro10.0m excluding Vat) of the Euro16.8m balance is not due until a sale of
the Turbines is completed. The remaining Euro4.8m (less Vat) is overdue
following the termination of a formal standstill agreement originally entered
into in March 2010.
2 An amount of ZAR 39.6m / GBP3.6m plus an accrual of ZAR 7.6m / GBP0.7m for
interest in respect of amounts currently claimed by Sasol under the now
terminated "take-or-pay" agreement. The Directors have instructed solicitors to
contest the claim and it is expected that the matter will be settled or referred
to arbitration either later this year or in early 2012. Although the Directors
believe that the claim will be settled at an amount below that claimed, they
consider that it is appropriate to provide for the sums claimed in full until
the matter is either settled between the parties or by an arbitrator.
3 Other payables includes an accrual for Directors` remuneration (GBP630k) and
salaries (GBP121k) accrued but unpaid in respect of remuneration due to the
Directors and one employee - see also note 29.
24 Borrowings 31.03.11 30.09.09
GBP`000 GBP`000
a) Group
Bank loan1 15,000 15,000
Overdue interest on bank loan1 2,239 997
Loan note2 650 -
Overdue interest on loan note2 41 -
Other loans including accrued 1,131 1,292
interest3
19,061 17,289
b) Company
Bank loan1 15,000 15,000
Overdue interest on bank loan1 2,239 997
Loan note2 650 -
Overdue interest on loan note2 41 -
Other loans including accrued 786 1,276
interest3
18,716 17,273
1 The bank loan comprises a fully drawn facility of GBP15.0m which was
originally repayable on 30 September 2009. Interest is calculated on 3 month
LIBOR plus a margin of 2.25% and a default margin of 2%. The interest rate
applicable at 31 March 2011 was 4.5% (2009 - 4.85%). Interest charged during the
year amounted to GBP1.2m (2009 - GBP1.0m). The loan is secured by a first charge
on the Turbines. The repayment date was formally extended in March 2010
following a standstill agreement. This agreement ended in February 2011 and the
loan is now in default and repayable on demand.
2 The loan note was issued in March 2010. Interest is payable at 6% per annum.
The original repayment date of the loan note has been extended to 31 July 2011.
Holders of the loan notes are entitled to subscribe for a total of 6.5m ordinary
shares at a price of 8p per share or such lower price at which any future
ordinary shares are issued prior to exercise.
3 Other loans, plus accrued interest comprise:
Group Company Group Company
31.3.11 31.3.11 30.9.09 30.9.09
GBP`000 GBP`000 GBP`000 GBP`000
Loan 1 319 319 350 350
Loan 2 261 244 812 796
Loan 3 135 135 130 130
Loan 4 88 88 - -
Loan 5 328 - - -
Total 1,131 786 1,292 1,276
These other loans are due for repayment by 31 July 2011 and carry interest at
between 0.75% and 12 %.
All borrowings are denominated in sterling.
25 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`s principal trading operations are based in South Africa and as a
result the Group has exposure to currency exchange rate fluctuations in the ZAR
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 attempts to anticipate 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. Given the delays experienced in projects
to date and the extended time taken to secure a buyer for the Company`s
Turbines, the Company has necessarily obtained extensions to credit facilities.
As set out in note 4.2, the Directors anticipate that the proceeds from the sale
of the Turbines will provide the Group and the Company with sufficient working
capital for the foreseeable future but until that time, the Group and the
Company will be dependent upon its creditors continuing to grant extended terms.
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:
Group Group Group Company Company Company
Fair Loans and Amortised Fair Loans and Amortised
value value
through receivables cost through receivables cost
profit profit
and and
loss loss
31.3.2011 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
Trade and - - - - 22,310 -
other
receivables
> 1 year
Trade and - 797 - - - -
other
receivables
< 1 year
Cash and - 33 - - 17 -
cash
equivalents
Trade and - (21,055) - - (16,342)
other
payables
Borrowings - - (19.061) - - (18,716)
- 830 (40,116) - 22,327 (35,058)
Group Group Group Company Company Company
Fair Loans and Amortised Fair Loans and Amortised
value value
through receivables cost through receivables cost
profit profit
and and
loss loss
30.09.2009 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
Trade and - - - - 19,833 -
other
receivables
> 1 year
Trade and - 75 - - 75 -
other
receivables
< 1 year
Cash and - 136 - - 20 -
cash
equivalents
Trade and - - (19,553) - - (14,559)
other
payables
Borrowings - - (17,289) - - (17,273)
- 211 (36,842) - 19,928 (31,832)
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.
26 Capital commitments
There were no outstanding capital commitments at the year end.
27 Contingent liabilities
In July 2006, NewCogen entered into a contract with Sasol Gas for the supply of
gas. The contract provided for minimum off-take requirements under the "take-or-
pay" agreement during the first 5 years of the contract. In July 2009, the
supplier terminated the contact due to non-performance under the payment terms
of the contract, following the decision to temporarily cease power generation at
the plant owing to the delays by the authorities in South Africa in granting a
power purchase agreement. The Directors of NewCogen are in discussions with
Sasol Gas concerning possible claims for non-performance under the "take-or-pay"
terms. The maximum potential claim amounts to ZAR 115.5m / GBP9.4m. As set out
in note 23, the Directors have provided for GBP3.6m plus interest, being the sum
potentially due up to the date of the termination of the contract but have not
provided for sums which may be claimed beyond termination as they have been
advised by their lawyers that any claim for such periods is unlikely to be
successful.
As a result of NewCogen ceasing steam production in February 2009, NewCogen`s
steam customers have indicated that they may make a claim against NewCogen for
additional costs of working, based on their costs of procuring replacement
steam. To date, no claim has been lodged and the Directors of NewCogen are of
the opinion that no liability exists.
28 Related party transactions
Material transactions with related parties during the year were as follows:
(i) Charge to the Company of GBP90k by Independent Power Corporation PLC
("IPC") under a "Shared Services Agreement" for the provision of offices
and other administrative services. P Earl, E Shaw and P Metcalf are
Directors of IPC. A sum of GBP191k was owing to IPC at 31 March 2011 (2009
- GBP115k).
(ii) Short term loan from IPC amounting to GBP261k, including accrued interest,
at 31 March 2011 (2009 - GBP812k). Interest on the loan, which is being
charged at 8%, amounted to GBP41k (2009 - GBP57k). During the period, IPC
advanced GBP52k of new loans and GBP624k of loans were repaid (see v
below). The loan is repayable on 31 July 2011.
(iii)Short term loan from Secteur Holdings Ltd amounting to GBP319k, including
accrued interest, at 31 March 2011 (2009 - GBP350k). Interest on the loan, which
is being charged at 6%, amounted to GBP25k (2009 - GBP21k). GBP56k of the loan
was repaid during the period. The loan is repayable on 31 July 2011. Mrs E Earl,
P Earl`s former wife, is a Director of Secteur Holdings Ltd.
(iv) An accrual for Group salaries (short term employee benefits) payable to key
management totalling GBP860k (2009 - GBP60k).
Received a non-refundable deposit of US$ 1.0m / GBP624k from a subsidiary of IPC
in connection with a proposed sale of one Turbine. The deposit was set off
against amounts owing to IPC.
Short term loan of GBP300k from Sterling Trust Limited to NewCogen.
Transactions between the Company and NewCogen included:
i) Increase in unsecured loans by the Company to NewCogen of GBP2.5m (2009 -
GBP1.2m).
ii) This increase included interest imputed but not yet charged to NewCogen of
GBP1.4m (2009 - GBP900k).
29 Directors and employee costs Period Year ended
ended
31.03.11 30.09.09
GBP`000 GBP`000
Aggregate remuneration of all
employees and
Directors, including national 659 401
insurance
The remuneration of Directors who served during the year was:
Salary Salary Fees Fees Total Total
2011 2009 2011 2009 2011 2009
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
R - n/a 38 n/a 38 n/a
Linnell
N Bryson - - 44 19 44 19
M Cox 80 - - - 80 -
P Earl 140 - - - 140 -
J Eyre 131 9 - - 131 9
P - n/a 3 n/a 3 n/a
Metcalf
R - - 61 - 61 -
Sampson
E Shaw 131 9 - - 131 9
S 75 - - - 75 -
Hargrave
J West 5 - 21 17 26 17
562 18 167 36 729 54
With the exception of the 2009 salary figures, all of the above salaries and
fees were unpaid at the year end. It is intended that these unpaid salaries and
fees be paid when there are sufficient cash resources available.
The average number of employees in the Group, including Directors, was 22 (2009
- 21).
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, Execution Noble & Company Ltd
Harry Stockdale (Nominated Adviser and Broker) +44 (0)20 7456 9191
Riaan van Heerden, PSG Capital (Pty.) Limited, (South African Sponsors) +27 21
887 9602
Or visit IPSA`s website: www.ipsagroup.co.uk
London
Date: 01/07/2011 09:17:01 Supplied by www.sharenet.co.za
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