Rurelec Annual Report 2018

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254841 Rurelec Annual Report Cover.qxp 05/06/2019 16:39 Page 1

2018

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 2018

Stock code: RUR

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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 Report

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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27
IBC

COMPANY INFORMATION

Directors
S.C. Morris (Executive)

A.H. Coveney (Executive)

B. Rowbotham (Non-Executive)

Secretary
M J. Bravo Quiterio

Company number
4812855

Registered ofﬁce and business address
18 Soho Square

London

W1D 3QL

Auditor
BDO LLP

150 Aldersgate Street

London

EC1A 4AB

Bankers
Barclays Bank plc

1 Churchill Place

London

E14 5HP

NON-EXECUTIVE DIRECTOR’S STATEMENT

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

Rurelec’s main business consists of the ownership, operation and development of power generation facilities on national and regional
grids, selling wholesale electricity as a generator on commercial terms, through capacity payments and/or power purchase agreements
(“PPAs”).

Rurelec’s current business is centred on Rurelec’s share of an operational plant in Argentina whilst also seeking to complete the
development of its project in Chile or sell its interests in that project.

Brian Rowbotham

Dear Shareholder
It is my duty to present the results of Rurelec PLC (“Rurelec”)
for the ﬁ nancial year ended 31 December 2018, a year which
has seen some 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 2020.
The Group has repaid £0.4 million of interest (2017: £0.3 million
principal and £0.1 million of interest) of the total bridging facility of
£1.2 million at the end of the year (2017: £1.6 million).

Outlook

Argentina
As you have been made aware, our joint venture Argentinian asset
continued to operate at reduced output during 2018. The planned
maintenance of the EdS plant was delayed due to CAMMESA not
being able to provide agreed loan ﬁ nance on time for the major
maintenance of the steam and gas turbines and generators due to
its own shortage of liquidity. Of a total investment programme by
EdS, to which Rurelec has not contributed, of US $8.8 million of
capital and maintenance expenditure US $6.6 million was funded
by local debt in Argentina and the remaining US $2.2 million was
funded by internal resources and insurance payments.

The Directors believe the longevity and cash-generating ability
of Rurelec’s interest in these assets has been enhanced by the
overhaul of the EdS plant’s steam turbine from October 2018
to January 2019. This included the complete replacement and
upgrading of the rows of turbine blades removed following the
2017 September blade failure incident. During this period EdS
also installed a brand-new rotor in one of the two gas turbines
and plans to refurbish the rotor and generator of the other gas
turbine in Quarter 4 2019. Further updates on this will be provided
in due course, as appropriate. The plant has also invested in the
installation of exhaust stacks on both gas turbines which will allow
the plant to run in Open Cycle mode (i.e. the gas turbines will be
able to operate independently of the steam turbine should full
capacity not be required or there are future technical problems
with running in Combined Cycle). When complete, this investment
programme spend will total capex of US $6.6 million, additionally
a further US $ 2.2 million of works will be expensed. This will be
paid for by EdS, and Rurelec will not need to contribute to this
investment programme.

The Directors believe that the c arrying out of the refurbishment
works should reduce the operating risk of running the Argentinian
plant and should extend the plant’s life. The reinvestment
programme has been largely funded by external debt from

CAMMESA (the organisation administering and regulating the
Argentinian wholesale electricity market). This has occurred
against a background in 2018 of signiﬁ cant problems in the
Argentinian economy and the market for wholesale electricity.

The restoration of the Argentinian plant to full capacity in early
2019 is key in enabling regular repayments of the outstanding
loans from the Group to the Argentinian plant to resume.
The Directors believe that the considerable investment in the
refurbishment programme of the steam and gas turbines in 2018
and 2019 should stabilise and lengthen the operational life of that
power station.

The Directors believe that, against a background of economic
growth and increasing wholesale market demand for Argentinian
electricity and economic reform in Argentina under the Macri
administration fostered an environment where foreign investment
in utilities had become attractive. However, the Argentinian
economy suffered a major economic crisis and signiﬁ cant
economic decline in 2018 culminating in a US $50 billion IMF
bail-out being announced in June 2018 supplemented by a further
increase in the bailout package to US $57 billion in September
2018. This was the largest ever IMF bailout1 . This followed
major devaluations in the Argentinian Peso, particularly in April
and August 2018. Inﬂ ation has risen to annual rates exceeding
47 %2. This year, EdS has had to produce inﬂ ation accounts in
Argentina as a result. The benchmark interest rate hit 60%. At
the end of 2014, there had been 8.5 Argentinian Pesos to the
US dollar, by the end of 2018 that has declined to 37.7 3 Pesos
to the US Dollar. It is relevant to note that EdS beneﬁ ts from
receiving revenue in Pesos at a rate pegged to the US dollar,
which protects revenue but most of its costs are denominated in
Pesos. As a result, hyperinﬂ ation measures under Argentine GAAP
have been implemented by EdS and were used in the preparation
of the notes to the accounts relating to EdS included in these
statements. As the results for EdS are treated on an equity
accounted joint venture basis, the directors believe that they have
not had a material impact on Group Results.

Against this background of economic uncertainty and decline,
the Argentinian Secretariat of Energy who regulate the wholesale
electricity market through CAMMESA have imposed austerity
measures that are affecting the wholesale market for electricity.
This includes downward pressure on spot market prices for
wholesale electricity. CAMMESA has experienced its own liquidity
shortage and this resulted in delays in providing the debt for EdS
to fund its major maintenance programme, and has also resulted

https://www.thebanker.com/Banking-Regulation-Risk/Rescuing-Argentina-
will-the-rope-snap-after-IMF-bailout
https://www.reuters.com/article/argentina-inﬂ ation/update-1-argentine-
annual-inﬂ ation-hit-27-year-high-in-2018-idUSL1N1ZF1QU
https://www.xe.com/currencycharts/?from=USD&to=ARS&view=1Y

www.rurelec.com

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NON-EXECUTIVE DIRECTOR’S STATEMENT

in extensions to the credit period taken by CAMMESA to pay
generators for the electricity they have generated.

During 2018, the Rurelec Board have helped guide the direction of
operations in Argentina, guiding and assisting EdS management
through a period of reinvestment at a time when ﬁ nances have
been stretched by the plant operating at signiﬁ cantly reduced
output.

Chile and the Group’s two 701DU Siemens turbines
It is the Director’s belief that, given the prioritisation of sustainable
power generation projects in Chile, the opportunities for new gas
thermal generating plants in Chile has become very limited. The
Group’s Central Illapa project is understood to be one of the few
consented gas thermal projects still available, albeit modiﬁ cations
to those consents may be necessary to develop the project. The
Group continues to examine a range of options for the Central
Illapa project in Mejillones and the 701 turbines consented for that
site. This includes the active consideration of realising the value of
the Group’s two 701DU 128 MW turbines (currently stored in Italy)
within the Illapa project or by separate sale. The Group’s liquidity
position continues to be a major factor in deciding which path will
eventually be pursued.

Peru
After an extensive marketing exercise, the Group sold the
remaining hydro portfolio in Peru, completion taking place on
30 January 2018. Given the continuing liquidity issues faced
by the Group and uncertainties inherent in those projects, the
capacity to ﬁ nance this portfolio had been severely constrained.
The sale has enabled the Group to reduce cash outﬂ ows needed
to support this operation and Group cashﬂ ow has beneﬁ tted as
a result. It also enabled £2.6 million of overdue borrowings to be
passed to the Purchaser as part of the sale agreement.

Summary
Given the difﬁ culties faced by the Argentinian operation in the
period, the Rurelec Board note that the Group’s ﬁ nancial position
has strengthened as remittances from EdS have been received
and the relationship with our JV partner, Basic Energy Limited has
improved. It is also encouraging to note the major investments
in refurbishing the steam and gas turbines and generators at the
Argentinian plant which the Directors believe should maximise
the opportunities for future income generation in Argentina and
remittances to the Group now that plant has resumed normal
operating output.

Overall, although the Group liquidity position remains tight, it has
nevertheless improved but the ongoing working capital position
of the Company depends on EdS continuing to make its loan
repayments on time, and according to its schedule which can not
always be guaranteed.

Brian Rowbotham
Non-executive Director
05 June 2019

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

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 gradually
improved. The main borrowing of the Group remains the secured
BPAC loan, which, after the year end, has been rescheduled for
repayment on 30 June 2020. During 2018 £0.4 million interest
was repaid on the BPAC loan, in line with the board’s strategy to
prioritise the repayment of the most expensive debt. The Group
also made inroads in paying other creditor arrears with trade and
other creditors falling by £132k in the year. The Board is working
to a projection that, so long as funds continue to be received
from the Argentinian operations in line with the level that EdS has
forecast, will result in the Group becoming free of secured debt in
2019.

In September 2017 there was a shut-down of the EdS plant
resulting from a steam turbine blade failure and temporary
modiﬁ cation took place to that turbine in October 2017. From
October 2017 to the end of January 2019, with the consent of
CAMMESA, the output and resulting capacity payment revenue
of the steam turbine was restricted to 20 MW, without the usually
associated penalties, compared to its normal contracted capacity
of 43.7 MW. This had the effect of reducing monthly income
received by EdS by at least US $650k per month.

The operation of the EdS plant at reduced output remained in
place until the major maintenance of the steam turbine could
be carried out from October 2018 to January 2019. During that
maintenance the Steam turbine was completely overhauled,
and the rotor and missing turbine blades were replaced. At the
same time the steam turbine generator was overhauled and
one of the gas turbines also underwent a rotor replacement and
overhaul. Whilst this had been planned for Quarter 2 2018, it was
delayed until Q4 2018 due to delays in the advancing of funds by
CAMMESA as a result of the ﬁ nancial problems being experienced
by the Argentinian economy. The material loss of revenue of EdS
resulting from extended period of reduced power output resulted
in signiﬁ cant cash pressure being placed on the Argentinian
operation and debt repayments to the Group became intermittent
as a result.

Despite the loss in revenue, EdS was able to remit debt
repayments totalling £2.0 million to the Group in 2018. This
compares to £3.3 million in 2017 (which had been affected by
two outage events). EdS’s ability to do this was assisted by an
insurance settlement agreement relating to the claim concerning
the September 2017 turbine blade failure. EdS received insurance
proceeds of US $2.3 million in May 2018. In 2017 US $1.6 million
was received from EdS’s insurers in September relating to a
separate previously reported incident.

EdS’s existing Power Purchase Agreement (PPA) “Resolution
220”, which has governed the remuneration of capacity and
generation payments on the steam turbine since October 2010 is
due to expire in October 2020. The level of the replacement tariff
will have a signiﬁ cant effect on EdS’s revenue generation from
October 2020 onwards. Although it has no clear indication of what
will happen, it is the Board’s belief (based on informal information
gathered by the local management team in Argentina) that the
revised pricing structure will be lower than current contract levels.

Financial results
The operating loss for the year of £2.9 million is an improvement
on that incurred last year (2017: £3.7 million). Continuing strict
control over administration expenses resulted in costs of £1.5
million, compared to 2017: £2.1 million. Write-downs in the
carrying value of certain Group assets totalled £2.7 million (2017:
£1.7 million) which 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
£0.6 million (2016: £5.8 million). This included foreign exchange
gains of £1.7 million (2017: £2.5 million loss).

The Group concluded the sale of our Peruvian assets. The sale
completed on 30 January 2018, the carrying value in these
accounts is a debtor of US $75k, this reﬂ ects the amount
outstanding at the year end from the sale and purchase
agreement. The cash consideration for the sale was US $250k.
The Group made a one-off £1.3 million gain in the year on the
disposal.

Unless there is a signiﬁ cant disposal of assets, the Group is
dependent upon debt repayments from Argentina in order to
comply with payment arrangements made with its creditors. There
still exists some uncertainty as to the timing and the quantum of
those receipts. The Directors believe this uncertainty is now partly
driven by the effects on EdS of austerity measures imposed by the
Argentinian Secretariat of Energy and CAMMESA.

In previous year’s accounts, the Director’s have reported that
because of uncertainty over the timing of receipts, they have had
to pursue alternative sources of working capital. However, as at
31 December 2018, having considered the cash forecasts from
the Argentinian operation the Directors believe that so long as the
Argentinian operation adheres to their forecasts, and makes all
payments, bearing in mind the reduced outgoings of the Group,
there is currently sufﬁ cient headroom in existing working capital
facilities to avoid the need to seek further sources of working
capital.

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.

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STRATEGIC REPORT

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 £2.9 million in
the year (2017 £3.7 million loss).

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 reduced to
64.4 per cent. due to the continued effect of operating at reduced
output following the September 2017 steam turbine blade failure
(2017: 68.9 per cent.).

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 4.4 pence per share
(2017 4.5 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 0.11 pence per share in the year (2017: loss of 1.04 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. EdS in which the Group has a 50%
interest has an installed nominal capacity output of 138 MW. No
additional capacity was added in the period. The group continues
to own three turbines ready for deployment in projects or onward
sales. Two of these have a nominal capacity of 125MW, the other
38MW.

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. Due to the period, from October 2017 until the return
to full production in January 2019, where a single turbine was
running in open cycle the annual heat rate rose to 9.78 BTU/kWh
(2017: 8.76 BTU/kWh).

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

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 £167k (2017: £211k). Capitalised development
costs are £ 0.2 million (2017: £0.2 million) on the Central Illapa
project. In 2018 the Arica project/turbine was impaired by £0.2
million (2017: £0.3 million). The development costs associated
with the Central Illapa project were not impaired in 2018 or 2017.

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 the prior year
accounts the assets and liabilities are recorded as held for sale.
The sale proceeds are US $250k, of which US $175k had been
received by the date of this report.

Group Results
The Group loss after tax for the ﬁ nancial year under review is £0.6
million (2017: £5.8 million loss). This included foreign exchange
gains of £1.7 million (2017: £2.5 million loss). The impairment
losses, totalling £2.7 million (2017: £1.7 million), were £2.4 million
(2017: £1.3 million) for Argentinian operations and £0.2 million
(2017: £0.3 million) for Chilean operations. This excludes the
foreign exchange gain on the 701 turbines of £0.6 million (2017:
foreign exchange loss £0.9 million).

Group revenue was nil (2017: nil), Operating and Administrative
expenses amounted to £1.5 million (2017: £2.1 million). Operating
loss was £2.9 million (2017 £3.7 million loss). The loss before tax
is £0.6 million (2017: £5.8 million loss). The basic loss per share
is 0.11p (2017: 1.04p loss). Total assets are £26.8 million (2017:
£31.1 million this included assets of £2.3 million which were held
for sale in 2017). Total equity stands at £24.8 million (2017: £25.2
million), or a Net Asset Value of 4.4 pence per share (2017: 4.5
pence per share).

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

Energia del Sur S.A. Results
After the application of Argentine GAAP accounting treatments
to recognise the effects of hyperinﬂ ation, 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$
158.3 million (2017: AR$ 89.7 million) on revenues of AR$ 672.3
million (2017: AR$ 379 .6 million), whilst the gross operating proﬁ t
was AR$ 670.3 million (2017: AR$ 369 .9 million). The net pre-tax
loss for the year at EdS was AR$ 20.4 million (2017: proﬁ t AR$
47.2 million) which included foreign exchange losses of AR$ 172.7
million (2017: AR$ 30.8 million).

As set out in note 22 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
September/October 2017. Gross energy output was 15.0 per
cent. lower at approximately 602 GWh (2017: 708 GWh), this
was due to unplanned and forced outages. The average heat rate
of the plant was 9.78 MMBTU/kWh (2017: 8.76). 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:

Restated
Year ended
31.12.17
note 1
£’000
8,710
(8,803)
(728)
(821)
24,046
4,853
(26,635)
(5,260)

Year ended
31.12.18
£’000
8,715
(8,837)
(2,225)
(2,347)
14,327
2,523
(26,548)
(3,714)

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

note 1 restatement to take into account the effects of
hyperinﬂ ation, see note 22

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. Given the uncertainty
of the future sale of the turbine and the recoverability of the land
cost an impairment charge of £0.2 million (2017: £0.3 million) has
been recorded in the year.

Central Illapa
The project, has continued to make some progress in
development (which has involved the obtaining of a renewal of the
necessary environmental consents granted for the project and an
application has been made for a new construction period for the
project from Ministerio de Bienes Nacionales, the Chilean Ministry
of National Assets), which had expired,whilst the company
pursues various options. The company expects the application for
the new construction period to be successful as there are a limited
and diminishing number of unbuilt gas thermal plants which have
a consented site (and the Directors believe these are needed to
provide electricity in the periods where sustainable sources cannot
operate effectively).

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 (2017: nil) and, after exchange rate differences an
increase in the asset value of £0.6 million has been recorded in
2018 (2017: exchange loss £0.9 million).

Future developments have been considered in the non-executive’s
Director’s statement.

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
05 June 2019 and was signed on its behalf by:

Simon Morris
(Executive Director)

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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BOARD OF DIRECTORS

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
turnarounds, cash ﬂ ow management and proﬁ t improvement,
including CP Pharmaceuticals (Holdings) Ltd, Benders Holdings
Ltd and Bernstein Holdings Ltd. He established his own advisory
and consultancy business in 2011 to specialise in, and invest in,
business turn arounds and 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 2018.

On the basis that the Group receives the joint venture remittances
referred to above, 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:

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.

Brian Rowbotham – Non-Executive Director
Simon C. Morris – Executive Director
Andy H. Coveney – Executive Director

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 2018 are
set out in the Consolidated Statement of Total Comprehensive
Income.

No dividend was paid during the year to 31 December 2018
(2017: nil).

Share capital
Details of the issued share capital are set out in Note 16.

Going concern
In previous years accounts, the Directors have reported that
because of uncertainty over the timing of receipts, they have had
to pursue alternative sources of working capital. However, as at
31 December 2018, having considered the cash forecasts from
the Argentinian operation the Directors believe that so long as the
Argentinian operation adheres to those forecasts, bearing in mind
the reduced outgoings of the Group, there is sufﬁ cient headroom
in existing working capital facilities to avoid the need to seek
further sources of working capital.

Since the year end the Company has been in negotiations for
prospective sales of Group assets. There exists uncertainty as
to if and when these sales complete, in addition to the timing of
the sales of assets as well as the quantum of the corresponding
proceeds.

Unless there is a signiﬁ cant disposal of assets, the Group remains
reliant on repayments of loans from its joint venture Argentine
operations. This in itself has led the Auditors to conclude that a
material uncertainty surrounds the future of the Group, further
details are in the Audit Report as the quantum and timing of such
receipts may be subject to variation and are not guaranteed as
there is no formal agreement in place. Loan repayments from the
joint venture are expected to be sufﬁ cient to meet the working
capital requirements for the Group as full generating capacity is
expected to be restored following the major maintenance of the
plant in later 2019.

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

03.06.2019

31.12.2018

31.12.2017

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 03 June
2019, being the last practicable date for reporting this information.

Sterling Trust Ltd

YF Finance Ltd

Mr & Mrs Scott

Number of

shares % holding

303,092,303

96,565,166

16,841,500

53.989

17.201

3.00

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 24.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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Auditor
Moore Stephens LLP were re-appointed as auditors during the
year. In February 2019, Moore Stephens LLP merged with BDO
LLP. As part of this process Moore Stephens LLP resigned and
BDO LLP were engaged.

Pursuant to Section 489 of the Companies Act of the Companies
Act 2006, BDO 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
05 June 2019

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.

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 Group, 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.

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CORPORATE GOVERNANCE REPORT

FOR THE YEAR ENDED 31 DECEMBER 2018

Introduction

Statement from the Board of Directors
Until this year, Rurelec PLC (the “Company”) has modelled its
corporate governance, as far as practicable, on the UK Corporate
Governance Code 2016, although as a listed AIM company under
AIM Rules it was not formally required to do so.

On 8 March 2018, the London Stock Exchange issued revised
rules for AIM-listed companies, within which there is a requirement
under the AIM rules for AIM listed c ompanies to apply a
recognised corporate governance code from September 2018.

The Company has chosen to apply the QCA Corporate
Governance Code (the “QCA Code”) published in April 2018
and this Corporate Governance report for the year ended 31
December 2018 is based upon the QCA Code.

The principal means of communicating our application of the QCA
Code are this Annual Report (pages 11-15) and our Corporate
Governance section on our website (www.rurelec.com).

This statement has been collectively prepared by the board of
directors of the Company (the “Board”). The Board welcomes the
new QCA Corporate Governance Code as a useful guide to assist
in articulating how the Company approaches and applies good
corporate governance.

The members of the Board work closely together to manage
the Company’s activities and to chart the Company’s long-term
strategy.

This report sets out the Group’s application of the Code, by the
Board, and where appropriate, cross reference to other sections
of the Annual Report.

Where our practices depart from the expectations of the Code,
the Board has given an explanation as to why, at this time, it is
appropriate for the Group to depart from the Code.

The QCA Code is constructed around ten broad principles and
a set of disclosures which notes appropriate arrangements for
growing companies and requires companies who have adopted
the QCA Code to provide an explanation about how they are
meeting those principles through the prescribed disclosures. In the
paragraphs below, the Board explains how it has applied them.

The Board of Directors
Rurelec PLC

Principle 1. Establish a strategy and business
model which promotes long-term value for
shareholders.
The Board is committed to strengthening the Group’s underlying
ﬁ nancial position before seeking opportunities to consolidate or
expand its business. The Board sets out to deliver long-term value
to shareholders in the following ways :

• Stabilising the Group’s position by reducing cash outﬂ ows;

• Reducing the Company’s vulnerability to ﬂ uctuations in the
timing of debt repayments receivable from subsidiaries and
joint ventures;

• Working with joint venture partners to ensure that debts from

those entities are repaid to the fullest extent possible;

• Paying off debts and creditor arrears to restore the business to

ﬁ nancial stability;

• Using that ﬁ nancial stability to permit an orderly realisation of

assets and investments in a timescale that allows maximisation
of the proceeds of such sales;

• Where asset realisations are not possible in the short term due
to market conditions, preserving the value of those assets and/
or maximising the cashﬂ ow generated by those assets;

• Undertaking development of projects only where to do so

involves low risk and where appropriate funding for the project
has already been secured.

The execution of this strategy presents key challenges in the
maximisation of returns on assets given market conditions. Those
challenges are addressed by ensuring that the Company is
stable enough to be able to avoid having to ofﬂ oad such assets
when to do so would minimise value, instead choosing to seek
opportunities to maximise the long term returns that will optimise
value for shareholders.

The business model as to how the Company plans to make
money for its investors revolves around maximising the long term
collection of debts owed in connection with the joint venture
formed to develop the Energia del Sur, S.A. (“EdS”) business in
Argentina, whilst repaying Rurelec’s own creditors and continually
assessing the value and saleability of its assets with a view to
developing and/or realising those assets in such a way as to
maximise the returns to all shareholders.

Principle 2. Seek to understand and meet
shareholder needs and expectations.
The Board attaches great importance to providing shareholders
with clear and transparent information on the Group's activities,
strategy and ﬁ nancial position. Details of all shareholder
communications are provided on the Group's website.

The Board regards the annual general meeting as a good
opportunity to communicate directly with shareholders via an open
question and answer session.

The Company lists contact details on its website and on all
announcements released via RNS, should shareholders wish to
communicate with the Board.

The resolutions put to a vote at past AGMs can be found in www.
rurelec.com/investors/circulars

The Board seeks to engage with all shareholders as and when
relevant information needs to be disclosed. The Board is
cognisant or is aware of the fact that different shareholders may
have different priorities regarding when those shareholders wish to
realise their shareholdings and are mindful of the need to consider
the interests of shareholders as a whole in this regard.

Shareholders can communicate with the Company through
the email address in its website. The Board is responsible for
reviewing all communications received from members and
determining the most appropriate response.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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Principle 3. Take into account wider stakeholder
and social responsibilities and their implications
for long-term success.
The contraction of the Group and the focus on stabilisation of the
ﬁ nancial position of the Company and Group has led to frequent
communication at Board level within the Company and regular
communication with suppliers/funders to maintain their conﬁ dence
in the business model and strategy being pursued by the Board.
The long-term success of the Group relies on maintaining open
communication and good relationships with its stakeholders.

Communication also extends to the Board receiving regular
updates and feedback within the small London-based workforce
within the Company and there are also regular communications
from the Executive Directors of the Group’s joint venture partner
in the British Virgin Islands. The Group’s main trading asset is the
joint venture operation in Argentina. This operation is run by a full-
time local management team that maintains good relations with all
key stakeholders to the business in Argentina, and which provides
a close point of contact for the Board’s overseas operations.

The Executive directors travel regularly to Argentina to meet and
grow its existing key stakeholders .

Principle 4. Embed effective risk management,
considering both opportunities and threats,
throughout the organisation
Given past changes in the Company’s ﬁ nancial position, the
current Board consider risk management to be of paramount
importance and this has driven its strategy of pursuing ﬁ nancial
stability rather than risky expansion in order that shareholder
value can be maximised through an orderly realisation of the
Group’s assets. The risk position of the Group is considered on
a very regular basis by the Board given the cash constraints that
the Group has had to work within. The feedback on its strategy
of pursuing a low-risk approach is received clearly in terms of
reductions in cash outﬂ ow as measured by weekly reviews of
cash forecasting models, and in terms of reduced exposure to
ﬂ uctuations in cash inﬂ ow.

Although the Company does not undertake speciﬁ c risk
assessments, the Board as a whole undertakes regular views of
the principal risks and uncertainties facing the Group as reported
in page 6 of the Strategic Report. The Company is in the process
of implementing a risk register which should be under the Audit
Committee reporting to be compliant with the QCA Code.

Principle 5. Maintain the Board as a well-
functioning, balanced team led by the chair.
Due to the size of the company, the Board believes that it can
collectively and competency execute a clear leadership function
without the appointment of a Chairman.

The Board takes collective responsibility for the quality of, and
approach to corporate governance by the Company , governance
and the systems and procedures by which the Company is
directed and controlled. A prescribed set of rules does not itself
determine good governance or stewardship of a company and,
in fulﬁ lling their responsibilities, the Directors believe that they

govern the Company in the best interests of the shareholders,
whilst having due regard to the interests of other 'stakeholders'
in the Group including, in particular, customers, employees and
creditors.

The Board is responsible for running the Company, including all
major business and ﬁ nancial risks and taking strategic decisions.

The Directors communicate at least weekly on signiﬁ cant matters,
in particular on matters affecting cashﬂ ow and on matters
concerning the joint venture in Argentina.

Brian Rowbotham is considered to be independent since his
appointment in October 2013. The board has evaluated the
independence requirements of the QCA Code and considers that
Brian Rowbotham continues to be independent.

The number of times the Board met during the year to
31 December 2018 was 20. All directors were present at all the
Board meetings.

The three principal standing committees of the Board are the
Audit, Nominations and Remuneration Committees.

Audit Committee
The Audit Committee comprises Brian Rowbotham and Simon
Morris and is chaired by Brian Rowbotham. The Company’s
Auditors are normally in attendance. The Company is not
compliant with its terms of reference or the requirements under
the QCA Code, which requires that only independent Non-
Executive Directors should sit on it. Instead, the Audit Committee
is comprised of the Board’s Non-Executive Director and an
Executive Director .

Remuneration and Nominations Committees
Currently only Brian Rowbotham is a member of these
committees and therefore the Company is not compliant with
its terms of reference or the requirements under the QCA Code,
which requires that only independent Non-Executive Directors
should sit on them.

The executive directors are part time directors of the Company
although all directors are expected to commit sufﬁ cient time to the
Company in addition to attending the Board meetings.

The Board minutes and papers are circulated to directors in good
time and ahead of the relevant Board meeting.

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CORPORATE GOVERNANCE REPORT

FOR THE YEAR ENDED 31 DECEMBER 2018

The Board has established audit, remuneration and nominations
committees which meet regularly. Details of the Audit,
Remuneration and Nominations Committees:

The Board understands the challenges in regard to gender
diversity and understands that more can be done to improve the
gender balance as part of the composition of the Board.

Director

Brian
Rowbotham

Simon C.
Morris

Andrew H.
Coveney

Role at 31
December
2018

Senior
Independent
Non-Executive

Executive
Director

N = Nomination Committee
R = Remuneration Committee
A = Audit Committee

Date of (re-)
appointment

Board
Committee

27.06.2018

N R A

20.07.2017

– – A

20.07.2017

– – –

The Audit Committee met 3 times during the year to 31 December
2018. All the committee members were present at the meetings.

Due to the size of the Company the Board does not comply with
the principle that the Board should at least have two independent
directors and therefore its committees’ membership is also not
compliant with their terms of reference. Given the current level
of transactions within the Company, the Board considers that
adequate resources are available at Board level.

Principle 6. Ensure that between them, the
directors have the necessary up to date
experience, skills and capabilities
The Company has three directors, Brian Rowbotham, Senior
Independent Non-Executive Director, Simon Morris, Executive
Director and Andrew Coveney, Executive Director. Biographical
details of the Directors can be obtained in www.rurelec.com/
about-us/board-of-directors-and-senior-management

As the ﬁ nancial position of the Group evolved, so have the skills
required of its directors. The current directors have been chosen
for their skills in maintaining, preserving and realising shareholder
value by pursuing ﬁ nancial stability rather than by pursuing the
aggressive expansion of the past. The two Executive Directors
have a wealth of experience of dealing with the consequence
of deterioration in the ﬁ nancial positions of businesses and in
implementing the change necessary to restore such businesses
back to stability. Those skills have been honed within ﬁ nancial
and restructuring backgrounds. It is important that the directors
are seen to be professional, reliable, trustworthy and represent a
safe pair of hands. All three directors are Chartered Accountants
and have a variety of experience gained through long careers
as directors in industry and commerce, and/or at partner level
in professional ﬁ rms. This experience has involved regular and
frequent acquisition of enhanced skills in response to a series of
challenges and situations encountered in different businesses and
industries to supplement the updating of skills obtained through
the membership of professional organisations.

The directors keep their skills up to date by attending regular
professional brieﬁ ngs.

The directors receive brieﬁ ngs covering regulations that are
relevant to their role as directors of an AIM-quoted Company from
our Nominated Adviser (“Nomad”) and lawyers. For example,
the Board has consulted the Company’s lawyers and Nomad on
various disclosures and Market Abuse Regulation issues, amongst
other corporate governance issues.

The Board is grateful for the regular, thorough and diligent input
of a qualiﬁ ed professional Company Secretary who inputs into
and is central to everything that goes on in the Company. As such
the Company Secretary provides frequent advice to the Board.
On legal matters, the Company Secretary is ably supported by
external part-time counsel and the Company’s solicitors. The
Independent Non-Executive Director provides guidance and
support on relevant matters on a regular basis.

Principle 7. Evaluate Board performance based
on clear and relevant objectives, seeking
continuous improvement.
The Board evaluates its own performance on a monthly basis and
also regularly considers any feedback from external parties as and
when that feedback is received.

Board performance is evaluated in the light of its own strategic
objectives and tactical plans, in particular in relation to
cash management and other ﬁ nancial forecasts. Any Board
appointments are considered closely in relation to the ability of
the proposed Director to make an active contribution to delivering
value to shareholders though the achievement of the strategies
and plans balanced against the cost of such an appointment.

The Company has not previously engaged any external evaluation
for the performance of the Board members or external advisors
for succession planning. Candidates to the Board have been
proposed by the Board members based on their skills and
experience and the requirements of the Company at the time of
the appointment.

There are currently no formal evaluations of the Board.

Principle 8. Promote a corporate culture that is
based on ethical values and behaviours.
The Group’s corporate culture is based on creating an atmosphere
of trust, openness, communication and professionalism. Due to
the size of the Company, the Board is in very close contact with
its employees and is able to engender professional development
through teamwork in its day to day and strategic activities.

The Company currently has 6 employees (including the directors).
The Board seeks to ensure that all of its employees are aware
of its ethical values communicating on a personal basis with its
employees and encourages the adoption of these values through
the appraisal and recruitment process.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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Principle 9. Maintain governance structures and
processes that are ﬁ t for purpose and support
good decision making by the Board.
In addition to the high level of explanation of the application of the
QCA Code set out in the Chair’s corporate governance statement:

• The Board of Directors (the Board) is responsible for approving

Company policy and strategy. The Board meets regularly
throughout the year. To enable the Board to perform its
duties, each director has access to advice from the Company
Secretary and independent professionals at the Company's
expense.

• The Role of the Chair, includes:

to take the chair at general meetings and Board meetings;

o providing leadership to the Board;

o ensuring proper information for the Board;

o planning and conducting Board meetings effectively;

o getting all directors involved in the Board’s work;

o ensuring the Board focuses on its key tasks

o supporting the chief executive;

o determination of the order of the agenda;

• The Board comprises of 2 Executive Directors and 1 Non-

o ensuring that the Board receives accurate, timely and

Executive Director.

clear information;

• Biographical details of the Board of Directors can be obtained
in www.rurelec.com/about-us/board-of-directors-and-senior-
management

• All matters are reserved for the Board although the Board has
chosen to delegate some of them to the Audit, Remuneration
and Nominations Committees which will issue advice to the
Board on those matters. Some of the matters reserved for the
Board include:

o keeping track of the contribution of individual directors

and ensuring that they are all involved in discussions and
decision-making;

to ensure effective communication with shareholders and,
where appropriate, the stakeholders.

• The Role of CEO includes:

o Advice to the Board;

o Reviewing, approving and guiding group strategy, annual

o Supporting operations and administration of the Board;

budgets and business plans; setting performance
objectives; monitoring and implementing corporate
performance; and overseeing major capital expenditures
and disposals;

o Monitoring the effectiveness of the Company’s

o Leading the development of the Company’s short- and

long-term strategy;

o Ensuring that the staff and the Board have sufﬁ cient up to

date information;

governance arrangements and practices, making
changes as needed to ensure the Company’s governance
framework complies with current best practices in
accordance with the size of the Company;

o Recommending the yearly budget for the Board’s

approval and managing the organisation's resources
within those budget guidelines according to current laws
and regulations;

o Monitoring and managing potential conﬂ icts of interest
that may arise with Board members, shareholders and
external advisors;

o Assessing risks to the Company and ensuring they are

monitored and minimised;

o Setting strategic goals and making sure they are

o Overseeing the process of external disclosure and

measurable and describable;

communications.

• The Board is also responsible for all other matters which are
considered to be of importance to the Group as a whole
because of their strategic, ﬁ nancial or reputational implications
or consequences.

• The Board has established audit, remuneration and

nominations committees which meet regularly. Details of these
committees are set out in Principle 5 above.

• 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.

• There are no plans to change the current governance

framework.

o Leading the Company and ensuring all employees buy

into the Company’s vision;

o Setting the overall strategic direction of the Company

alongside the Board;

o Meeting with the Finance Director on a regular basis to

review the Company’s ﬁ nancial performance;

o Managing the direction of the Company and guiding

senior members of the Company;

o Setting Company-wide KPI’s to gauge the Company’s

performance in all areas;

o Setting Company budgets and forecasts alongside the

Finance director;

o Reporting results to the shareholders on a half-year and

annual basis.

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CORPORATE GOVERNANCE REPORT

FOR THE YEAR ENDED 31 DECEMBER 2018

Principle 10. Communicate how the Company
is governed and is performing by maintaining a
dialogue
Disclosure of the outcomes of all votes are in www.rurelec.com/
investors/proxy-results

Historical annual reports and other governance-related material,
including notices of all general meetings over the last ﬁ ve years
can be obtained in www.rurelec.com/investors/circulars

Further disclosure required under QCA Principle 10 can be found
in Principles 5 and 9 above.

Maria J. Bravo Quiterio
Company Secretary
05 June 2019

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF RURELEC PLC

Opinion
We have audited the ﬁ nancial statements of Rurelec Plc (the
‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 December 2018 which comprise the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated statement of ﬁ nancial position, the
company statement of ﬁ nancial position, the consolidated
statement of cash ﬂ ows, the company statement of cash ﬂ ows,
the consolidated statement of changes in equity, the company
statement of changes in equity and the notes to the ﬁ nancial
statements, including a summary of signiﬁ cant accounting
policies.

The ﬁ nancial reporting framework that has been applied in the
preparation of the ﬁ nancial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and, as regards the Parent Company ﬁ nancial
statements, as applied in accordance with the provisions of the
Companies Act 2006.

In our opinion:

•

the ﬁ nancial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at 31
December 2018 and of the Group’s loss for the year then
ended;

the Group ﬁ nancial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union ;

the Parent Company ﬁ nancial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the
provisions of the Companies Act 2006; and

•

the ﬁ nancial statements have been prepared in accordance
with the requirements of the Companies Act 2006.

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. We are independent of the Group and the
Parent 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.

Material uncertainty related to going concern
We draw attention to Note 1 of the ﬁ nancial statements
concerning the Group and the Parent Company’s ability to
continue as a 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. The Group
is heavily reliant on repayment of the loans receivable from the
joint venture in order to meet the repayments of the BPAC loan
and to provide working capital. Without these funds, the Group
would not be able to make the repayments on the BPAC loan and
would have to negotiate a further extension. After the year end,
the BPAC loan facility repayment date was extended to 30 June
2020. These matters, along with the other matters explained in
Note 1, indicate the existence of a material uncertainty which
may cast signiﬁ cant doubt over the Group and Parent Company’s
ability to continue as a going concern. Our opinion is not modiﬁ ed
in respect of this matter.

We highlighted going concern as a key audit matter based on our
assessment of the signiﬁ cance of the risk and the effect on our
audit strategy. The 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 joint

venture for the months post year end

• Obtaining the signed conﬁ rmation letter from BPAC in respect
of extending the loan facility repayment date to 30 June 2020.

• 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 the joint venture

Energía del Sur S.A

Key audit matters
In addition to the matter described in the material uncertainty
related to going concern section, key audit matters are those
matters that, in our professional judgment, 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.

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254841 Rurelec Annual Report pp01-pp18.indd C15

05/06/2019 16:36

INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF RURELEC PLC

Key Audit Matter

Valuation of assets (Note 12)
The Group holds two Siemens 701 turbines - 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 partially 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. At the year end the directors obtained
independent valuations to conﬁ rm that the assets were
not overstated in the ﬁ nancial statements and to calculate
the carrying value.

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

• Physically verifying existence of the assets, their storage and

condition;

• 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

through sale; and

• Reviewing insurance documentation and storage/maintenance

documentation to assess the risk of further impairment.

Valuation of investment and recoverability of
intercompany loans, including loans to joint venture
(Note 13 and 22)
The repayment of these loans is dependent on the
economic feasibility of the underlying projects within the
Group. The recoverability of these loans is judgemental
and hence there is a risk that the loans are overstated. The
loans to the joint venture and the intercompany loans due
to the Parent Company were reviewed by the directors and
it was deemed that impairment was required based on the
cash ﬂ ow models in respect of the joint venture.

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.; and

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

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 materiality would
be £744,000 (2017: £142,000), which is 3% of net assets. 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. Performance materiality for the group
was calculated at 70% of overall materiality, being £521,000
(2017: £225,000), this is considered reasonable keeping in
view the low history of adjustable misstatements and strong
control environment maintained by management. For the Parent
Company ﬁ nancial statements, materiality was calculated to be
£520,000 (2017: £140,000) using a net asset basis.

For the component entities, the materiality for Cochrane Power
Limited was £278,000 (2017: £66,000) and was calculated on
a net assets basis. The materiality for Rurelec Project Finance
Limited was £6,000 (2017: £59,000) and calculated on a gross
assets basis. The materiality for Energia Del Sur S.A. was £71,000
(2017: £120,000) and was calculated on a loss before tax basis.

We report to the Audit Committee all potential adjustments in
excess of £39,750 being 5% of the materiality for the ﬁ nancial
statements as a whole.

An overview of the scope of our audit
The Group operates through two 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 audit. 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
component. This consisted of us carrying out a full audit of all

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

254841 Rurelec Annual Report pp01-pp18.indd C16

05/06/2019 16:36

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 by the

Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or

•

the Parent Company ﬁ nancial statements are not in agreement
with the accounting records and returns; or

• certain disclosures of Directors’ remuneration speciﬁ ed by law

are not made; or

• we have not received all the information and explanations we

require for our audit.

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 and the Parent Company’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
Group or the Parent 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.

signiﬁ cant components of the group and speciﬁ ed procedures
on the remaining components. For the audit work required on
Energia Del Sur S.A. we worked with non BDO component
auditors. We provided them with group instructions and directed
the component materiality and procedures that needed to be
undertaken. 100% of group net assets were covered by full scope
audits.

We then directed our work toward areas of the ﬁ nancial
statements which we assessed as having the highest risk of
containing material misstatements

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.

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 our 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 this 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 Group and
the Parent 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.

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254841 Rurelec Annual Report pp01-pp18.indd C17

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INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF RURELEC PLC

Use of our report
This report is made solely to the Parent 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 Parent 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 Parent
Company and the Parent Company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.

Laura Pingree
(Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

150 Aldersgate Street
London
EC1A 4AB

05 June 2019

BDO LLP is a limited liability partnership registered in England and
Wales (with registered number OC305127).

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

254841 Rurelec Annual Report pp01-pp18.indd C18

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CONSOLIDATED INCOME
STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2018

Revenue

Gross Profit
Administrative Expenses

Other Income

Other Expense

Operating Loss
Share of Joint Venture Profit/(Loss)

Foreign Exchange Gains/(Losses)

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
4

YEAR ENDED
31.12.18
£’000
–

YEAR ENDED
31.12.17
£’000
–

–

(1,510)

1,250

(2,665)

(2,925)
–

1,724

756

(177)

(622)
–

(622)

(0.11)

–

(2,070)

–

(1,651)

(3,721)
–

(2,547)

862

(419)

(5,825)
–

(5,825)

(1.04)

The notes on pages 27 to 51 form an integral part of these Consolidated Financial Statements.

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254841 Rurelec Annual Report pp19-pp26.indd C19

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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2018

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
31.12.18
£’000

(622)

YEAR ENDED
31.12.17
£’000

(5,825)

215

(386)

Total Comprehensive Loss for year attributable to owners of the Company

(407)

(6,211)

The notes on pages 27 to 51 form an integral part of these Consolidated Financial Statements.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

254841 Rurelec Annual Report pp19-pp26.indd C20

05/06/2019 16:36

CONSOLIDATED STATEMENT
OF FINANCIAL POSITION

AT 31 DECEMBER 2018

Assets

Non-current Assets

Property, Plant and Equipment

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

31.12.18
£’000

31.12.17
£’000

13a

18a

10,038

–

10,038

16,394

351

–

16,745

9,699

–

9,699

18,951

163

2,265

21,379

26,783

31,078

11,228

22,754

787

45,000

(54,967)

24,802

774

1,200

–

1,981

5,869

1,981

11,228

22,754

572

45,000

(54,345)

25,209

899

1,448

3,515

5,869

7,713

5,869

26,783

31,078

The financial statements were approved by the Board of Directors on 05 June 2019 and were signed on its behalf by Andrew Coveney
(Executive Director) and Brian Rowbotham (Non-executive Director).

_________________

Andrew Coveney

__________________

Brian Rowbotham

The notes on pages 27 to 51 form an integral part of these Consolidated Financial Statements.

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254841 Rurelec Annual Report pp19-pp26.indd C21

05/06/2019 16:36

COMPANY STATEMENT
OF FINANCIAL POSITION

AT 31 DECEMBER 2018

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

31.12.18
£’000

31.12.17
£’000

13b

18b

–

9,456

16,613

350

26,419

100

8,895

20,892

162

29,949

26,419

30,049

11,228

22,754

45,000

(54,239)

24,743

469

1,200

1,676

11,228

22,754

45,000

(50,989)

27,993

601

1,448

2,056

Total Equity and Liabilities

26,419

30,049

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 £3.2 million (2017: loss £7.1 million).

The financial statements were approved by the Board of Directors on 05 June 2019 and were signed on its behalf by Andrew Coveney
(Executive Director) and Brian Rowbotham (Non-executive Director).

_________________

Andrew Coveney

__________________

Brian Rowbotham

The notes on pages 27 to 51 form an integral part of these Consolidated Financial Statements.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

254841 Rurelec Annual Report pp19-pp26.indd C22

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CONSOLIDATED STATEMENT
OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2018

Cash Flows from Operating Activities

Cash used in Operations

Net Cash used in Operating Activities

Cash Flows from Investing Activities
Proceeds from sale of subsidiary

Loan Repayments from Joint Venture company

Settlement of Deferred Consideration

Net Cash generated from Investing Activities

NOTES

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

(1,341)

132

2,029

(232)

1,929

(2,471)

–

3,331

(1,257)

2,074

Net Cash Inflow/(Outflow) before Financing Activities

588

(397)

Cash Flows from Financing Activities
Loan Principal Repayments

Loan Interest Repayments

Net Cash Used in 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

–

(400)

188

163

351

(320)

(80)

(400)

(797)

960

163

The notes on pages 27 to 51 form an integral part of these Consolidated Financial Statements.

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254841 Rurelec Annual Report pp19-pp26.indd C23

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COMPANY STATEMENT
OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2018

Cash Flows from Operating Activities
Cash Used in Operations

Net Cash Used in Operations

Cash Flows from Investing Activities
Proceeds from Sale of Subsidiary

Investment in and Loans to subsidiaries

Loan Repayment from subsidiary

Settlement of Deferred Consideration

Net Cash Generated from Investing Activities

NOTES

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

(1,230)

132

(112)

2,030

(232)

1,818

(3,164)

–

(573)

3,344

–

2,771

Net Cash Inflow/(Outflow) before Financing Activities

588

(393)

Cash Flows from Financing Activities
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

–

(400)

188

162

350

(320)

(80)

(400)

(793)

955

162

The notes on pages 27 to 51 form an integral part of these Consolidated Financial Statements.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

254841 Rurelec Annual Report pp19-pp26.indd C24

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CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018

SHARE
CAPITAL
£’000

11,228

–

SHARE
PREMIUM
£’000

22,754

–

11,228

22,754

–

11,228

22,754

FOREIGN
CURRENCY
RESERVE
£’000

ACCUMULATED
LOSSES
£’000

SPECIAL
NON-
DISTRIBUTABLE
RESERVE
£’000

958

–

(386)

572

–

215

787

(48,520)

45,000

(5,825)

–

(5,825)

(54,345)

(622)

–

(622)

(54,967)

–

45,000

–

45,000

TOTAL
£’000

31,420

(5,825)

(386)

(6,211)

25,209

(622)

215

(407)

24,802

Balance at 01.01.17
Loss for year attributable to
owners of the parent

Exchange Differences

Total Comprehensive Loss

Balance at 31.12.17
Loss for year attributable to
owners of the parent

Exchange Differences

Total Comprehensive Loss

Balance at 31.12.18

Notes:

The notes on pages 27 to 51 form an integral part of these Consolidated Financial Statements.

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254841 Rurelec Annual Report pp19-pp26.indd C25

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COMPANY STATEMENT
OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018 FOR THE YEAR ENDED 31 DECEMBER 2015

Balance at 1.1.17

Loss for the year

Total Comprehensive Loss

SHARE
CAPITAL
£’000

11,228

–

ACCUMULATED
LOSSES
£’000

SPECIAL
NON-
DISTRIBUTABLE
RESERVE
£’000

(43,921)

45,000

SHARE
PREMIUM
£’000

22,754

–

(7,068)

–

TOTAL
£’000

35,061

(7,068)

Balance at 31.12.17

11,228

22,754

(50,989)

45,000

27,993

Loss for the year

Total Comprehensive Loss

–

Balance at 31.12.18

Notes:

11,228

22,754

(3,250)

(54,239)

–

45,000

(3,250)

24,743

The notes on pages 27 to 51 form an integral part of these Consolidated Financial Statements.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

254841 Rurelec Annual Report pp19-pp26.indd C26

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

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 2018.

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 2018 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 material uncertainty as to the timing of
the sales of assets as well as the quantum of the corresponding proceeds. Unless there is a significant disposal of assets, the Group
remains reliant on repayments of loans from its joint venture Argentine operations. This in itself has led the Auditors to conclude that a
material uncertainty surrounds the future of the Group, further details are in the Audit Report, as the quantum and timing of such receipts
may be subject to variation and are not guaranteed as there is no formal agreement in place. Loan repayments from the joint venture are
expected to be sufficient to meet the working capital requirements for the Group as full generating capacity is expected to be restored
following the major maintenance of the plant in later 2019.

During 2018 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.
Anticipated loan repayments from the joint venture are expected to be sufficient to meet the working capital requirements for the Group.

Since the year end the Company has further extended the repayment date on its outstanding loan, at the year-end of £1.2 million, short
term facility from Bridge (Arena) Properties Limited (“BPAC”). The repayment date has been extended to 30 June 2020.

On the basis that the Group receives these joint venture remittances, 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.

a) New standards, interpretations and amendments effective from 1 January 2018
New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2018,
and which have given rise to changes in the Group’s accounting policies are:

•

IFRS 9 Financial Instruments (IFRS 9); and

IFRS 15 Revenue from Contracts with Customers (IFRS 15)

As the Group has no revenue IFRS 15 has no effect. Other new and amended standards and Interpretations issued by the IASB that
have been applied for the first time in the next annual financial statements are not expected to impact the Group as they are either not
relevant to the Group’s activities or require accounting which is consistent with the Group’s current accounting policies.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

b) New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective
in future accounting periods that the group has decided not to adopt early. The most significant of these is:

IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019)

IFRIC 23 Uncertainty over Income Tax Positions (effective 1 January 2019).

The Directors consider that no revisions to IFRS standards to be implemented in the following year will have any significant
effect on those 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:

IFRS 16 ‘Leases’
The Directors have completed their assessment of the impact of the adoption of this standard 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 2018.
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 ventures 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.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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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.

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 Director’s judgement that the Argentine GAAP hyperinflation adjustments to the accounts of the Group’s
Joint Venture operations in Argentina give an approximate fair value of these operations. Additionally, as the Argentine operations are
indirectly held by the Group the provisions of IAS 29 for hyperinflation do not apply.

Non-monetary assets are valued at historic rates.

2.4 Expense recognition
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 (2017: 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.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

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.

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.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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2.10 Taxation
Current income tax assets and liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior
reporting period, that are unpaid at the reporting date. They are calculated according to the tax rates and tax laws applicable to the fiscal
periods to which they relate, based on the taxable profit for the period. All changes to current tax assets or liabilities are recognised as a
component of tax expense in the income statement or through the statement of changes in equity.

Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying
amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with
the rules set out in IAS 12, no deferred taxes are recognised in respect of non-tax-deductible goodwill. In addition, tax losses available to
be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided for in full with no discounting. Deferred tax assets are recognised to the extent that it is probable that
the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets
and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided that they are enacted
or substantially enacted at the reporting date.

Deferred tax is provided on differences between the fair value of assets and liabilities acquired in an acquisition and the carrying value of
the assets and liabilities of the acquired entity and on the differences relating to investments in subsidiary and joint venture companies if
the difference is a temporary difference and is expected to reverse in the foreseeable future.

Changes in deferred tax assets and liabilities are recognised as a component of tax expense in the income statement, except where
they relate to items that are 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 to test for impairment, the carrying value is less provision
for impairment. Any impairment is recognised in the income statement.

The majority of loans are due the Joint Venture on demand and are shown as current assets, the board are expecting repayments to
commence 2019. As an impairment review was conducted, the resulting impairment of £2.5 million has been charged to the Income
Statement , consequently there are no expected credit losses. The board consider these stage 1 impaired under IFRS 7.

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.

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.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

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.

2.16 Pensions
Under the Pensions Act 2008, every employer in the UK must put certain staff into a workplace pension scheme and contribute towards
it. This is called ‘automatic enrolment’. Rurelec staging date was 1 October 2017. Rurelec choose to set up its auto enrolment pension
scheme with NEST which ensures access to suitable, low-charge pension provision to meet the new duty to enrol all eligible workers
into a workplace pension automatically. Rurelec also offers a Salary Sacrifice Scheme within NEST by which employees sacrifice part of
their salary in exchange for the company to make an employer contribution on their behalf to the pension scheme and also to contribute
their national insurance savings on the amount sacrificed by the employee.

During the year under review, the Company continued its contributions to the NEST Pension 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 statements, management makes 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) 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 8b.

b) Management has assessed that the Company does not control the Argentine operations and therefore, as a result of this judgement
have treated the assets, liabilities and share of operating results as a Joint Venture, and consequently are using the equity accounting
basis of preparation in accordance with IAS 28 (see Note 2.1 and 22). 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 2018

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 22 for more detail.

The following tables provide an analysis of the operating results, total assets and liabilities, in 2018 and 2017 for each geographic
segment.

a) 12 months to 31.12.2018
Administrative Expenses

Loss from Operations
Other Income

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 31.12.2017
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

CHILE
£’000
(120)

(120)
–

(236)

(10)

–

(568)

(934)
–

(934)
1,922

12,289

CHILE
£’000
(211)

(211)
(324)

(118)

–

(524)

(1,177)
–

(1,177)
2,215

11,421

PERU
£’000
–

–
1,250

–

1,250
–

–

PERU
£’000
(289 )

(289)
–

698

–

(233)

176
–

176
2,265

3,515

UK
£’000
(1,407)

(1,407)
–

–

1,734

568

(177)

(954)
–

(954)
26,419

1,676

UK
£’000
(1,549)

(1,549)
–

(3,126)

1,386

(188)

(3,477)
–

(3,477)
30,049

2,05 6

CONSOLIDATION
ADJUSTMENTS
£’000
17

17
–

(2,429)

–

188

568

16
–

16
(1,558)

(11,984)

CONSOLIDATION
ADJUSTMENTS
£’000
(20)

(20)
(1,327)

(1)

(524)

526

(1,347)
–

(1,347)
(3,451)

(11,12 3)

TOTAL
£’000

(1,510)

1,250
(2,665)

1,724

756

(177)

(622)
–

(622)
26,783

1,981

TOTAL
£’000

(2,070)

(1,651)

(2,547)

862

(419)

(5,825)

–

(5,825)

31,078

5,869

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

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

i) Closing rate
US $ to £

CLP (Chilean Peso) to £

PEN (Peruvian Sol) to £

ii) Average rate
US $ to £

CLP (Chilean Peso) to £

PEN (Peruvian Sol) to £

YEAR ENDED
31.12.18

YEAR ENDED
31.12.17

1.2690

879.8

n/a

1.3306

853.0

n/a

1.3491

829.0

4.36
4.07
1.2974

836.4

4.19

If the exchange rate of sterling at 31 December 2018 had been stronger or weaker by 10 per cent. from the above, with all other
variables held constant, shareholder equity at 31 December 2018 would have been £2.5 million (2017: £2.5 million) lower or higher than
reported.

If the average exchange rate of sterling during 2018 had been stronger or weaker by 10% per cent. with all other variables held
constant, the effect on the loss for the year would have been £0.1 million (2017: £0.6 million) higher or lower than reported.

If the average exchange rate of sterling during 2018 had been stronger or weaker by 10% per cent. with all other variables held
constant, the effect on the total other comprehensive loss for the year would have been £0.02 million (2017: £0.04 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
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

632

484

328

960

630

421

1,510

2,070

Audit services include £54k (2017: £59k) paid to the auditors for the audit of the Company and Group’s ﬁ nancial statements. £10k for the audit of the Group’s
subsidiaries. Fees paid to other auditors, in respect of the audit of joint venture companies, amounted to £17.6k (2017: £24.5k). The group auditors also
provided taxation services for the Group in the year, the costs were £13.0k. (2017: £12.4k).

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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7. EMPLOYEE COSTS

a) Group
Aggregate remuneration of all employees and Directors

Social security costs

Pension costs

Total

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

Management

Administration and development

Total

b) Company
Aggregate remuneration of all employees and Directors

Social Security

Pension Costs

Total

Management

Administration and development

Total

YEAR ENDED
31.12.18
£’000
592

632

YEAR ENDED
31.12.17
£’000
902

960

YEAR ENDED
31.12.18
3

YEAR ENDED
31.12.17
3

YEAR ENDED
31.12.18
£’000
572

YEAR ENDED
31.12.17
£’000
750

611

NUMBER
3

791

NUMBER
3

c) Directors’ remuneration, including social security costs

The total remuneration paid to the Directors and former Directors was £322k (2017: £489k). The total remuneration of the highest paid
Director was £201k (2017: £199k). There were no health insurance costs, bonuses, pension costs or share based payments paid during
the year (2017: Nil)

A Morris

B Rowbotham

S Morris

A Coveney

Total

YEAR ENDED
31.12.18
£’000
Base Salary/Fee

YEAR ENDED
31.12.18
£’000
Total

YEAR ENDED
31.12.17
£’000
Total

–

201

322

–

201

322

193

199

489

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

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

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

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

8. (a) FOREIGN EXCHANGE

Foreign exchange Gains/(Losses)

Total

(b) OTHER INCOME/EXPENSE

Realised gain on disposal
Sale of Cascade Hydro Ltd (see note 29)

Asset impairment
Turbine for Arica Project

Impairment provisions

Loans to Joint Venture Companies note 22

Chile write-off of goodwill re Central Illapa acquisition

Total

YEAR ENDED
31.12.18
£’000
1,724

YEAR ENDED
31.12.17
£’000
(2,547)

1,724

(2,547)

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

(1,250)

236

2,429

–

1,415

–

296

980

1,327

1,651

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

LOANS TO JOINT VENTURE COMPANIES:
Carrying Value b/fwd
Exchange adjustment
Interest charged
New loans
Repayments
Impairment in year
Recoverable amount/Carrying value c/fwd

£ 18.5m
£ 1.1m
£ 0.8m
£ -
£ (2.0m)
£ (2.4m)
£ 16.0m

The carrying value of the loans is based on the value in use. This is determined by management assessments being the base for a
discounted cash flow model, the discount rate used was 11.49%. The results from the model are then compared to the carrying value of
the loans, any impairment is recognised through profit and loss and included in other expense.

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

£ 8.9m
£ 0.6m
£ 9.5m
£ -
£ 9.5m

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 £9.5 million (US $12.0 million) (2017: £8.9 million (US $12.0 million)). The realisation of the asset is dependent on a successful
future sale or successful development of the Central Illapa Project, both of which are uncertain.

The Illapa turbines are included within Property, Plant and Equipment in the Group and in the Company, they are included in Inventories.

HELD FOR SALE ASSET (PERU)
Net assets held for sale b/fwd
Disposal in period
During the year the Company entered into an arrangement to dispose of Cascade Hydro Limited. The sale completed on 30 January
2018, proceeds were US $ 250k, of which US $175k were received before the year-end.

£ 1.3m
£(1.3)m

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

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

£ 0.6m
£ -
£(0.2)m
£ 0.4m

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

Interest expense paid/payable on bank borrowings and loans2

YEAR ENDED
31.12.18
£’000
756

YEAR ENDED
31.12.17
£’000
862

(177)

(419)

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. (2017: 5.5 per cent.).
Interest paid/payable includes interest on the BPAC loan and to Ethos in accordance with the terms of the payment plan following a settlement agreement, the
last payment was made in December 2018. The details of the amounts due under the loans are shown in Note 20.

Sensitivity analysis arising from changes in borrowing costs is set out in Note 20.

10. TAX EXPENSE
The relationship between the expected tax expense at basic rate of 19.00 per cent. (2017: 19.25 per cent.) and the tax expense actually
recognised in the income statement can be reconciled as follows:

Result for the year before tax

Standard rate of corporation tax in UK

Expected tax credit

Permanent differences

Unrecognised loss carried forward

Actual tax expense
Comprising:

Current tax expense

Deferred tax / (net credit)

Total credit (expense)

YEAR ENDED
31.12.18
£’000
(622)

19.00%

(118)

345

204

–

YEAR ENDED
31.12.17
£’000
(5,825)

19.25%

(1,121)

323

798

–

A deferred tax asset for the year of £0.2 million (2017: £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 £ 0.7 million (2017: £1.0
million), based on cumulative tax losses of £4.6 million (2017: £5.8 million).

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.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

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.

12. PROPERTY, PLANT AND EQUIPMENT

a) Group

Cost at 1.1.17
Exchange adjustments

Cost at 31.12.17
Exchange adjustments

Cost at 31.12.18

Accumulated Depreciation and Impairment at 1.1.17
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
Exchange adjustments

Charge for the year

Charge for impairment for the year

Accumulated Impairment and Depreciation at 31.12.18

Net book value – 31.12.18

Net book value – 31.12.17

YEAR ENDED
31.12.18
561,387,586

YEAR ENDED
31.12.17
561,387,586

£0.6m

0.11p

£5.8m

1.04p

PLANT AND
EQUIPMENT
£’000

PLANT UNDER
CONSTRUCTION
£’000

16,195

(860)
15,335

15,389
6,535

–

(95)

6,440
(507)

–

5,933

9,456

8,895

2,485
(328)

2,157

2,212
969

–

296

–

1,352
42

–

236

1,630

582

805

TOTAL
£’000

18,680

(1,189)

17,491
110

17,601

7,504
87

–

296
(95)

7,792

(465)

–

236

7,563

10,038

9,699

The plant and equipment of £9.5 million relates to two Siemens turbines, stored in Venice for use in the Central Illapa project purchased
for US $25.0 million, at the year-end deferred consideration of £0.1 million (2017: £0.3 million) remains outstanding. The turbines are
held as inventory in the Company. Please see note 8b for details of impairments charged in the year.

Plant under construction comprises of a turbine plant in Chile £0.4 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 20 the Company has outstanding loans from BPAC. Security on these loans include a pledge over all assets of the
Group.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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13. TRADE AND OTHER RECEIVABLES

a) Group – current
Amounts due from joint venture companies1

Tax receivable - VAT

Other Receivables and Prepayments

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

16,012

369

16,394

18,532

382

18,951

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 5.5 per cent. (2017: 5.5 per cent.). The receivable is comprised of £1.1 million due
from EdS and £14.9 million due from PEL. The loans are due on demand and are shown as current assets, the board are expecting repayments to commence
2019. An impairment review has been carried out, based on a cash ﬂ ow model , consequently there are no expected credit losses.

b) Company – current
Loans to Joint Ventures2

Loans to Subsidiaries1

Other receivables and prepayments

The amounts owed by subsidiary companies include:

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

14,879

1,590

144

16,613

17,044

3,772

20,892

Loans to subsidiaries in Cochrane Power Limited £9.9 million and Rurelec Project Finance Limited £1.0 million are repayable on demand. These loans have
been impaired to £0.6 million in Cochrane Power Limited, the UK holding company for assets in Chile. The loans to Chile and Rurelec Project Finance Limited
bear zero per cent interest rates. During the year the Group received £2.0 million/US $2.7 million (2017: £3.3 million/US $ 4.3 million) from EdS in service of the
amounts due to Rurelec Project Finance Limited. The total outstanding at the year-end was £1.0 million (2017: £3.1 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. The
receivable is comprised of £14.9 million due from PEL. The loans are due on demand and are shown as current assets, the board are expecting repayments
commence 2019. An impairment review has been carried out, based on discounted value in use with a discount rate of 11.49%, consequently there are no
expected credit losses.

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 20 the Company has outstanding loans from BPAC. Security on these loans includes a pledge over all assets of the
Group.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

14. INVENTORIES

Company – Inventories
Inventories

YEAR ENDED
31.12.18
£’000
9,456

YEAR ENDED
31.12.17
£’000
8,895

Inventories comprises of two Siemens 701DU turbines acquired from IPSA in June 2013. Further details of which are set out in note 12.
Storage and insurance costs for the turbines in the year totalled £102k (2017: £117k).

As set out in note 20 the Company has outstanding loans from BPAC. Security on these loans includes a pledge over all the assets of
the Group.

15. CASH AND CASH EQUIVALENTS

a) Group

Cash and short-term bank deposits

b) Company

Cash and short-term bank deposits

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

351

350

163

162

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 20 the Company has outstanding loans from BPAC. Security on these loans includes a pledge over all the assets of
the Group.

16. SHARE CAPITAL

In issue, called up and fully paid

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’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.

17. 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.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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The resolution was subsequently confirmed by the High Court in the terms proposed at the time by the 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 £88k
(2017: £254k).

Share Premium account, after the deduction of £45,000,000 is £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.

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 £ 0.1 million (2017: £0.3 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.

18. 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

677

774

372

469

815

899

517

601

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

19. TAX LIABILITIES

Group/Company – current

P.A.Y.E.

20. BORROWINGS

Group/Company – Current

Other Loans

Group/Company –Total Borrowings
The Group’s borrowings are repayable as follows:

Within 1 year

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

774

899

YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

1,200

1,448

1,448
2,434

1,448

Group and Company
£1.2 million (2017: £1.4 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 2019. The interest rate from 1 January 2018 until 31 December 2018 was 12.5%, from 1 July 2019
the rate will be 13.5%. Since the year end the loan has been further extended and is now due on 30 June 2020, or upon any significant
asset sales.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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YEAR ENDED
31.12.17
£’000

YEAR ENDED
31.12.16
£’000

1,448

4,037

–

152

(400)

–

1,200

(2,608)

419

–

(80)

(320)

1,448

1,661

152

187

(400)

1,200

(80)

(320)

1,448

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

Interest paid

Principal repayment

Balance at end of year

b) Company

Balance at start of year

Non-Cash flow transactions
Interest charge

Cash flow transactions

Interest paid

Principal repayment

Balance at end of year

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:
None (2017: US $510k) of these loans are denominated in US $. In 2017 these were 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 £nil (2017: £38k).

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.

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

21. INVESTMENTS

Cost at 1 January 2018
Disposal during the year

Balance at 31 December 2018

Cost at 1 January 2017
Additions during the year

Balance at 31 December 2017

YEAR ENDED
31.12.18
£’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. (2017: 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. (2017: 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 company, Cascade Hydro Power S.A.C.,
100 per cent. interest in Electricidad Andina, S.A. and 99.9 per cent. of Empresa de Generacion Electrica Colca, S.A.C.,all of them
being companies registered in Peru. On 30 December 2017 the Company entered into a SPA to dispose of CHL, and its subsidiaries,
the sale completed on 30 January 2018, please see note 27 for further details.

3. 100 per cent. (2017: 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.

4. 100 per cent. (2017: 100 per cent.) of the issued share capital of Rurelec Project Finance Limited a company registered in England

and Wales under registration number 7523554.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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INTEREST HELD

50%

100%

99.99%

100%

Indirect investments:

NAME

Energia del Sur S.A.*

Electrica del Sur S.A.*

SEA Energy S.A.**

Rurelec Chile SpA****

Rurelec Chile Limitada****

Termoelectrica del Norte S.A.****

Central Illapa S.A.****

TRADING ADDRESS/REGISTERED ADDRESS

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

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

*Held via Patagonia Energy Limited and equity accounted as a joint venture, see Note 23
**Held via Rurelec Project Finance Limited, in liquidation
****Held via Cochrane Power 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.

22. 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 owns 100 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 £45.6 million (2017 restated: £38.1 million).

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

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

YEAR ENDED
31.12.18
£’000
17,432

(21,267 )

28,653

5,045

(52,916)

(7,428)

*RESTATED
YEAR ENDED
31.12.17
£’000
17,420

(18,396 )

48,092

7,660

(53,269)

(10,519)

*Restatement due to hyperinﬂ ation accounting in the Joint Venture

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

23. RECONCILIATION OF PROFIT BEFORE TAX TO CASH GENERATED FROM OPERATIONS

a) Group

Loss for the year before tax
Net Finance Income

Adjustments for:

Unrealised exchange (gains)/losses

Write down of loans

Gain on disposal

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 (gains)/losses on loans

Loss on disposal

Write down of loans

Movement in working capital:

Change in trade and other receivables

Change in trade and other payables

Cash used in operations

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

(622)
(579)

(1,735)

2,429

(1,250)

236

157

(5,825)
(1,096)

2,570

1,329

296

103

123

(1,341)

(2,471)

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

(3,250)
(1,147)

(1,741)

1,398

2,249

785
476

(1,230)

(7,068)
(1,198)

3,138

3,580

(148)
(1,468)

(3,164)

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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24. 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. 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. As a result of recent inflation, Argentine GAAP measures for hyperinflation have come into force. The EdS financials included
in this report, along with restatement of prior year have been prepared with these measures. The Directors are of the view that these
accounts require no further adjustment.

The Group also had exposure to the US $ as a result of borrowings denominated in this currency.

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 20, the Group has £1.2 million (2017: £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 financial obligations fall due:

A) GROUP

Current – due within 1 year:
Trade payables

Tax liabilities

Borrowings

Total due within 1 year:

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

774

1,200

1,981

899

1,448

2,354

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

B) GROUP

Current – due within 1 year:
Trade payables

Tax liabilities

Borrowings

Total due within 1 year:

YEAR ENDED
31.12.18
£’000

YEAR ENDED
31.12.17
£’000

469

1,200

1,676

601

1,448

2,056

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.

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:

COMPANY
FINANCIAL
ASSETS AT
AMORTISED
COST
£’000
16,613

350

16,963

COMPANY
FINANCIAL
ASSETS AT
AMORTISED
COST
£’000
20,892

162

21,054

COMPANY
BORROWINGS
AND PAYABLES
AT AMORTISED
COST
£’000
-

(476)

(1,200)

(1,676)

COMPANY
BORROWINGS
AND PAYABLES
AT AMORTISED
COST
£’000
-

(609)

(1,448)

(2,057)

GROUP FINANCIAL
ASSETS AT
AMORTISED
COST
£’000

GROUP
BORROWINGS
AND PAYABLES
AT AMORTISED
COST
£’000

16,394

351

16,745

(781)

(1,200)

(1,981)

GROUP FINANCIAL
ASSETS AT
AMORTISED
COST
£’000

GROUP
BORROWINGS
AND PAYABLES
AT AMORTISED
COST
£’000

18,951

163

19,114

(906)

(1,448)

(2,354)

31 DECEMBER 2018
Trade and Other Receivables < 1 year

Cash and Cash Equivalents

Trade and Other Payables < 1 year

Borrowings < 1 year

Total

31 DECEMBER 2017
Trade and Other Receivables < 1 year

Cash and Cash Equivalents

Trade and Other Payables < 1 year

Borrowings < 1 year

Total

25. OPERATING LEASE COMMITMENTS

Ofﬁ ce premises
Less than one year £26k (2017: £22k).

Office premises relates to the Company’s offices.

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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26. 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 amounted to £0.3 million (2017: £0.5 million).

A Morris

B Rowbotham

S Morris

A Coveney

Total

YEAR ENDED
31.12.18
£’000
BASE SALARY/FEE
-

YEAR ENDED
31.12.18
£’000
TOTAL
-

201

322

201

322

YEAR ENDED
31.12.17
£’000
TOTAL

193

199

489

B Rowbotham provided services under a service agreement contract with Mountbeach Associates Ltd until June 2017, since then he
has been on payroll.
S Morris provided services under a service agreement contract with SC Morris Ltd.
A Coveney provided services under a service agreement contract with Coveney Associates Consulting Ltd. Coveney Associates
Consulting Ltd provided short term working capital loan of £50,000 on 14 February 2018. This loan was repaid on 16 February with an
arrangement fee of £1,000.

ii) In the prior period, 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

YEAR ENDED
31.12.18
£’000
-

YEAR ENDED
31.12.17
£’000
-

(20)

iii) Charged negative interest on loans to its 100% subsidiary Rurelec Project Finance Ltd (“RPFL”) totalling £0.1 million

(2017: £0.4 million). The loan balance outstanding at the year-end was £1.0 million (2017: £3.0 million).

Y/E debtor

Interest charged

YEAR ENDED
31.12.18
£’000
1,008

YEAR ENDED
31.12.17
£’000
2,965

(81)

(432)

iv) Charged interest on loans to its 50% owned joint venture company, Patagonia Energy Ltd (“PEL”) amounting to £0.8 million (2017:

£0.9 million). Received loan repayments of £ nil (2017: £ nil). The Directors have assessed the recoverability of the loans and consider
that it is appropriate to recognise an impairment of £2.5 million in the year (2017: £1.3 million). After impairment reviews the loan
balances at the year-end totalled £14.8 million (2017: £15.6 million). Interest on these loans has been accrued at an effective rate of
5.5 % (2017: 5.5%). The total outstanding before impairment is £39.3 million (2017: £34.5 million).

Y/E debtor

Repayment

Interest charged

YEAR ENDED
31.12.18
£’000
14,794

840

YEAR ENDED
31.12.17
£’000
15,666

862

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

v) Received from its joint venture company Energia del Sur S.A. (“EdS”) repayments totalling £nil (2017: £nil) of support previously

given to creditors of EdS. £0.5 million (2017: £0.5 million) of credit support remains outstanding at the year end. In the prior year the
loan was considered to be fully impaired due to Argentine restrictions on its repayment, these matters were resolved in 2018 with
repayment expected in 2019.

vi) Provided loans and charged interest of 0.5% per month to its 100 per cent. subsidiary Cochrane Power Ltd. New loans in the year

totalling £0.1 million (2017: £0.2 million). The total outstanding at the year-end was £9.9 million (2017: £9.2 million). These loans have
been impaired to £1.2 million (2017: £0.8 million).

Y/E debtor

Further loans made

Interest charged

YEAR ENDED
31.12.18
£’000
1,248

112

568

YEAR ENDED
31.12.17
£’000
805

196

522

vii) In the prior year provided loans to its former 100 per cent. subsidiary Cascade Hydro Ltd (“CHL”) of £0.4 million and charged CHL

interest of £nil. The sale of CHL completed on 30 January 2018 for US$250k of which US$175k has been received.

Y/E debtor

Further loans made

Interest charged

YEAR ENDED
31.12.18
£’000
-

YEAR ENDED
31.12.17
£’000
-

386

b) Group
RPFL received £2.0 million (2017: £3.3 million) in repayments from EdS. The interest rate on accrued interest was zero, the effective
interest rate (on principal and accrued interest) was nil (2017: nil). The total outstanding at the year-end was £1.1 million (2017: £3.1
million).

27. ASSETS HELD FOR SALE
Prior year 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. The second group, 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, of which US $175k
has been received.

Assets Classified as Held for Sale
Trade and Other Receivables

Liabilities Classified as Held for Sale
Trade and Other Payables

YEAR ENDED
31.12.18
£’000
-

YEAR ENDED
31.12.17
£’000
2,265

2,265

YEAR ENDED
31.12.17
£’000
3,515

3,515

RURELEC PLC Annual Report and Accounts for the year ended 31 December 2018

Stock code: RUR

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28. CONTROL
The Directors consider that the ultimate controlling party is Sterling Trust Limited on the basis of their 53.9% shareholding in the
Company.

29. POST BALANCE SHEET DATE EVENTS
Since the year end:

RPFL has received final payment from EdS for the former Standard Bank loan and associated fees on 29 May 2019.

Rurelec has repaid BPAC £850k of interest and principal of the extended £1.2 million loan.

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254841 Rurelec Annual Report Cover.qxp 05/06/2019 16:39 Page 2

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

1
5
6

7
8
10

15
19
20
21
22
23
24
25
26
27
IBC