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Audited Results for the year ended 31 March 2014
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”, the “Group” or the “Company”)
12 September 2014
Audited Results for the year ended 31 March 2014
IPSA, the AIM and AltX listed independent power plant developer with operations in southern Africa,
today announces its audited results for the year ended 31 March 2014.
Highlights:
- Revenue of £3.7 million (year to 31 March 2013 - £4.3 million)
- Group profit after tax of £0.4 million (year to 31 March 2013 - £1.9 loss)
- Plant gross loss of £1.0 million (year to 31 March 2013 - £1.0 million loss)
- Plant operating loss £1.5 million (year to 31 March 2013 - £1.7 million loss)
During the year, the remaining two turbines were sold for £16.1 million, including deferred
consideration of £3.2 million, which is expected to be received before the end of the calendar year.
This sale generated a book profit of £3.2 million and enabled the Company to repay the majority of
its borrowings. The Board is now focused fully on developing a strategy of future growth and
expansion of power generation in southern Africa.
Commenting, Richard Linnell, Chairman of IPSA, said:
“It was with considerable relief that I was able to report in June that the final two turbines had been
sold. The debt and costs associated with these turbines have been a significant drain on shareholder
value and with the Group’s borrowings and creditors now substantially repaid, the Board can
concentrate on its core business of developing profitable power generation operations in southern
Africa.”
The Group’s financial statements have been posted to shareholders on 11 September and are now available
on the Company’s website at www.ipsafroup.co.uk together with the notice for the Company’s AGM, which will
be held at 10.30am on 3 October 2014 at the Company’s offices, 17th Floor, Millbank Tower, 21-24 Millbank,
London SW1 4QP.
For further information contact:
Phil Metcalf, CEO, IPSA Group PLC +44 (0)20 7793 7676
Elizabeth Shaw, Finance Director, IPSA Group PLC +44 (0)20 7793 7676
James Joyce and Nick Field, WH Ireland Ltd (Nominated Adviser and Broker) +44 (0)20 7220 1666
Riaan van Heerden, PSG Capital (Pty) Limited, (South African Sponsors) +27 11 797 8400
Or visit IPSA's website: www.ipsagroup.co.uk
STRATEGIC REPORT - CHAIRMAN'S STATEMENT
Dear Shareholder
I am pleased to present to the shareholders of IPSA Group PLC (the “Group”) the Report and
Accounts for the year ended 31 March 2014.
In operating terms the Group has performed satisfactorily. The Company successfully disposed of
the remaining two Siemens Westinghouse 701DU turbines (the “Turbines”) during the financial year
under review, and our operating assets in South Africa had a consistent year of operation.
Immediately prior to the year-end we increased installed capacity by 1.4 MW, by successfully
commissioning a Deutz gas engine. We are planning on installing a further 3.8 MW prior to the end
of this financial year. In spite of the commitment to increasing plant efficiency demonstrated by
this latter increase in capacity, we are required under the accounting rules to recognise an
impairment of the generating assets at the year end of £0.8m. In addition, we have recognised an
impairment in the loans to our operating subsidiary of £1.7m in view of the delays in it achieving
profitability and the development status of further planned expansion. I draw your attention to the
qualified opinion of the auditor in respect of the valuation of the generating assets arising from a
difference in the view of the appropriate rate to use in discounting the cashflows for the impairment
review. The table in note 14 provides further information regarding the impact of various discount
rates on the value of the assets.
Strategy
The Group strategy is to seek small to medium-sized generation opportunities in southern Africa.
Having built and commissioned one of the first IPPs in South Africa, we are now looking to expand
generating capacity there to leverage our established relationships allowing us to maintain and
increase our earnings capacity on the site.
Having completed the sale of the Gas Turbines this year, we plan to initiate development
opportunities in the wider remit in order to grow the Group.
Group Results
Although Group turnover is lower at £3.7 million is (2013: £4.3 million), the Group recorded a
slight deterioration in its gross margin (2014: loss of £957k; 2013 loss of £920k). The operating
loss increased from £1.95 million last year to a loss of £2.35 million in the current year.
As in in previous years, there were again a number of one-off items, including £3.2 million profit on
the sale of 2 turbines less costs associated with the turbines of £358k (2013:- £410k), and minor
gains on share sales and foreign exchange amounting to £76k in total (2013 loss of £459k), plus
the £0.75 million impairment of the generating plant (2013: £1.0 million).
The net finance expense declined from £0.5 million to £0.2 million as a result of reduced
indebtedness following the disposal of the Turbines in the first half of the year.
The carrying value of the remaining ancillary equipment continues to be no less than £4.0 million,
the original cost.
As reported in last year’s annual report, the remaining two Turbines were sold in June 2013 to
Rurelec PLC. The balance of the purchase price (now £3.2 million) is due to be paid before June
2015. The amount owed to Turbocare SpA is currently under dispute, but has been fully provided in
the accounts at £4.4 million.
Newcastle Cogeneration (Pty.) Limited (“NewCogen”)
The plant recorded an overall loss for the year of £1.6 million (2013: £2.1 million) after reporting a
£0.75 million impairment and lower foreign currency losses as a result of the reorganisation of
NewCogen’s finances and the conversion of approximately £14.3 million of its debt into ZAR. Given
the accumulated losses in NewCogen, it is our intention to convert this debt into equity to improve
NewCogen’s reserves.
Excluding depreciation and impairment, the plant recorded a gross profit of £0.4 million (2013:
gross profit £0.70 million) and an operating loss, excluding depreciation and the impairment
charge, of £0.14 million (2013: £0.03 million loss). In local currency, turnover was ZAR 59.6 million
(2013: ZAR 58.1 million), gross profit before depreciation and the impairment charge was ZAR 5.7
million (2013: ZAR 9.4 million) and the operating loss, excluding depreciation and the impairment
charge, was ZAR 3.2 million (2013 ZAR 0.8 million).
Outlook
In addition to the expansion activities we are undertaking in Newcastle, we hope to close the time
consuming dispute we have with Iris and come to a settlement agreement with TurboCare during
this financial year. We have been fortunate in having the support of both present and past
directors, who have patiently worked to sell the turbines and keep our NewCogen plant operating.
The sale of the balance of plant will allow us to settle with these final long standing creditors and
provide a small development budget for new projects.
The addition of efficient gas engines to augment capacity at Newcastle is also designed to
counterbalance the fall in the tariff during this financial year. We are working to replace the current
Eskom power purchase agreement with one at a similar rate to the previous year’s tariff. Short to
medium generating capacity is forecast to remain constrained as reserve margins are falling
Finally, I would like to thank the three directors who stepped down during the year for their
valuable contributions to the running of the company.
Richard Linnell
Chairman
11 September 2014
STRATEGIC REPORT - CHIEF EXECUTIVE'S REVIEW OF OPERATIONS
NEWCOGEN
In the past year we have seen reliable operations at the Newcastle Cogeneration power plant, with
availability of over 95 per cent. We have also implemented the first of our expansion projects
following the successful disposal of the turbines purchased for the now defunct project at the
COEGA Development Zone.
Over the year of operation ended March 2014, NewCogen generated 46,377 MWh of electricity
(2013: 46,277 MWh), predominantly during peak hours on a two shifting basis. The plant also
delivered just under 57,800 tonnes of steam (2013: 68,700 tonnes), the reduction arising from a
fall in demand from the offtakers. Electricity was delivered to Eskom under the MTPPP contract,
which remains in place until March 2015. Steam was delivered to Karbochem and Lanxess under ad
hoc arrangements in the absence of firm long term contracts.
We continue to enjoy excellent relationships with Eskom, the local Newcastle Municipality and our
gas supplier, Spring Lights Gas (Pty) Limited (“Spring Lights”). During the year we consumed
approximately just over 740,000 GJ (2013:683,000 GJ) of gas a, little over our minimum Take of
Pay obligation of 700,000 GJ.
Electricity prices are adjusted annually under the MTPPP contract. In April 2014, the price was
increased by 9.8 per cent., in line with the December 2013 inflation figures adjusted for the ZAR50
reduction in the base price in accordance with the contract terms (2013: 9.8 per cent.). Gas prices
are adjusted in April and October, based on a combination of South African inflation figures and the
price of Brent Crude in ZAR. In April we saw an increase of 4 per cent, and in October, it was 3.6
per cent. Future projections for gas price increases are currently forecast to be less than the
increase we are anticipating in the electricity prices over the next year, but margins are susceptible
to oil price and foreign exchange movements.
As reported last year, we saw reduced revenues over a six week period as the second gas turbine
went through a shut down for a major overhaul.
In November 2013 we announced the acquisition of two 616 GE Jenbacher gas engines, which we
hope to install before the end of this financial year. We continue to explore further opportunities to
increase capacity at the Newcastle site.
With the MTPPP PPA ending in March 2015, we have commenced discussions with Eskom and other
prospective power purchasers for a new contract for our increased output. Although the end of the
contract is fast approaching the Directors expect to put a contract in place ahead of the expiry date.
NewCogen takes the safety of its employees seriously and I am very pleased to report that there
have been zero incidences or Lost Time Accidents in the past year.
BUSINESS REVIEW
In November 2005 the Company acquired the 18 MW cogeneration plant located at Bury, East
Lancashire and commenced the necessary work to dismantle and ship the equipment to South
Africa. Construction completed in 2007 and the plant commenced operation supplying steam to
Karbochem pending securing a long term power purchase agreement. In 2008 NewCogen
negotiated and commenced supply under a short term agreement with Eskom. When Eskom did
not opt to renew the supply agreement, the plant was forced to operate supplying steam only in
order to mitigate its take or pay obligations with SASOL. In 2009 NewCogen successfully
participated in a tender run by Eskom to supply power under the Medium Term Power Purchase
Programme (“MTPPP”). Due to losses mounting up during steam operations, and with insufficient
cashflow, the plant was shut down. In June 2010, as a result of financing provided by its largest
shareholder, Sterling Trust Limited, the plant was able to restart and supply electricity during the
FIFA 2010 World Cup. In August 2010 NewCogen and Eskom were finally in a position to execute
the MTPPP contract. A new gas contract was negotiated in early 2011 and steady state operations
began in late March 2011. During its operating history the plant has sold steam to Karbochem and,
recently Lanxess, under ad hoc arrangements.
THE TURBINES
As reported last year, the sale of last two of the Gas Turbines was in June 2013. This sale did not
include the Balance of Plant, which remains for sale and is valued in the accounts at cost, £4m. The
deferred payment of £3.2m from the Gas Turbine SPA remains outstanding for the time being while
we finalise the shipping arrangements.
In November 2013, we received notice of a claim from Iris Ecopower Sdn Berhad ("Iris"), the
Malaysian company with which we entered into a contract to sell two of its Siemens Westinghouse
turbines in October 2012, against IPSA in the Malaysian courts for the recovery of US $3.1 million
paid by way of deposit to IPSA plus costs and consequential losses amounting to approximately US
$9.8 million in total. Iris failed to pay IPSA the balance of the consideration due, in spite of being
granted time extensions by IPSA, and the deposit was forfeited in accordance with the terms of the
contract signed by Iris and IPSA. The contract is governed by English law. Based on legal advice
previously obtained, the Board of IPSA considers the claim to be entirely without merit and we have
consequently made no provision for any payment to Iris.
At a court hearing in Malaysia in March 2014, the court accepted an application by IPSA that the
Malaysian courts should not have jurisdiction over the claim and awarded costs in favour of IPSA.
Iris has subsequently filed and been granted leave to appeal the matter in the Malaysian Court of
Appeal, but no date has yet been set.
WORKING CAPITAL
Working capital has continued to be very tight for IPSA, but the situation has been managed
through the year successfully.
Following completion of the sale of the turbines all external loans were repaid. Since then further
borrowings have been taken on to support the planned increase in capacity at NewCogen.
GENERAL, RESTRUCTURING OF THE BOARD, RENEWED FOCUS ON SOUTH AFRICA, AND
OTHER PROJECTS
As far as we have been able to with limited funds, we have continued to monitor the market and
examine opportunities which have arisen from time to time. Reserve margins in South Africa
continue at an all-time low and with a backdrop of positive encouragement towards independent
power producers (“IPPs”) in South Africa, particularly with the introduction recently of a program
sponsored by the Department of Energy for new capacity, the resolution of the legacy problems at
IPSA is very well timed, and we will have many excellent opportunities to develop the business in
the coming 12 months. It is of particular note that we have the capacity and infrastructure available
and permitted in Newcastle to install additional capacity quickly in response to such enquiries and a
growing number of potential Industrial based PPAs.
To make the most of this opportunity we are restructuring the Board, with the first steps already
taken, with an intent and purpose to focus our management execution out of a base in South Africa,
such that we are much closer to the major decision makers in Government, ESKOM and our main
customers.
Principal risks and uncertainties
Risks are formally reviewed by the Board and appropriate processes and controls put in place to
monitor and mitigate them. Key business risks include:
1 Changes in demand and pricing of electricity in the markets in which we operate;
2 Pricing and availability of gas, our principal fuel;
3 Availability of financing at rates that allow new projects to be developed and provide a
satisfactory return to our shareholders.
These risks are mitigated by:
1) Seeking long term contracts that give us a stable market for our output;
2) Maintaining a good relationship with our suppliers and ensuring availability of gas under a
long term contract; and
3) Focussing our development activities in markets where long term contracts with
creditworthy counterparties are available and where a reasonably well-developed capital
market exists.
In addition to these factors which, if satisfactorily resolved, will have a significant positive impact on
the Group’s liquidity, the future growth and profitability of the Group will be influenced by:
1) Movements in the value of the ZAR relative to sterling since changes in the rate of exchange
affect the sterling value of assets located in South Africa and will, in the future, affect the
value of dividends which the Company expects to receive from its activities in South Africa;
2) Political factors – the directors consider that the Government of the Republic of South Africa
supports the provision of efficient power generation by IPPs and that the Company’s listing
on AltX, with local shareholders now owning a significant portion of the Company, further
strengthens the Group’s position in the Republic of South Africa; and
3) The credit market conditions remain difficult and there exists continued uncertainty over the
availability of suitable project finance to fund future expansion of the existing plant and new
projects.
KEY PEFORMANCE INDICATORS
The Directors use a range of performance indicators to monitor progress in the delivery of the
Group’s strategic objectives, to assess actual performance against targets and to aid management
of the businesses.
IPSA’s key performance indicators (“KPIs”) include financial and non-financial targets which are set
annually.
Financial KPIs
Financial KPIs address operating profitability, net asset value and earnings per share.
i) Operating profitability
Operating profit excludes all non-operating costs, such as financing and tax expenses, as well as
one-off items and non-trading items such as negative goodwill. The exclusion of these non-
operating items provides an indication of the performance of the underlying businesses. The Group
made an operating loss in the year.
ii) Net asset value
Net asset value is calculated by dividing funds attributable to IPSA’s shareholders by the number of
shares in issue. The net assets of the Group reduced in the year to 7.72 pence per share. (2013:
8.96 pence per share)
iii) Earnings per share
Earnings per share provide a measure of the overall profitability of the Group. It is defined as the
profit or loss attributable to each Ordinary Share based on the consolidated profit or loss for the
year after deducting tax and minority interests. Growth in earnings per share is indicative of the
Group’s ability to identify and add value. The Group made a profit in the year of 0.34 pence per
share (2013: loss 1.74 pence per share).
Non-Financial KPIs
Non-financial KPIs address other important technical aspects of the business, such as gross
capacity, operating efficiency and availability.
i) Gross capacity
Gross capacity is the total generation capacity owned by Group companies and is affected by
acquisitions, expansion programmes and disposals. The Group increased operating capacity by 1.4
MW immediately prior to the year end.
ii) Operating efficiency
Operating efficiency is the average operating efficiency of the generating plant owned by Group
companies. It can be improved through the installation of more thermally efficient generating units,
refurbishment activities or through conversion to combined cycle operation. Given the late addition
of the Deutz engine, no change was noted in the operating efficiency of the Group in the year.
iii) Technical availability
Technical availability measures when a plant is available for dispatch. The measurement method
excludes time allowed for planned maintenance activities which occur at regular intervals during the
life of the unit plus an allowance for unplanned outages. Unplanned and forced outages in excess of
the annual allowance will cause a reduction in the technical availability factor. Average availability
through the year for our plant in Newcastle was 95 per cent.
The Strategic Report was approved by the Board of Directors on 11 September, 2014 and were
signed on its behalf
P. Metcalf (Chief Executive).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2014
Notes 12 months 12 months
31/3/14 31/3/13
£’000 £’000
Revenue 4 3,707 4,327
Cost of sales 6 (4,664) (5,247)
Gross loss (957) (920)
Administrative expenses 7 (1,388) (1,037)
Operating loss (2,345) (1,957)
Profit on sale of non-current 8 3,166 -
asset
Other (expense) / income 9 (282) 566
Net finance expense 10 (171) (485)
Profit/(Loss) before tax 368 (1,876)
Tax expense 11 - -
Profit/(Loss) after tax 368 (1,876)
Other comprehensive income
Items that will subsequently be
Reclassified to Profit or Loss:
Exchange differences on (1,714) (977)
translation of foreign operation
Total comprehensive loss (1,346) (2,853)
Earnings/(Loss) per 13 0.34p (1.74p)
ordinary 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 2014
Notes 31/3/14 31/3/13
£’000 £’000
Assets
Non-current assets
Property, plant and equipment 14 7,738 8,376
7,738 8,376
Current assets
Trade and other receivables 16 3,575 582
Cash and cash equivalents 18 61 100
3,636 682
Non-current assets classified 19 4,000 15,712
as assets held for sale
Total assets 15,374 24,770
Equity and liabilities
Equity attributable to equity holders of the parent:
Share capital 20 2,150 2,150
Share premium account 26,767 26,767
Foreign currency reserve (5,725) (4,011)
Profit and loss reserve (14,898) (15,266)
Total equity 8,294 9,640
Current liabilities
Trade and other payables 21 6,842 7,336
Borrowings 22 238 7,794
7,080 15,130
Total equity and liabilities 15,374 24,770
The financial statements were approved by the Board on 11 September 2014.
P C Metcalf 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 2014
Notes 31/3/14 31/3/13
£’000 £’000
Assets
Non-current assets
Investments 15 23,369 22,649
23,369 22,649
Current assets
Trade and other receivables 16 3,249 29
Stock 17 1,320 -
Cash and cash equivalents 18 17 2
4,586 31
Non-current assets 19 4,000 15,712
classified as assets held for
sale
Total assets 31,955 38,392
Equity and liabilities
Equity attributable to equity holders of the parent:
Share capital 20 2,150 2,150
Share premium account 26,767 26,767
Profit and loss reserve (3,555) (3,845)
Total equity 25,362 25,072
Current liabilities
Trade and other payables 21 6,355 6,532
Borrowings 22 238 6,788
6,593 13,320
Total equity and liabilities 31,955 38,392
The financial statements were approved by the Board on 11 September 2014.
P C Metcalf 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 year ended 31 March 2014
12 months 12 months
31/3/14 31/3/13
£’000 £’000
Profit / (loss) for the year 368 (1,876)
Add back net finance expense 171 485
Deduct profit on sale of asset (3,166) (1,935)
held for sale
Adjustments for:
Depreciation and impairment 1,328 1,675
Unrealised exchange losses 133 427
Change in trade and 181 233
other receivables
Change in trade and (530) (515)
other payables
Cash used in operations (1,515) (1,506)
Interest paid (133) (3,243)
Interest received - 34
Net cash used in operations (1,648) (4,715)
Cash flows from investing
Activities
Purchase of plant and (2,537) (384)
equipment
Proceeds from sale of asset held 12,935 -
for sale
Costs associated with sale of (1,230) -
assets held for sale
Deposit on asset held for sale - 1,935
9,168 1,551
Cash flow from financing
Activities
Loans received 200 4,799
Loans repaid (7,759) (1,570)
(7,559) 3,229
(Decrease)/increase in cash (39) 65
and cash equivalents
Cash and cash equivalents 100 35
at start of year
Cash and cash equivalents 61 100
at end of year
The accompanying accounting policies and notes form an integral part of these financial
statements
PARENT COMPANY STATEMENT OF CASH FLOWS
for the year ended 31 March 2014
12 months 12 months
31/3/14 31/3/13
£’000 £’000
Profit / (loss) for the year 289 (215)
Add back net finance expense 157 936
Add back impairment on 1,700 -
investments
Deduct profit on sale of asset (3,166) (1,935)
held for sale
Adjustments for:
Change in trade and (175) (8)
other receivables
Purchase of stock (1,320) -
Change in trade and (382) (170)
other payables
Cash used in operations (2,897) (1,392)
Interest paid (122) (3,243)
Net cash used in operations (3,019) (4,635)
Cash flows from investing
activities
(Loan to) / repaid by subsidiary (2,337) 4
Proceeds from sale of asset held 12,935 -
for sale
Costs associated with sale of (1,230) -
asset held for sale
Deposit on asset held for sale - 1,935
9,368 1,939
Cash flow from financing
activities
Loans received 200 4,254
Loans repaid (6,534) (1,570)
(6,334) 2,684
Increase/(decrease) in cash 15 (12)
and cash equivalents
Cash and cash equivalents 2 14
at start of year
Cash and cash equivalents 17 2
at end of year
The accompanying accounting policies and notes form an integral part of these financial
statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2014
Share Share Foreign Profit and loss Total equity
capital premium currency reserve
account reserve
£’000 £’000 £’000 £’000 £’000
At 31.3.12 2,150 26,767 (3,034) (13,390) 12,493
Loss for the year - - - (1,876) (1,876)
Other comprehensive - - (977) - (977)
loss
Total comprehensive - - (977) (1,876) (2,853)
loss for the year
At 31.3.13 2,150 26,767 (4,011) (15,266) 9,640
Profit for the year - - - 368 368
Other comprehensive - - (1,714) - (1,714)
loss
Total comprehensive - - (1,714) 368 (1,346)
loss for the year
At 31.3.14 2,150 26,767 (5,725) (14,898) 8,294
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2014
Share Share Foreign Profit and loss Total equity
capital premium currency reserve
account reserve
£’000 £’000 £’000 £’000 £’000
At 31.3.12 2,150 26,767 - (3,630) 25,287
Loss for the year - - - (215) (215)
Total comprehensive - - - (215) (215)
loss for the year
At 31.3.13 2,150 26,767 - (3,845) 25,072
Profit for the year - - - 290 290
Total comprehensive - - - 290 290
income for the year
At 31.3.14 2,150 26,767 - (3,555) 25,362
The accompanying accounting policies and notes form an integral part of these financial
statements
Notes to the Financial Statements
for the year ended 31 March 2014
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. The parent Company is also involved in the purchase and
sale of power related equipment and products.
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
sale of the remaining two turbines, which were sold for US$25 million.
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 AIM market of the London Stock Exchange PLC in
London and, since October 2006, the shares have had a dual listing on Altx (the Alternative
Exchange, a division of JSE Limited, of the Johannesburg market).
3 Summary of accounting policies
3.1 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.
The financial information set out above does not constitute the company's statutory accounts for the
years ended 31 March 2014 or 2013 but is derived from those accounts. Statutory accounts for 2013
have been delivered to the registrar of companies, and those for 2014 will be delivered in due course.
The auditors have reported on those accounts; their report for 2014 was qualified in relation to the
discount rate utilised in the impairment review of the property, plant and equipment and subsequent
impairment. Their report for 2013 was: (i) unqualified, (ii) did not include a reference to any matters
to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did
not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
3.2 Going concern
The Company completed the sale of the remaining two turbines for a total consideration of US$25
million (£16.1 million) of which £12.9 million was received during the year. The balance of £3.2
million is expected to be received at least within the next 12 months.
Following this sale, the Company repaid most of its loans and settled the majority of its creditors,
with the result that at 31 March 2014 there were only two main creditors outstanding- a) an
amount of £4.2 million claimed by Turbocare (the supplier of the turbines) which is subject to
arbitration proceedings since a significant portion of the amount claimed by Turbocare is disputed,
and b) unpaid salary of £1.2 million due to the current and former directors and on which a stand-
still has been agreed pending the Company having sufficient funds to settle the overdue amounts.
The principal assets of the Company are now a) the balance of the ancillary plant equipment which
was purchased when the original four turbines were acquired, and which has been valued at in
excess of the £4 million carrying value and are subject to negotiations with a potential purchaser, b)
£1.3 million of equipment acquired for onward sale to NewCogen, c) £3.2 million deferred
consideration owing following the sale of the two turbines and d) the Company’s 100% investment
in NewCogen.
Whilst there remains uncertainty with respect to the settlement of the debt claimed by Turbocare
and also uncertainly on the timing of the receipt of the £3.2 million deferred consideration and the
timing and expected sale proceeds of the ancillary plant equipment, the directors consider that the
Company does have adequate resources to continue in operational existence for the foreseeable
future and therefore the directors continue to adopt the going concern basis in preparing the annual
report and accounts.
3.3 Basis of consolidation
The Group financial statements consolidate those of the Company and its subsidiary undertakings
drawn up to 31 March 2014.
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 acquisition method. The acquisition 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 statement of financial
position at their fair values, which are also used as the bases for subsequent measurement in
accordance with the Group accounting policies.
3.4 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.
3.5 Impairment of property, plant, equipment and intangible assets
At each reporting 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.
3.6 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 reporting date. Income and expenses have been converted into sterling at the
average rates over the reporting period. Any differences arising from this procedure have been
recognised in other comprehensive income and accumulated in the Foreign Currency Reserve.
3.7 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 ended 31 March 2014 the Group’s revenue comprised the sale of electricity and steam
from the plant in South Africa. The profit from the sale of the 2 turbines is shown separately on the
Income Statement.
Operating expenses are recognised in the consolidated statement of comprehensive income upon
utilisation of the service or at the date of their origin. All other income and expenses are reported
on an accrual basis.
3.8 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 25 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.
3.9 Stock
Stock, which represents equipment bought for future projects, is valued at the lower of cost and net
realisable value.
3.10 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.
3.11 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.
3.12 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.
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.
3.13 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 Profit or Loss.
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.
3.14 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 Statement of Comprehensive
Income 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 Profit or Loss 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.
3.15 Hedging instruments
The Group has not entered into any derivative financial instruments for hedging or for any other
purpose.
3.16 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.
3.17 Investment in subsidiary undertakings
The Company’s investments in subsidiary undertakings are stated at cost less any provision for
impairment.
3.18 Amounts due from subsidiaries
Amounts due from subsidiaries are measured initially at fair value plus transaction costs and
thereafter at amortised costs.
3.19 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:
i) 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) a new contract on similar terms to the
MTPPP contract is put in place and will continue for the foreseeable future and b) using a
discount rate of 10.3 per cent; and
ii) on the basis as shown in note 15, management have classified the parent’s receivables from
its subsidiaries as equity in nature and hence all amounts receivable have been added to the
net investment in that subsidiary. Management have performed an impairment review using
discounted cash flow forecasts based on future plans and expectations. Management are
satisfied that no impairment has arisen and will continue to review it on an annual basis; and
iii) the going concern basis for the preparation of these financial statements, further details of
which are set out in note 3.2.
3.20 Standards, amendments and interpretations to existing standards that are not yet
effective and have not been early adopted by the Group in the 31 March 2014 financial
statements
At the date of authorisation of these financial statements certain new standards, amendments and
interpretations to existing standards have been published but are not yet effective. The Group has
not early adopted any of these pronouncements. The new Standards, amendments and
Interpretations that are expected to be relevant to the Group’s financial statements are as follows:
Applicable for financial
Standard/interpretation Content years
beginning on/after
IFRS 9 Financial instruments: Classification and measurement 1 January, 2015
IFRS 10 Consolidated Financial Statements 1 January, 2014
IFRS 11 Joint Arrangements 1 January, 2014
IFRS 12* Disclosure of Interests in Other Entities 1 January, 2014
IAS 28 (Revised)* Investments in Associates and Joint Ventures 1 January, 2014
Amendments to IAS 32* Offsetting Financial Assets and Financial Liabilities 1 January, 2014
*Not expected to have a material impact on the Group.
IFRS 9, ‘Financial instruments: Classification and measurement’
In November 2009, the Board issued the first part of IFRS 9 relating to the classification and
measurement of financial assets. IFRS 9 will ultimately replace IAS 39. The standard requires an
entity to classify its financial assets on the basis of the entity’s business model for managing the
financial assets and the contractual cash flow characteristics of the financial asset, and subsequently
measures the financial assets as either at amortised cost or fair value. The new standard is
mandatory for annual periods beginning on or after 1 January, 2015.
IFRS 10 Consolidated Financial Statements
IFRS 10 replaces the portion of IAS 27 ‘Consolidated and Separate Financial Statements’ that
addresses the accounting for consolidated financial statements. It also includes the issues raised in
SIC-12 ‘Consolidation — Special Purpose Entities’. IFRS 10 establishes a single control model that
applies to all entities including special purpose entities. The changes introduced by IFRS 10 will
require management to exercise significant judgement to determine which entities are controlled,
and therefore, are required to be consolidated by a parent, compared with the requirements that
were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January,
2014.
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.
4 Segment analysis
IFRS 8 requires operating segments to be identified on the basis of internal reports that are
regularly reviewed by the chief operating decision maker (considered to be the Executive Board).
Management currently identifies two operating segments, being operations in RSA (comprising the
business of generating electricity and, as a by-product, the generation of steam) and the head office
in the UK. Each operating segment is monitored separately and strategic decisions are made on the
basis of segment operating results. The electricity is sold to a single customer and the steam is sold
to two industrial customers who operate from premises adjacent to the plant.
The following table provides a segmental analysis.
Year ended 31.03.14 RSA UK Inter-group Total
£’000 £’000 £’000 £’000
Revenue
Electricity 3,023 - - 3,023
Steam 684 - - 684
Cost of sales (4,664) - - (4,664)
Gross loss (957) - - (957)
Administrative expenses (509) (879) - (1,388)
Operating loss (1,466) (879) - (2,345)
Profit on sale of non - 3,166 - 3,166
current asset
Other expense (142) (140) - (282)
Finance expense (14) (157) - (171)
(Loss)/profit for year (1,622) 1,990 - 368
Total assets 6,786 31,957 (23,369) 15,374
Total liabilities 23,855 6,594 (23,369) 7,080
Year ended 31.03.13 RSA UK Inter-group Total
£’000 £’000 £’000 £’000
Revenue 4,327 - - 4,327
Cost of sales (5,322) - 75 (5,247)
Gross loss (995) - 75 (920)
Administrative expenses (738) (224) (75) (1,037)
Operating loss (1,733) (224) - (1,957)
Other (expense)/income (379) 945 - 566
Net finance expense (49) (936) 500 (485)
Loss for year (2,161) (215) 500 (1,876)
Total assets 9,027 38,392 (22,649) 24,770
Total liabilities 24,459 13,320 (22,649) 15,130
5 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.
In addition to the effects arising from changes in the value of sterling relative to the ZAR, the
Company’s results are exposed to changes in the value of sterling versus the € in respect of the
liability arising on the Turbines purchased from an Italian manufacturer since the liability is
denominated in €.
The exchange rates applicable to the results for the current year and prior year were as follows:
Currency Risk: Year to Year to
31.03.14 31.03.13
Closing rate
€ to £ 1.21 1.19
Average rate
€ to £ 1.18 1.236
If exchange rates had been 10% higher or lower, the effect on the Group’s results and net equity
would have been:
A 10% change in the value of
Sterling on result for the year
€ £0.4m £0.4m
A 10% change in the value of
Sterling on net equity
€ £0.4m £0.4m
Translation Risk: Year to Year to
31.03.14 31.03.13
Closing rate
ZAR to £ 17.58 14.00
Average rate
ZAR to £ 16.08 13.42
If exchange rates had been 10% higher or lower, the effect on the Group’s results and net equity
would have been:
A 10% change in the value of
Sterling on result for the year
ZAR £0.1m £0.1m
A 10% change in the value of
Sterling on net equity
ZAR £0.7m £0.8m
ii) Sensitivity to price changes in electricity and steam sold and gas purchased
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.
If the price of electricity and steam sold during the year had been 10 per cent higher or lower, the
result for the year would have been £371,000 (year to 31.3.2013:£433,000) higher or lower.
If the price paid for gas used during the year had been 10 per cent higher or lower, the result for
the year would have been £308,000 (year to 31.3.2013: £318,000) lower or higher.
iii) Sensitivity to interest rates
During the year, the Group had a number of short term interest bearing loans. A 10 per cent
change in the interest rate applied to these loans would have changed the interest expense for the
year by £17,000 (31.3.2013: £49,000).
6 Cost of sales Year ended Year ended
31.03.14 31.03.13
£’000 £’000
Gas 3,081 3,176
Depreciation 576 675
Impairment charge 753 1,000
Other 254 396
4,664 5,247
7 Administrative expenses Year ended Year ended
31.03.14 31.03.13
£’000 £’000
Payroll and social security 759 680
Other administrative expenses 589 316
Audit fees 41 41
1,389 1,037
Audit fees comprise £31,000 (year to 31.3.2013: £31,000) paid to the Company’s auditor and
£10,000 (year to 31.3.2013: £10,000) paid to the auditor in respect of the audit of subsidiary
companies.
8 Profit on sale of non-current asset Year ended Year ended
31.03.14 31.03.13
£’000 £’000
Sale proceeds 16,129 -
Costs (12,963) -
Profit on sale 3,166 -
In 2007, the Company acquired four gas turbines. Following refurbishment of the turbines, the
Company intended to sell the turbines to its subsidiary in South Africa which was tendering for a
major power project. Due to weakening economic conditions, the project was delayed and it was
decided that it was in the best interests of shareholders to sell the turbines to a third party. During
2012, two of the turbines were sold. The remaining two turbines were sold during the current year.
9 Other income Year ended Year ended
31.03.14 31.03.13
£’000 £’000
1
Storage and insurance charges (358) (410)
Costs re loan for turbines - (500)
Deposit received on turbine - 1,935
Profit on sale of shares2 44 -
Foreign currency exchange gains / (losses) 32 (459)
(282) 566
1
These costs relate to storage and insurance of the remaining balance of plant and the 2 Turbines
prior to their sale.
2
A part of the sale consideration for the turbines was received in Rurelec PLC shares. These shares
were sold during the year at a profit of £44,000.
10 Net finance expense Year ended Year ended
31.03.14 31.03.13
£’000 £’000
Interest received on bank deposits - 34
Interest expense:
Bank interest - 212
Loan note interest1 5 52
Other loans interest2 131 218
Other interest3 35 37
171 519
Net finance expense 171 485
1
Loan note interest comprises interest on the £650,000 loan note (see also note 22).
2
Other loans interest comprises interest on other loans (see also note 22).
3
Other interest represents an accrual for interest payable on the overdue sum due to Turbocare.
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
31.03.14 31.03.13
£’000 £’000
Profit/(Loss) for the year before tax 368 (1,876)
Expected tax charge (credit) based on standard rate of 85 (450)
UK corporation tax (23%) (2013 – 24%)
Tax losses utilised 85 -
Addition to tax losses carried forward - (450)
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 reporting date, it is
estimated that the value of the deferred tax asset would be £3.4 million (31.3.2013: £3.6 million) in
respect of the Group and £0.8 million (31.3.2013: £1.0 million) in respect of the Company.
12 Profit attributable to the parent company
The profit attributable to the Parent Company, IPSA Group PLC, was £0.3 million (year to
31.3.2013: £0.2 million 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.
13 Profit / (loss) per share
The profit per share (year ended 31.3.2013 – loss) is calculated by dividing the result for the year
attributable to shareholders by the weighted average number of shares in issue during the year.
Year ended Year ended
31.03.14 31.03.13
Profit / (loss) attributable to equity holders of the £0.4m £(1.9m)
Company
Average number of shares in issue 107.5m 107.5m
Basic, diluted and headline profit / (loss) per share 0.34p (1.74p)
There is no difference between the basic and diluted earnings per share as the 6.8 million warrants
outstanding during the year were exercisable at a price either at or above the share price of the
Company and therefore had no dilution effect.
14 Plant and equipment 31.03.14 31.03.13
£’000 £’000
Cost
At beginning of year 12,890 14,309
Addition in year 2,536 384
Exchange adjustment (2,831) (1,803)
At end of year 12,595 12,890
Depreciation
At beginning of year 4,514 3,239
Charge for the year 575 675
Impairment charge 753 1,000
Exchange adjustment (985) (400)
At end of year 4,857 4,514
Net book value at start of year 8,376 11,070
Net book value at end of year 7,738 8,376
Property, plant and equipment has been valued at cost. It represents the 18 MW plant in
NewCogen.
The plant has been subject to an impairment review and the directors consider that an impairment
of £0.75 million has arisen. The recoverable amount of this asset is established by assessing the
value in use of the plant and discounting the estimated future cash flows using a pre-tax discount
rate that reflects current market assessments of time value of money and the risks specific to the
asset.
The main assumptions used in estimating the future cash flows include i) an asset life of 25 years,
ii) continuing demand during that period for the electricity and steam generated by the plant, iii)
escalation in the prices that electricity and steam will command based management’s estimates and
experience and iv) management’s estimates of the price and availability of gas to supply the plant.
The estimated future cash flows have been discounted at a rate of 10.8% (based on the ZAR long
term borrowing rate).
Impairment – NewCoGen
The Directors recognise that the determination of an appropriate discount rate is judgemental and is
the key assumption in the value in use calculation and therefore sensitivities were performed which
address how increases in the discount rate might affect the value in use.
- Cash flows for 25 years were extrapolated using electricity escalator rates at an average of 7%
based on management’s view on likely electric power escalator rates.
- Cash flows were discounted using the CGU’s pre-tax discount rate of 10.8%
Impairment Sensitivity Table
Growth
Rate
7.00% 6.50% 6.00%
23
Additional Additional Additional
Impairment Impairment Impairment
£m £m £m
Discount Rate
10.8% - 0.1 0.3
0.8
11.3% 0.5 0.6
12.0% 1.1 1.2 1.3
12.5% 1.5 1.6 1.7
15 Investments in subsidiary undertakings 31.03.14 30.03.13
£’000 £’000
Investment in Blazeway Engineering Ltd1 500 500
Loans to Blazeway Engineering Ltd2 14,924 2,339
Loans to Newcastle Cogeneration (Pty.) Ltd2 7,945 19,810
23,369 22,649
1
Investment in Blazeway Engineering Ltd
The Company owns 100 per cent. 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 per cent. of Newcastle Cogeneration (Pty.) Ltd
(a company incorporated in the RSA).
2
Loans to Blazeway Engineering Ltd and to Newcastle Cogeneration (Pty.) Ltd
The Company has funded the construction of the plant in South Africa and the initial start-up losses
with a combination of share capital (£2.8 million) and loans (£22.2 million). The loans were
previously repayable on demand but in view of the start-up losses incurred, the Company regards
the loan as quasi-equity and is no longer charging interest on the loans. As a result, the loans are
classified as part of the Company’s net investment in South Africa. During the year, ZAR 200 million
/ £14.3 million of loans from the Company to NewCogen were assigned to Blazeway Engineering
Ltd. The investments in and loans to subsidiary undertakings have been subjected to an
impairment review. Under IFRS accounting standards (IAS 36) it is estimated that an impairment of
£1.7 million has occurred and has accordingly been deducted from the Loans to Blazeway
Engineering Ltd.
Impairment – Investment in Blazeway Engineering Limted
The Directors recognise that the determination of an appropriate discount rate is judgemental and is
the key assumption in the valuation of its investments and therefore sensitivities were performed
which address how increases in the discount rate might affect the value.
- Cash flows for 25 years were extrapolated based on the near term opportunities available to
the company as an established independent power producer in RSA in a market where
shortages of electric generation capacity exist to increase capacity at the site.
- Cash flows were discounted using a pre-tax discount rate of 13.4%, which includes an
appropriate increment to reflect the development status of the new capacity.
Impairment Sensitivity Table
Additional
Impairment
£m
Discount Rate
13.40% -
13.90% 1.4
14.40% 2.7
16 Trade and other receivables due in 31.03.14 31.03.13
less than one year £’000 £’000
a) Group
Trade receivables 309 417
Deferred consideration1 3,194 -
Vat receivable 29 51
Other receivables and prepayments 43 114
3,575 582
b) Company
Trade receivable 3 -
Deferred consideration1 3,194 -
Vat receivable 19 21
Other receivables and prepayments 33 8
3,249 29
1
The deferred consideration relates to the sale of the two turbines.
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.
17 Stock 31.03.14 31.03.13
£’000 £’000
a) Group - -
a) Company 1,320 -
Stock held by the Company comprises two Jenbacher electricity generating turbines and equipment
spares. These assets will be sold to NewCogen during the current year and are therefore being
carried in Fixed Assets in the consolidated statement of financial position.
18 Cash and cash equivalents 31.03.14 31.03.13
£’000 £’000
a) Group
Cash at bank and in hand 61 100
b) Company
Cash at bank and in hand 17 2
19 Assets held for sale 31.03.14 31.03.13
£’000 £’000
Spares and ancillary equipment 4,000 15,712
These assets (31 March 2013 – two turbines, spares and ancillary equipment) were originally
acquired in 2007 as part of a package including four turbines. The turbines have been sold and the
remaining equipment is expected to be sold within the next 12 months. The figure of £4 million
represents the directors’ valuation of the assets.
20 Share capital 31.03.14 31.03.13
£’000 £’000
Issued and fully paid
107,504,018 ordinary shares of 2p each 2,150 2,150
There were no changes in the share capital of the Company during the year (2013 – none).
21 Trade and other payables 31.03.14 31.03.13
£’000 £’000
a) Group
1
Trade payables 5,539 5,651
2
Other payables 1,302 1,685
6,841 7,336
b) Company
1
Trade payables 5,155 4,949
2
Other payables 1,201 1,583
6,356 6,532
Trade payables include:
1
An amount of €5.3m/£4.4m (31.3.2013: €4.9m/£4.2m) claimed by 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 cent per
annum on the amount outstanding). Included within the €5.3m is an amount of €2.3m of VAT which
the directors do not regard as being due. The Company is in discussions with Turbocare with the
objective of reaching a negotiated settlement of the amounts claimed.
2
Other payables includes an accrual for directors’ remuneration and salaries of £1.15m (31.3.2013:
£1.26m) accrued but unpaid in respect of remuneration due to the directors and one employee –
see also note 27.
22 Borrowings 31.03.14 31.03.13
£’000 £’000
a) Group
Loan note1 - 650
Overdue interest on loan note1 - 136
2
Other loans including accrued interest 238 7,008
238 7,794
b) Company
2
Loan note - 650
2
Overdue interest on loan note - 136
3
Other loans including accrued interest 238 6,002
238 6,788
1
The loan note and the overdue interest was repaid during the year.
2
All of the other loans and accrued interest which were outstanding at 31 March 2013 were, with
the exception of £33,000, repaid during the year. A new loan of £0.2m, to support expansion of the
plant in NewCogen, was drawn down during the year. Interest on this new loan is at 5.7% per
annum. The loan is repayable within 12 months.
All borrowings are denominated in sterling.
23 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. As the Group has only one
operating subsidiary, the impact on the parent Company is deemed to be materially similar to the
impact on the Group.
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) Capital management policies and liquidity risk
The Company considers its capital to comprise its ordinary share capital, share premium,
accumulated retained earnings and other reserves.
The Company’s objective when maintaining capital is to safeguard the Group’s ability to continue
as a going concern so that it can provide returns for shareholders and other stakeholders.
The Company meets its capital needs by a combination of equity and debt funding and attempts
to anticipate the future cash requirements for each project and put in place appropriate equity
and debt facilities to match the funding requirements of these projects. As a result of the time
taken to secure a purchaser for the Company’s turbines, the Company was required during the
year to obtain extensions to the repayment dates of loans and bank borrowings. Since the year-
end, these loans and borrowings have been repaid.
The Group does not have any derivative or hedging instruments.
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 statement of financial position (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 Company’s primary credit risk relates to the
investment in its subsidiaries. As noted in note 3.18, this is reviewed on an annual basis.
e) Fair values
In the opinion of the directors, there is no significant difference between the fair values of the
Group’s and the Company’s assets and liabilities and their carrying values and none of the
Group’s or the Company’s trade and other receivables are considered to be impaired.
The financial assets and liabilities of the Group and the Company are classified as follows:
Group Group Company Company
Loans and Amortised Loans and Amortised
receivables cost receivables Cost
31.03.2014 £’000 £’000 £’000 £’000
Trade and 3,546 - 3,230 -
other
receivables <
1 year
Cash and 61 - 17 -
cash
equivalents
Trade and - (6,841) - (6,356)
other
payables
Borrowings - (238) - (238)
3,607 (7,079) 3,247 (6,594)
31.03.2013 £’000 £’000 £’000 £’000
Trade and 417 - - -
other
receivables <
1 year
Cash and 100 - 2 -
cash
equivalents
Trade and - (7,336) - (6,532)
other
payables
Borrowings - (7,794) - (6,788)
517 (15,130) 2 (13,320)
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.
24 Capital commitments
There were no outstanding capital commitments at the year end.
25 Contingent liabilities
During the prior year, the Company entered into a contract for the sale of two turbines. The
prospective purchaser paid a non-refundable deposit of US$3.1 million (£1.9 million). Under the
terms of the contract, the deposit was forfeited as the purchaser failed to complete the contract.
The Company has been advised that the purchaser has initiated proceedings to recover the deposit.
No provision has been made in these financial statements as the directors have been advised by
their solicitors that the recovery claim has no validity.
26 Related party transactions
Material transactions with related parties during the year were as follows:
i) Charge to the Company of £60,000 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 £36,000 was owing to IPC at the
year-end (31.3.2013: £136,000).
ii) Repayment during the year of a short term loan from IPC amounting to £1.2 million.
iii) A charge for Group salaries (short term employee benefits) payable to key management
totalling £264,000 during the year (12 months to 31.3.2013: £77,000).
iv) Sale of two turbines to Rurelec PLC for £16.1 million. £12.9 million of the sale price was
received during the year. The balance of £3.2 million is due within 12 months. No interest is
payable of the balance outstanding. P Earl and E Shaw are directors and shareholders in
Rurelec PLC.
v) Purchase of two Jenbacher gas engines from IPC for £1.2 million, of which £200k is deferred.
Transactions between the Company, NewCogen and Blazeway Engineering Ltd:
i) Assignment to Blazeway Engineering Ltd of ZAR 200 million / £14.3 million of loan originally
advanced by the Company to NewCogen.
ii) New loans to NewCogen amounting to £2.3 million
iii) No interest is currently being charged on the loans to NewCogen or Blazeway. It is intended
that interest charges will commence when the plant is operating profitably.
27 Directors’ and employee costs Year ended Year ended
31.03.14 31.03.13
£’000 £’000
Aggregate remuneration of all employees and
directors, including national insurance 759 680
The charge in respect of directors ‘remuneration is as follows:
Salary Fees Total
incl. NI
2014 2014 2014
£’000 £’000 £’000
R Linnell - 45 45
N Bryson - 25 25
M Cox 8 - 8
P Earl 4 4
M Eyre 14 - 14
P Metcalf 65 - 65
R Sampson - 6 6
E Shaw 59 - 59
146 80 226
The directors have agreed a standstill on the amounts accrued and unpaid until such time as the
Company has sufficient cash to pay the amounts accrued. At 31 March 2014, the amounts accrued
but unpaid totalled £1.14 million (31.3.2013 - £1.0 million).
In the year to 31 March 2013, no remuneration was paid to the directors. Amounts accrued and
waived were as set out below:
Salary Salary Fees Fees Total
incl. NI incl. NI Waived
2013 waived 2013 2013
£’000 £’000 £’000 £’000 £’000
R Linnell - - 45 (26) 19
N Bryson - - 25 (24) 1
M Cox 33 (30) - - 3
P Earl - - 25 (37) (12)
M Eyre 59 (51) - - 8
P Metcalf 64 (24) - - 40
R Sampson - - 25 (23) 2
E Shaw 59 (51) - - 8
215 (156) 120 (110) 69
The amounts waived in 2013 amounted to 20% of the outstanding accrued salary and fee
entitlements as at 7 June 2013.
The Group considers the directors to be the key management personnel.
The average number of employees in the Group, including directors, was 26 (31.3.2013: 25).
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