Rurelec Annual Report 2017

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250130 Rurelec Annual Report Cover v1.qxp 01/06/2018 13:29 Page 1

RURELEC PLC
18 Soho Square, London W1H 3QL

Tel: +44 (0) 20 7025 8026

Visit us online at
www.rurelec.com

ANNUAL REPORT
AND ACCOUNTS

FOR THE YEAR ENDED 31 DECEMBER 2017

Stock code: RUR

Rurelec AR2013 - proof 1 indd 1-3

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RURELEC PLC IS AN OWNER, DEVELOPER AND
OPERATOR OF POWER GENERATION CAPACITY
INTERNATIONALLY.

Rurelec’s main business consists of the ownership 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”).

COMPANY INFORMATION

Directors
S.C. Morris (Executive)

A.H. Coveney (Executive)

B. Rowbotham (Non-Executive)

Secretary
M Bravo

Company number
4812855

Auditor
Moore Stephens LLP

150 Aldersgate Street

London

EC1A 4AB

Bankers
Coutts & Co

440 Strand

London

WC2R 0QS

Our current business is centred on our share of an operational plant in Argentina whilst
also seeking to sell the remainder of the small hydro portfolio in Peru and to complete the
development of our project in Chile.

Registered ofﬁce and business address
18 Soho Square

London

W1D 3QL

CONTENTS
Strategic Report
Non-executive Director’s Statement
Review of Financial Performance
Review of Operations

Our Governance
Board of Directors
Director’s Report
Corporate Governance Statement

Our Financials
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
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

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HIGHLIGHTS

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For further information please contact:

Rurelec PLC

W.H.Ireland

Simon Morris, Executive Director Katy Mitchell and Alex Bond

www.rurelec.com

Tel: +44 (0)20 7025 8028

Tel: +44(0) 20 7220 1666

Rurelec PLC is an owner, developer and operator of power
generation capacity internationally.

Rurelec’s main business consists of the ownership 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 business is centred on our share of an operational
plant in Argentina whilst also seeking to complete the
development of our project in Chile, or sell our interests in the
project.

Rurelec PLC (AIM: RUR), the electricity utility focused on
ownership and operation of power generation plants in Latin
America, announces its audited results for the year ended
31 December 2017. The annual report will be posted to
shareholders on 1 June 2018.

Highlights
•

Focus of the Company has been to continue reducing costs,
to stabilise the Company, and to seek certain asset disposals.

•

Operating loss more than halved to £3.7 million from
£12.8 million.

• Loss before tax of £5.8 million (2016: £9.3 million).

•

Further write downs of assets to values directors believe
can be supported in current market conditions.

Substantial reduction in ongoing borrowings, post
Peru disposal, Group borrowings to £1.4 million
(2016: £4.0 million).

• Total loss per share 1.04p (2016: 1.65p).

• Net Asset Value per share 4.5p (2016: 5.6p).

•

No qualiﬁ cation of 2017 accounts (2016: qualiﬁ cation in
respect of interest on JV loans).

The annual general meeting (the “AGM”) of Rurelec PLC will be
held at the ofﬁ ces of W.H. Ireland Group PLC at 24 Martin Lane,
London, EC4R 0DR at 11.00 a.m. on 27 June 2018.

Commenting on the results Simon Morris, Rurelec’s Executive
Director, said:

During 2017 the Group has continued to reduce costs, and
pursue asset sales. The Group’s interests in the hydro schemes
in Peru were disposed of in December 2017, with completion
occurring on 30 January 2018.

As in 2016, liquidity was a major issue for the Group during
2017. The major outages suffered in March/April and September/
October at the Group’s plant in Argentina put cash remittances
back to the Group in the UK under severe pressure. Cash
received has been utilised in settling legacy debts, some of which
are many years old. Group current liabilities, excluding liabilities
held for sale, at 31 December 2017 (£2.4 million) have more than
halved since 31 December 2016 (£6.5 million).

The overall loss before tax for the year of £5.8 million (2016:
£9.3 million) reﬂ ects further write downs on a number of the
Group’s assets to values that the directors believe can be
supported in current market conditions and given the overall
ﬁ nancial position of the Group. Losses also include £2.5 million
of foreign exchange losses (2016: £1.2 million gain). Given the
outages suffered at the Group’s plant in Argentina, and the on-
going requirement for the plant to operate well below capacity,
liquidity remains a critical issue for the Group.

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0202

NON-EXECUTIVE DIRECTOR’S STATEMENT

As I reported last year that there had been a downturn in demand
in Chile. It is the Directors belief that t he market has seen a
modest improvement during 2017, and as a result the Group is
looking at opportunities to progress the Central Illapa project in
Mejillones. Our liquidity position will be a major factor in deciding
which path we will eventually pursue.

We expect to resolve our position in Chile within the near future.
This will enable us to concentrate our efforts on resolving the
difﬁ culties faced by our Argentinian asset. The difﬁ culties faced
to date have been beyond our control. It is essential that the
Argentinian plant is returned to normal operating output as soon
as possible to enable the cash remittances to the UK to be put
on a more secure footing.

Brian Rowbotham
Non-executive Director
31 May 2018

Brian Rowbotham

Dear Shareholder
It is my duty to present the results of Rurelec PLC (“Rurelec”)
for the ﬁ nancial year ended 31 December 2017, which has seen
further stabilisation in the Company’s ﬁ nancial situation. During
the course of the year, the Company was offered an extension of
its original bridging facility from Bridge Properties (Arena Central)
Limited (“BPAC”). Since the year end these facilities have been
further extended to the end of June 2019. The Group has repaid
£0.3 million of principal and £0.1 million of interest of the total
bridging facility of £1.6 million.

Outlook
After extensive marketing, the Group sold the remaining hydro
portfolio in Peru, completion taking place on 30 January 2018.
Given the continuing liquidity problems faced by the Group, the
capacity to ﬁ nance this portfolio was severely constrained. The
sale has enabled the Group to cease any further payments to
support this operation.

As you have been made aware, our joint venture Argentinian
asset has suffered a number of problems during 2017.
The plant is still operating at reduced output, with planned
maintenance of the turbine being delayed due to CAMMESA
(the organisation administering and regulating the Argentinian
wholesale electricity market) not being able to provide agreed
loan ﬁ nance for the major maintenance due to it’s own shortage
of liquidity. The restoration of the Argentinian plant to full capacity
is key in enabling the outstanding loans from the Group to the
Argentinian plant to be repaid.

The Directors believe that economic reform in Argentina under the
Macri administration has fostered an environment where foreign
investment in utilities has become attractive, incentivised by strong
pricing of power contracts and that the wholesale market demand
for Argentinian produced electricity continues to grow as the
economy develops .

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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STRATEGIC REPORT

Strategy
The overall strategy for the Group remains in line with that
adopted in 2016. The Board has continued to stabilise the
ﬁ nancial position of the Group, which will enable as much value
to be realised from the asset portfolio. That value will then be
returned to shareholders.

Liquidity
The above strategy has been determined by the on-going
ﬁ nancial position of the Group. From a position in late 2015, when
the Group was close to insolvency, the ﬁ nancial position has
improved markedly. The main borrowing of the Group remains
the BPAC loan, which, after the year end, has been rescheduled
for repayment on 30 June 2019. During 2017 £0.4 million, capital
and interest, was repaid on the BPAC loan, in line with the board’s
strategy to prioritise the repayment of the most expensive top slice
tranche of debt.

Cash receipts from our plant in Argentina in Comodoro Rivadavia
started well at the beginning of the year. However, as announced,
on 31 March 2017 the plant suffered damage as a result of severe
weather conditions. As a result, the plant did not operate for the
period until 23 May 2017, and cash receipts suffered accordingly.
Normal operations resumed for a period, and cash remittances to
the Group were reinstated. The situation again radically changed
when, as announced on 8 September 2017, the plant had to be
shut down entirely due to certain turbine blades within the steam
generator being damaged.

A temporary modiﬁ cation of the steam turbine was carried out
in October 2017, which enabled the plant to resume operation,
albeit at a reduced output. This temporary ﬁ x was expected to
remain in place until the planned maintenance of the steam turbine
could be carried out this year. This led to a material loss in revenue
generated from the plant, and again, this hit the cash remittances
made to the Group by Energia del Sur S.A. (“EdS”).

The result of the two material adverse interruptions suffered to the
plant during 2017 led to a shortfall in cash receipts from Argentina
compared to a forecast of £1.6 million. The cash position of the
Group remains difﬁ cult, with the on-going uncertainty surrounding
the timing of the planned maintenance due to the agreed loans
to fund the maintenance programme from CAMMESA not
being available due to CAMMESA’s own liquidity problems.
Alternative funding is actively being sought. Until the maintenance
programme is carried out, the plant will have to continue running
at well below capacity for safety reasons, and as a result cash
generation to fund repayments of the Group loans to Argentina is
severely restricted.

Financial results
The operating loss for the year of £3.7 million is an improvement
on that incurred last year (2016: £12.8 million). Continuing
strict control over administration expenses resulted in costs of
£2.1 million, compared to 2016: £2.4 million. Write-downs in the
carrying value of certain Group assets totalled £1.7 million (2016:
£10.5 million) has led to a marked impact on the results when
compared to last year. These write downs reﬂ ect the Board’s
view of the carrying value for the Group’s assets in current market
conditions. The overall loss before tax for the year was £5.8 million
(2016: £9.3 million). This included foreign exchange losses of
£2.5 million (2016: £1.2 million gain).

The Group concluded the sale of our Peruvian assets. The sale
completed on 30 January 2018, the carrying value in these
accounts reﬂ ects the sale and purchase agreement. The Group
made a gain in the year of £0.2 million on these discontinued
operations. The majority of the gain, £1. 3 million, will be
re cognised in the accounts of the year ended 31 December 2018.

Unless there is a signiﬁ cant disposal of assets, the Group is
dependent upon joint venture receipts from Argentina in order to
comply with payment arrangements made with its creditors. There
exists uncertainty as to the timing and the quantum of the receipts
from its joint venture in Argentina and for this reason the Directors
are, in the meantime, pursuing alternative sources of working
capital until further signiﬁ cant disposal receipts are assured, none
of which have been secured yet.

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 loss 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 an operating loss of £3.7 million in
the year (2016 £12.8 million loss).

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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 68.9 per cent. due to unplanned and forced outages
(2016: 92.6 per cent.).

STRATEGIC REPORT

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 4.5 pence per share
(2016 5.6 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. Growth in earnings per share is indicative
of the Group’s ability to identify and add value. The Group made a
loss of 1.04 pence per share in the year (2016: loss of 1.65 pence
per share) 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 continues to own three
turbines ready for deployment in projects.

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.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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REVIEW OF FINANCIAL PERFORMANCE

Rurelec Chile
The development operations in Chile have expensed limited
direct costs in the year of £211k (2016: £68k). Capitalised
development costs are £ 0.2 million (2016: £0.4 million) on the
Central Illapa project. In 2017 the Arica project/turbine was
impaired by £0.3 million (2016: £1.0 million). The development
costs associated with the Central Illapa project were not impaired
in 2017 or 2016.

Cascade Hydro Power (Peru)
As previously mentioned the Peruvian subsidiaries and UK holding
company, Cascade Hydro Limited, have been disposed of, the
sale completed on 30 January 2018. The Group has no further
funding commitments to these entities. In these accounts the
assets and liabilities are recorded as held for sale.

Group Results
The Group loss after tax for the ﬁ nancial year under review is
£5.8 million (2016: £9.3 million loss). The largest component was
associated with foreign exchange losses of £2.5 million (2016
gain: £1.2 million). The impairment losses, totalling £1.7 million
(2016: £10.5 million), were mainly £1.3 million (2016: nil) for
Argentinian operations and £0.3 million (2016: £1.3 million) for
Chilean operations, this excludes the foreign exchange loss on
the 701 turbines of £0.9 million (2016: impairments and foreign
exchange £6.4 million).

Group revenue was nil (2016: £0.1 million), Operating and
Administrative expenses amounted to £2.1 million (2016:
£2.4 million). Operating loss was £3.7 million (2016: £12.8 million
loss). The loss before tax is £5.8 million (2016: £9.3 million loss).
The basic loss per share is 1.04p (2016: 1.65p loss). In 2017, the
total assets of £3 1.1 million (2016: £39.1 million) includes assets
of £ 2.3 million (2016: £2.2 million), which are held for sale. Total
equity stands at £25. 2 million (2016: £31.4 million), or a Net Asset
Value of 4.5 pence per share (2016: 5.6 pence per share).

The results for the operations in Argentina, Peru, and Chile
are shown below.

Energia del Sur S.A. Results
At the operating level the plant in Comodoro Rivadavia and
therefore based on 100% of EdS’s activities the net operating
proﬁ t for the year was AR$ 92.1 million (2016: AR$ 111.0 million)
on revenues of AR$ 372.2 million (2016: AR$ 380.9 million),
whilst the gross operating proﬁ t was AR$ 370.1 million (2016:
AR$ 333.5 million). The net proﬁ t for the year at EdS was AR$
32.7 million (2016: proﬁ t AR$ 27.6 million) which included foreign
exchange losses of AR$ 30.8 million (2016: AR$ 34.2 million).

As set out in note 2 4 the Directors have determined that the
relationship with EdS is a joint venture and is therefore equity
accounted.

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REVIEW OF OPERATIONS

Argentina
Operations at the power plant were affected by the breakdowns
in April/May 2017 and September/October 2017. Gross energy
output was 18.7 per cent. lower at approximately 708 GWh
(2016: 871 GWh), this was due to unplanned and forced outages.
The average heat rate of the plant was 8.76 MMBTU/MWh
(2016: 8.39). The average heat rate for the plant includes fuel
consumption on both the gas turbines and auxiliary ﬁ ring of the
steam turbine.

The following table sets out the Group’s 50 per cent. share of its
interest in Patagonia Energy Limited (“PEL”) the BVI registered
joint venture holding company of EdS, it’s 100 per cent. owned
Argentinian operating subsidiary:

Year ended
31.12.17
£’000

Year ended
31.12.16
£’000

8,552
(8,644)
(729)
(821)
5,068
2,594
(19,196)
(4,035)

9,325
(9,198)
(895)
(768)
5,482
4,853
(19,236)
(7,989)

Revenue attributable to the Group
Expenses
Foreign Currency Exchange
Net Loss
Non-current Assets
Current Assets
Non-current Liabilities
Current Liabilities

Chile

Arica
Following the reassessment of the project the Board is considering
deploying the Frame 6B turbine acquired for the project
elsewhere. An application has therefore been made to the state
asset bureau for a refund of the purchase price for the land and a
buyer is to be sought for the turbine unless it can be redeployed.
Given the uncertainty of the future sale of the turbine and the
recoverability of the land cost an impairment charge of £0.3 million
(2016: £1.3 million) has been recorded in the year.

Central Illapa
The project, has continued to make some progress in
development, whilst the company pursues various options.

The Group’s carrying value for projects is assessed for possible
impairments. In light of current local market conditions, in order
for the project to be attractive to joint venture partners, the capital
value of the 701 Siemens Turbines going into the project has
been assessed at US$12.0 million. The Directors also obtained
an independent valuation produced by a competent person. The
report stated that the price in the turbine market is unchanged
from the prior report in that the fair value of the turbines as being
US$12.0 million. Therefore, no impairment has been charged
in the year (2016: US$13.0 million) and, after exchange rate
differences a reduction in the asset value of £0.9 million has been
charged in 2017 (2016: £6.4 million).

Peru
Exclusive negotiations for the sale of Colca, Chilcay and
Huisicancha project companies commenced in late 2015 and
continued into 2017. Unfortunately, the prospective buyer pulled
out just prior to expected signing. Other alternative prospective
purchasers were approached during 2017. On 30 December
2017 a sale and purchase agreement was exchanged whereby all
of the Group’s interests in Peru were sold to Sloane Renewable
Energy Limited, a company owned and controlled by Peter Earl,
the former CEO of the Rurelec Group. The sale and purchase
agreement was completed on 30 January 2018.

Principal risks and uncertainties
The principal risks and uncertainties facing the Group, are
possible changes in demand and pricing for electricity in the
markets in South America in which the Group operates, political
risk, and uncertainties in the ﬁ nancial markets, and unexpected
operational events.

a) Political risk – there exists signiﬁ cant political risks in areas
where the Group operates. These include potential for
unfriendly actions towards foreign investments and the
possibility that domestic economic instability could lead to
political unrest or vice versa. These are signiﬁ cant risks to
Rurelec .

b) Financial markets – Whilst project ﬁ nance may be available
in the markets in which the Group operates, the Group’s
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.

e) Liquidity – The Group needs to be in a position to meet its

short-term cash requirements. Please see Going Concern in
the Directors Report and note 1b for further details.

The Strategic Report was approved by the Board of Directors
on 31 May, 2018 and was signed on its behalf by Simon Morris
(Executive Director).

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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BOARD OF DIRECTORS

07
07

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 Hichens, Harrison & Co plc after its
acquisition by Religare in 2008. Brian is a Fellow of the Institute of
Chartered Accountants in England and Wales.

SIMON MORRIS
Executive Director
Fellow of the Institute of Chartered Accountants in England
and Wales, qualiﬁ ed as a Chartered Accountant in 1980. After
obtaining a degree in Business Studies, spent his career with
Grant Thornton and became a partner in 1988. He specialised in
corporate ﬁ nance and corporate recovery, principally restructuring
work. He was appointed Chief Operating Ofﬁ cer of Grant Thornton
UK in 2008, retiring in late 2011. Since then he has acted as
a business consultant. He is also an accredited mediator.

ANDY COVENEY
Finance Director
Member of the institute of Chartered Accountants, qualiﬁ ed
as Chartered Accountant in 1990. After obtaining a degree
in Geology from the University of Durham he joined Deloitte
Haskins & Sells, later moving into Corporate Finance advisory
work with Coopers & Lybrand. Andy left the profession in 1993,
embarking on a career as ﬁ nance director/managing director
of several manufacturing & distribution businesses, specialising
in turn-arounds, cash ﬂ ow management & proﬁ t improvement,
including CP Pharmaceuticals (Holdings) Ltd, Benders Holdings
Ltd and Bernstein Holdings Ltd. He established his own advisory
& consultancy business in 2011 to specialise in and invest in
business turn arounds & growth companies.

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DIRECTORS’ REPORT

THE DIRECTORS SUBMIT THEIR
ANNUAL REPORT TOGETHER
WITH THE AUDITED FINANCIAL
STATEMENTS FOR THE YEAR
ENDED 31 DECEMBER 2017.

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.

Since the Company’s admission to AIM in August 2004, the
Company acquired assets in Argentina and commenced
development of new power generation projects in Peru and Chile
since 2012. The power generation projects in Peru were sold on
30 January 2018.

Results and dividends
The Group results for the year ended 31 December 2017 are
set out in the Consolidated Statement of Total Comprehensive
Income.

No dividend was paid during the year to 31 December 2017
(2016: nil).

Share capital
Details of the issued share capital are set out in Note 18.

Going concern
The Company has been in negotiations for prospective sales of
Group assets. There exists uncertainty as to the timing of the sales
of assets as well as the quantum of the corresponding proceeds.

During 2017 the Company reached payment agreements with
and settled certain creditors resulting in an overall reduction in
trade and other payables. Un less there is a signiﬁ cant disposal of
assets, the Group is reliant on repayments of loans from its joint
venture Argentine operations. However, the quantum and timing of
such receipts may be subject to variation and are not guaranteed
as there is no formal agreement in place. Whilst anticipated loan
repayments from the joint venture are expected to be sufﬁ cient to
meet the working capital requirements for the Group, the Directors
are considering raising additional facilities to increase headroom.

The Group’s 100% subsidiary Cascade Hydro Ltd has outstanding
third-party loans of £2.6 million (2016: £2.4 million). These loans
have not been repaid in accordance with their original payment
schedules. Further details are set out in Note 2 2. After the sale of
Cascade Hydro Limited completed on 30 January 2018 the Group
was no longer responsible for these loans, see note 32 for further
details.

On the basis that the Group receives the joint venture remittances
referred to above or the alternative sources of working capital,
the Directors have assessed that the Group would have 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.

Directors
The following Directors served during the year and up to the date
of signature of the ﬁ nancial statements as follows:

Brian Rowbotham – Non-Executive Director

Simon C. Morris – Executive Director

Andy H. Coveney – Executive Director

Directors’ interests
The Directors’ beneﬁ cial interests in the shares of the Company
were on the reference dates as stated below:

29.05.2018

31.12.2017

31.12.2016

Brian Rowbotham

450,000

Simon C. Morris

Andrew H. Coveney

–

Directors’ Indemnity
The Company’s Articles of Association provide, subject to the
provisions of UK legislation, an indemnity for Directors and
ofﬁ cers of the Company in respect of liabilities they may incur in
the discharge of their duties or in the exercise of their powers,
including any liabilities relating to the defence of any proceedings
brought against them which relate to anything done or omitted,
or alleged to have been done or omitted, by them as ofﬁ cers or
employees of the Company. Appropriate directors’ and ofﬁ cers’
liability insurance cover is in place in respect of all the Directors.

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 29 May
2018, being the last practicable date for reporting this information.

Sterling Trust Ltd

YF Finance Ltd

Number of

shares % holding

303,092,303

96,565,166

53.989

17.201

HSBC Client Holdings Nominees
(UK) Limited

Interactive Investor Services
Nominees Limited

20,511,059

3.65

17,971,218

3.20

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 26.

Statement of 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.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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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;

• 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.

Statement as to disclosure of information
to auditor
As far as the Directors are aware they have each taken all
necessary steps to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that
information.

As far as the Directors are aware, there is no relevant audit
information of which the Company’s auditor is unaware.

This conﬁ rmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.

Auditor
Our auditor’s, Moore Stephens LLP, were appointed on 28
February 2018. Pursuant to Section 489 of the Companies Act of
the Companies Act 2006, Moore Stephens LLP has expressed
its willingness to continue in ofﬁ ce as auditor and a resolution to
reappoint it will be proposed at the forthcoming Annual General
Meeting.

On behalf of the Board

Maria J. Bravo Quiterio
Company Secretary
31 May 2018

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1010

CORPORATE GOVERNANCE REPORT

FOR THE YEAR ENDED 31 DECEMBER 2017

Policy Statement
The Board is committed to applying high standards of corporate
governance and integrity to all our activities. As the Company
is listed on the AIM Market of London Stock Exchange PLC, it
is not required to comply with all aspects of the UK Corporate
Governance Code 2016 (the “Code”). The Group does not
comply with the Code. 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 draw on
those aspects of the Code that are considered to be relevant
to the Group.

The Board of Directors
Subject to the Articles of Association, UK legislation and any
directions given by special resolution, the business of the Group
is managed by the Board. The Board is responsible for providing
leadership to the management of the Group, determining strategy
and ensuring that agreed strategy is implemented as well as
approving major capital expenditure items, disposals, annual
budgets and ﬁ nancing matters.

The Board appoints its members and those of its principal
committees following the recommendations of the Nominations
and Remuneration Committees. The Board regularly reviews
the identiﬁ cation, evaluation and management of the principal
risks faced by the Group and the effectiveness of the Board’s
internal controls. The Board considers the appropriateness of its
accounting policies on an annual basis. The Board believes that
the accounting policies are appropriate. Financial results with
comparison to budget and forecast results are reported to the
Board on a regular basis, together with commercial reports on
operational issues. Signiﬁ cant variances from budget or strategy
are discussed at Board meetings and actions set in place to
address them.

The Board comprises one Non-Executive Director and two
Executive Directors: the Chief Executive Ofﬁ cer and the Finance
Director. All Directors are involved in signiﬁ cant decisions.

Board and committee meetings are scheduled in line with the
ﬁ nancial calendar of the Group. The timing of meetings ensures
that the latest operational detail is available, and that appropriate
time and focus can be given to matters under consideration. The
Board met twenty-six (26) times throughout the year to discuss a
formal schedule of business.

Composition of and Appointments to the Board
The Code requires that there should be a balance of Executive and
Non-Executive Directors and when appointing new directors to the
Board, there should be a formal, rigorous and transparent process.

The Board comprises one Non-Executive Director, Brian
Rowbotham who is regarded by the Board as independent in
character and judgement and two Executive Directors. The
Executive Directors for the year were Simon Morris and Andrew
Coveney, both form the management team. Short biographies of
the Directors are given on page 7.

The Board is satisﬁ ed with the balance between executive and
non-executive directors. The Board considers that its composition
is appropriate in view of the size and requirements of the Group’s

business and the need to maintain a practical balance between
executive and non-executive directors.

Each member of the Board brings different experience to the
Board and the Board Committees. The Board is satisﬁ ed that
there is sufﬁ cient diversity in the Board structure to bring a balance
of skills, experience, independence and knowledge to the Group.
It is noted that the non-executive director holds shares in the
Company, but the Board consider that this does not impact his
independence.

The Code requires that the Board undertakes a formal and
rigorous annual evaluation of its own performance and that of its
Committees and Directors. The Board reviews its composition
annually to ensure there is adequate diversity to allow for its
proper functioning and that the Board works effectively as a unit.

When a new appointment is made to the Board, consideration
is given to the particular skills, knowledge and experience
that a potential new member could add to the existing Board
composition.

Re-election
Under the Code, the Directors should offer themselves for re-
election at regular intervals. Additionally, under the Company’s
Articles of Association, at least one third of the directors who are
subject to retirement by rotation are required to retire and may be
proposed for re-election at each annual general meeting (“AGM”).
New directors who were not appointed at the previous AGM,
automatically retire at their ﬁ rst AGM and, if eligible, can seek
re-appointment.

Internal Controls
The Board takes responsibility for establishing and maintaining
reliable systems of control in all areas of operation. These systems
of control, especially ﬁ nancial control, can only provide reasonable
but not absolute assurance against material misstatement or loss.

The key matters relating to the systems of internal control are set
out below:

•

the Company operates a comprehensive system for reporting
ﬁ nancial and non-ﬁ nancial information to the Board including
review of strategy and ﬁ nancial budgets.

• ﬁ nancial performance is reviewed against budget, forecast and
other performance indicators with action dictated according to
each meeting.

• sufﬁ cient resource is focused to maintain and develop internal
control procedures and information systems especially in
ﬁ nancial management.

The Board considers that there have been no substantial
weaknesses in internal ﬁ nancial controls that have resulted in any
material losses, contingencies or uncertainties that have to be
disclosed in the accounts.

Information and Development
The Code requires that the Board should be supplied in a timely
fashion with information in a form and of a quality appropriate to
enable it to discharge its duties.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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11
11

Updates dealing with changes in legislation and regulation relevant
to the Group’s business are provided to the Board by external
advisors, the Finance Director and legal counsel. Directors may
seek independent professional advice at the Company’s expense
in furtherance of their duties as Directors.

Investor Relations
The Group values the views of its shareholders and recognises
their interest in the Group’s strategy and performance, The
Directors hold meetings with institutional shareholders to discuss
and review the Group’s activities and objectives. Communication
with private shareholders is largely through the Annual General
Meeting (“AGM”), where participation is encouraged and where
the Board is available to answer questions.

The AGM is used to communicate with institutional and private
investors with whom dialogue is encouraged. Directors also
undertake consultation with major shareholders from time to time.
Feedback is reported to the Board so that all Directors develop
an understanding of the views of major shareholders. Trading
updates and press releases are issued as appropriate and are
available on the Company’s website, where up to date information
is maintained on the investor section at www.rurelec.com.

Every shareholder has access to a full annual report each year end
and an interim report at the half year end. Care is taken to ensure
that any price sensitive information is released to all shareholders
at the same time in accordance with London Stock Exchange
requirements.

AIM Rules Compliance Report
Rurelec is quoted on AIM, London Stock Exchange’s market for
small cap companies. Rurelec complies with the AIM Rules, in
particular AIM Rule 31 which requires the following:

•

to have in place sufﬁ cient procedures, resources and controls
to enable compliance with the AIM Rules;

to seek advice from the Nominated Adviser (“Nomad”)
regarding its compliance with the AIM Rules whenever
appropriate and to take that advice into account;

to provide the Nomad with any information it reasonably
requests in order for the Nomad to carry out its responsibilities
under the AIM Rules for Nomads, including any proposed
changes to the Board and to provide draft RNS notiﬁ cations in
advance;

to ensure that each of the Directors accepts full responsibility
collectively and individually for compliance with the AIM Rules;

to ensure that each Director discloses without delay all
information which the Company needs to disclose in order
to comply with AIM Rule 17 (Disclosure of Miscellaneous
Information) insofar as that information is known to the Director
or could with reasonable diligence be ascertained by the
Director.

Audit Committee
The Audit Committee comprises Brian Rowbotham as Chairman
of the Committee and Simon Morris. Mr Rowbotham and
Mr Morris are Chartered Accountants and 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 four (4) times to discuss
appointment of new auditors, review the draft half year and annual
ﬁ nancial statements.

The Audit Committee considered the appointment of new auditors
for the Company after the current auditors, Saffery Champness
LLP resigned. The new auditors for the Company and its group
of companies were appointed under the recommendation of the
Audit Committee. Moore Stephens LLP was appointed as external
auditor of Rurelec PLC and its group of companies.

Remuneration Committee
The Remuneration Committee comprises Brian Rowbotham who
reviews the remuneration policy for the Executive Directors and for
key management personnel. The Executive Directors determine
the remuneration arrangements for the Non-Executive Director.
No Director may participate in decisions regarding his or her own
remuneration. Details of the Directors’ remuneration can be found
in Note 7.

Nominations Committee
The Nominations Committee presently comprises Brian
Rowbotham. The Committee is responsible for monitoring the
composition of the Board and makes 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.

Social Media Policy
The Company issued a new Social Media Policy in 2017 in
compliance with its obligations under the AIM Rules. The Social
Media Policy is intended to help staff make appropriate decisions
about the use of social media. It outlines the standards required
from all staff to observe when using social media on behalf of
the Company and the actions to take in respect of breaches
of the policy.

Share Dealing Code
The Company issued a new Share Dealing Code in 2016
in compliance with its obligations under the Market Abuse
Regulations which covers dealings by Persons Discharging
Managerial Responsibilities (“PDMRs”) and certain employees
of the Company and its subsidiaries. The Share Dealing Code
restricts dealings in shares during designated closed periods and
at any time when in possession of unpublished price sensitive
information.

Compliance Statement
The Board recognises that the Company is not obliged to and
does not comply with the Code. The board constantly monitors
its compliance and opportunities to improve.

Maria J. Bravo Quiterio
Company Secretary
31 May 2018

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INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF RURELEC PLC

Our opinion
We have audited the consolidated ﬁ nancial statements for the year
ended 31 December 2017 which comprise:

•

the consolidated statement of comprehensive income;

the consolidated and company statements of changes in
equity;

the consolidated and company balance sheets;

the consolidated and company cash ﬂ ow statements; and

the notes to the ﬁ nancial statements, which include a summary
of signiﬁ cant accounting policies and other explanatory
information.

Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the ﬁ nancial statements
section of our report below. We are independent of the Company
in accordance with the ethical requirements that are relevant
to our audit of the ﬁ nancial statements in the UK, including the
FRC’s Ethical Standard as applied to listed entities, and we
have fulﬁ lled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufﬁ cient and appropriate to provide a basis for our
opinion.

The ﬁ nancial reporting framework that has been applied in the
preparation of the ﬁ nancial statements is applicable law and IFRS
as adopted by the European Union.

In our opinion, Rurelec plc’s (“the Company” or “the Parent
Company”) consolidated ﬁ nancial statements (“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 2017 and of the
group’s loss for the year then ended;

• have been properly prepared in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the
European Union and, in respect of the Parent Company, as
applied in accordance with the provisions of the Companies
Act 2006;; and

• have been prepared in accordance with the requirements of

the Companies Act 2006.

Key Audit Matter

Going concern
The group continues to make a loss, with the only
operational part of the business being its investment in a
joint venture which has been loss making for a number of
years with the investment fully written down. Whilst the
group is in a net assets position, it is heavily reliant on
repayment of the loans receivable from the joint venture.

Our assessment of key risks of material
misstatement
Key audit matters are those matters that, in our professional
judgement, were of most signiﬁ cance in our audit of the ﬁ nancial
statements of the current period and include the most signiﬁ cant
assessed risks of material misstatement (whether or not due to
fraud) we identiﬁ ed, including those which had the greatest effect
on the overall audit strategy, the allocation of resources in the
audit and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of
the ﬁ nancial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.

How our audit addressed the Key Audit Matters
In this area our procedures included:

• Reviewing budget and cash ﬂ ow forecasts for at least 12

months from the date of approval of the ﬁ nancial statements;

• Obtaining support for the management assumptions used in

the forecast;

• Conﬁ rming the actual cash repayments of the loan to the JV

for the few months post year end

• Reviewing board minutes during the year and post year end
to indicate any other issues that may indicate inability of the
group to continue as a going concern; and

• Reviewing the going concern assessment of Energía del Sur

S.A.

In order to meet trade payables and borrowings falling due within
one year, the Company is dependent on the continuing receipt
of loan repayments from Energía del Sur S.A. There is no formal
agreement in place for the repayment of the loan resulting in a
material uncertainty that casts doubt on the Company’s ability to
continue as a going concern.

The ﬁ nancial statements do not include any adjustments that
would result if the group were unsuccessful in this regard.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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13
13

Key Audit Matter

Valuation of assets
The group holds two Siemens 701dus turbines (stored in
Italy)- these were purchased for $25m in June 2013 for
use in the Central Illapa Project in Chile. Due to working
capital constraints and market conditions, investment
has been limited and the turbines have been heavily
impaired. As the group continues to be loss making and
with operational issues in the joint venture during the year,
there is signiﬁ cant uncertainty in being able to realise the
value through the future project, or through the sale of the
turbines in the local market as the market continues to be
depressed in the sector.

Valuation of investment and recoverability of
intercompany loans, including loans to joint venture
The repayment of these loans is dependent on the
economic feasibility of the underlying projects within the
group.

Our application of materiality
We set certain thresholds for materiality. These help us to
establish transactions and misstatements that are signiﬁ cant to
the ﬁ nancial statements as a whole, to determine the nature,
timing and extent of our audit procedures and to evaluate the
effect of misstatements, both individually on balances and on the
ﬁ nancial statements as a whole.

In establishing the audit strategy, it was determined that the
level of uncorrected misstatements judged to be material for the
ﬁ nancial statements and our audit overall would be £142,000,
approximately 5% of loss before tax. This is the threshold above
which missing or incorrect information in ﬁ nancial statements is
considered to have an impact on the decision making of users.
For the Parent Company ﬁ nancial statements, this was judged to
be £140,000.

We reported to the Audit Committee all potential adjustments
in excess of £7,100 being 5% of the materiality for the ﬁ nancial
statements as a whole.

How our audit addressed the Key Audit Matters
In this area our procedures included:

• Reviewing purchase and ownership documentation to conﬁ rm

rights and obligations;

• Physically verifying existence of the assets, their storage and

condition;

• Reviewing value in use calculations, assessing the accuracy of

calculations and the reasonableness of assumptions;

• Reviewing the valuation report prepared by an independent
expert, conﬁ rming the expert’s independence, assessing the
conclusions reached and the competency and qualiﬁ cations of
the expert;

• Reviewing evidence that the value of the assets is recoverable

either through sale or through future project offers; and

• Reviewing insurance documentation and storage/maintenance

documentation to assess the risk of further impairment.

The above procedures have been completed with no issues being
identiﬁ ed.

In this area our procedures included:

• Obtaining loan conﬁ rmations of the balance and any interest

accrued;

• Reviewing the going concern assessment of Energía del Sur

S.A.;

• Reviewing signed loan agreements with group companies and

joint venture; and

• Assessing recoverability of the loans through reviewing ﬁ nancial
projections models and net asset positions of subsidiaries and
the joint venture.

The above procedures have been completed with no issues being
identiﬁ ed.

An overview of the scope of our audit
The group operates through three trading subsidiary undertakings
registered in the UK and one joint venture undertaking registered
in the British Virgin Islands which were considered to be signiﬁ cant
components for the purposes of the ﬁ nancial statements. The
ﬁ nancial statements consolidate these entities together with a
number of non-trading subsidiary undertakings. In establishing our
overall approach to the group audit, we determined the type of
work that needed to be performed in respect of each subsidiary.
This consisted of us carrying out a full audit of all signiﬁ cant
components of the group and speciﬁ ed procedures on the
remaining components. For the audit work required on overseas
entities we worked with component auditors. 100% of group net
assets were covered by full scope audits.

We considered the risk of the ﬁ nancial statements being misstated
or not prepared in accordance with the underlying legislation
or standards. We then directed our work toward areas of the
ﬁ nancial statements which we assessed as having the highest risk
of containing material misstatements.

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14
14

INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF RURELEC PLC

We tested and examined information using both analytical
procedures and tests of detail, to the extent necessary to
provide us with a reasonable basis to draw conclusions. These
procedures, together with our detailed review of procedures
performed by component auditors, gave us the evidence that we
need for our opinion on the ﬁ nancial statements as a whole and,
in particular, helped mitigate the risks of material misstatement
mentioned above.

Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual
report other than the ﬁ nancial statements and our auditor’s report
thereon. Our opinion on the ﬁ nancial statements does not cover
the other information and, except to the extent otherwise explicitly
stated in this report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the ﬁ nancial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the ﬁ nancial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there
is a material misstatement in the ﬁ nancial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report
that fact.
We have nothing to report in this regard.

Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, based on the work undertaken in the course of the
audit:
•

the information given in the Strategic Report and the Directors’
Report for the ﬁ nancial year for which the ﬁ nancial statements
are prepared is consistent with the ﬁ nancial statements; and
the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.

•

Matters on which we are required to report by
exception
In the light of the knowledge and understanding of the Company
and its environment obtained in the course of the audit, we have
not identiﬁ ed material misstatements in the strategic report or the
directors’ report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion
• adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches
not visited by us; or
the 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.

Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement, set out on page 9, 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, and for such internal control
as the directors determine is necessary to enable the preparation
of ﬁ nancial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the ﬁ nancial statements, the directors are responsible
for assessing the group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors
either intend to liquidate the Company or to cease operations, or
have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the
ﬁ nancial statements
Our objectives are to obtain reasonable assurance about whether
the ﬁ nancial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs(UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to inﬂ uence the
economic decisions of users taken on the basis of these ﬁ nancial
statements.
A further description of our responsibilities for the audit of the
ﬁ nancial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.

Use of our Report
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.

Michael Simms,
Senior Statutory Auditor

For and on behalf of

Moore Stephens LLP,
Chartered Accountants
and Statutory Auditor
150 Aldersgate Street
London
EC1A 4AB

31 May 2018

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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CONSOLIDATED INCOME
STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

Continuing operations

Revenue

Gross Profit

Administrative Expenses

Other Expense

Operating Loss

Share of Joint Venture Profit/(Loss)

Foreign Exchange (Losses)/Gains

Finance Income

Finance Expense

Loss before Tax

Tax Expense

Loss for the year attributable to owners of the Company

Earnings per Share – in pence

Basic Loss per Share

Diluted Loss per Share

NOTES

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

–

(2,070)

(1,651)

(3,721)

–

(2,547)

862

(419)

(5,825)

–

(5,825)

(1.04)

(2 ,420)

(10,500)

(12,825)

–

1,243

2,683

(355)

(9,254)

(4)

(9,258)

(1.65)

The notes on pages 2 3 to 49 form an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

Loss for the year

Other Comprehensive (Loss)/Income for the year:

Items that will be subsequently Reclassified to Profit & Loss:

Exchange Differences on translation of Foreign Operations

Total Other Comprehensive (Loss)/Income

YEAR ENDED
31.12.17
£’000

(5,825)

YEAR ENDED
31.12.16
£’000

(9,258)

(386)

3,171

Total Comprehensive Loss for year attributable to owners of the Company

(6,211)

(6,087)

The notes on pages 2 3 to 49 form an integral part of these Consolidated Financial Statements.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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CONSOLIDATED STATEMENT
OF FINANCIAL POSITION

AT 31 DECEMBER 2017

Assets

Non-current Assets

Property, Plant and Equipment

Intangible Assets

Investment in Joint Venture

Current Assets

Trade and Other Receivables

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

Special Non-distributable Reserve

Accumulated Losses

Total Equity attributable to owners of the Company

Current Liabilities

Trade and Other Payables

Current Tax Liabilities

Borrowings

Liabilities classified as held for Sale

Total Liabilities

Total Equity and Liabilities

NOTES

31.12.17
£’000

31.12.16
£’000

15a

20a

9,699

11,176

–

9,699

11,205

18,951

163

2,265

21,379

24,761

960

2,207

27,928

31,078

39,133

11,228

22,754

572

45,000

(54,345)

25,209

899

1,448

3,515

5,869

11,228

22,754

958

45,000

(48,520)

31,420

2,434

4,037

1,230

7,713

31,078

39,133

The financial statements were approved by the Board of Directors on 31 May 2018 and were signed on its behalf by Simon Morris
(Executive Director) and Brian Rowbotham (Non-executive Director).

_________________

Simon Morris

__________________

Brian Rowbotham

The notes on pages 2 3 to 49 form an integral part of these Consolidated Financial Statements.

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COMPANY STATEMENT
OF FINANCIAL POSITION

AT 31 DECEMBER 2017

COMPANY NUMBER 4812855

Assets

Non-current Assets

Investments

Current Assets

Inventories

Trade and Other Receivables

Cash and Cash Equivalents

Total assets

Equity and liabilities

Shareholders’ equity

Share Capital

Share Premium Account

Special Non-distributable Reserve

Accumulated Losses

Total Equity

Current Liabilities

Trade and Other Payables

Current tax liabilities

Borrowings

NOTES

31.12.17
£’000

31.12.16
£’000

15b

20b

100

8,895

20,892

162

29,949

100

9,755

27,989

955

38,699

30,049

38,799

11,228

22,754

45,000

(50,989)

27,993

601

1,448

2,056

11,228

22,754

45,000

(43,921)

35,061

2,065

1,661

3,738

Total Equity and Liabilities

30,049

38,799

As permitted by s408 Companies Act 2006, the Company has not presented its own profit and loss account and related notes. The
Company’s loss for the year was £7.1 million (2016: loss £2.8 million).

The financial statements were approved by the Board of Directors on 31 May 2018 and were signed on its behalf by Simon Morris
(Executive Director) and Brian Rowbotham (Non-executive Director).

_________________

Simon Morris

__________________

Brian Rowbotham

The notes on pages 2 3 to 49 form an integral part of these Consolidated Financial Statements.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

250130 Rurelec Annual Report pp15-pp22.indd C18

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CONSOLIDATED STATEMENT
OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2017

Cash Flows from Operating Activities

Cash used in Operations

Net Cash used in Operating Activities

Cash Flows from Investing Activities

Loan Repayments from Joint Venture company

Settlement of Deferred Consideration

Net Cash generated from Investing Activities

NOTES

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

(2,471)

3,331

(1,257)

2,074

(2,066)

2,311

(321)

1,990

Net Cash Outflow before Financing Activities

(397)

(76)

Cash Flows from Financing Activities

Loan Drawdowns

Loan Principal Repayments

Loan Interest Repayments

Net Cash (Used in)/Generated from Financing Activities

(Decrease)/Increase in Cash and Cash Equivalents

Cash and Cash Equivalents at Start of Year

Cash and Cash Equivalents at End of Year

–

(320)

(80)

(400)

(797)

960

163

1,500

(830)

(20)

650

574

386

960

The notes on pages 2 3 to 49 form an integral part of these Consolidated Financial Statements.

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250130 Rurelec Annual Report pp15-pp22.indd C19

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COMPANY STATEMENT
OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2017

Cash Flows from Operating Activities

Cash Used in Operations

Net Cash Used in Operations

Cash Flows from Investing Activities

Investment in and Loans to subsidiaries

Loan Repayment from subsidiary

Net Cash Generated from Investing Activities

Net Cash Outflow before Financing Activities

Cash Flows from Financing Activities

Loan Drawdowns

Loan Principal Repayments

Loan Interest Repayments

Net Cash (Used in)/Generated from Financing Activities

(Decrease)/Increase in Cash and Cash Equivalents

Cash and Cash Equivalents at Start of Year

Cash and Cash Equivalents at End of Year

NOTES

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

(3,164)

(573)

3,344

2,771

(393)

–

(320)

(80)

(400)

(793)

955

162

(1,718)

(673)

2,311

1,638

(80)

1,500

(830)

(21)

649

569

386

955

The notes on pages 2 3 to 49 form an integral part of these Consolidated Financial Statements.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017

Balance at 01.01.16

Loss for year attributable
to owners of the parent

Exchange Differences

Total Comprehensive Loss

SHARE
CAPITAL
£’000

11,228

SHARE
PREMIUM
£’000

22,754

–

Balance at 31.12.16

11,228

22,754

Loss for year attributable
to owners of the parent

Exchange Differences

Total Comprehensive Loss

Balance at 31.12.17

Notes:

–

11,228

22,754

FOREIGN
CURRENCY
RESERVE
£’000

ACCUMULATED
LOSSES
£’000

SPECIAL
NON-
DISTRIBUTABLE
RESERVE
£’000

(2,212)

(39,262)

45,000

–

3,171

958

–

(386)

572

(9,258)

–

(9,258)

(48,520)

(5,825)

–

(5,825)

(54,345)

–

45,000

–

45,000

TOTAL
£’000

37,508

(9,258)

3,171

(6,087)

31,420

(5,825)

(386)

(6,211)

25,209

The notes on pages 2 3 to 49 form an integral part of these Consolidated Financial Statements.

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250130 Rurelec Annual Report pp15-pp22.indd C21

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COMPANY STATEMENT
OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017 FOR THE YEAR ENDED 31 DECEMBER 2015

Balance at 1.1.16

Loss for the year

Total Comprehensive Loss

SHARE
CAPITAL
£’000

11,228

–

ACCUMULATED
LOSSES
£’000

SPECIAL
NON-
DISTRIBUTABLE
RESERVE
£’000

(41,146)

45,000

SHARE
PREMIUM
£’000

22,754

–

(2,775)

–

TOTAL
£’000

37,836

(2,775)

Balance at 31.12.16

11,228

22,754

(43,921)

45,000

35,061

Loss for the year

Total Comprehensive Loss

–

Balance at 31.12.17

Notes:

11,228

22,754

(7,068)

(50,989)

–

45,000

(7,068)

27,993

The notes on pages 2 3 to 49 form an integral part of these Consolidated Financial Statements.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

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
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 2017.

Basis of measurement
The functional currencies of the Group are Pounds sterling, Chilean Peso, Peruvian Nuevo Sol, Argentinian Peso and the United States
Dollar. The presentation currency is Pounds sterling.

Going Concern
The Directors have continued to adopt the going concern basis for the preparation of these financial statements. During 2017 the
Group continued to receive funds from its joint venture in Argentina, EdS, in service of the loans to the joint venture and a wholly owned
subsidiary Rurelec Project Finance Ltd.

The Company has been in negotiations for the prospective sales of Group assets. There exists uncertainty as to the timing of the sales
of assets as well as the quantum of the corresponding proceeds.

During 2017 and since the year end the Company has continued to make payments towards agreements with and settled certain
creditors resulting in an overall reduction in creditors. Until there is a significant disposal of assets, the Group is reliant on repayments of
loans from its joint venture. However, the quantum and timing of such receipts are subject to variation and are not guaranteed. Whilst
anticipated loan repayments from the joint venture are expected to be sufficient to meet the working capital requirements for the Group,
the Directors are considering raising additional facilities to increase headroom.

Since the year end the Company has further extended the repayment date on it’s £1.2 million short term facility from Bridge (Arena)
Properties Limited (“BPAC”). The repayment date is now 30 June 2019.

The Group’s 100% subsidiary Cascade Hydro Ltd has outstanding third-party loans of £2.6 million (2016: £2.4 million). These loans
have not been paid in accordance with their original payment schedules. Following the disposal of the Group’s interests in Peru on
30 January 2018, through the sale of Cascade Hydro Limited, outstanding third-party loans totaling £2.9 million have been removed
from the Group. Further details are set out in Note 23 and Note 32.

On the basis that the Group receives these joint venture remittances or the alternative sources of working capital, the Directors have
assessed that the Group would have sufficient working capital based on their review of cashflow forecasts for a period of at least
12 months from the signing of the financial statements.

1c New accounting standards
The Directors consider that no revisions to IFRS standards implemented in the year have had any significant effect on these statements.

At the date of authorisation of these financial statements certain new standards, amendments and interpretations to existing standards
have been published but are not yet effective. The Group has not early adopted any of these pronouncements. The new Standards,
amendments and Interpretations that are expected to be relevant to the Group’s financial statements are as follows:

Standard/interpretation
IFRS 9 (2014)
IFRS 15
IFRS 16

Content
Financial instruments:
Revenue from contracts with customers
Leases

Applicable for financial
years beginning on/after
01/01/2018
01/01/2018
01/01/2019

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

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.

IFRS 15 and 16 ‘Revenue from contracts with customers’ and ‘Leases’
The Directors have completed their assessment of the impact of the adoption of these standards and consider that there will be no
material impact to future reporting, based on current conditions.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2017.
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.

The Group reports its interests in joint venture using the equity method of accounting, except when the investment is classified as held for sale.

A joint venture is a joint arrangement whereby the Group and other parties that have joint control of the arrangement have rights to the
net assets of the arrangement (IFRS 11).

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 investment 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. 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 less
impairment 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.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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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 ‘Foreign Exchange (Losses)/Gains’.

In the consolidated financial statements, all separate financial statements of subsidiaries and joint ventures, 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. It is the Directors judgement that the average rate conversion is appropriate for 2017 and 2016 currency
conversions, as they do not consider that there was hyperinflation in the countries where the Group operates. Argentina had the largest
falls in 2017 with the average rate for 2017 being 8.5 per cent. lower than 2016, whilst the closing rate was 29.7 per cent. lower. This
will be reviewed for 2018, especially with reference to economic conditions in Argentina which have deteriorated since the end of last
year. 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.

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 (2016: 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:

Plant and equipment

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.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

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.

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 as these 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 carrying value of the assets need to be recovered principally 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.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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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 accounted for through other comprehensive income or charged or credited directly to equity in which case
the related deferred tax is also charged or credited directly to equity, or other comprehensive income.

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.

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 short-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 Operating leases
Leases where substantially all the risks and rewards of ownership remain with the lessor are accounted for as operating leases and are
accounted for on a straight-line basis over the term of the lease and charged to the income statement.

2.14 Inventories
Inventories in the Company comprise turbines and associated spare parts and similar items for use in the Group’s plant and equipment.
Inventories are carried at the lower of cost and net realisable value.

2.15 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 account” 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.
“Accumulated Losses” represents losses to date.
“Special Non-distributable reserves” comprises the reduction of the share premium account.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

2.16 Pensions
During the year under review, the Group did commence contributions to the Nest Pensions scheme.

2.17 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.

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 estimated useful lives of
depreciable assets at each reporting date. Actual results, however, may vary due to changes in technology and industry practices.

b) Impairment – management review tangible and intangible assets, including intra group and Joint Venture loans, at each balance sheet
date to determine whether there is in their judgement 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 14.

c) Management have assessed that the Company does not control the Argentine Joint Venture and therefore, as a result of this
judgement have treated the joint venture in accordance with IAS 28 (see Note 24). This assessment is based on the lack of sole control
over the investee and due to the exposure to variable returns from its involvement with the investee.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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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. The Groups joint venture operations in Argentina have been excluded,
see note 24 for more detail.

The following tables provide an analysis of the operating results, total assets and liabilities, capital expenditure and depreciation for 2017
and 2016 for each geographic segment.

a) 12 months to 31.12.2017

Administrative Expenses

Loss from Operations

Other Expense

Foreign Exchange (Losses)/Gains

Finance Income

Finance Expense

(Loss)/Profit before Tax from Operations

Tax Expense

Total (Loss)/Profit

Total Assets

Total Liabilities

b) 12 months to 31.12.2016

Revenue

Gross Profit

Administrative Expenses

Loss from Continuing Operations

Other Expense

Foreign Exchange Gains/(Losses)

Finance Income

Finance Expense

Loss before Tax from Operations

Tax Expense

Total Loss

Total Assets

Total Liabilities

Depreciation

CHILE
£’000

(211)

(324)

(118)

–

(524)

(1,177)

–

(1,177)

2,215

11,421

CHILE
£’000

–

(130)

(7,745)

374

–

(572)

PERU
£’000

(289 )

(289)

–

698

–

(233)

176

–

176

2,265

3,515

PERU
£’000

–

(683)

(2,714)

(1,847)

–

(820)

(8,073)

(6,065)

(4)

–

UK
£’000

(1,549)

–

(3,126)

1,386

(188)

(3,477)

–

(3,477)

30,049

2,05 6

UK
£’000

(1,644)

(1,549)

–

2,718

3,845

(117)

4,897

–

(8,077)

(6,065)

4,897

2,193

10,096

–

2,207

3,619

38,799

3,738

–

CONSOLIDATION
ADJUSTMENTS
£’000

(20)

(1,327)

(1)

(524)

526

TOTAL
£’000

(2,070)

(1,651)

(2,547)

862

(419)

(1,347)

(5,825)

–

(1,347)

(3,451)

(11,12 3)

–

(5,825)

31,078

5,869

CONSOLIDATION
ADJUSTMENTS
£’000

–

(41)

(2)

(1,162)

1,154

(13)

–

(13)

(4,066)

(9,740)

–

TOTAL
£’000

(2,420)

(2,325)

(10,500)

1,243

2,683

(355)

(9,254)

(4)

(9,258)

39,133

7,713

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

5 EXCHANGE RATE SENSITIVITY ANALYSIS
The key exchange rates applicable to the results were as follows:

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 £

YEAR ENDED
31.12.17

YEAR ENDED
31.12.16

25.57

1.3491

829.0

4.36

21.79

1.2974

836.4

4.19

19.71

1.2302

795.4

4.07

20.08

1.3448

902.1

4.48

If the exchange rate of sterling at 31 December 2017 had been stronger or weaker by 10 per cent. from the above. with all other
variables held constant, shareholder equity at 31 December 2017 would have been £2.5 million (2016: £3.1 million) lower or higher
than reported.

If the average exchange rate of sterling during 2017 had been stronger or weaker by 10% per cent. with all other variables held
constant, the effect on total comprehensive income for the year would have been £0.6 million (2016: £0.6 million) higher or lower
than reported.

6 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
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

960

630

421

2,0 70

1,090

679

611

2,420

Audit services include £59k (2016: £40k) paid to the auditors for the audit of the Company and the Group financial statements. Fees paid to other
auditors, in respect of the audit of joint venture companies, amounted to £24.4k (2016: £21.5k). The auditors also provided tax advice for the Group in
the year, the costs were £12.4k. (2016: £6.6k).

7 EMPLOYEE COSTS

a) Group

Aggregate remuneration of all employees and Directors

Social security costs

Pension costs

Total

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

902

960

1,009

1,090

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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The average number of employees in the Group, including Directors, during the year was as follows:

Management

Development

Administration

Total

b) Company

Aggregate remuneration of all employees and Directors

Social Security

Pension Costs

Total

The average number of employees in the Company, including Directors, during year was as follows:

Management

Administration

Total

YEAR ENDED
31.12.17

YEAR ENDED
31.12.16

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

750

791

751

–

802

NUMBER

c) Directors’ remuneration, including social security costs
The total remuneration paid to the Directors and former Directors was £489k (2016: £400k). The total remuneration of the highest paid
Director was £199k (2016: £226k). There were no health insurance costs, bonuses, pension costs or share based payments paid during
the year (2016: Nil)

E. Shaw

A. Morris

B Rowbotham

M Keegan

S Morris

A Coveney

Total

YEAR ENDED
31.12.17
£’000

Base Salary/Fee

–

193

199

489

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

Total

–

193

199

489

Total

226

400

E. Shaw resigned 14 July 2015, she received payments in 2016 according to her contract. These payments ceased in July 2016.

A. Morris resigned 14 July 2015, he received payments for consultancy services under a service agreement contract with Setley Consultants Ltd.

B. Rowbotham provided services under a service agreement contract with Mountbeach Associates Ltd until June 2017, since then he
has been on payroll.

M. Keegan resigned 14 December 2015, he received payments in 2016 according to a service contract with Ashton Agricultural &
General Ltd. These payments ceased in January 2016.

S. Morris provided services under a service agreement contract with S.C.Morris Ltd.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

A. Coveney provided services under a service agreement contract with Coveney Associates Consulting Ltd

8 (a) FOREIGN EXCHANGE

Foreign exchange (Losses)/Gains

Total

(b) OTHER EXPENSE

Realised loss on disposal

Independent Power Corporation PLC – costs relating to 2015 disposal

Asset impairment

Turbines for Central Illapa

Turbine for Arica Project

Impairment provisions

Argentina

Peru

Chile development costs

Chile write off of goodwill re Central Illapa acquisition

Total

YEAR ENDED
31.12.17
£’000

(2,547)

YEAR ENDED
31.12.16
£’000

1,243

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

–

296

1,327

–

1,651

6,440

980

–

2,714

325

–

10,500

During the year the directors tested all major assets for indication of impairment the results of these were:

TURBINES FOR CENTRAL ILLAPA (CHILE):
Carrying Value b/fwd
Exchange adjustment
Recoverable amount
Impairment in year
Carrying value c/fwd

£9.8m
£(0.9)m
£8.9m
£–
£8.9m

The prior year impairment resulted from the deterioration of market conditions in Chile for the generation market. The carrying value of
the turbines is based on the higher of fair value less costs to sell and value in use. The Directors obtained an independent valuation to
determine an achievable market valuation, less costs to sell. As a result, the Directors determined a recoverable amount of £8.9 million
(US$12.0 million) (2016: £9.8 million (US$12.0 million)). The realisation of the asset is dependent on a successful future sale or
successful development of the Illapa Project, both of which are uncertain.

The Illapa turbines are included within Property, Plant and Equipment.

HELD FOR SALE ASSET (PERU)
Net assets held for sale b/fwd
Net liabilities held for sale c/fwd
Movement

£1.0m
£(1.3)m
£(2.3)m

After the year end the Company entered into an arrangement to dispose of Cascade Hydro Limited. The sale completed on 30 January
2018, proceeds were US$ 250k.

These assets are presented as a Held for Sale asset on the Statement of Financial Position.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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TURBINE – ARICA (CHILE)
Carrying value of Arica turbine b/fwd
Foreign exchange revaluation
Impairment in year
Carrying value of Arica turbine c/fwd

£1.0m
£(0.1)m
£(0.3)m
£0.6m

The impairment was determined by the diminution of expected net realisable proceeds from sale of the turbine. The carrying value is
assessed as fair value less costs to sell, based on historic offers and an independent valuation report. The above asset is included in
Property, Plant and Equipment.

9 FINANCE INCOME & EXPENSE

Joint Venture interest received/receivable1

Total interest income

Interest expense paid/payable on bank borrowings and loans2

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

862

(419)

2,673

(355)

Joint Venture interest arises on loans by the Company to its 50 per cent. owned joint venture companies (PEL and EdS). Interest on loans has been charged
at rates of between 0 per cent. and 5.5 per cent. (2016: 11.1 per cent.) Interest is charged on impaired loan values (2016: Gross loan values).
Interest paid/payable includes interest on bank borrowings and other loans in Peru. The details of the amounts due under the loans are shown in Note 22.

Sensitivity analysis arising from changes in borrowing costs is set out in Note 22.

10 TAX EXPENSE
The relationship between the expected tax expense at basic rate of 19.25 per cent. (2016: 20 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

Permanent differences

Unrecognised loss carried forward

Actual tax expense

Comprising:

Current tax expense

Deferred tax / (net credit)

Total credit (expense)

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

(5,825)

19.25%

(1,121)

323

798

–

(9,254)

20.00%

(1,851)

–

1,855

(4)

–

(4)

A deferred tax asset for the year of £0.9 million is not recognised as an asset due to the uncertainty and unknown timing of its realisation
against future profits. The estimated accumulated unrecognised deferred tax asset is £ 1.0 million, based on cumulative tax losses of
£ 5.8 million.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

11 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

Result for the year

Total Loss attributable to equity holders of the parent

Basic loss per share

Diluted loss per share

There is no difference between the Basic and Diluted loss per share.

YEAR ENDED
31.12.17

YEAR ENDED
31.12.16

561,387,586

£5.8m

1.04p

£9.3m

1.65p

12 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 loss for the year was £7.2 million (2016: loss £2.8 million).

13 PROPERTY, PLANT AND EQUIPMENT

a) Group

Cost at 1.1.16

Exchange adjustments

Transfer of Assets Held for Sale

Cost at 31.12.16

Exchange adjustments

Cost at 31.12.17

Accumulated Depreciation and Impairment at 1.1.16

Charge for the year

Charge for impairment for the year

Accumulated Impairment and Depreciation at 31.12.16

Exchange adjustments

Charge for the year

Charge for impairment for the year

Transfer of Assets Held for Sale

Accumulated Impairment and Depreciation at 31.12.17

Net book value – 31.12.17

Net book value – 31.12.16

PLANT AND
EQUIPMENT
£’000

PLANT UNDER
CONSTRUCTION
£’000

16,195

–

16,195

(861)

15,334

6,440

6,535

–

(95)

6,440

8,894

9,660

3,091

(606)

2,485

(328)

2,157

–

969

–

296

–

1,352

805

1,516

TOTAL
£’000

19,286

(606)

18,680

(1,189)

17,491

7,409

7,504

–

296

(95)

7,792

9,699

11,176

The plant and equipment of £8.9 million relates to two Siemens turbines, stored in Venice for use in Central Illapa purchased for
US$25.0 million, at the year-end deferred consideration of £0.3 million (2016: £1.5 million) remains outstanding. The turbines are held as
inventory in the Company. Please see note 8b for details of impairments charged in the year.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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Plant under construction comprises of a turbine plant in Chile £0.6 million and Central Illapa development costs of £0.2 million.

b) Company

The Company had no property, plant and equipment.

As set out in note 22 the Company has outstanding loans from BPAC. Security on these loans include a pledge over all assets of the
Group.

14 INTANGIBLE ASSETS

At 1 January 2017

Impairment

At 31 December 2017

At 1 January 2016

Addition

At 31 December 2016

GOODWILL
£’000

(29)

–

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. (2016 - 13 per cent.).

Central Illapa SA is a wholly owned indirect subsidiary of Rurelec, the goodwill on acquisition was £23k. During the year an impairment
review was conducted, the Directors consider that the asset should be fully impaired. The charge of £29k (2016: nil) is included in Other
Expense.

15 TRADE AND OTHER RECEIVABLES

a) Group – current

Trade Receivables

Amounts due from joint venture companies1

Tax receivable - VAT

Other Receivables and Prepayments

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

–

18,532

382

18,951

119

24,345

251

24,761

Amounts due from joint venture companies represent the amounts lent by the Company, net of impairments, to PEL and EdS, including credit support provided
to suppliers of EdS. Interest on these amounts has been accrued at rates of between 5.5 per cent. (2016: 11.1 per cent.) and 0 per cent. per annum.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

b) Company – current

Loans to Joint Ventures2

Loans to Subsidiaries1

Other receivables and prepayments

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

17,044

3,772

20,892

17,551

10,343

27,989

The amounts owed by subsidiary companies include:

Loans to subsidiaries in Chile £9.2 million and Rurelec Project Finance Limited £3.0 million are repayable on demand. These loans have been impaired
to £0.8 million in Chile. The loans to Chile and Rurelec Project Finance limited bear zero per cent interest rates. During the year the Group received
US$4.3 million (2016: US$3.0 million) from EdS in service of the amounts due to Rurelec Project Finance Limited of £3.1 million (2016: £6.8 million).
The amounts owed by joint venture companies are interest bearing at rates of between 0 per cent. and 11 per cent. and are repayable on demand.

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.

As set out in note 22 the Company has outstanding loans from BPAC. Security on these loans includes a pledge over all assets of the
Group.

16 INVENTORIES

Company – Inventories

Inventories

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

8,895

9,755

Inventories comprises of two Siemens 701DU Turbines acquired from IPSA in June 2013. Further details of which are set out in note 14.
An impairment was recognised in the prior year, see note 8b. Storage and insurance costs for the Turbines in the year totalled £117k
(2016: £183k).

As set out in note 22 the Company has outstanding loans from BPAC. Security on these loans includes a pledge over all the assets of
the Group.

17 CASH AND CASH EQUIVALENTS

a) Group

Cash and short-term bank deposits
b) Company

Cash and short-term bank deposits

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

163

162

960

955

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.

As set out in note 22 the Company has outstanding loans from BPAC. Security on these loans includes a pledge over all the assets of
the Group.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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18 SHARE CAPITAL

In issue, called up and fully paid

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

561,387,586 ordinary shares of 2p each (2016: 561,387,586)

11,228

Ordinary shares have no redemption rights and are entitled to full rights to dividends and excess capital on winding up.

19 SPECIAL NON-DISTRIBUTABLE 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 after certain
creditors are repaid £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. Until the creditors
are repaid the balance is to be held in a Special Non-distributable Reserve. The balance of unpaid creditors in these accounts is £254k
(2016: £1.5 million).

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
a Special Non-distributable reserve pending the settlement of certain creditors (please see above). Once these creditors are settled the
Special Non-distributable reserve will be credited 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.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

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 £ 0.3 million (2016: £1.5 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.

20 TRADE AND OTHER PAYABLES

a) Group – current

Trade payables

Accruals

b) Company – current

Trade payables

Accruals

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

815

84
899

517

601

2,434

–
2,434

2,065

–

2,065

During the year, the directors agreed formal settlement terms with IPSA, repayments of £1,256k were made during the year. The
balance at the year end was £254k (2016: £1,510k).

21 TAX LIABILITIES

Group/Company – current

P.A.Y.E.

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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22 BORROWINGS

Group – Current

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

Company – Current

Other Loans

Company –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

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

1,448

–

4,037

–

1,448

4,037

1,448

–

1,661

–

1,448

1,661

Group
Other loans of £1.4 million (2016: £4.0 million) including accrued interest are made up of £ nil (2016: £2.3 million) from Technology
Finance Ltd, these loans were past their due dates in prior years. The Group entered into an SPA on 30 December 2017 whereby
Cascade Hydro Ltd, the borrower from Technology Finance Ltd was sold to Sloane Renewable Energy Ltd. These loans formed part of
the sale and consequently have been transferred to Liabilities Held for Sale.

£1.4 million (2016: £1.7 million) from BPAC, this loan is secured by a pledge against the Group’s assets. At the year end the loan
repayment was due on 30 June 2018. Since the year end the loan has been further extended and is now due on 30 June 2019, or upon
any significant asset sales.

Company
Other loans of £1.4 million (2016: £1.7 million) including accrued interest are from BPAC. This loan is secured by a pledge against the
Group’s assets. At the year end the loan repayment was due on 30 June 2018. Since the year end the loan has been further extended
and is now due on 30 June 2019, or upon any significant asset sales.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

Net Debt Reconciliation

a) Group

Balance at start of year

Non-Cash flow transactions

Transfer to liabilities held for sale

Interest charge

Cash flow transactions

Loan drawdowns

Interest paid

Principal repayment

Settlement discounts

Balance at end of year

b) Company

Balance at start of year

Non-Cash flow transactions

Interest charge

Cash flow transactions

Loan drawdowns

Interest paid

Principal repayment

Settlement discounts

Balance at end of year

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

4,037

–
(2,608)

419

–

(80)

(320)

–

1,448

1,661

187

–

(80)

(320)

–

1,448

3,054

–

355

–

1,500

(20)

(830)

(22)

4,037

910

123

1,500

(20)

(830)

(22)

1,661

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 losses would have had a nominal impact on earnings.

Sensitivity analysis to changes in exchange rates:
Only US $510k (2016: US $480k) of these loans are denominated in US $. These are included in liabilities held for sale. 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 £38k (2016: £20k).

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.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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23 INVESTMENTS

Cost at 1 January 2016

Additions during the year

Balance at 31 December 2016

Cost at 1 January 2017

Additions during the year

Balance at 31 December 2017

YEAR ENDED
31.12.16
£’000

100

–

100

YEAR ENDED
31.12.17
£’000

100

–

100

At the year end the Company held the following investments:

Direct investments:

1. 50 per cent. (2016: 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 EdS, a company registered
in Argentina. EdS is a generator and supplier of electricity to the national grid in Argentina.

2. Nil per cent. (2016: 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. There was a voluntary strike off in 201 7.

3. 100 per cent. (2016: 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 99.9 per cent. of Empresa de Generacion Electrica Colca, S.A.C., both being companies registered
in Peru. On 30 December 2017 the Company entered into an SPA to dispose of CHL, and it’s subsidiaries, the sale completed on
30 January 2018, please see note 30 for further details.

4. 100 per cent. (2016: 100 per cent.) of the issued share capital 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.

5. 100 per cent. (2016: 100 per cent.) of the issued share capital of Rurelec Project Finance Limited a company registered in England

and Wales under registration number 7523554.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

TRADING ADDRESS/REGISTERED ADDRESS

INTEREST HELD

Indirect investments:

NAME

Energia del Sur SA*

Electrica del Sur SA*

SEA Energy SA**

Rurelec Chile SpA****

Rurelec Chile Limitata****

Termoelectrica del Norte SA****

Central Illapa SA****

Arroyo 880, Piso 2
C1007AAB
Ciudad Autonoma de Buenos Aires
Argentina

C/O Guerrero Olivos
Av Vitacura 2939
Piso 8
Las Condes
Santiago de Chile
Santiago
Chile

Cascade Hydro Power SAC*****

Av. Canaval y Moreyra 452
Pisos 15 - 17
Lima 27
Peru

50%

100%

99.99%

100%

99.99%

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

250130 Rurelec Annual Report pp23-end.indd 42

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INTEREST HELD

99.99%

NAME

TRADING ADDRESS/REGISTERED ADDRESS

CHP Construcciones SAC*****

Electricidad Andina SA*****

Empresa de Generacion Electrica Huasicancha
SAC*****

Empresa de Generacion Electrica Colca
SAC*****

Empresa de Generacion Electrica Chilcay
SAC*****

Av. Canaval y Moreyra 452
Pisos 15 - 17
Lima 27
Peru

*Held via Patagonia Energy Limited and equity accounted as a joint venture, see Note 24
**Held via Rurelec Project Finance Limited
****Held via Cochrane Power Limited
*****Held via Cascade Hydro Limited

The results of all of the above directly and indirectly held subsidiaries have been included in the consolidated group accounts except
where joint ventures are equity accounted as indicated.

24 JOINT VENTURE
The Group’s only joint arrangement within the scope of IFRS 11 is its 50 per cent. investment in Patagonia Energy Limited (“PEL”),
which owns100 per cent. of EdS in Argentina. Management has reviewed the classification of PEL in accordance with IFRS 11 and has
concluded that it is a joint venture and therefore it has been accounted for using the equity accounting method as set out in IAS 28.

The Group does not participate in losses of the joint venture. In prior years the losses had exceeded the investment in the joint venture
and therefore the Group has not recognised its share of losses in the joint venture. During 2017 the joint venture made a loss. Total loss
position at the year-end was £36.7 million (2016: £38.3 million).

The following table sets out the results of the joint venture in Argentina of which the Group has a 50 per cent. share:

Revenue

Expenses
Non-current Assets

Current Assets

Non-current Liabilities

Current Liabilities

Revenue is derived from one principal customer, which the directors consider is of a high quality.

YEAR ENDED
31.12.17
£’000
17,104

(18,746)
10,136

5,188

(39,831)

(8,070)

YEAR ENDED
31.12.16
£’000
18,650

(20,184)
10,963

9,705

(38,471)

(15,978)

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

25 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 losses/(gains)

Write down of loans

Write down of Turbine

Impairment/(increase) of Goodwill

Movement in Working Capital:

Change in Trade and Other Receivables

Change in Trade and Other Payables

Cash Used in Operations

b) Company

Loss for the year before tax

Net Finance Income

Adjustments for:

Unrealised exchange losses/(gains) on loans

Write down of investments

Write down of loans

Stock write down

Movement in working capital:

Change in trade and other receivables

Change in trade and other payables

Cash used in operations

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

(5,825)
(1,096)

2,570

1,329

296

103

123

(2,471)

(9,254)
(2,328)

(1,241)

2,662

6,440

(6)

1,094

541

(2,066)

YEAR ENDED
31.12.17
£’000

YEAR ENDED
RESTATED
31.12.16
£’000

(7,068)
(1,198)

3,138

–
3,580

–

(148)

(1,468)

(3,164)

(2,775)
(4,023)

(4,137)

2,662

–

6,440

481

(366)

(1,718)

26 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:

a) Foreign currency risk
The Group is exposed to translation and transaction foreign exchange risk. Foreign exchange differences on retranslation of these assets
and liabilities are taken to the income statement of the Group. The Group’s principal trading operations are based in South 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 had exposure to the US $ as a result of borrowings denominated in this currency.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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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.

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 no such analysis has
been undertaken.

As set out in Note 22, the Group has £1.4 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 discharge the loans.

The following table sets out when the Group’s financial obligations fall due:

Current – due within 1 year:
Trade payables

Tax liabilities

Borrowings

Total due within 1 year:

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

899

1,448
2,354

2,434

4,037
6,483

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 2017

Trade and Other Receivables < 1 year

Cash and Cash Equivalents

Trade and Other Payables < 1 year

Borrowings < 1 year

Total

COMPANY LOANS
AND RECEIVABLES
£’000

COMPANY
BORROWINGS
AND PAYABLES AT
AMORTISED COST
£’000

GROUP LOANS AND
RECEIVABLES
£’000

GROUP
BORROWINGS
AND PAYABLES AT
AMORTISED COST
£’000

19,412

162

–

19,574

–

(609)

(1,448)

(2,057)

18,952

163

–

19,115

–

(906)

(1,448)

(2,354)

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

31 December 2016

Trade and Other Receivables < 1 year

Cash and Cash Equivalents

Trade and Other Payables < 1 year

Borrowings < 1 year

Total

COMPANY LOANS
AND RECEIVABLES
£’000

COMPANY
BORROWINGS
AND PAYABLES AT
AMORTISED COST
£’000

GROUP LOANS AND
RECEIVABLES
£’000

GROUP
BORROWINGS
AND PAYABLES AT
AMORTISED COST
£’000

27,989

955

–

28,944

–

(2,077)

(1,661)

(3,738)

24,761

960

–

25,721

–

(2,446)

(4,037)

(6,483)

27 CAPITAL COMMITMENTS
The Group had outstanding capital commitments of £Nil (2016: Nil) in respect of plant ordered but not delivered at the year-end.

28 OPERATING LEASE COMMITMENTS
At the year end the Group had the following outstanding lease commitments:

Ofﬁ ce Equipment

Up to 1 year
More than 1 year less than 5 years

2017
£’000

–

2016
£’000

50
59

109

During the year the office equipment leases were novated to Independent Power Corporation PLC, the Group has no responsibility for
the assets covered or liability for future repayments.

Ofﬁ ce premises
Less than one year £22k (2016: £26k).
Office premises relates to the Company’s offices.

29 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 directors, who are considered Key Management Personnel which amount ed to £0.4 million (2016: £0.4 million).

ii) Received from its former 100 per cent. subsidiary Independent Power Corporation PLC (“IPC”) a credit note of £20k relating to the

prior period.

Sales
Purchases

Y/E debtor

Y/E creditor

2017
£’000s

–
(20)

–

2016
£’000s

40
125

–

160

iii) Charged negative interest on loans to its 100% subsidiary Rurelec Project Finance Ltd (“RPFL”) totalling £0.4 million (2016: £1.4 million).
The loan balance outstanding at the year-end was £3.0 million (2016: £6.7 million). In 2015 an impairment of £6.8 million was made, this
was reversed in 2016.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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Y/E debtor

Interest charged

2017
£’000s
2,965

(432)

2016
£’000s
6,693

1,367

iv) Charged interest on loans to its 50% owned joint venture company, Patagonia Energy Ltd (“PEL”) amounting to £ 0.9 million (2016:
£2.8 million). Received loan repayments of £ nil (2016: £1.2 million). The Directors have assessed the recoverability of the loans
and consider that it is prudent to recognise an impairment of £1.3 million in the year (2016: nil). After impairment reviews the loan
balances at the year-end totalled £15.6 million (2016: £17.6 million). Interest on these loans has been accrued at 5.5% (2016:
11.1%). The total outstanding before impairment is £34.5 million (2016: £38.3 million).

Y/E debtor

Repayment

Interest charged

2017
£’000s
15,666

–

862

2016
£’000s
17,551

1,238

2,820

v) Received from its joint venture company Energia del Sur S.A. (“EdS”) repayments totalling £nil (2016: £nil) of support previously given

to creditors of EdS. £0.5 million (2016: £0.5 million) of credit support remains outstanding at the year end.

vi) Repaid £1.3 million (2016: £0.1 million) of deferred consideration on the 2013 turbine purchase, £0.3 million (2016: £1.5 million)

remains outstanding at the year end. P.R.S. Earl and S Laker were Directors of IPSA during part of 2017.

Sales
Purchases

Y/E debtor

Y/E creditor

2017
£’000s

–
–

–

254

2016
£’000s

55
–

–

1,510

vii) Provided loans and charged interest of 0.5% per month to its 100 per cent. subsidiary Cochrane Power Ltd of £0.2 million (2016: £0.2
million). The total outstanding at the year-end was £9.2 million (2016: £8.5 million). These loans have been impaired to £0.8 million
(2016: £2.4 million).

Y/E debtor

Further loans made

Interest charged

2017
£’000s
805

196

522

2016
£’000s
2,374

174

482

viii) Provided loans to its 100 per cent. subsidiary Cascade Hydro Ltd (“CHL”) of £0.4 million (2016: £0.5 million) and charged CHL

interest of £nil (2016: £0.6 million). The interest rate was 0.5 per cent. per month. The total outstanding at the year-end was £11.5
million. These loans have been impaired to £nil (2016: £1.3 million). The sale of CHL completed on 30 January 2018 for US$250k.

Y/E debtor

Further loans made

Interest charged

2017
£’000s
–

386

–

2016
£’000s
1,276

547

606

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

b) Group
RPFL received £3.3 million (2016: £1.2 million) in repayments from EdS the interest rate on the principal was 18.5 per cent. The
interest rate on accrued interest was zero, the effective interest rate (on principal and accrued interest) was zero (2016: zero). The total
outstanding at the year-end was £3.1 million (2016: £6.8 million).

30 ASSETS HELD FOR SALE
Assets held for sale relate to three project companies within Peru. These business segments were reclassified to assets held for sale
following the commitment of the Group’s management on 16 September 2014 to restructure its Peruvian operations by means of sale.
Two disposal groups were identified, one of which comprised the Canchayllo run of the river plant, sold in July 2015, with the rest of
the project companies included in the second group. Since the year end the project companies along with their UK holding company
Cascade Hydro Limited have been disposed of. The transaction completed on 30 January 2018, the consideration was US$250k.

Assets Classified as Held for Sale

Trade and Other Receivables

Liabilities Classified as Held for Sale

Trade and Other Payables

YEAR ENDED
31.12.17
£’000

2,265

YEAR ENDED
31.12.17
£’000

3,515

YEAR ENDED
31.12.16
£’000

2,207

YEAR ENDED
31.12.16
£’000

1,230

31 CONTROL
The Directors consider that the controlling party is Sterling Trust Limited on the basis of their 53% shareholding in the Company.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2017

Stock code: RUR

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32 POST BALANCE SHEET DATE EVENTS
Since the year end:

–

Completed the sale of Cascade Hydro Limited (“CHL”) and it’s subsidiaries on 30 January 2018. Total consideration was US$250k
(£185k). The proforma Consolidated Statement of Financial Position below shows the effect of the transaction, once completed:

31.12.17
£’000

CHL SALE
£’000

PROFORMA
31.12.17
£’000

Assets

Non-current Assets

Property, Plant and Equipment

Intangible Assets

Investment in Joint Venture

Current Assets

Trade and Other Receivables

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

Special Non-distributable Reserve

Accumulated Losses

Total Equity attributable to owners of the Company

Current Liabilities

Trade and Other Payables

Current Tax Liabilities

Borrowings

Liabilities classified as held for Sale

Total Liabilities

Total Equity and Liabilities

9,699

–

9,699

18,951

163

2,265

21,379

31,078

11,228

22,754

572

45,000

(54,345)

25,209

899

1,448

3,515

5,869

31,078

–

(2,265)

–

1,250

–

(3,515)

(2,265)

9,699

–

9,699

18,951

163

–

19,114

28,813

11,228

22,754

572

45,000

(53,095)

26,459

899

1,448

–

2,354

28,813

–

In April 2018 the Company further extended its working capital facility arrangement with BPAC with the principal amount of
£1.2 million. The repayment date is now 30 June 2019.

As previously announced the plant owned by Energia del Sur S.A., in which Rurelec has a 50% interest, suffered mechanical damage
due to a failure of some turbine blades in September. The plant recommenced generation in October, but at a reduced level of
output. At the time of this report it is not yet clear when full output can be achieved.

The Chairman’s statement and the Strategic Report with a review of operations contains further details.

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250130 Rurelec Annual Report Cover v1.qxp 01/06/2018 13:29 Page 2

RURELEC PLC IS AN OWNER, DEVELOPER AND
OPERATOR OF POWER GENERATION CAPACITY
INTERNATIONALLY.