Rurelec Annual Report 2014

Plain-text annual report

236619 Rurelec Annual Report Cover v1 19/06/2015 16:26 Page 1 R U R E L E C P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4 RURELEC PLC 17th Floor, Millbank Tower, 21-24 Millbank, London SW1P 4QP Tel: +44 (0) 20 7793 5610 Fax: +44 (0) 20 7793 7654 Visit us online at www.rurelec.com ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2014 Stock code: RUR 236619 Rurelec Annual Report Cover v1 19/06/2015 16:26 Page 2 WELCOME TO RURELEC PLC RURELEC PLC IS AN OWNER, DEVELOPER AND OPERATOR OF POWER GENERATION CAPACITY INTERNATIONALLY. Rurelec’s main business consists of the ownership, operation and development of power generation facilities on national and regional grids and in isolated areas, selling wholesale electricity as a generator on commercial terms, through capacity payments or power purchase agreements (“PPAs”). Our current businesses include operational plants in Argentina and Peru, as well as the development of new plants in Argentina, Chile and Peru. CONTENTS Strategic Report Chairman’s Statement Review of Financial Performance Review of Operations Our Governance Board of Directors Director’s Report Corporate Governance Statement 1 3 4 6 7 9 Our Financials Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Parent Company Statement of Financial Position Consolidated Statement of Cash Flows Company Statement of Cash Flows Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Notes to the Financial Statements Company Information 11 12 13 14 15 16 17 18 19 20 Inside Back Cover Photo outside front cover: Transmission line connecting Canchayllo run of river hydro to Grid, Peru Photos outside back cover: Top; EdS plant in Patagonia, Argentina. Rest; Canchayllo run of river hydro, Peru Read more online at www.rurelec.com COMPANY INFORMATION Directors C. Emson (Non-Executive Chairman) B. Rowbotham (Non-Executive) P. Galante (Non-Executive) M. Blanco (Non-Executive) P.R.S. Earl A.J.S. Morris E.R. Shaw Secretary S.A. Laker Company number 4812855 Auditor Grant Thornton UK LLP Registered Auditors Chartered Accountants Grant Thornton House Melton Street Euston Square London NW1 2EP Bankers Coutts & Co 440 Strand London WC2R 0QS Registered ofﬁce and business address 17th Floor, Millbank Tower 21–24 Millbank London SW1P 4QP Solicitors Skadden, Arps, Slate, Meagher & Flom (UK) LLP 40 Bank Street Canary Wharf London E14 5DS CHAIRMAN’S STATEMENT 01 Dear Shareholder It falls to me to present the results of Rurelec PLC (“Rurelec”) for the ﬁ nancial year ended 31 December 2014, which proved to be a difﬁ cult year for the Company following the announcement in February of the disappointing result of the Permanent Court of Arbitration (“PCA”) ruling in The Hague which found against Bolivia but which awarded Rurelec less than half the book value of its historical 2006 investment in Empresa Guaracachi. This in turn was followed by the further discounted settlement for $31.5 million grudgingly paid by Bolivia in June 2014, which resulted in an additional loss against the sum awarded by the PCA. It should be noted that the Board of Rurelec had expected to receive not less than US $75 million being the book value of the Bolivian investment and declared but unpaid dividends. The proceeds of the settlement were used to repay a loan which had been taken to fund both the cost of the arbitration and the Group’s expansion into Peru and Chile. During the year Larry Coben stepped down from the Board of the Company due to other commitments and we thank him for his incisive input during his three years on the Board. In April 2015 the board welcomed Pablo Galante as a new director who brings to the Board extensive experience in the energy sector both in Latin America and internationally, with particular insight into the business of fuel supply . Outlook In spite of the serious setback from the quantum of the PCA award and the considerable write-off against reserves which this entailed , the Board of Rurelec remains optimistic for the future of the Company. There are continuing projects in Peru and Chile as well as the potential to expand our presence in Argentina where the country’s need for power encourages new plant development under US dollar denominated contracts. The result of the Arbitration means that the Company has considerably less funding available to direct towards new projects, and this has slowed our expansion . In the light of our straightened circumstance, the Board has decided to concentrate Group funds in areas of faster growth, involving thermal plants which have the advantage of shorter lead times in construction. It is therefore intended to divest the small hydro development business in Peru which trades under the Cascade Hydro Power brand. Funds realised from the disposal of this business will be used to repay loans in connection with development activities and to bring into construction Rurelec’s thermal developments in Chile and Peru. Activities in Chile were slowed by the change in government which led to all projects being called in for review. This had an impact on the Company’s power project developments in northern Chile including those with already permitted sites . The process to select a long term equity partner for projects in Chile has been caught up in these delays and by the complex transmission system in the region. These issues have now been largely overcome and the Company expects to make more rapid progress for the future . The Company has recently signed a bridging loan facility of $12 million against the anticipated sales of the Peru hydro projects. The Company has also agreed terms but has not yet been contracted, for an alternative one year secured loan from a large organisation within the South American power industry which will allow the Group to settle the deferred payment to IPSA Group PLC and repay outstanding loans. This facility is the ﬁ rst stage of an intended larger cooperation with this South American company, a power generation company operating in the same ﬁ eld as Rurelec in Central and Latin America. The Group expects to repay all loans from the proceeds of the sale of its Peruvian hydro portfolio, but with contingency plans for repayment from other sources if the sales are delayed. In anticipation of a planned closer co-operation with the South American group, the Board has agreed that the project development activities under Independent Power Corporation PLC (“IPC”) should be spun out of Rurelec now that its task in Latin America has been completed. IPC was acquired for £4 million in June 2013 to consolidate the replacement of capacity through greenﬁ eld development of projects led by IPC during the arbitration process. The business separation will be achieved by Peter Earl acquiring outright ownership of IPC in a transaction whereby the principal assets of IPC will be transferred up to Rurelec leaving IPC with only nominal assets and ﬁ xed overheads of some £500,000 per annum. Peter Earl will step down as both a director and CEO of Rurelec and will purchase IPC and its development team for nominal consideration. Former Chairman, Andrew Morris, has agreed to take over as CEO of the Company. Both Peter Earl and IPC are entering into consultancy agreements with the Company so as to maintain continuity and a smooth handover for the next stage of Rurelec’s planned return to a dividend paying company. The net effect will be to reduce overhead within Rurelec and re-establish the core business of the Group as ownership of cash-producing power plants in Latin America to be valued on the basis of income. I look forward to the future with optimism. Colin Emson Chairman 18 June, 2015 t r o p e R c g e t a r t S i www.rurelec.com 236619 Rurelec Annual Report Text.indd C01 19/06/2015 16:27 02 STRATEGIC REPORT Strategy The Group strategy is to seek generation opportunities for small to medium sized power plants in countries where we can leverage our signiﬁ cant proven experience of power plant development and operation. We have concentrated on the Southern Cone of South America in Argentina, Chile and Peru in recent years, but we are now ready to expand our horizons in our aim to add cash generating assets to our Group with a view to paying dividends as soon as practicable. This goal was underpinned in December 2014, when the High Court approved a capital reorganisation which will give us the ability to pay dividends when the opportunity arises. Business Model Having identiﬁ ed a new power plant opportunity the development team work to identify and eliminate the major obstacles ahead on the development time line. The principle hurdles are obtaining environmental and planning permits, fuel strategy and development of the ﬁ nancing plan. In order to effectively use the minimal amount of capital at our disposal, having reached this stage in the development process, we seek an equity partner by selling down up to 50 per cent. of a project company, which allows us to validate a percentage of the development premium, whilst participating in the long term increase in capital value. Key performance 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. Rurelec’s key performance indicators (“KPIs”) include both ﬁ nancial and non-ﬁ nancial targets which are set annually. Financial KPIs Financial KPIs address operating proﬁ tability, net asset value and earnings per share. i) Operating proﬁ tability Operating proﬁ t excludes all non-operating costs, such as ﬁ nancing 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 a loss in the year. ii) Net asset value Net asset value is calculated by dividing funds attributable to Rurelec’s shareholders by the number of shares in issue. The net assets of the Group reduced in the year to 10.1 pence per share. (2013 restated: 11.0 pence per share) iii) Earnings per share Earnings per share provide a measure of the overall proﬁ tability of the Group. It is deﬁ ned as the proﬁ t or loss attributable to each Ordinary Share based on the consolidated proﬁ t 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 loss in the year and hence there were no positive earnings per share. Non-Financial KPIs Non-ﬁ nancial KPIs address other important technical aspects of the business, such as gross capacity, operating efﬁ ciency 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 expanded the capacity in the year by completing the construction in Peru of the 5.3 MW Canchayllo run-of river hydro plant. The continued ownership of three turbines ready for deployment for the two projects in Chile shows the readiness to complete further expansion of the gross capacity by 295 MW. ii) Operating efﬁ ciency Operating efﬁ ciency is the average operating efﬁ ciency of the generating plant owned by Group companies. It can be improved through the installation of more thermally efﬁ cient turbines, refurbishment activities or through conversion to combined cycle operation. No change was noted in the operating efﬁ ciency 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 Argentina was 96 per cent, making the plant one of the most reliable in the Argentine interconnected system. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C02 19/06/2015 16:27 REVIEW OF FINANCIAL PERFORMANCE 03 Group Results The Group loss after tax for the ﬁ nancial year under review is £2.9 million (2013 restated: £35.8 million loss). The majority of the loss is due to operational costs and the net effect of foreign exchange gains and losses on our assets. The results for the operations in Argentina, Peru, Chile and for IPC are shown below. Group revenue was £0.3 million (2013 restated: £5.4 million). Administrative expenses amounted to £7.1 million (2013 restated £3.7 million). Operating loss was £6.9 million (2013 restated £0.1 million gain. The loss before tax is £3 million (2013 restated: £35.7 million loss). The basic loss per share is 0.52p (2013: 7.23 p loss). In the balance sheet the restatement of the 2013 ﬁ nancial statements under IFRS11 has resulted in a decrease in total assets to £91.0 million – compared with the audited ﬁ gures of £94.2 million. In 2014, the total assets of £74.8 million (2013 restated: £ 91.0 million) in cludes assets of £18.2 million (2013: £0), which are held for sale. In December 2014 Rurelec PLC reorganised its reserves by moving £45 million from the share premium account to a special reserve that can be designated as distributable once all creditors at the year end have been paid. Total equity stands at £56.5 million, or 10.1 p ence per share. A more detailed analysis of the business entities is given below. Energia del Sur S.A. Results At the operating level the plant in Comodoro Rivadavia and therefore based on 100 per cent. of Energia del Sur S.A.’s (“EdS’s”) activities the gross operating proﬁ t for the year was £14.99 million (2013: £10.9 million) on revenues of £17.2 million (2013: £19.3 million). In local currency terms the revenues increased to AR$220 million (2013: AR$ 167 million) whilst the gross operating proﬁ t was AR$ 191 million (2013: AR$ 113 million). The reduction in the net loss for the year in EdS to £0.2 million (2013: £4.2 million loss) was due to change in the revenue structure with signiﬁ cantly more contracted energy revenue where we have no fuel costs compared to 2013 where there was signiﬁ cantly more spot energy sales with corresponding increase in fuel costs, which led to the increase in the operating proﬁ ts for the year in 2014. It should be noted that the results of EdS are no longer shown proportionately within the accounts in this annual report. This is because of a change in the reporting rules under the international accounting convention of the International Financial Reporting Standards (“IFRS”) which requires us to report the EdS joint venture as a single line in the Consolidated Statement of Financial Position and in the Consolidated Income Statement. Further information on this can be seen in the note 28 to the accounts and in the Review of Operations. Independent Power Corporation PLC IPC has made a loss for the year of £4.2 million (2013: £2.1 million proﬁ t) which was partly attributable to the Group’s administration costs being charged to IPC in 2014 after the group overheads were reorganised. Previously Rurelec’s administration costs were charged in to Rurelec PLC itself. The activities of the company involve development work for new projects, the supply of engineering services to group and other companies and also the administration of the London ofﬁ ce. Administration expenses for the year were £1.2 million (2013: £1.1 million). The additional cost this year relates to the writing back of accrued income for the success fee from the ﬁ nancial close of the Illapa project in Chile. The measurement of this accrued income was based on management estimates of the amount of work that had been completed and the proximity to achieving ﬁ nance of the project. Selecting the equity partner has been affected by the change in Government and the slow- down of power projects in the country. This along with the need to be certain about accrued income has le d to a one-off write back which has increased the accounting loss for the period by £3.1 million. Rurelec Chile The development operations in Chile have expensed limited direct costs in the year of £82k (2013: £111k ). Capitalised d evelopment costs have accumulated to £0.9 million – (2013: £1.0 million) on both the Central Illapa and Arica projects. Cascade Hydro Power In Peru, the Canchayllo run-of-river hydro plant was completed in the ﬁ nal days of 2014 and the value of the plant at the year-end is £8.8 million (2013: £5.7 million). Rurelec has outstanding loans of £9.5 million (2013: £5.8 million) to the Cascade group at the period end, whilst there is a bank loan relating to the Canchayllo operating plant with the Corporacion Interamericana de Inversion (“IIC”) of £4.6 million (2013: £4.2 million) and other loans of £2.8 million (2013: £0.9 million). The other assets of the Cascade group include £3.2 million (2013: £3.5 million) of bonds held by IIC and the Ministry of Minerals and Energy in connection with development projects. During 2014 the Board took the decision to sell the Peruvian assets and has therefore reported these assets in accordance with IFRS standards as assets held for sale. The equity sale of the Canchayllo plant has been agreed for a total of £4.4 million with the IIC debt of £4.6 million remaining with the plant. t r o p e R c g e t a r t S i www.rurelec.com 236619 Rurelec Annual Report Text.indd C03 19/06/2015 16:27 04 REVIEW OF OPERATIONS The ﬁ rst half of the year was devoted to the recovery of the sum – disappointingly low – awarded by the Arbitration Tribunal, reduced even further by the Bolivian Government’s threats not to pay unless Rurelec accepted a further cash discount. All the same, the Group was able to emerge from the four year nationalisation nightmare with a number of projects under development in Peru and Chile. In the second half of the year your executives were able to concentrate on developing the business, even in the straitened circumstances arising from the pitiful award. The main source of cashﬂ ow for the Group during this period has arisen from it s joint venture operations in Argentina. Argentina Operations at the power plant continue to allow EdS to show an excellent availability record. Gross energy output was 14 per cent. higher at approximately 958 GWh (2013: 840 GWh) , since no maintenance outage was experienced. The average heat rate of the plant was 8.33 MMBTU/MWh (2013: 8.43), a slight drop due to normal degradation following the outage in 2013 . The Ministry of Energy has enacted further changes in the electricity sector, largely driven by the weak performance of the distribution sector, the increase in demand and the widening gap between the ofﬁ cial and unofﬁ cial exchange rates. The major impact of the changes for EdS has been the deduction of a maintenance reserve payment each month, which we have negotiated to recover starting May 2015, thus increasing cashﬂ ow in the coming year. The average notional cost of gas per MWh generated was AR$176.67 (2013: AR$118.36), in US$ terms the gas cost has moved to US$21.46 per MWh from US$21.5 in 2013. The average price of electricity in peso terms increased by 43 per cent. to AR$378.73 (2013: AR$265.17) however it has decreased by 4.5 per cent in dollar terms, US$46.00 (2013: US$48.17) as a result of the weakening of the peso. The Resolution 220 contract is the main driver of the strengthening performance at the EBITDA level, as the proportion of US$ based revenue is boosted by the exchange rate as well as the removal of gas (a US$ expense) from the revenue line and the increased proportion of peso based expense. Turnover at EdS during 2014 was AR$220 million from AR$ AR$166.5 in 2013. No CERs were registered in 2014 as the low CER prices currently do not cover the cost of registration. Gross margin increased in peso terms to AR$191 million from AR$115 million. Large foreign exchange losses due to the impact of the revaluation of US$ borrowings arising from the weakening peso exchange rate once again increased the after tax loss. Even with the foreign exchange loss of AR$52.5 million (2013: AR$46 million) the loss for the year was AR$2.4 million (2013: loss of AR$36 million). This improvement was signiﬁ cantly due to the change in the structure of the energy sales now more reliant on the Resolution 220 Contract rather than spot sales, which incur fuel costs. Cashﬂ ow was strong, allowing EdS to remit US$5.4 million to the UK during the year, however, the electricity sector is still held back by cashﬂ ow restrictions imposed as a result of the low tariffs of the two largest electricity distribution companies. CAMMESA has struggled to maintain timely payment of invoices to generators since the middle of the year. Exchange rates in Q1 2014 saw the biggest correction as the Government ﬁ nally allowed the ofﬁ cial peso exchange rate to move towards the unofﬁ cial exchange rate. At the start of the year it was AR$6.2 to the US$, by year end it was AR$8.23 with most of the fall during January 2014 after a 17 per cent devaluation in that month alone. The deterioration in the exchange rate was having an impact on our receivables, until a new directive was brought in to compensate generators for the impact for the late payment of their invoices. The following table sets out the Group’s share of its interest in the joint venture in Argentina following the changes in the accounting for joint ventures to the equity accounting method: Year ended 31.12.14 £’000 Year ended 31.12.13 £’000 8,611 (5,579) 9,736 4,408 (14,865) (8,518) 9,652 (8,465) 11,906 3,103 (16,682) (2,800) Revenue attributable to the Group Expenses Non-current assets Current assets Non-current liabilities Current liabilities Chile Arica Final approval for the use of the gas turbine was received in May 2014. However, as a result of further objections made locally during the latter half of 2014, we have decided to relinquish the approval for the GT and revert to the original diesel engine-based technology of the initial approval. Limited construction worked has commenced and the environmental approval has been secured. On this revised basis, dispatch levels for the plant, when constructed, are expected to be higher than originally envisaged when using high efﬁ ciency engines. With little new generation other than solar plants planned for the northern part of the SING system, we expect the project to be an important contributor to securing electricity supply in the local area. Central Illapa Development of the Illapa project has progressed slower than anticipated, principally due to the deﬁ nition of the transmission interconnection taking longer than expected. This issue has now been resolved and selection of a joint venture partner and ﬁ nancing for the project is underway and will be pursued with ﬁ nancial completion expected during 2015. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C04 19/06/2015 16:27 05 Peru During 2014 the construction of the 5.3 MW Canchayllo project continued and the plant was successfully commissioned on 31 December 2014 after much hard work on the part of our Cascade Hydro staff in Peru and Harbin, the original equipment manufacturer. The cost of the plant was approximately 20 per cent more than originally budgeted but with a higher installed capacity than originally projected. The Canchayllo plant was ﬁ nanced with equity from Rurelec and debt from the IIC. In addition, the Cascade team was successful in winning PPAs for a further 30 MW of new projects, although we elected to fund only one project to close a power purchase agreement in the 2014 PPA round. The two other projects have had to be held back for the next round which planned for later this year. With signiﬁ cant funding required for bonding and construction of hydro plants in the tender process, we expect to reduce exposure to this sector by selling Canchayllo and our development company Cascade Hydro P ower SAC. This still leaves us with the opportunity to develop large hydro in the form of Rurelec’s 255 MW Santa Rita project and thermal generation in Peru. The Proinversion tender for awarding large hydro PPAs was announced in February 2015 and Rurelec is active now in preparing a qualifying bid in partnership with a strong ﬁ nancial partner currently being selected. Independent Power Corporation During 2014 IPC directed much of its activities to projects under development by clients in Ghana having received the disappointing news that it was unsuccessful in the Gibraltar tender for which it had qualiﬁ ed. IPC is also in advanced negotiations for a similar third party project in Ivory Coast. Principal risks and uncertainties The principal risks and uncertainties facing the Group, apart from the construction risks involved in building the hydro plant in Peru and possible changes in demand and pricing for electricity in the markets in South America in which the Group operates, relate to political risk and uncertainties in the ﬁ nancial markets. a) Political risk – As evidenced by the decision in May 2010 by the Government of Bolivia to nationalise the Group’s interest in Guaracachi, there exists signiﬁ cant political risk in areas in which the Group operates. The Group has sort to mitigate this risk by diversifying the countries in which it operates. b) Financial markets – Whilst project ﬁ nance may be available in the markets in which the Group operates, the Group’s expansion plans remain dependent on raising project ﬁ nance from a combination of local partners and lending institutions. The Group is seeking to broaden its base of potential partners and lending institutions. c) Exposure to foreign currency – The Group’s activities are in South America and therefore the Group’s results will be affected by exchange rate movements and local inﬂ ation rates. Furthermore, past experience has shown that exchange controls restrictions can sometimes be applied and these may have an impact on the Group’s ability to repatriate funds to the parent company. The Group seeks to limit these risks by raising funds in the currency of the operating units. d) Efﬁ cient operation – The Group has an effective maintenance programme and has entered into long term service agreements to reduce these risks as appropriate. The Strategic Report was approved by the Board of Directors on 18 June, 2015 and were signed on its behalf by P. R.S. Earl (Chief Executive). t r o p e R c g e t a r t S i www.rurelec.com 236619 Rurelec Annual Report Text.indd C05 19/06/2015 16:27 06 BOARD OF DIRECTORS MARCELO BLANCO Non-Executive Director Former Regional Finance Director for Latin America, Marcelo was, until 1 May, 2010, Finance Director of Guaracachi and was appointed to the Company’s Board in October 2008. Marcelo graduated from Green Mountain College in the United States and subsequently gained an MBA from the University of Belgrano in Argentina. He has extensive ﬁ nancial advisory experience and has also held appointments in the Bolivian Embassy in Argentina and as a consultant to the World Bank and the United Nations Development programme. Over the last 11 years, Marcelo has focused on the energy sector, including a two year appointment as Vice Minister of Electricity and Alternative Energies at the Bolivian Ministry of Public Works before being reappointed as Finance Director at Guaracachi in 2004. BRIAN ROWBOTHAM Non-Executive Director Brian is the Senior Independent Non-Executive Director and Chairman of the Audit Committee. He worked as a Chartered Accountant with Deloitte and Touche. He has extensive experience working in the City of London, joined Teather and Greenwood in 1997 and was involved as partner and then Finance Director in the company’s ﬂ otation on AIM and subsequent move to the Ofﬁ cial List. He ran his own consultancy specialising in turnarounds and start-ups until joining Hitchens, Harrison & Co plc in January 2005. He left Hitchens, Harrison & Co plc after its acquisition by Religare in 2008. Brian is a Fellow of the Institute of Chartered Accountants in England and Wales PABLO GALANTE Non-Executive Director Pablo has worked for 18 years in the Oil industry. He is currently focusing his activities in Latin America and West Africa for one of Europe’s largest oil and energy traders. As a Non-Executive Director of the Company, he brings an extensive network of contacts and experience in economies with rapidly expanding requirements for power. Graduated in Economics from Universidad Catolica Andres Bello of Caracas, Venezuela. COLIN EMSON Chairman and Non-Executive Director Colin has been Executive Director of Robert Fraser Group since 1979. He is designated member of the business consulting ﬁ rm Robert Fraser & Partners LLP and Co-founder of specialist ﬁ nance, insurance broking and investment consultancy Emson & Dudley in 1967. He has been Chairman and Director of Sterling Trust Limited since 1988. Colin is also Chairman of the Nominations Committee. PETER EARL Chief Executive Peter began his career at the Boston Consulting Group advising state-owned companies before becoming an investment banker best known for his demergers. He has acted on secondment to the World Bank and United Nations Development Program where he advised governments on privatisations in Latin America and Eastern Europe. In 1995 he founded IPC which has rapidly established itself as the United Kingdom’s leading developer and operator of power plants on four continents. He is an Oxford University graduate and was a Kennedy Scholar and tutor at Harvard University. ANDREW MORRIS Group Finance Director Former Chairman of Rurelec PLC. Previously he has spent twelve years working in the renewable energy sector most recently as Finance and Corporate Development Director of Advanced Plasma Power Limited where he played an important role in raising corporate investment into the business. He has also been responsible for leading a number of negotiations and teams for business development to further enhance operations and is fully conversant with all aspects of ﬁ nancial control and reporting. Andrew is a Fellow of the Association of Chartered Certiﬁ ed Accountants having trained at Price Waterhouse and is a graduate of the University of Newcastle upon Tyne. ELIZABETH SHAW Executive Director Project Finance Former Finance Director of Rurelec PLC, Elizabeth has been involved in the electricity sector since 1994 when she joined Fieldstone Private Capital Group. Between 1994 and 2000, as a Director of Fieldstone, she advised on a number of mergers, acquisitions and disposals in the electricity industry, both in the UK and in developing markets. She joined IPC as a Director in 2000 where she is responsible for business development and ﬁ nance. She is also a Director of IPSA Group PLC. She is a graduate of Exeter University. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C06 19/06/2015 16:27 DIRECTOR’S REPORT 07 THE DIRECTORS SUBMIT THEIR ANNUAL REPORT TOGETHER WITH THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER, 2014. Principal activities The Company and the Group’s principal activity is the acquisition, development and operation of power generation assets in markets in Latin America. In addition, and as opportunities arise, the Company acquires, refurbishes and sells power generation equipment to third parties. Since the Company’s admission to AIM in August 2004, the Company has acquired interests in power generation operations in Bolivia and Argentina and, during 2012, in Peru and Chile. Results and dividends The Group results for the year ended 31 December, 2014 are set out in the Consolidated Statement of Comprehensive Income. No dividend was paid during the year to 31 December, 2014 (2013: nil). Share capital Details of the issued share capital are set out in note 21. Going concern As set out in note 1b to the ﬁ nancial statements, the Directors have continued to adopt the “going concern” basis for the preparation of the ﬁ nancial statements since the Directors consider that the Company and the Group will have sufﬁ cient ﬁ nancial resources available to continue trading for at least 12 months from the date of approval of the ﬁ nancial statements. Directors The following Directors served during the year: Colin Emson – Chairman and Non-Executive Director Peter Earl – Chief Executive Andrew Morris – Group Finance Director Elizabeth Shaw – Executive Director Project Finance Marcelo Blanco – Non-Executive Director (Regional Director of Finance until 1 January 2015) Brian Rowbotham – Non-Executive Director Larry Coben – Non-Executive Director (resigned 11 July 2014) Pablo Galante – Non-Executive Director (Appointed 9 April 2015) Directors’ interests The Directors’ beneﬁ cial interests in the shares of the Company were on the reference dates as stated below: 16 .06.2015 31.12.2014 31.12.2013 A.J.S. Morris 737,700 737,700 687,700 L.S. Coben P.R.S. Earl E.R. Shaw n/a n/a 900,000 7,000,000 7,000,000 6,900,000 325,000 325,000 275,000 Brian Rowbotham 450,000 450,000 270,000 Pablo Galante 13,000,000 n/a n/a Signiﬁ cant shareholdings in the Company In addition to the shareholdings shown above, the Company is aware of the following interests of 3 per cent or more in the issued ordinary share capital of the Company notiﬁ able at 16 June 2014, being the last practicable date for reporting this information. Sterling Trust Ltd YF Finance Ltd HSBC Client Holdings Nominees (UK) Limited Number of shares % holding 303,092,303 96,565,166 53.989 17.201 16,884,673 3.008 The percentages shown are based on 561,387,586 shares in issue. Risk management and objectives The ﬁ nancial risk management policies and objectives are set out in note 29. Directors’ responsibilities The Directors are responsible for preparing the Strategic Report, the Directors’ Report, Annual Report and the ﬁ nancial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare ﬁ nancial statements for each ﬁ nancial year. Under that law the Directors have to prepare the ﬁ nancial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. Under company law, the Directors must not approve the ﬁ nancial statements unless they are satisﬁ ed that they give a true and fair view of the state of affairs and proﬁ t or loss of the Company and Group for that period. In preparing these ﬁ nancial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the ﬁ nancial statements; www.rurelec.com e c n a n r e v o G r u O 236619 Rurelec Annual Report Text.indd C07 19/06/2015 16:27 08 DIRECTOR’S REPORT Auditor The Auditor, Grant Thornton UK LLP, have indicated their willingness to continue in ofﬁ ce and a resolution concerning their reappointment will be proposed at the Annual General Meeting. On behalf of the Board Susan Laker Company Secretary 18 June, 2015 • prepare the ﬁ nancial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufﬁ cient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the ﬁ nancial position of the Company and enable them to ensure that the ﬁ nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors conﬁ rm that: • • • there is no relevant audit information of which the Company’s auditors are unaware; and the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. t he Directors are responsible for the maintenance and integrity of the corporate and ﬁ nancial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of ﬁ nancial statements may differ from legislation in other jurisdictions. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C08 19/06/2015 16:27 CORPORATE GOVERNANCE 09 Policy Statement The Board is committed to applying high standards of corporate governance and integrity to all our activities. The Company is not required by the rules of the AIM market of the London Stock Exchange to comply with the UK Corporate Governance Code (the “Code”) and the Board recognises that it does not do so. However, the Board has been briefed on the Code and is accountable to the Company’s shareholders for good corporate governance and therefore seeks to comply with the Code in so far as appropriate for a company of its size. Internal Controls The Directors are responsible for the Group’s systems of internal control. Whilst no risk management process or systems of internal control can completely eliminate the risk of material misstatement or loss, the Group’s systems are designed to provide the Directors with reasonable assurance that problems are identiﬁ ed in a timely manner and dealt with appropriately. The Board considers that there have been no substantial weaknesses in ﬁ nancial controls resulting in material loss, contingencies or uncertainties to be disclosed in the accounts. The Board has considered the need for an internal audit function and has concluded that there is no current need for such a function. Board Composition and Independence The Board currently comprises seven members made up of a Non-Executive Chairman, three Executive Directors and three Non-Executive Directors. The Board is responsible for the overall direction, strategic objectives and key policies for reviewing performance of the Company as well as approving major capital expenditure, potential acquisitions and ﬁ nancial matters. The Board meets regularly and has a schedule of business reserved to it including raising new capital, entering into ﬁ nancing facilities for projects, treasury policies and approval of annual operating budgets and monitoring of key risks. The Board met eleven times during 2014. External advice is available to the Directors if they consider it necessary. The Chairman and Non-Executive Directors met twice during the ﬁ nancial year without the Executive Directors being present. The Chairman of the Board is Colin Emson, who is also an Executive director of a number of other companies. The Non- Executive Directors are Brian Rowbotham, Marcelo Blanco and Pablo Galante two of them are regarded by the Board as independent in character and judgement. The Executive Directors are Peter Earl, who is Chief Executive, Elizabeth Shaw, who is Executive Director Project Finance, and Andrew Morris, who is Group Finance Director. All Directors are involved in signiﬁ cant decisions. The Board received appropriate information and a formal agenda before each Board meeting. The Company has in place appropriate procedures to deal with conﬂ icts of interest. The Company maintains directors’ and ofﬁ cers’ liability insurance against any claims which may be made against the directors and ofﬁ cers of the Company. Shareholder Relations The Group values the views of its shareholders and recognises their interest in the Group’s strategy and performance, Board membership and quality of management. It therefore holds regular meetings with and gives presentations to its institutional shareholders to discuss objectives. The Annual General Meeting (“AGM”) is used to communicate with private investors with whom dialogue is encouraged. Additional information is supplied through the circulation of the interim report and the Annual Report and Accounts. The Company maintains up-to-date information on the investor section of its website www.rurelec.com. Audit Committee The Audit Committee comprises Brian Rowbotham as Chairman of the Committee, Colin Emson, Marcelo Blanco and Pablo Galante who are all Non-Executive Directors. Mr Rowbotham, is an accountant and Mr Emson, Mr Blanco and Mr Galante have recent and relevant ﬁ nancial and commercial experience. The Committee’s remit is to review ﬁ nancial reporting practices, internal ﬁ nancial controls and internal and external audit policy including the appointment of the Company’s Auditor. During the year, the Audit Committee met twice to review the draft half year and annual ﬁ nancial statements. Remuneration Committee The Remuneration Committee comprises Brian Rowbotham as Chairman of the Committee, Colin Emson, Marcelo Blanco and Pablo Galante. The Remuneration Committee reviews the remuneration policy for the Executive Directors and for key management personnel. The Executive Directors determine the remuneration arrangements for the Non-Executive Directors. No Director may participate in decisions regarding his own remuneration. Details of the Directors’ remuneration can be found in Note 8c. Appointment of Directors The Nomination Committee presently comprises Colin Emson as Chairman, Brian Rowbotham, Marcelo Blanco and Pablo Galante. The Committee is responsible for monitoring the composition of the Board and meets to make recommendations to the Board on all new Board appointments and succession planning. The Board has not used external consultants in the appointment of Directors. All Directors are subject to re-election by shareholders in accordance with the Company’s Articles of Association. e c n a n r e v o G r u O www.rurelec.com 236619 Rurelec Annual Report Text.indd C09 19/06/2015 16:27 10 CORPORATE GOVERNANCE Health, Safety and Environmental Protection Policy The Group is committed to compliance with all relevant laws and regulations and continues to assess its operations to ensure protection of the environment, the community and the health and safety of its employees. The Group maintains appropriate procedures to ensure that all activities are carried out in compliance with safety regulations, in a culture where the safety of personnel is paramount and which recognises environmental sustainability and respect for cultural and heritage issues. Share Dealing Code The Company has a Share Dealing Code which covers dealings by Persons Discharging Managerial Responsibilities (“PDMRs”). The Company’s code complies with the provisions of the Code and restricts dealings in shares during designated closed periods and at any time when they are in possession of unpublished price sensitive information. Statement of Non-Compliance Marcelo Blanco as Non-Executive Director who has previously served as an Executive Director cannot be considered to be independent in character and judgement. The non-executive Chairman is a related party in that he is also the Chairman of the largest shareholder but in other respects the Company complies with the Code in so far as appropriate for an AIM listed company. The Board recognises that it does not comply with the Code. Susan Laker Company Secretary 18 June, 2015 RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C10 19/06/2015 16:27 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF RURELEC PLC 11 Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and Directors’ Report for the ﬁ nancial year for which the ﬁ nancial statements are prepared is consistent with the ﬁ nancial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company ﬁ nancial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration speciﬁ ed by law are not made; or • we have not received all the information and explanations we require for our audit. Christopher Smith Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 18 June, 2015 We have audited the ﬁ nancial statements of Rurelec plc for the year ended 31 December 2014 which comprise the consolidated income statement , the consolidated and parent company statements of ﬁ nancial position, the consolidated and parent company statements of cash ﬂ ow, the consolidated and parent company statements of changes in equity, and the related notes. The ﬁ nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and, as regards the parent company ﬁ nancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page s 7 & 8 , the directors are responsible for the preparation of the ﬁ nancial statements and for being satisﬁ ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the ﬁ nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the ﬁ nancial statements A description of the scope of an audit of ﬁ nancial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on ﬁ nancial statements In our opinion: • • • the ﬁ nancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2014 and of the group’s loss for the year then ended; the group ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the ﬁ nancial statements have been prepared in accordance with the requirements of the Companies Act 2006. www.rurelec.com i l s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C11 19/06/2015 16:27 12 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2014 Revenue Write off of accrued income Cost of sales Gross profit Administrative expenses Operating (loss)/profit Other expense Other i ncome /(expense) – exchange gain/(loss) Other expense – From share of joint venture Finance income Finance expense Loss before tax Tax expense Loss for the year attributable to owner of the company Earnings per share Basic loss per share Diluted (loss)/earnings per share NOTES 4 15 6 7 9,b,c, 15 9a 28 10 10 11 12 YEAR ENDED 31.12.14 £’000 30 3 (3,129) (231) (3,147) ( 3,832) (6,979) (392) 2,180 – 2,56 7 (312) (2,936) (8) (2,944) (0.52 p) (0. 52 p) YEAR ENDED 31.12.13 RESTATED £’000 5,442 – (1,619) 3,823 (3,741) 82 (38,314) (561) (319) 2,767 (20) (36,365 ) (29) (36,394 ) (7.23 p) ( 7.23 p) RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C12 19/06/2015 16:27 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014 13 Loss for the year Other comprehensive income/(loss) for the year: Items that will be subsequently Reclassified to Profit or Loss: Exchange differences on translation of foreign operations Total other comprehensive loss NOTES YEAR ENDED 31.12.14 £’000 (2,944) (2,249) (2,249) YEAR ENDED 31.12.13 RESTATED £’000 (36 ,394 ) (364 ) (364 ) Total comprehensive loss for year attributable to owners of the company (5,193) (36 ,758 ) 236619 Rurelec Annual Report Text.indd C13 19/06/2015 16:27 i l s a c n a n F r u O i www.rurelec.com 14 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2014 NOTES 31.12.14 £’000 31.12.13 RESTATED £’000 1.1.13 RESTATED £’000 Assets Non-current assets Property, plant and equipment Intangible assets Investment in Argentinian Joint Venture Trade and other receivables Deferred tax assets Current assets Inventories Trade and other receivables Compensation claim, Interest & Dividends Receivable on Award Cash and cash equivalents Assets classified as held for sale Total assets Equity and liabilities Shareholders’ equity Share capital Share premium account Foreign currency reserve Share option reserve Plant reserve Other Reserve Retained earnings Total equity attributable to shareholders of Rurelec PLC Non-controlling interests Total equity Non-current liabilities Tax liabilities Deferred tax liabilities Borrowings Current liabilities Trade and other payables Current tax liabilities Borrowings Liabilities classified as held for sale Total liabilities Total equity and liabilities 14 15 16 a 17 18 16 b 19 20 34 21 22 23 25 17 26 a 24b 25 b 26 b 34 22,169 1,321 – 23,21 2 – 46,702 – 9,60 0 – 283 9,883 18,178 74,763 11,228 22,754 (3,211 ) 14 6 1,050 45,000 (20,426 ) 56,541 283 56,824 – – – – 4,423 70 3,164 7,657 10,282 17,939 74,763 27,788 1,792 – 23,64 9 – 53,229 – 14,591 19,126 3,730 37,447 – 3,082 – 319 32,833 – 36,234 18 8 1,189 51,473 6,042 58,892 – 90,67 6 95,126 11,145 67,369 ( 962 ) 107 1,050 – (17,19 9 ) 61,5 10 142 8,413 53,012 ( 598 ) 46 1,050 – 19,195 81,118 224 61,65 2 81,342 18 – 622 640 8,051 65 20,268 28,384 – 29,024 90,67 6 – – – – 1,787 – 11,997 13,784 – 13,784 95,126 The financial statements were approved by the Board of Directors on 18 June, 201 5 and were signed on its behalf by P.R.S. Earl (Chief Executive) and A.J.S. Morris (Group Finance Director). RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C14 19/06/2015 16:27 PARENT COMPANY STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2014 15 Assets Non-current assets Investments Trade and other receivables Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Equity and liabilities Shareholders’ equity Share capital Share premium account Share option reserve Other Reserves Retained earnings Total equity Current liabilities Trade and other payables Total equity and liabilities NOTES 31.12.14 £’000 31.12.13 £’000 27 16c 18b 16d 20 21 23 22 23 24c 9,755 50, 599 60,354 16,743 42,287 59,030 16,195 16,195 3 8 1 34 21 16,234 16,250 76,588 75,280 11,228 22,754 14 6 45,000 (7,521) 71,607 11,145 67,369 107 – (8,486) 70,135 4,981 4,981 5,145 5,145 76,588 75,280 The financial statements were approved by the Board of Directors on 18 June, 2015 and were signed on its behalf by P.R.S. Earl (Chief Executive) and A.J.S. Morris (Group Finance Director). 236619 Rurelec Annual Report Text.indd C15 19/06/2015 16:27 i l s a c n a n F r u O i www.rurelec.com 16 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014 Cash flows from operating activities Cash used in operations Interest paid Taxation paid Net cash used in operating activities Cash flows from investing activities Purchase of plant and equipment Settlement for expropriated assets Repayments from joint venture company Net cash generated from/(used in) investing activities NOTES 29 14 YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 RESTATED £’000 (4,890) (312) (8) (5,210) (5,135) 18,863 3,381 17,109 (3,980) 547 (29) (3,462) (7,523) – 3,840 (3,683) Net cash inflow/(outflow) before financing activities 11,899 (7,145) Cash flows from financing activities Issue of shares (net of costs) Deferred Consideration Loan drawdowns Loan repayments Net cash (used in)/generated from financing activities Decrease in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 468 (125) 3,170 (18,859) (15,346) (3,447) 3,730 283 – – 4,753 – 4,753 (2,392) 6,122 3,730 RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C16 19/06/2015 16:27 COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014 17 Cash flows from operating activities Cash (used in)/ge nerated from operations Net cash (used in)/generated from operations Cash flows from investing activities Investment in and loans to subsidiaries and joint venture company Loan repayments by joint venture company Loan repayment from subsidiary Net cash generated from/(used in) investing activities NOTES 29 YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 £’000 (4,397) (4,397) (2,919) 3,382 3,323 3,786 5,783 5,783 (14,104) 3,840 – (10,264) Net cash outflow before financing activities (611) (4,481) Cash flows from financing activities Issue of shares (net of costs) Loan drawdowns Loan repayments Net cash generated from financing activities Decrease in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 468 278 (155) 591 (20) 21 1 – – – (4,481) 4,502 21 236619 Rurelec Annual Report Text.indd C17 19/06/2015 16:27 i l s a c n a n F r u O i www.rurelec.com 18 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013 SHARE CAPITAL £’000 SHARE PREMIUM £’000 NOTE FOREIGN CURRENCY RESERVE £’000 SHARE OPTION RESERVE £’000 RETAINED EARNINGS £’000 OTHER RESERVE £’000 PLANT RESERVE £’000 TOTAL £’000 NON- CONTROLLING INTEREST £’000 TOTAL EQUITY £’000 Original Balance at 1.1.13 8,413 53,012 (598) 46 19,389 – 1,050 81,312 224 81,536 Effect of restatement due to change in accounting policy – – – – (194) Restated Balance at 1.1.13 8,413 53,012 (598 ) 46 19,195 Transactions with owners Issue of share Charge for share options Non-controlling interest Total transactions with owners Loss for year Exchange differences Total comprehensive Loss 2,732 14,357 – – – – 2,732 14,357 – – – – – – – – – – – ( 364) ( 364) – 61 – 61 – – – – – – ( 36,394) – – ( 36,394) – – – – – – – – – – ( 194) – ( 194) 1,050 81,118 224 81,342 – 17,089 – – 61 – – 17,089 – (82) 61 (82) – 17,150 (82) 17,068 – ( 36,394) – ( 364) – (36, 758) – ( 36,394) – ( 364) – (36, 758) Balance at 31.12.13 11,145 67,369 (962 ) 107 (17,199 ) – 1,050 61, 510 142 61, 652 Transactions with owners Issue of share Share issue costs Charge for share options 21 83 – – 467 (82) – Transfer to Other reserve 23 – (45,000) – – – – – – – – – 39 – – – – – – – – – 45,000 – – – – – – – 550 (82) 39 – – – – – – 550 (82) 39 – 141 141 Non-controlling interest Total transactions with owners Loss for year including Minority Loss Exchange differences Total comprehensive loss for the year 83 (44,615) – 39 – 45,000 – 507 141 648 – – – – – (2,249) – – ( 3,227) – – – – ( 3,227) – (2,249) – ( 3,227 ) – (2,249) – – (2,249) – (3,227 ) – – (5,476 ) – (5,476 ) Balance at 31.12.14 11,228 22,754 (3,211 ) 146 ( 20,426) 45,000 1,050 56,541 283 56,824 RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C18 19/06/2015 16:27 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014 19 SHARE CAPITAL £’000 SHARE PREMIUM £’000 NOTE SHARE OPTION RESERVE £’000 RETAINED EARNINGS £’000 OTHER RESERVE £’000 TOTAL £’000 Balance at 1.1.13 8,413 53,012 46 1,879 – 63,350 Transactions with owners Issue of share Charge for share options Non-controlling interest 2,732 14,357 – – – – Total transactions with owners 2,732 14,357 – 61 – 61 – – – – Loss for year Total comprehensive loss – – – – – – (10,365) (10,365) Balance at 31.12.13 11,145 67,369 107 (8,486) Transactions with owners Issue of share Issue costs Charge for share options Transfer to Other Reserve Total transactions with owners 21 23 Profit for year Total comprehensive profit Balance at 31.12.14 83 – – – 83 – – 467 (82) – (45,000) (44,615) – – – – 39 – 39 – – – – – – – 965 965 – – – – – – – – – – – – 45,000 45,000 17,089 61 – 17,150 (10,365) (10,365) 70,135 550 (82) 39 – 507 965 965 11,228 22,754 146 ( 7,521) 45,000 71,607 www.rurelec.com l i s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C19 19/06/2015 16:27 20 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 1 GENERAL INFORMATION, BASIS OF PREPARATION AND NEW ACCOUNTING STANDARDS 1a General information Rurelec PLC is the Group’s ultimate parent company. It is incorporated and domiciled in England and Wales. The address of Rurelec’s registered office is given on the information page. Rurelec’s shares are traded on the AIM market of the London Stock Exchange PLC. The nature of the Group’s operations and its principal activities are the generation of electricity in South America. 1b Basis of preparation, including going concern The Company and the consolidated financial statements have been prepared in compliance with International Financial Reporting Standards (“IFRSs”) and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations as adopted by the European Union and company law applicable to companies reporting year ended 31 December 2014. The Directors have continued to adopt the going concern basis for the preparation of these financial statements, having received settlement from the Bolivian Government in 2014 allowing the repayment of the Birdsong loan in June 2014. During 2015 the Group continues to receive funds from Argentina in service of the loans to the Joint Venture, whilst also selling the assets of the Group in Peru. The Group has agreed but not contracted for a bridging loan facility of $12 million that will be drawn down in the event that the arrangements for an alternative one year secured loan from a large organisation within the South American power industry is not signed within the time limits required by the company’s creditors. It is expected that the Group will reach satisfactory agreement with this large organisation such that the proceeds of this loan will be used to meet current obligations and provide working capital for the Group. The Group expects to repay the loan from the proceeds of the sale of its Peruvian assets. On the basis of these loan facilities the Directors have assessed that the Group has sufﬁ cient working capital based on their review of cashﬂ ow forecasts for a period of at least 12 months from the signing of the ﬁ nancial statements. Restatement of 2013 accounts The 2013 financial results have been restated for the application of IFRS 11 Joint Arrangements. In previous years the group has accounted for interests in joint ventures under the proportionate consolidation approach. Under IFRS 11 the Group’s interest needs to be included in the consolidated accounts by equity accounting. This change in accounting policy has had the effect of increasing the net assets of the Group by £3.3 million at 31 December 2013 and £0. 2 million as at 1 January 2013 and also has reduced the loss by £3.3 million in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2013. The investment in the Joint Venture is held at nil as the Group is not recognising addit ional losses over and above that investment. More information on the effect of IFRS 11 can be seen in note 28. 1c New accounting standards 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: Standard/interpretation IFRS 9 (2014) Content Financial instruments: Applicable for financial years beginning on/after 01/01/ 2018 RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C20 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 21 FOR THE YEAR ENDED 31 DECEMBER 2014 Standards and amendments to existing standards effective 1 January 2014 The following standards, amendments and interpretations became effective in 2014: Standard/interpretation Amendments to IAS 36* Non-Financial Assets IFRS 10* IFRS 11 IFRS 12* IAS 27* (Revised) IAS 28* (Revised) Amendment to IFRS 10, IFRS 11 and IFRS 12* Amendment to IFRS 10* Amendments to IAS 32* IFRIC Interpretation 21* Content Recoverable Amount Disclosures for Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Separate Financial Statements Investments in Associates and Joint Ventures Transition Guidance Investment Entities Offsetting Financial Assets and Financial Liabilities Levies Applicable for financial years beginning on/after 01/01/2014 01/01/2014 01/01/2014 01/01/2014 01/01/2014 01/01/2014 01/01/2014 01/01/2014 01/01/2014 * The adoption of these Standards and interpretations has had no material impact on the financial statements of the Group other than for the disclosure of joint venture. IFRS 9, ‘Financial instruments: Classiﬁ cation and measurement’ 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. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of consolidation The Group financial statements consolidate the results of the Company, the equity accounting under IFRS 11 in the Argentina joint venture, the Group’s 100 per cent. interest in the Chilean entity and the Peruvian assets held for sale. 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. Management has reviewed its control assessments in accordance with IFRS 10 and has concluded that there is no effect on the classification as subsidiaries or joint ventures of any of the Group’s investees held during the period or comparative periods covered by these financial statements. The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2014. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Generally there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control that is when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control. The Group reports its interests in joint venture using the equity method of accounting, except when the investment is classified as held for sale. www.rurelec.com l i s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C21 19/06/2015 16:27 22 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 Under the equity method, investments in joint ventures are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the joint venture, less any impairment in the value of individual investments. Losses of a joint venture in excess of the Group’s interest in that joint venture are not recognised, unless the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the joint venture recognised at the date of acquisition is recognised as goodwill. The goodwill, if any is included within the carrying amount of the investment and is assessed annually for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately as a profit or loss. Unrealised gains on transactions between the Group and its joint venture are eliminated to the extent of the Group’s interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Unrealised gains on transactions between the Group and subsidiary entities 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 and joint venture 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. This 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 entity 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’s accounting policies. Investments in subsidiaries are stated at cost in the statement of financial position of the Company. 2.2 Goodwill Goodwill representing the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is capitalised and reviewed annually for impairment. Goodwill is stated after separating out identifiable assets and liabilities. Goodwill is carried at cost less accumulated impairment losses. Any excess of interest in acquired assets, liabilities and contingent liabilities over fair value is recognised immediately after acquisition through the income statement. 2.3 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 within ‘other expense’. In the consolidated financial statements, all separate financial statements of subsidiary and joint venture, originally presented in a currency different from the Group’s presentation currency, have been converted into sterling. Assets and liabilities have been translated into sterling at the closing rate at the 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. 2.4 Income and expense recognition Revenue represents amounts receivable for goods or services provided in the normal course of business, net of trade discounts, VAT and other sales-related taxes, and excluding transactions with or between Group companies. Revenues from the sale of electricity are recorded based upon output delivered at rates specified under contract terms or prevailing market rates as applicable. Revenue is recognised on the supply of electricity when a contract exists and supply has taken place. Revenue received for keeping power plants operating and available for despatch into the grid as required is recognised on a straight-line basis over the contractual period. During the year under review and the prior year, no revenues were derived from the sale of equipment purchased with a view to subsequent resale 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. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C22 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 23 FOR THE YEAR ENDED 31 DECEMBER 2014 Independent Power Corporation PLC a 100 per cent. subsidiary of Rurelec PLC undertakes engineering and development exercises for the Group and third parties. Income and expenses are recognised as they occur, however there are accrued income amounts which relate to success fees on completing the engineering and development of projects that are paid on financial close of the project. The amounts of accrued income are subjective and are determined by management dependent on the level of completion of the relevant project and the expected timing of financial close. 2.5 Dividends Dividends, other than those from investments in associates and joint ventures, are recognised at the time the right to receive payment is established. No dividends were paid or received during the year (2013: nil). 2.6 Borrowing costs All borrowing costs are expensed as incurred except where the costs are directly attributable to specific construction projects, in which case the interest cost is capitalised as part of those assets. 2.7 Property, plant and equipment Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. No depreciation is charged during the period of construction. All operational buildings and plant and equipment in the course of construction are recorded as plant under construction until such time as they are brought into use by the Group. Plant under construction includes all direct expenditure and may include capitalised interest in accordance with the accounting policy on that subject. On completion, such assets are transferred to the appropriate asset category. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations and overhauls is included in the carrying amount of the assets where it is probable that the economic life of the asset is significantly enhanced as a consequence of the work. Major renovations and overhauls are depreciated over the expected remaining useful life of the work. Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment other than freehold land which is not depreciated by equal annual instalments over their estimated useful economic lives. The periods generally applicable are: Buildings Plant and equipment 25 to 50 years 3 to 15 years Material residual values are updated as required, but at least annually. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. 2.8 Impairment of tangible and intangible assets At each reporting date, the Group reviews the carrying amount of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the income statement. The Group recognises a cash-generating unit by its ability to independently earn income. The Group carries each cash- generating unit in an individual special purpose company so they are easily recognised. 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 only to the extent 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 the income statement. www.rurelec.com l i s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C23 19/06/2015 16:27 24 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 2.9 Non-current Assets Held for Sale and Discontinued Operations In general IFRS 5 outlines how to account for non-current assets held for sale such that assets (or disposal groups) held for sale are not depreciated, are measured at the lower of carrying amount and fair value less costs to sell, and are presented separately in the statement of financial position. The following conditions must be met for an asset (or ‘disposal group’) to be classified as held for sale: IFRS 5.6-8 • management is committed to a plan to sell • the asset is available for immediate sale • an active program to locate a buyer is initiated • the sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions) • the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value • actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn The assets need to be disposed of through sale. When the Group is committed to a sale involving loss of control of a subsidiary that qualifies for held-for-sale classification under IFRS 5 the Group classifies all of the assets and liabilities of that subsidiary as held for sale, even if the entity will retain a non-controlling interest in its former subsidiary after the sale. Non-current assets or disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Assets classified as held for sale, and the assets and liabilities included within a disposal group classified as held for sale, are presented separately on the face of the statement of financial position. The sum of the post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognised on the measurement to fair value less cost to sell or fair value adjustments on the disposal of the assets (or disposal group) is presented as a single amount on the face of the statement of comprehensive income. 2.10 Taxation Current income tax assets and liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the reporting 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 changes in equity. Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with the rules set out in IAS 12, no deferred taxes are recognised in respect of non-tax deductible goodwill. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided for in full with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided that they are enacted or substantially enacted at the reporting date. Deferred tax is provided on differences between the fair value of assets and liabilities acquired in an acquisition and the carrying value of the assets and liabilities of the acquired entity and on the differences relating to investments in subsidiary and joint venture companies if the difference is a temporary difference and is expected to reverse in the foreseeable future. Changes in deferred tax assets and 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. 2.11 Financial assets The Group’s financial assets include cash and cash equivalents, loans and receivables. Cash and cash equivalents include cash at bank and in hand as well as short term highly liquid investments such as bank deposits. Loans and 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. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C24 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 25 FOR THE YEAR ENDED 31 DECEMBER 2014 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 assets carrying amount and the present value of estimated cash flows. 2.12 Financial liabilities Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the Group becomes a party to the contractual provisions of the instrument. All transaction costs are recognised immediately in the income statement. A financial liability is derecognised only when the obligation is extinguished, that is when the obligation is discharged, cancelled or expires. 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 and are subsequently measured 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. 2.13 Inventories Inventories comprise spare parts and similar items for use in the Group’s plant and equipment. Inventories are valued at the lower of cost and net realisable value on a first in, first out basis. 2.14 Shareholders’ equity Equity attributable to the shareholders of the parent company 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. “Share option reserve” represents the fair value of options granted and outstanding at the year-end. “Retained earnings” represents retained profits. “Other reserves” comprises the reduction of the share premium account. 2.15 Pensions During the year under review, the Group did not operate or contribute to any pension schemes (201 3: nil). 2.16 Segment reporting In identifying its operating segments, management follows the Group’s geographic locations and are reported in a manner consistent with the Chief Operating Decision Maker. The activities undertaken by segments are the generation of electricity in their country of incorporation within South America. Each of the operating segments is managed separately as the rules and regulations vary from country to country. The measurement policies used by the Group for segment reporting under IFRS 8 are the same as those used in the financial statements. www.rurelec.com i l s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C25 19/06/2015 16:27 26 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 3 KEY ASSUMPTIONS AND ESTIMATES When preparing the financial statement, management make a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities income and expenses. The actual results may differ from the judgements, estimates and assumptions made and will seldom equal the estimated results. The areas which management consider are likely to be most affected by the significant judgements, estimates and assumptions on recognition and measurement of assets, liabilities, income and expenses are: a) Useful lives of depreciable assets – management review, with the assistance of external expert valuers, the useful lives of depreciable assets at each reporting date. This review includes consideration of the book value of plant under construction which at the year-end amounted to £3.7 million. Actual results, however, may vary due to changes in technology and industry practices. b) Impairment – management review tangible and intangible assets at each balance sheet date to determine whether there is any indication that those assets have suffered an impairment loss. This review process includes making assumptions about future events, circumstances and operating results. The actual results may vary from those expected and could therefore cause significant adjustments to the carrying value of the Group’s assets. Details of the assumptions underlying management’s forecasts for the Group’s main Cash Generating Unit (“CGU”) are set out in note 15. c) Deferred tax assets and liabilities – there exists an element of uncertainty regarding both the timing of the reversing of timing differences and the tax rate which will be applicable when the reversing of the asset or liability occurs. d) Asset acquisitions – where the Group acquires assets or a company which is not considered to be a business as defined by IFRS 3, the transaction is accounted for as an asset acquisition and not a business combination. e) Management have assessed that we do not control the Argentine Joint Venture and therefore have treated the joint venture in accordance with IFRS 11 (see note 28). This assessment is based on the lack of power over the investee and due to the exposure to variable returns from its involvement with the investee. f) Accrued Income – Management makes assessments as to the amounts of accrued income that is recognised in the Group’s accounts. The amounts recognised are based on what is expected to be received in total and relate to success fees from projects developed by the Group. These amounts are then reviewed with adjustments for the level of completion of the project and the likelihood of reaching financial close when the amounts will become due. These are judgements made by management of the Group and the actual results may differ from these judgemental assessments. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C26 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 27 FOR THE YEAR ENDED 31 DECEMBER 2014 4 SEGMENT ANALYSIS Management currently identifies the Group’s four geographic operating segments; Argentina, Chile, Peru and the head office in the UK, as operating segments as further described in the accounting policy note. These operating segments are monitored and strategic decisions are made on the basis of segment operating results. However even though the Argentine operation has been accounted for under the equity accounting method as a Joint Venture under IFRS 11 the segmental analysis is shown in this note 4 but then removed in consolidation adjustments to provide the results in accordance with IFRS 11. More details on the effect of this has been shown in note 28 . The following tables provide an analysis of the operating results, total assets and liabilities, capital expenditure and depreciation for 2014 and 2013 for each geographic segment. a) 12 months to 31.12.2014 Revenue Write off of accrued income Costs of Sales Gross profit/(loss) Administrative expenses Profit/(loss) from operations Other (expense)/income Foreign exchange (losses)/gains Finance income Finance expense (Loss)/profit before tax Tax expense Loss for the year Total assets Total liabilities Capital expenditure Depreciation ARGENTINA £’000 CHILE £’000 PERU £’000 8,611 – (5,579) 3,032 (293) 2,739 – (2,175) – (674) (11 0) (105) (21 5) 11,45 5 23,383 – 293 – – – – (83) (83) – 51 – – (32) – (32) – – – – (661) (661) – (631) 18 (742) 2,760 3,780 (918) (2,01 6) ( 1,18 7) (8) – (2, 02 4) ( 1,18 7) 6,458 7,321 18,528 78,626 22,697 6,865 – – 5,087 (2) 48 10 UK £’000 42 3 (3,219) (231) (3,027) ( 3,208) (6,23 5) BOLIVIA £’000 CONSOLIDATION ADJUSTMENTS £’000 – – – – – – (8,732) – 5,579 (3,153) 413 (2,740) TOTAL £’000 30 3 (3,219) (231) (3,147) ( 3,832) (6,9 79) (574) 299 (117) ( 392) – – – 299 – 299 – – – – 2,175 ( 1,230) 2,022 110 105 215 2,180 2, 568 ( 312) ( 2,936) (8) ( 2,944) – ( 40,394) 74,763 (42,32 7) 17,9 39 – 5,135 (293) 12 The impairment relating to the IPC goodwill recognised on consolidation is regarded as relating to the UK operating segment. This is due to the Chief Operating Decision Maker reviewing the results of IPC within the UK operating segment. www.rurelec.com i l s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C27 19/06/2015 16:27 28 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 b) 12 months to 31.12.2013 – restated ARGENTINA £’000 CHILE £’000 PERU £’000 Revenue Cost of sales Gross profit Administrative expenses Profit/(loss) from operations Other expense Other expense from share of JV Foreign exchange losses Finance income Finance expense Loss before tax Tax credit/(expense) Loss for the year Total assets Total liabilities Capital expenditure Depreciation 9,651 (4,186) 5,465 (4,278) 1,187 – – (3,761) – (1,819) (4,393) 218 (4,175) 15,741 22,169 221 435 – – – (55) (55) – – (55) – (3) (113) – (113) 944 1,701 1,786 – – – – (475) (475) – – 197 186 (219) (311) (29) (340) 6,499 6,869 5,934 4 5 EXCHANGE RATE SENSITIVITY ANALYSIS The key exchange rates applicable to the results were as follows: UK £’000 5,442 (1,619) 3,823 (3,211) 612 – – (504) 3,857 (12,218) BOLIVIA £’000 CONSOLIDATION ADJUSTMENTS £’000 – – – – – (9,651) 4,186 (5,465) 4,278 (1,187) TOTAL £’000 5,442 (1,619) 3,823 (3,741) 82 (38,314) – (38,314) – – (198) – (319) 3,562 (1, 078) 14, 239 (319) (561) 2, 767 (20) (8,253) (38,512) 1 5,217 (3 6,365) – – (218) (29) (8,253) (38,512) 1 4,999 (3 6,394) 78,441 (1,729) 6,199 16,195 5 – – – ( 9,22 0) ( 7,914) – 90,675 29,024 32 24,168 (435) 9 i) Closing rate AR$ (Argentine Peso) to £ US$ to £ CLP (Chilean Peso) to £ PEN (Peruvian Sol) to £ ii) Average rate AR$ (Argentine Peso) to £ US$ to £ CLP (Chilean Peso) to £ PEN (Peruvian Sol) to £ 31.12.14 31.12.13 13.2814 1.5532 940.964 4.5744 12.7777 1.6445 940.528 4.6084 10.7073 1.6488 866 4.55 8.6676 1.5652 863 4.51 If the exchange rate of sterling at 31 December 2014 had been stronger or weaker by 10 per cent with all other variables held constant, shareholder equity at 31 December 2014 would have been £3.3 million (2013: £0.9 million, restated 2013 £0.2 million) lower or higher than reported. If the average exchange rate of sterling during 2014 had been stronger or weaker by 10 per cent with all other variables held constant, the profit for the year would have been £0.1 million (2013: £0.4 million, restated 2013: £0.05 million) higher or lower than reported. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C28 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 29 FOR THE YEAR ENDED 31 DECEMBER 2014 6 COST OF SALES Expenditure incurred in cost of sales is as follows: Cost of Equipment and ancillary costs Other 7 ADMINISTRATIVE EXPENSES Expenditure incurred in administrative expenses is as follows: Payroll and social security Services, legal and professional Office costs and general overheads Audit services1 YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 RESTATED £’000 2 2 29 2 31 1,475 144 1,619 YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 RESTATED £’000 YEAR ENDED 31.12.13 ORIGINALLY STATED £’000 1,754 678 1,326 74 3,832 1,324 416 1,914 87 3,741 3,370 497 4,065 87 8,019 1 Audit services include £74k paid to the auditors for the audit of the Company and the Group financial statements and £nil paid to the Company’s auditors for non-audit professional services provided to the Company in connection with the review of overseas activities (2013 £75.5k). Fees paid to other auditors, in respect of the audit of joint venture companies, amounted to £35k (2013: £11.5k). 236619 Rurelec Annual Report Text.indd C29 19/06/2015 16:27 i l s a c n a n F r u O i www.rurelec.com 30 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 8 EMPLOYEE COSTS a) Group YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 RESTATED £’000 YEAR ENDED 31.12.13 ORIGINALLY STATED £’000 Aggregate remuneration of all employees and Directors, including social security costs 1,754 1,324 3,370 The average number of employees in the Group, including Directors, during the year was as follows: Management Operations Development Administration Total b) Company Aggregate remuneration of all employees and Directors, including social security costs NUMBER NUMBER NUMBER 5 – 18 22 45 £’000 62 6 10 4 14 34 £’000 409 12 17 7 24 60 £’000 409 The average number of employees in the Company, including Directors, during year was as follows: Management c) Directors’ remuneration, including social security costs NUMBER NUMBER NUMBER 5 6 6 The total remuneration paid to the Directors was £717,000 (2013: £615,000). The total remuneration of the highest paid Director was £230 ,000 (2013: £230,000). Other emoluments paid were health insurance costs, there were no bonuses, pension costs or share based payments paid during the year (2013: nil) P. Earl E. Shaw A. Morris M. Blanco L. Coben C Emson B Rowbotham Total YEAR ENDED 31.12.14 £’000 Base Salary/Fee Inc. Social Security YEAR ENDED 31.12.14 £’000 Other Emoluments 226 174 209 24 15 29 30 707 4 3 3 – – – - 10 YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 £’000 Total 230 177 212 24 15 29 30 717 Total 230 160 88 95 30 6 6 615 RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C30 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 31 FOR THE YEAR ENDED 31 DECEMBER 2014 9 (a) OTHER EXPENSE Foreign exchange Gains/(losses)3 Total YEAR ENDED 31.12.14 £’000 2,180 2,180 YEAR ENDED RESTATED 31.12.13 £’000 ( 561) ( 561) ORIGINALLY STATED YEAR ENDED 31.12.13 £’000 (3,268) (3,268) 3 Foreign exchange Gains/(losses) have arisen in Argentina on US$ denominated loans and in the UK on US$ denominated receivables. 9 (b) OTHER EXPENSE Loss on Bolivia settlement Loss on settlement of Claim – Bolivia1 Arbitration Costs/Cost Reduction2 Impairment charge on intangible in IPC3 Total YEAR ENDED 31.12.14 £’000 ORIGINALLY STATED YEAR ENDED 31.12.13 £’000 (376) 259 (691) ( 808) (29,455) (4,929) – (34,384) 1 2 3 The loss on the settlement with the Plurinational Government of Bolivia has been arrived at further to the agreement in April 2014 from meetings held between the senior management of Rurelec plc and the Attorney General of Bolivia. The agreed settlement is $31.5m or £19.1m which is made up of £17.5m compensation claim and interest of £1.6m. The carrying value of the claim, excluding interest and reimbursement of costs, as at 31 December 2012 was £47.0m and therefore the loss was £29.5m. The amount shown for 2014 of £376k loss was the adjustment of what was accrued in 2013 and paid in 2014. The arbitration costs were not awarded to Rurelec and so £4.9m has been taken as a charge in 2013, in 2014 these costs were reduced by £259k in agreement with the suppliers. Following goodwill impairment testing for IPC an impairment of £691k has been charged in the year, see note 15 for further details. 9 ( c) OTHER EXPENSE Birdsong Loan Expense Interest Payable on Birdsong Loan Birdsong loan participation expense – CVR costs1 Accrued lender costs Total YEAR ENDED 31.12.14 £’000 ORIGINALLY STATED YEAR ENDED 31.12.13 £’000 – 416 – 416 (2,32 8) (1,299) (303) (3,9 30) 1 The Birdsong loan included a contingent value right which amounted to 15 per cent of the Bolivian claim plus interest. In 2014 there was a £416k write back of CVR costs these are included in other income. 2 The Birdsong lender charges for extending the loan past 31 December 2013 have been accrued in 2013. www.rurelec.com i l s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C31 19/06/2015 16:27 32 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 10 FINANCE INCOME & EXPENSE Inter-group interest received/receivable1 Interest accrued on Bolivian claim Withholding Tax write back Total interest income YEAR ENDED 31.12.14 £’000 2,45 0 – 117 2, 56 7 YEAR ENDED 31.12.13 RESTATED £’000 YEAR ENDED 31.12.13 ORIGINALLY STATED £’000 2,966 (199) – 2,767 2,399 (199) – 2,200 Interest paid/payable on bank borrowings and loans2 (312) (20) (1,272) 1 2 Inter-group interest arises on loans by the Company to its 50 per cent owned joint venture companies (PEL and EdS). The loans by the Company to PEL and EdS exceed the loans of the other 50 per cent shareholder by £27.6 million (2013: £26.9 million). Interest on inter-group loans has been charged at rates of between 8 per cent and 19 per cent. Interest paid/payable includes interest on bank borrowings and other loans in Peru and Argentina. The details of the amounts due under the loans are shown in note 26. Sensitivity analysis arising from changes in borrowing costs is set out in note 26. 11 TAX EXPENSE The relationship between the expected tax expense at basic rate of 21.50 per cent. (31 December 2013: 23.25 per cent.) and the tax expense actually recognised in the income statement can be reconciled as follows: Result for the year before tax Standard rate of corporation tax in UK Expected tax credit Adjustment for non-taxable expense Group relief surrender by joint venture company Adjustment for different basis of calculating overseas tax Actual tax (expense) /credit Comprising: Current tax (expense)/credit Deferred tax/ net credit Total (expense)/credit YEAR ENDED 31.12.14 £’000 (2,936) 21.50 % 632 – – – (8) (8) – (8) YEAR ENDED 31.12.13 RESTATED £’000 YEAR ENDED 31.12.13 ORIGINALLY STATED £’000 (36 ,3 65 ) 23.2 5% 8,4 55 (8,166) – – (29) (29) – (29) (39,384) 23.2 5% 9,157 (8,166) – (997) 189 136 53 189 RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C32 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 33 FOR THE YEAR ENDED 31 DECEMBER 2014 12 EARNINGS PER SHARE Basic loss per share is calculated by dividing the loss for the period attributable to shareholders by the weighted average number of shares in issue during the period. Average number of shares in issue Effect of dilution – share options outstanding Result for the year Loss attributable to equity holders of the parent Basic loss per share Diluted loss per share YEAR ENDED 31.12.14 YEAR ENDED 31.12.13 RESTATED YEAR ENDED 31.12.13 ORIGINALLY STATED 561,181,121 494,993,260 494,993,260 19,525,000 19,525,000 19,525,000 £(2.9m) (0.52p) (0.52p) £(35.8m) (7.23p) (7.23p) £(39.2m) (7.92p) (7.92p) There is no difference between the Basic and Diluted loss per share as there was a loss in the year and therefore the outstanding options were anti-dilutive. 13 HOLDING COMPANY’S RESULT FOR THE YEAR As permitted by Section 408 of the Companies Act 2006, the holding company’s income statement is not shown separately in the financial statements. The profit for the year was £1.0 million (2013: loss £10.4 million). 236619 Rurelec Annual Report Text.indd C33 19/06/2015 16:27 l i s a c n a n F r u O i www.rurelec.com 34 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 14 PROPERTY, PLANT AND EQUIPMENT LAND £’000 PLANT AND EQUIPMENT £’000 PLANT UNDER CONSTRUCTION £’000 a) Group Cost at 1.1.13 – Restated Exchange adjustments Additions Cost at 31.12.13 – Restated Exchange adjustments Transfer of Assets Held for Sale Additions Cost at 31.12.14 Depreciation at 1.1.13 Exchange adjustments Charge for the year Depreciation at 31.12.13 Exchange adjustments Charge for the year Transfer of Assets Held for Sale Depreciation at 31.12.14 Net book value – 31.12.14 Net book value – 31.12.13 – – 72 72 – – – 72 – – – – – – – – 72 72 – – 16,195 16,195 – – 60 16,255 – – 9 9 – 12 – 21 3,082 546 7,901 1 1,530 ( 1,184) (9,558) 5,075 5,8 63 – – – – – – – – TOTAL £’000 3,082 537 24,168 2 7,797 ( 1,184) (9,558) 5,135 17,0 55 – – 9 9 – 12 – 21 16,2 34 16,1 86 5,85 3 1 1,530 22,169 2 7,788 Operating property, plant and equipment located in Argentina is removed in accordance with IFRS 11. The Property, plant and equipment of £16.24 million mainly relates to two turbines valued at £16.20 million. Plant under construction comprises of plant in Chile (£5. 8 million) and Peru (£67k). The plant at Canchayllo was completed in December 2014, and transferred to plant and equipment. It was commissioned in January 2015. b) Company The Company had no property, plant and equipment. 15 INTANGIBLE ASSETS At 1 January 2014 Additions Impairment At 31 December 2014 At 31 December 2013 RESTATED At 1 January 2013 as originally stated Effect of restatement due to change in accounting policy At 1 January 2013 RESTATED Fair value adjustment on Goodwill and intangibles At 31 December 2013 RESTATED GOODWILL £’000 1,79 2 22 0 (691) 1,321 1,79 2 3,168 (3,168) Nil 1,79 2 1,79 2 RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C34 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 35 FOR THE YEAR ENDED 31 DECEMBER 2014 Goodwill represents the difference between the Group’s share of the fair value of the net identifiable assets acquired and the consideration transferred on the acquisition of 100 per cent of IPC in June 2013 the acquisition of Central Illapa SA in March 2013 and the acquisition of SEA Energy SA in October 2014. The Group tests goodwill annually or more frequently if there are indications that the intangible asset might be impaired. The recoverable amounts are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the future cash flows (for a period of 5 years) which are based on the most recent financial projections prepared for each Cash Generating Unit (“CGU”). The projections incorporate management’s assumptions regarding revenue volumes, revenue prices, operating costs, including gas and forecast growth and are based on historical experience and current information. A long term discount rate, derived from market data on comparable interest rates in the local markets in which the Group operates, is then applied to the projected future cash flows. The equity discount rate applied is 13 per cent. (2013 – 13 per cent.) In the year ended 31 December 2014 management have concluded that there is uncertainty relating to certain elements of accrued income previously recognised in relation to operations conducted in Central Illapa. This has resulted in approximately £3.2 million of accrued revenue being written off in the year. This has led to management performing an impairment review on the IPC CGU as detailed below. This CGU predominately operates in South America and is focussed on the development of projects in the power generation industry there. The project in question was situated in Chile, which is one of the operating segments used to monitor business performance. The recoverable amount of the CGU has been based on the value in use of IPC. The discount rate used in the value in use calculation was 13 per cent. The assumptions in respect of the IPC CGU include the financial close and payment of development fees to IPC from the development company for developments in Chile, whilst also including engineering fees and recharge of expenses. The costs and revenue of the group that are charged into IPC are well known and are shown to rise at a reasonable inflationary rate of 3 per cent. and expansionary rate of an additional 7 per cent. per annum. The goodwill impairment test has been completed and shows the need for an impairment of £691k , which is included in other expenses. An increase in the discount rate by 1 per cent. to 14 per cent. would increase the impairment by £167k. The brand value of IPC and its experience over 20 years in the South American market supports the remaining intangible assets shown within the Rurelec financial statements. The amount of goodwill that has been included in the intangible asset is £1,101 k in respect of IPC. IPC has been active in markets which Rurelec did not have prior to this business combination. The Group can ascribe separate identifiable intangible assets in some of these markets where Rurelec has not been active over the past years. The direct cashflow basis has been used as the methodology to assess the value of the separate markets from Rurelec’s established market in South America. The main addition to the revenue streams are the engineering fees and costs reimbursement plus development fees outside South America. The effect is that the NPV of the separate markets can be valued at least at £1.1 million which ensure that the value of the Goodwill in IPC remains at £1,101 k. Full year Revenues for IPC were £4 31k (2013: £5,604k) and (Losses)/Profits were (£ 4,167k) (2013: £2,108k). SEA Energy SA is a wholly owned subsidiary of Rurelec PLC with a small operating wind farm in Buenos Aires province in Argentina. The Company was purchased in October 2014 for £245k spread over two years. The company had net assets at the time of purchase of £51k, with revenues for the full year of 2014 of £5k. The intention of the purchase is to increase the size of the windfarm in Argentina from 250kW to 3MW as well as purchase and own a gas turbine that would operate on the site of the EdS plant in Comodoro Rivadavia in Chubut Province of Argentina. The goodwill on acquisition was £195k. Central Illapa SA – is a wholly owned subsidiary of Rurelec PLC, the goodwill on acquisition was £25k. 16 TRADE AND OTHER RECEIVABLES a) Group – non-current Trade receivables Amounts due from joint venture companies1 Other receivables and prepayments 31.12.14 £’000 100 23,09 3 19 23,21 2 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 513 23,101 34 23,648 535 15,399 875 16,809 1 Amounts due from joint venture companies represent the amounts lent by the Company to PEL and EdS, including credit support provided to suppliers of EdS. Interest on these amounts has been accrued at rates of between 8 per cent. and 18 per cent per annum. www.rurelec.com l i s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C35 19/06/2015 16:27 36 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 b) Group – current Trade receivables Other receivables and prepayments 31.12.14 £’000 38 9,56 2 9,60 0 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 160 14,431 14,591 3,043 6,788 9,831 Other receivables and prepayments include £8.6 million RPFL loan Rurelec Plc Re: (EdS) . c) Company – non-current Amounts owed by subsidiary companies1 Amounts owed by joint venture companies2 The amounts owed by subsidiary companies include: 31.12.14 £’000 31.12.13 ORIGINALLY STATED £’000 27,50 5 23,094 50, 599 16,851 25,436 42,287 1 2 Loans to subsidiaries in Chile (£6.6 million) and Peru (£11.1 million) are repayable on demand. The loans to Chile are currently non-interest bearing. The loans to Chile and Peru bear Zero per cent interest at rates. The loans Peru are expected to be recovered once the assets have been sold, which management expect to occur during 2015. The loans to Chile are considered recoverable once the projects reach ﬁ nancial close and therefore no provision has been made against these loans. The amounts owed by joint venture companies are interest bearing at rates of between 8 per cent and 18 per cent and are repayable on demand but are not expected to be fully received within the next twelve months. During the period the Group received $5.4 million from EdS in service of the amounts due. £8.6 million (2013 – £7.7 million) is secured by a ﬁ rst charge against the assets of EdS. d) Company – current Other receivables and prepayments 31.12.14 £’000 31.12.13 ORIGINALLY STATED £’000 3 8 3 8 34 34 All trade and other receivables are unsecured and are not past their due by dates. The fair values of receivables are not materially different to the carrying values shown above. 17 DEFERRED TAX a) Asset at 1 January 2014 Exchange translation Credited to tax expense Asset at 31 December 2014 31.12.14 £’000 – – – – 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 – – – – 389 (101) 53 341 The Group deferred tax asset arises principally from tax losses carried forward in Argentina. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C36 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 37 FOR THE YEAR ENDED 31 DECEMBER 2014 b) Liability at 1 January 2014 Exchange translation Credited/(Debited) to tax expense Liability at 31 December 2014 31.12.14 £’000 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 – – – – – – – – 568 (148) – 420 The Group deferred tax liability arose from deferred tax provisions on the fair value adjustments arising on the acquisition of 50 per cent. of PEL. 18 INVENTORIES a) Group – Inventories Spare parts and consumables Spare parts and consumables are valued at cost. b) Parent Company – Inventories Inventories 31.12.14 £’000 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 – – 227 31.12.14 £’000 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 16,195 16,195 16,195 Inventories comprises of two Siemens 701DU Turbines acquired from IPSA Group plc in June 2013, these will be sold to Central Illapa SA for use in Chile during 2015. 19 COMPENSATION CLAIM Book value of claim 31.12.14 £’000 – 31.12.13 £’000 19,126 As detailed in the 2010 Report and Accounts, on 1 May 2010 the Bolivian Government nationalised by force Rurelec’s controlling interest in Guaracachi. The Bolivian book value of the net assets of Guaracachi, together with declared but unpaid dividend for 2009, was not less than £47.0 million and was reported in the 2012 Report and Accounts. The amount of the investment claimed under Bilateral Investment Treaties as submitted to the Permanent Court of Arbitration in The Hague, was $142.3 million and the Arbitration proceedings were held in April 2013. The award amount was for $28.9 million plus interest from 1 May 2010 to the date when the award is paid. As at the 31 January the interest amounted to $6.6 million making the total amount due to Rurelec in settlement of the claim $35.5 million or £21.5 million. The Tribunal representing the Permanent Court of Arbitration decided not to award costs to either side. The costs of the Arbitration to Rurelec were £4.6 million. After further negotiations with the Plurinational State of Bolivia at the end of April 2014 the total payment to be received by Rurelec would be $31.5 million or £19.1 million. This is a total loss of £34.6 million on the carrying value of the assets as at 31 December 2013 being a loss of £29.5 million on the underlying assets and £5.1 million on the legal fees and accrued interest. . www.rurelec.com l i s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C37 19/06/2015 16:27 38 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 20 CASH AND CASH EQUIVALENTS a) Group Cash and short-term bank deposits b) Company Cash and short-term bank deposits 31.12.14 £’000 283 1 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 3,7 30 3,750 n/a 21 Cash and short-term bank deposits are held, where the balance is material, in interest bearing bank accounts, accessible at between 1 and 30 days’ notice. The effective average interest rate is less than 1 per cent. The Group holds cash balances to meet its day-to-day requirements. 21 SHARE CAPITAL In issue, called up and fully paid 31.12.14 £’000 31.12.13 £’000 561,387,586 ordinary shares of 2p each (2013: 557,387,586) 11,228 11,145 Reconciliation of movement in share capital Balance at 1 January 2014 Allotment in January 2014 Balance at 31 December 2014 NUMBER 557,236,492 4,151,094 561,387,586 £’000 11,145 83 11,228 The allotment in January 2014 was at 13.25 pence per share. The difference between the total consideration arising from shares issued and the nominal value of the shares issued has been credited to the share premium account. Costs associated with allotments are debited to the share premium account. 22 SHARE OPTION RESERVE Balance at 1 January 2014 Change for the Year Balance at 31 December 2014 31.12.14 £’000 107 39 14 6 31.12.13 £’000 46 61 107 In March 2012, the Company introduced a share option plan and granted options over 19,525,000 shares at 9.5p per share. Of these options, 3,875,000 were exercisable from the date of grant. 5,216,667 options vested in 2013, 5,216,666 vested in 2014, the remuneration committee approved 50 per cent. vesting of these, the remaining 50 per cent. are dependent of performance targets being met or being waived at a future date. The remaining 5,216,667 shares vest in March 2015 and are subject to performance targets. The Black-Scholes option pricing model has been used to calculate the fair value of options granted during the year. Expected volatility in the share price has been based on 20 per cent. All of the options granted to directors vest in the three equal tranches and are subject to performance criteria, as referred to above. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C38 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 39 FOR THE YEAR ENDED 31 DECEMBER 2014 Options granted to the directors which were outstanding at the year-end: A Morris P Earl E Shaw M Blanco L Coben 31.12.14 NUMBER OF SHARES 31.12.13 NUMBER OF SHARES 1,000,000 5,000,000 4,000,000 2,000,000 650,000 1,000,000 5,000,000 4,000,000 2,000,000 650,000 No options were exercised during the year and the total number of options outstanding at the year-end was 19,525,000. 23 OTHER RESERVE On 17 December 2014 The High Court approved the reduction in the share premium account of the company of £45,000,000 and the creation of a special reserve in the accounts of the Group. The Group had accumulated losses on its profit and loss account of £7,371,683. The existence of these losses prevents the Company from paying dividends to its shareholders out of future profits until these losses have been eliminated. The Board considered that the accumulated losses represented a permanent loss and given the size of the accumulated losses, there was in the opinion of the Board no reasonable prospect of the losses being eliminated in the short term. It was proposed that the permanent loss should be recognised by eliminating the deficit on the profit and loss account. This would be achieved by the reduction in the balance on the Share Premium Account of the Company. The Company had built up a substantial Share Premium Account through the issue of shares for cash at values in excess of the nominal value of those shares. At the time of the High Court hearing, the balance standing to the credit of the share premium account was £67,835,921. A resolution was proposed and successfully passed at a General Meeting on 25 November 2014 to reduce the amount standing to the credit of the share premium account of the Company by £45,000,000 from £67,835,921 to £22,835,921. The resolution was subsequently confirmed by the High Court in the terms proposed at the time by your Board, the effect of the Capital Reduction was to release part of the amount standing to the credit of the Share Premium Account of the Company so that £45,000,000 (i) may be used by the Company to eliminate the deficit on the profit and loss account and (ii) the balance credited to the distributable reserves of the Company to allow the Company to pay dividends in due course. Share issue costs of £82,233 have been offset against the Share Premium account, which is now shown at £22,753,689. The implementation of the Capital Reduction is subject to a number of criteria which are explained further below. Capital Reduction – Share Premium Account Share premium is treated as part of the capital of the Company and arises on the issue by the Company of shares at a premium to their nominal value. The premium element is credited to the Share Premium Account. The Company is generally precluded from the payment of any dividends or other distributions or the redemption or buy back of its issued shares in the absence of sufficient distributable reserves, and the Share Premium Account can be applied by the Company only for limited purposes. In particular, the Share Premium Account is a non-distributable capital reserve and the Company’s ability to use any amount credited to that reserve is limited by the Companies Act. However, with the confirmed approval of our shareholders by way of a special resolution and subsequent confirmation by the High Court, the Company has reduced our Company’s share premium account and credited it to the profit and loss account. To the extent that the release of such a sum from the Share Premium Account creates or increases a credit on the profit and loss account, that sum represents distributable reserves of the Company subject to the restrictions set out below. www.rurelec.com l i s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C39 19/06/2015 16:27 40 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 Capital Reduction – Procedure In order to approve the Capital Reduction, the High Court was required to be satisfied that the interests of the Company’s creditors will not be prejudiced by the Capital Reduction. The Company was not required to seek written consent to the Capital Reduction from its creditors. However, for the benefit of those of its creditors from whom consent is not required, the Company will not be capable of making a distribution to shareholders until any such outstanding obligations have been discharged, and the Company has given an undertaking to that effect to the High Court. At the date of the audit report there are some £3.4 million of creditors to be settled. The Board of Directors consider that these amounts will be settled in the short term and therefore the £45 million remains within a Special Reserve which is non-distributable until these settlements have occurred. The Capital Reduction does not affect the number of Shares in issue, the nominal value per Share or the voting or dividend rights of any Shareholder. 24 TRADE AND OTHER PAYABLES a) Group – non-current b) Group – current Trade payables Accruals c) Company – current Trade payables Accruals 25 TAX LIABILITIES a) Group – non-current Tax due in UK b) Group – current UK corporation tax P.A.Y.E. in UK VAT in UK Tax due in Argentina Other taxes due in Argentina principally VAT P.A.Y.E in Peru 31.12.14 £’000 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 – – – 4,046 377 4,423 4,193 788 4,981 7,360 69 1 8,05 1 n/a n/a n/a 8,417 466 8,883 5,084 61 5,145 31.12.14 £’000 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 – 18 18 31.12.14 £’000 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 – 28 (14) – – 56 70 – 38 – – – 27 65 – 29 11 56 343 27 466 This net liability for tax due in the UK is £14k relates to UK PAYE and VAT refund. A PAYE tax liability of £56k is also due in Peru. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C40 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 41 FOR THE YEAR ENDED 31 DECEMBER 2014 26 BORROWINGS a) Group – non-current Loan from CAMMESA Other loans b) Group – current Loan from CAMMESA Other loans Group – total borrowings The Group’s borrowings are repayable as follows: Within 1 year In more than 1 year, but less than 2 years In more than 2 years, but less than 3 years In more than 3 years 31.12.14 £’000 31.12.13 RESTATED £’000 31.12.13 ORIGINALLY STATED £’000 – – – – 3,164 3,164 3,164 – 622 622 – 20,268 20,268 20,890 877 622 1,499 1,516 23,067 24,583 26,082 3,164 20,268 24,583 – – – 311 311 – 311 311 877 3,164 20,890 26,082 Other loans of £3.2 million including accrued interest are made up of £2.9 million loans to Cascade Hydro Limited and Cascade Hydro Power S.A.C and a further loan of £250k to Rurelec Plc. Sensitivity analysis to changes in interest rates: If interest rates on the Group’s borrowings during the year had been 0.5 per cent. higher or lower with all other variables held constant, the interest expense and pre-tax profits would have been £15,000 lower or higher than reported. Sensitivity analysis to changes in exchange rates: Only $205,000 of these loans are denominated in US$. As a result, the liability to the Group’s lenders will change as exchange rates change. The overall effect on the Group’s net equity which would arise from changes in exchange rates is set out in note 5 above. The effect on borrowings alone if exchange rates weakened or strengthened by 10 per cent. with all other variables held constant would be to reduce or increase the value of the Group’s borrowings and equity by £12,000 (2013: £1.2 million). The Group’s Joint Venture borrowings are denominated in AR $ and US$ and are substantially related to specific electricity generating assets and therefore the effect on the net equity of the Group is limited. www.rurelec.com l i s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C41 19/06/2015 16:27 42 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 27 INVESTMENTS Cost at 1 January 2013 Additions during the year Investment in Cascade Hydro Limited Investment in Term oelectrica del Norte SA Investment in Central Illapa SA Investment in Independent Power Corp PLC Reduction in Investment in Birdsong Reduction in Investment in Energia para Sistemas Aislados SA Balance at 31 December 2013 Cost at 1 January 2014 Additions during the year Investment in Term oelectrica del Norte SA – Disposal by Entity Investment in Central Illapa SA – Disposal by Entity Investment in Electricidad Andina – Disposal by Entity Cost at 31 December 2014 Impairment Loss in IPC Balance at 31 December 2014 31.12.13 £’000 18,998 269 4,190 33 4,000 (10,455) (292) 16,743 31.12.14 £’000 16,743 (4,190) (33) (63) 12,457 (2,702) 9,756 The impairment loss relates to the write down of the accrued income in IPC triggered by the impairment review, which has resulted in the impairment loss in the year. At the year-end the Company held the following investments: • • • • • • • 50 per cent. (2013: 50 per cent.) of the issued share capital of Patagonia Energy Limited (“PEL”), a company registered in the British Virgin Islands under registration number 620522. PEL owns 100 per cent. of the issued share capital of Energia del Sur S.A. (“EdS”), a company registered in Argentina. EdS is a generator and supplier of electricity to the national grid in Argentina. 100 per cent. (2013: 100 per cent.) of the issued share capital of Birdsong Overseas Ltd (“BOL”), a company registered in the British Virgin Islands, under registration number 688032. BOL owns 100 per cent. of Bolivia Integrated Energy Limited (“BIE”), a company registered in the British Virgin Islands, under registration number 510247. Until 1 May 2010, BIE owned, through an intermediary holding company, 50.00125 per cent. of the issued share capital of Empresa Electrica Guaracachi S.A. (“Guaracachi”), a company registered in Bolivia. During 2013 BOL made a loss of £6.8 million due to the accounting for the Bolivian Arbitration Award received in January 2014. 100 per cent. (2013 – 100 per cent.) of the issued share capital of Cascade Hydro Limited (“CHL”), a company registered in England and Wales under registration number 7640689. CHL owns, through intermediate holding companies, 100 per cent. interest in Electricidad Andina S.A. and 93 per cent. of Empresa de Generacion Electrica Canchayllo S.A.C., both being companies registered in Peru. During 2013 CHL acquired the remaining 30 per cent. minority stake by way of an exchange of shares. The minority shareholders received 1,737,116 new Rurelec shares for their holdings in CHL, issued at a price of 12.5 pence per share, an aggregate consideration of £217,139. 100 per cent. (2013 – 100 per cent.) of Cochrane Power Limited, a company registered in England and Wales under registration number 8220905. Cochrane Power Limited owned at the year-end, through intermediate holding companies, 100 per cent. interest in Central Illapa S.A. and 100 per cent. interest in Termoelectrica del Norte S.A., both being companies registered in Chile. 100 per cent. (2013 -100 per cent.) of Central Illapa SA a company registered in Chile under registration number 76.14535-9 and owner of the Illapa 255 MW project. 100 per cent. (2013 – 100 per cent.) Termoelectrica del Norte SA a company registered in Chile under registration number 76.043.067-6 and owner of the Arica project. The investment during the year has been in the turbine and a transformer during the year plus development costs of the project totalling £4.2 million. 100 per cent. (2013 – 100 per cent.) of Energia para Sistemas Aislados SA a company registered in Bolivia under registration number 107782. The investment in this company in Bolivia of £292,000 was written down to zero in 2013 because the assets were incorporated within the overall settlement with the Plurinational State of Bolivia with the nationalisation of the assets of Empresa Electrica Guaracachi SA. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C42 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 43 FOR THE YEAR ENDED 31 DECEMBER 2014 • 100 per cent. (2013 – 100 per cent.) of the issued share capital of Independent Power Corporation plc (IPC), a company registered in England and Wales under registration number 3097552. The investment in IPC was acquired in June 2013. IPC is one of the United Kingdom’s leading power developers and power plant operators. Since 1995 it has developed and operated thermal and hydro plants in North America, Latin America, South Africa, Asia and Europe. In consideration for the acquisition of the entire issued share capital of IPC, 32,000,000 new Ordinary Shares in Rurelec PLC were issued to the shareholders of IPC which, at the Placing Price, represents an implied value for IPC of £4 million. 28 JOINT VENTURE Under IFRS 11 the reporting of jointly controlled entities has changed such that the use of proportionate consolidation for arrangements classified as jointly controlled require the use of the equity method of accounting. The Group’s only joint arrangement within the scope of IFRS 11 is its 50 per cent. investment in Patagonia Energy Limited (“PEL”), which directly owns Energia del Sur SA (EdS) in Argentina. This was previously accounted for using the proportionate consolidation method under IAS 31. Management has reviewed the classification of PEL in accordance with IFRS11 and has concluded that it is a joint venture and therefore we have accounted for our interest in the PEL joint venture using the equity accounting method. IFRS11 has been applied retrospectively in accordance with the transitional provisions set out in IFRS11. Consequently the investment in PEL has been restated by aggregating the carrying amounts of the assets and liabilities that the Group had previously proportionately consolidated with effect from 1 January 2013. The group has assessed the carrying amount of the investment for impairment as at 31 December 2013 and 31 December 2014 and has concluded that no impairment loss is required. (See also note 29 ) The effects on the statements of financial position at 31 December 2013 and 31 December 2014 show an increase in the net assets of the Group due to the fact that the Joint Venture was previously proportionately consolidated and so included its share of the losses in the joint venture whilst under the equity method it has not included losses in excess of the Group’s interest in the joint venture as detailed in note 2.1. The investment held by the group in the Argentine Joint Venture is held at £0.3 million at 1 January 2013 and at nil value at 31 December 2013 and 31 December 2014. Although negative net assets arise when combining the carrying amount of assets and liabilities of the joint venture management note that as this is caused by the amounts loaned to the joint venture by the group that therefore the group do not have an obligation in relation to those negative net assets and as such the investment is held at a nil value. At the end of the year accumulated losses in relation to the group’s share of the results of the joint venture total £5, 490k (2013, £3,3 20k). The effects on the statements of financial position at 31 December 2013 and 31 December 2014 were: Increase in investments accounted for using the equity method Increase in: Rurelec Loans to EdS Rurelec Loans to PEL Decrease in: Property, plant and equipment Intangible assets Inventories Trade and other receivables Cash and cash equivalents Deferred tax liabilities re Plant Trade and other payables Borrowings Borrowings – non-current Current tax liabilities Change in net assets YEAR ENDED 31.12.14 £’000 Nil YEAR ENDED 31.12.13 £’000 Nil 4,487 11,338 (9,065) (3,168) – (3,812) (569) 339 2,245 1,933 2,032 398 6,157 5,739 9,682 (11, 370) (3,168) (227) (3, 820) (2 0) 79 832 4,315 877 401 3,320 www.rurelec.com l i s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C43 19/06/2015 16:27 44 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 The effects on the statement of comprehensive income for the years ended 31 December 2013 and 31 December 2014: De crease in share of profit from equity accounted investments Decrease in: Revenue Changes in inventories Costs of material Operating & maintenance expenses Depreciation, amortisation and impairment of non-financial assets Other interest expense and exchange losses Tax expense Current Year translation difference Change in comprehensive loss for the year YEAR ENDED 31.12.14 £’000 Nil YEAR ENDED 31.12.13 £’000 (319) (8,611) (9,651 ) 1,118 4,461 293 3,924 105 880 2,170 4,186 3,750 528 4,474 (218) 570 3,3 20 The application of IFRS 11 did not have a material impact on the cash flows of the Group and on the earnings per share for the year ended 31 December 2014. The following table sets out the effect oof restatement on Rurelec’s investment in the joint venture: Investment in Joint Venture Rurelec Loans to EdS Rurelec Loans to PEL Assets Non-current assets Property, plant and equipment Intangible assets Trade and other receivables Deferred tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents Non-current liabilities Trade and other payables Deferred tax liabilities Borrowings Current liabilities Trade and other payables Current tax liabilities Borrowings Investment as 1.1.13 RESTATED AS AT 1.1.13 £’000 (7,549) (8,845) 15,405 3,168 935 389 306 3,66 2 79 (210) (568) (1,301) (2, 830) ( 53) (2,269) 319 RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C44 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 45 FOR THE YEAR ENDED 31 DECEMBER 2014 The following table sets out the results of the joint venture operation in Argentina of which the Group has a 50 per cent. share. Revenue Expenses Non-current assets Current assets Non-current liabilities1 Current liabilities2 YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 £’000 17,222 (11,158) 19,472 8,815 (29,726) (17,036) 19,304 (16,930) 23,812 6,206 (33,364) (5,600) 1 2 Non-current liabilities includes £11.3 million (2013 – £15.4 million) of loans advanced by the Company (see note 16). Current liabilities includes £4.5 million (2013: Nil) of loans advanced by the Company which have become current (see note 16). 29 RECONCILIATION OF PROFIT BEFORE TAX TO CASH GENERATED FROM OPERATIONS a) Group Loss for the year before tax Net finance income Adjustments for: depreciation Unrealised exchange gains Movement in share option reserve Impairment of goodwill Deferred Consideration Adjustment for loss in Bolivia Movement in working capital: Change in inventories Change in trade and other receivables Change in trade and other payables Cash used in operations YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 RESTATED £’000 YEAR ENDED 31.12.13 £’000 (2,936) (2,255) 12 (2,180) 39 691 – – – 5,426 (3,687) (4,890) (35,726) (2,747) 9 (494) 61 – 3,025 34,384 – (6,208) 3,716 ( 3,980) (39,384) 928 444 3,267 61 – – 34,384 267 (6,467) 4,558 (1,942) 236619 Rurelec Annual Report Text.indd C45 19/06/2015 16:27 i l s a c n a n F r u O i www.rurelec.com 46 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 b) Company Profit/(loss) for the year before tax Net finance income Adjustments for: Unrealised exchange (gains)/losses on loans Movement in share option reserve Write down of investments Reclassification of investment to receivables Adjustment for loss in Birdsong Movement in working capital: Change in trade and other receivables Change in trade and other payables Cash used in operations YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 £’000 965 (3,380) (2,057) 39 2,703 5,881 – (8,384) (164) ( 4,397) (10,364) 2,276 437 61 – – 10,689 (1,762) 4,446 5,783 30 FINANCIAL RISK MANAGEMENT The Group is exposed to a variety of financial risks which result from both its operating and investing activities. The Group’s risk management is coordinated to secure the Group’s short to medium-term cash flows by minimising its 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: Current – due within 1 year: Trade payables Borrowings Total due within 1 year: YEAR ENDED 31.12.14 £’000 4,557 3, 262 7,722 YEAR ENDED 31.12.13 RESTATED £’000 8,117 20,268 28,385 YEAR ENDED 31.12.13 £’000 8,883 25,049 33,932 Non-current – due in more than 1 year but less than 5 years Borrowings 0 622 1,499 a) Foreign currency risk The Group is exposed to translation and transaction foreign exchange risk. Foreign exchange differences on retranslation of these assets and liabilities are taken to the profit and loss account of the Group. The Group’s principal trading operations are based in South America and as a result the Group has exposure to currency exchange rate fluctuations in the principal currencies used in South America. The Group also has exposure to the US$ as a result of borrowings denominated in these currencies. 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 Group considers its capital to comprise its ordinary share capital, share premium, accumulated retained earnings and other reserves. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C46 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 47 FOR THE YEAR ENDED 31 DECEMBER 2014 The Group’s objective when maintaining capital is to safeguard the entity’s ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders. The Company meets its capital needs primarily by equity financing. The Group sets the amount of capital it requires to fund the Group’s project evaluation costs and administration expenses. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. The Company and Group do not have any derivative instruments or hedging instruments. It has been determined that a sensitivity analysis will not be representative of the Company’s and Group’s position in relation to market risk and therefore, such analysis has not been undertaken. As set out in note 26 , the Group has £3.2 million of loans falling due within 12 months. The directors consider that the Group will be able to raise sufficient funds from the sale of assets and from other sources to repay the loans. The following table sets out when the Group’s financial obligations fall due: Current – due within 1 year: Trade payables Borrowings Total due within 1 year: Non-current – due in more than 1 year but less than 5 years Borrowings YEAR ENDED 31.12.14 £’000 YEAR ENDED 31.12.13 £’000 4,557 3,164 7,721 Nil 8,117 20,268 28,385 622 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 value. The Group’s trade and other receivables are actively monitored to avoid significant concentrations of credit risk. e) Fair values In the opinion of the Directors, there is no significant difference between the fair values of the Group’s and the Company’s assets and liabilities and their carrying values and none of Group’s and 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: 31 December 2014 Trade and other receivables > 1 year Trade and other receivables < 1 year Cash and cash equivalents Trade and other payables > 1 year Trade and other payables < 1 year Borrowings > 1 year Borrowings < 1 year Total LOANS AND RECEIVABLES £’000 16,809 9,831 3,750 – – – – 30,390 BORROWINGS AND PAYABLES AT AMORTISED COST £’000 – – – – (8,883) (1,499) (24,583) (34,965) LOANS AND RECEIVABLES £’000 35,771 6,075 21 – – – – BORROWINGS AND PAYABLES AT AMORTISED COST £’000 – – – – (5,144) – – 41,867 (5,144) www.rurelec.com i l s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C47 19/06/2015 16:27 48 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 31 December 2013 Trade and other receivables > 1 year Trade and other receivables < 1 year Cash and cash equivalents Trade and other payables > 1 year Trade and other payables < 1 year Borrowings > 1 year Borrowings < 1 year Total LOANS AND RECEIVABLES £’000 15,376 4,797 6,122 – – – – 26,295 BORROWINGS AND PAYABLES AT AMORTISED COST £’000 – – – – (4,325) (1,301) (12,313) (17,949) LOANS AND RECEIVABLES £’000 40,397 162 4,502 – – – – 45,061 BORROWINGS AND PAYABLES AT AMORTISED COST £’000 – – – – (699) – – (699) 31 CAPITAL COMMITMENTS The Group had outstanding capital commitments of £Nil (2013: £0.7 million) in respect of plant ordered but not delivered at the year-end. 32 CONTINGENT LIABILITIES EdS has entered into a long-term maintenance agreement with a third party who provides for the regular service and replacement of parts of two turbines. The agreement runs until 2022. The Group’s 50 per cent share of the total payable under the agreement until the year 2022 amounts to US$5.6 million/£3.6 million (2013: US$6.3 million/£3.8 million). In the event that EdS wish to terminate the agreement before 2022, a default payment would become payable. The Group does not anticipate early termination and therefore no provision has been made in this regard. 33 RELATED PARTY TRANSACTIONS During the year the Company and the Group entered into material transactions with related parties as follows: a) Company i) Paid salaries to key management amounting to £0.6 million (2013 £0.6 million) ii) Paid, to its 100 per cent. subsidiary Independent Power Corporation PLC (“IPC”) a) £0.1 million under a “Shared Service Agreement” b) Provided loans of £2.3 million. The loan balance outstanding at the year end was £1.4 million. P.R.S. Earl, A.J.S. Morris and E.R. Shaw are Directors of IPC. iii) A.J.S. Morris purchased 50,000 shares for £3k on 16 June in an open market transaction. He made various loans to the Company during the year. At 31.12.2014 there was a balance of £17k due to him, this loan has been repaid after the year end. iv) P.R.S. Earl purchased 100,000 shares for £6k on 16 June in an open market transaction. v) E.R. Shaw purchased 50,000 shares for £3k on 16 June in an open market transaction. She made various loans to the Company during the year. At 31.12.2014 there was a balance of £11k due to her, this loan has been repaid after the year end. vi) Charged interest on loans to its 100 per cent subsidiary Rurelec Project Finance Ltd (“RPFL”) totalling £918k. The loan balance outstanding at the year end was £8.6 million. vii) Charged interest on loans to its 50 per cent. owned joint venture company, Patagonia Energy Ltd (“PEL”) amounting to £2.0 million. The loan balances at the year end totalled £24.7 million. Interest on these loans has been accrued at 11.1 per cent. viii) Received from its joint venture company Energia del Sur S.A. (“EdS”) repayments totalling £3.4 million of support previously given to creditors of EdS. £0.4 million of credit support remains outstanding at the year end. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C48 19/06/2015 16:27 NOTES TO THE FINANCIAL STATEMENTS 49 FOR THE YEAR ENDED 31 DECEMBER 2014 ix) a) Charged IPSA Group PLC (“IPSA”) £60k under a “Shared Service Agreement”. b) Repaid £125k of deferred consideration on the 2013 turbine purchase, £3.1 million remains outstanding at the year end. P.R.S. Earl and E.R. Shaw are Directors of IPSA. x) Provided loans to its 100 per cent. subsidiary Cochrane Power Ltd of £125k. The total outstanding at the year end was £6.6 million. xi) Provided loans to its 100 per cent. subsidiary Cascade Hydro Ltd (“CHL”) of £2.8 million and charged CHL interest of £436k. The interest rate was 0.5 per cent. per month. The total outstanding at the year end was £9.5 million. b) Group i) A.J.S. Morris loaned CHL £50k and charged interest of £5.1k. The total outstanding at the year end was £55.1k. ii) E. R. Shaw loaned CHL £94.4k and charged interest of £3.1k. The total outstanding at the year end was £97.5k. iii) P.R.S. Earl was repaid £10k by IPC, the loan was made in 2013. iv) RPFL accrued interest on amounts due from EdS of £0.4 million, the interest rate on the principal was 18.5 per cent ., the effective interest rate (on principal and accrued interest) was 4.4 per cent. The total outstanding at the year end was £8.6 million. 34 ASSETS HELD FOR SALE Assets held for sale relate to all legal entities within Peru except for Electricidad Andina. These business segments were reclassified to assets held for sale following the commitment of the Group’s management on 16.09. 2014 to restructure its Peruvian operations by means of sale. Two disposal groups have been identified, one of which comprises the Canchayllo run of the river plant with the rest of the assets included in the second group. At the end of the year the assets were being actively marketed and a sale is expected by the end of 2015. Cost: At 1 January Transfer to assets held for sale Carrying amount at 31 December Assets classified as held for sale Property, plant and equipment Inventories Trade and other receivables Liabilities classified as held for sale Trade and other payables Deferred tax liabilities 2014 £’000 – 7,896 7,896 2013 £’000 – – – 2014 £’000 9,558 55 8,565 18,178 2014 £’000 10,158 124 10,282 www.rurelec.com l i s a c n a n F r u O i 236619 Rurelec Annual Report Text.indd C49 19/06/2015 16:27 50 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 35 POST BALANCE SHEET DATE EVENTS Since the year-end the Group has continued to develop the generation projects in Chile whilst seeking local partners for the two projects under development. The Group has successfully operated the 5.6MW Canchayllo run-of-river hydro plant in the Junin province of Peru some 250km East of Lima, whilst also developing the Colca 12MW run-of-river hydro plant in the same province as Canchayllo, which has a Peruvian Government backed power purchase agreement. On the 15 May 2015 the Group entered into a replacement to sell the run-of-river hydro plant in Peru for £4.4 million. The Group has entered into additional loan facilities during March and May 2015 amounting to £590,000. The Group has agreed but not contracted for a bridging loan facility of $12 million that will be drawn down in the event that the arrangements for an alternative one year secured loan from a large organisation within the South American power industry is not signed within the time limits required by the company’s creditors. It is expected that the Group will reach satisfactory agreement with this large organisation such that the proceeds of this loan will be used to meet current obligations. The Group expects to repay the loan from the proceeds of the sale of its Peruvian assets. The loan is the ﬁ rst stage of a potential cooperation with the Group. The Chairman’s statement and the Strategic Report with a review of operations contains further details. RURELEC PLC Annual Report and Accounts for the year ended 31 December 2014 Stock code: RUR 236619 Rurelec Annual Report Text.indd C50 19/06/2015 16:27 236619 Rurelec Annual Report Cover v1 19/06/2015 16:26 Page 2 WELCOME TO RURELEC PLC RURELEC PLC IS AN OWNER, DEVELOPER AND OPERATOR OF POWER GENERATION CAPACITY INTERNATIONALLY. Rurelec’s main business consists of the ownership, operation and development of power generation facilities on national and regional grids and in isolated areas, selling wholesale electricity as a generator on commercial terms, through capacity payments or power purchase agreements (“PPAs”). Our current businesses include operational plants in Argentina and Peru, as well as the development of new plants in Argentina, Chile and Peru. CONTENTS Strategic Report Chairman’s Statement Review of Financial Performance Review of Operations Our Governance Board of Directors Director’s Report Corporate Governance Statement 1 3 4 6 7 9 Our Financials Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Parent Company Statement of Financial Position Consolidated Statement of Cash Flows Company Statement of Cash Flows Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Notes to the Financial Statements Company Information 11 12 13 14 15 16 17 18 19 20 Inside Back Cover Photo outside front cover: Transmission line connecting Canchayllo run of river hydro to Grid, Peru Photos outside back cover: Top; EdS plant in Patagonia, Argentina. Rest; Canchayllo run of river hydro, Peru Read more online at www.rurelec.com COMPANY INFORMATION Directors C. Emson (Non-Executive Chairman) B. Rowbotham (Non-Executive) P. Galante (Non-Executive) M. Blanco (Non-Executive) P.R.S. Earl A.J.S. Morris E.R. Shaw Secretary S.A. Laker Company number 4812855 Auditor Grant Thornton UK LLP Registered Auditors Chartered Accountants Grant Thornton House Melton Street Euston Square London NW1 2EP Bankers Coutts & Co 440 Strand London WC2R 0QS Registered ofﬁce and business address 17th Floor, Millbank Tower 21–24 Millbank London SW1P 4QP Solicitors Skadden, Arps, Slate, Meagher & Flom (UK) LLP 40 Bank Street Canary Wharf London E14 5DS 236619 Rurelec Annual Report Cover v1 19/06/2015 16:26 Page 1 R U R E L E C P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4 RURELEC PLC 17th Floor, Millbank Tower, 21-24 Millbank, London SW1P 4QP Tel: +44 (0) 20 7793 5610 Fax: +44 (0) 20 7793 7654 Visit us online at www.rurelec.com ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2014 Stock code: RUR

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