RNS Number:5900E
Clipper Windpower PLC
27 September 2007
CLIPPER WINDPOWER PLC - ANNOUNCEMENT OF 2007 INTERIM RESULTS
London, (UK), Carpinteria, CA (USA). Clipper Windpower Plc ("Clipper"), a
rapidly growing manufacturer of advanced wind turbines and developer of wind
energy projects, announces its interim results for the six months ended 30 June
2007.
Chairman's statement
Over the past week we announced Clipper's first 2009 firm order, with 300 MW
(120 units) to BP Alternative Energy North America. This transaction represents
a follow-on order and to us is a clear indication of confidence in the Liberty
turbine and Clipper's commitment to delivery of leading technologies.
Turbine sale bookings now account for 1,530 MW (612 units) of firm sale
commitments and approximately 4,000 MW in contingent orders and joint
development / contingent sale agreements of early stage projects which would
deploy Clipper turbines during the period 2007-2011. It is noteworthy that our
customer base includes some of the largest, most mature and sophisticated power
generators in the wind industry, all with substantial operating experience with
most major turbine brands.
In June we announced the commissioning of the first eight Liberty turbines,
marking the deployment of a new generation of wind turbines into the market.
Other than the drivetrain upgrade noted below, turbine performance has met both
our expectations and operational availability requirements.
During 2007 we have equipped and expanded our Cedar Rapids manufacturing and
assembly facility by over 50% to 330,000 square feet and increased the workforce
there to approximately 250 as of September 2007. In July we commissioned a new,
state-of-the-art drivetrain test facility, which should further support
consistency of drivetrain quality.
Although we have achieved a significant increase in manufacturing capacity
during this period, we also had to contend with inadequate component quality
from two suppliers. On 31 July we announced that production had been affected by
reduced availability of high speed pinion cartridges due to suppliers' component
quality upgrades. This was determined based on expert engineering reviews which
progressed to identify a follow-on supplier quality deficiency in the
drivetrain's secondary stage, the consequences of which were disclosed in
September. Both issues have been addressed and the company is now shipping
turbines qualified through the new drivetrain test facility and advanced quality
control processes. As a consequence of reduced production in the third quarter,
we lowered our 2007 production target to a range of 125 to 145 turbines, with
the final outcome depending on the number of turbines that will be remediated
this year. A field assessment of the 57 turbines installed at customer project
sites prior to implementation of the advanced quality control processes is
currently underway, with high wind levels and high power output conditions
required to complete testing. Due to variability of wind conditions, the field
assessment is expected to be completed by early 2008, with the final number of
required drivetrain retrofits determined at that time.
Clipper has a strong, fundamental commitment to quality. I believe that our
early identification of the component issues, and our responsiveness to
addressing and rigorously analysing the issues to resolve them with the
upgrading process has resulted in customer goodwill and a material reduction in
possible future warranty obligations.
Clipper is targeting production to meet cumulative firm order commitments
through next year. A conservative base case assumes 2008 production will meet
next year's firm orders totaling 311 turbines, with shipments above that figure
dependent on drivetrain remediation requirements, component availability, and
any potential modification to customer delivery schedules. Key production risks
continue to be the ability of component suppliers to meet quality standards and
required delivery schedules, reflecting the industry-wide tight supply chain
environment driven by increasing global demand for wind turbines.
As of 25 September, a total of 91 turbines were completed year-to-date at
Clipper's Cedar Rapids manufacturing and assembly facility, with series
production of the model 2.5 MW Liberty wind turbine standing at 99, including
the eight produced in 2006. Of the 91 turbines produced in 2007, 14 uninstalled
drivetrains have been returned to the Cedar Rapids assembly plant for rework,
leaving a net deployment of 77 turbines in 2007. The 77 deployed turbines
include 28 drivetrains that were shipped after qualification through Clipper's
new drivetrain test facility.
As we transition from start-up production activities to a sustained and
increasing run rate, we are taking steps to ensure that Clipper is solidly
positioned for the expansion ahead. In this regard, I am very pleased to
announce the appointment of Finn Hansen as Clipper's new Head of Manufacturing
and Field Services. Mr. Hansen has 29 years of experience in manufacturing, 22
of those in the wind industry, having led high-volume production on seven
classes of wind turbines. Mr. Hansen launched the Vestas wind turbine activity
and was CEO of the Vestas Group up to 1986. He also successfully led
manufacturing for Zond, being responsible for the introduction and volume
production of the Zond Tacke 1.5 MW turbine (now a portion of GE's wind
business). Mr. Hansen has served as a member of Clipper's board of directors
since 2005.
Earlier this month, we announced our intention to form Clipper Capital and
Generation ("CAPGEN"), which will combine Clipper's development assets with
Helium Energy, a Spanish-based, fast growing renewable energy business. The
formation of CAPGEN will create a company that ranks among the leading global
wind energy businesses, engaged in both project development and power generation
with a portfolio exceeding 10,500 MW and significant potential for further
growth in the major global wind markets.
This is a transformational transaction for Clipper which, with the planned
financing of CAPGEN, will accelerate project acquisition and development,
optimise development portfolio value, enable long-term ownership interest in
power generating assets and establish another major customer for Clipper
turbines. In addition, CAPGEN will significantly speed the entry for Clipper
turbines in the established and growing European market and allow Clipper to
focus its resources on advancing turbine technology and expanding its
manufacturing capacity and global presence.
The new group combines Clipper's U.S. based wind development team with an
experienced international development team, led by Pedro Barriuso, previously
Head of Iberdrola Renewables from 2002 to 2006. Mr. Barriuso will be CEO of the
new CAPGEN entity, and is joined by a team of experienced wind professionals
that has been assembled by Helium since its formation in 2006. Sidney Tassin
(Non-Executive Director of Clipper Windpower Plc) will be Chairman of CAPGEN.
A very significant event for Clipper is today's confirmation by One NorthEast,
the Regional Development Agency for the North East of England, on a package of
support of #5 million for Project Britannia, the development of Clipper's
planned 7.5MW offshore turbine. The package includes access to state of the art
turbine assembly and test facilities for the Britannia project. Development of
the advanced turbine is targeted to the technology needs of the forecasted
upsurge in European offshore wind development. This farsighted support by One
NorthEast has led Clipper to establishing its Centre of Excellence for Offshore
Wind Technology in Blyth Harbour, North East England and forms the basis for a
long term joint collaboration with One NorthEast on the formation of Blyth
Harbour facilities as the strategic centre for European offshore wind projects
served by Clipper.
In all, I believe these important extensions of Clipper's business model
outlined above will further add to future growth, building and solidifying
shareholder value.
James GP Dehlsen
Chairman and CEO
Interim Results
Results for the six month periods ended 30 June 2007 and 30 June 2006 have not
been audited. The results for the year ended 31 December 2006 have been
extracted from the statutory financial statements of Clipper Windpower Plc ("the
Company") and subsidiaries (together, the "Group", "Clipper" or "Clipper
Windpower"). Those results and the results for the period ending 30 June 2006
have been restated to reflect adoption of International Financial Reporting
Standards ('IFRS') on 1 January 2007 in accordance with European Law and the AIM
Rules for Companies of the London Stock Exchange.
As described more fully below and in the accompanying financial statements,
results for the first six months of 2007 include significant charges for
non-recurring costs incurred and anticipated to address the high speed pinion
cartridge and drivetrain secondary stage issues, as well as reserves taken for
losses anticipated on two construction-related contracts. In total, the six
month period includes $40.8 million of expense for these non-recurring items.
As previously guided, turnover for the six months ended 30 June 2007 of $20.4
million included the sale of the Group's first eight wind turbines. This
compares to $7.1 million for the six months ended 30 June 2006 which reflected
the sale of wind energy rights and development services. As described in the
notes to the accompanying financial statements, revenue is recognised when the
turbines have been commissioned or contractual obligations are considered
complete. This occurs after components are shipped from the Cedar Rapids
manufacturing and assembly facility and installed at the customer's project
site.
The net loss for the six month period was $78.0 million, including losses
accrued on construction-related contracts and the up-front accrual of estimated
drivetrain and high speed pinion cartridge remediation costs to be incurred over
the next year. The loss for the six month period ended 30 June 2006 was $11.0
million.
Cost of Sales of $81.7 million represents a $77.0 million increase over the six
month period ended 30 June 2006. This item includes the cost of manufacturing
and servicing wind turbines as well as costs associated with the construction of
wind projects. The increase over the prior period includes the costs of
manufacturing eight turbines and other production related expenses such as
unabsorbed overheads. The following additional non-recurring accrued costs
identified in previous market updates are also included: $23.0 million in loss
provisions primarily due to the Group's turnkey construction project (40
turbines) and one other construction-related contract (20 turbines), a provision
for $15.0 million in accruals for estimated drive train remediation costs to be
incurred over the next 6-12 months, and a provision for $2.9 million in accruals
related to testing and remediation of high speed pinion cartridges.
The Group reports costs associated with the early stages of project developments
and product research and development expenses separately from cost of sales.
Project development costs for the period were $3.7 million versus $4.3 million
for the six months ended 30 June 2006. Product research and development costs
were $3.8 million in the period versus $3.4 million in the comparable prior year
period.
Administrative expenses were $13.7 million, compared to $7.5 million for the six
month period ended 30 June 2006. The $6.2 million increase over the prior
period was primarily due to higher employee costs to support the growth of the
Group. Administrative expenses for the six months ended 30 June 2007 include
$2.1 million in non-cash share option costs.
Investment revenue for the period was $4.5 million versus $1.9 million for the
six month period ended 30 June 2006, reflecting interest earned on higher cash
balances. At 30 June 2007, the Group's cash balance of $118.4 million compared
to $64.5 million as at 30 June 2006. The 30 June 2007 cash balance was $100.4
million lower than 31 December 2006 mainly due to the net loss for the six
months and the build-up of inventories and other current assets, net of
increases in trade and other payables and payments received in advance.
Inventories totaled $270.5 million at 30 June 2007, compared to $33.7 million as
of 30 June 2006 and $127.2 million as of 31 December 2006. The $270.5 million
balance includes $120.0 million in development projects held for sale, which are
mainly attributable to the Group's turnkey construction project and one other
construction-related contract. The $143.3 million increase since year-end 2006
reflects a build-up of components for future turbine sales and includes $88.7
million for development projects held for sale, after provisions for
obsolescence and loss making contracts. Prepaid inventory totaled $64.4 million
at 30 June 2007, compared to $9.7 million as of 30 June 2006 and $32.9 million
as of 31 December 2006. Prepaid inventory includes advance payments to
suppliers prior to the shipment of components.
Payments received in advance represent turbine sale deposits received from
customers. The current portion of payments received in advance totaled $205.5
million at 30 June 2007, compared to $157.2 million as of 31 December 2006.
Non-current payments received in advance totaled $94.7 million as of 30 June
2007, compared to $21.9 million at 31 December 2006. Current and non-current
payments received in advance were $0.2 million as of 30 June 2006. The $121.1
million combined increase since 31 December 2006 was due to the receipt of
milestone payments on new and existing orders.
Conference Call
Clipper's management will host a conference call to discuss the Group's
developments today at 9:00 am (UK Time). To join this call, please dial +44 (0)
20 7806 1957 (Listen only).
For further information please contact:
Investors
Isabel Lutgendorf
Investor Relations Director
+44 (0)20 7820 1078
Financial Press
Patrick d'Ancona
M:Communications
+44 (0)20 7153 1547
This announcement was approved by the Board of Directors on 26 September 2007.
The ordinary shares of Clipper Windpower Plc are traded on the Alternative
Investment Market of the London Stock Exchange and are not registered under the
US Securities Act of 1933, as amended. Such shares may not be offered or sold to
residents of the United States or to persons acting on their behalf, or to other
persons who are "United States Persons" within the meaning of the Regulation S
as promulgated under the Securities Act of 1993, unless such shares have been
registered under the Securities Act or there is an available exemption from
registration.
Consolidated Income Statement
($'000s except loss per share
amounts)
Six months ended Six months ended Year ended
Note 30 June 2007 30 June 2006 31 December 2006
Revenue 3 20,375 7,125 7,264
Cost of Sales (81,667) (4,713) (16,195)
Gross (loss)/profit (61,292) 2,412 (8,931)
Project development (3,709) (4,339) (9,664)
Research & development (3,820) (3,421) (6,921)
Administrative expense (13,680) (7,498) (19,717)
Other operating income/(expense) 442 31 (67)
Share of loss from joint ventures (61) - (89)
Profit on sale of subsidiary
undertakings - - 19,527
Operating loss 4 (82,120) (12,815) (25,862)
Investment revenue 4,515 1,928 6,154
Finance costs (301) (36) (93)
Foreign currency gain/(loss) 100 (112) (63)
Loss before tax (77,806) (11,035) (19,864)
Income tax (236) (458)
-
Loss for the period (78,042) (11,035) (20,322)
Loss per share- basic and diluted 5 $ (0.73) $ (0.12) $ (0.21)
Consolidated Balance Sheet
At 30 June 2007 At 30 June 2006 At 31 December 2006
Note $'000s $'000s $'000s
Non-current assets
Property, plant & equipment 28,252 14,979 25,663
Intangible assets 531 385 444
Available for sale investments 4,645 - 4,750
Other assets 236 137 200
Non-current assets 33,664 15,501 31,057
Current assets
Inventories 6 270,540 33,692 127,197
Trade and other receivables 3,491 733 11,869
Prepaid inventory 64,440 9,673 32,875
Other current assets 7,756 2,703 6,748
Cash 118,448 64,483 218,814
Current assets 464,675 111,284 397,503
Total assets 498,339 126,785 428,560
Current liabilities
Payments received in advance 205,507 172 157,216
Trade and other payables 63,615 14,294 46,499
Provisions for liabilities and charges 5,058 - -
Income tax payable 199 - 436
Obligations under finance leases 244 96 180
Total current liabilities 274,623 14,562 204,331
Non-current liabilities
Payments received in advance 94,652 - 21,930
Obligations under finance leases 1,140 377 571
Provisions for liabilities and charges 702 - -
Other non-current liabilities 209 31 -
Total non-current liabilities 96,703 408 22,501
Total liabilities 371,326 14,970 226,832
Net assets 127,013 111,815 201,728
Equity
Share capital 7 19,712 17,493 19,526
Share premium account 8 188,625 104,191 187,513
Revaluation reserve 8 3,037 - 3,037
Other reserves 8 48,809 37,371 47,677
Foreign currency translation reserve 8 (84) 70 (30)
Retained loss (133,086) (47,310) (55,995)
Total equity 127,013 111,815 201,728
Consolidated Cash Flow Statement
Six months ended Six months ended
30 June 2007 30 June 2006
Note $'000s $'000s
Cash flows from operating activities
Net loss (78,042) (11,035)
Adjustments for:
Depreciation and amortisation 4,360 1,634
Stock-based compensation 2,083 690
Realised loss on investments 105 -
Decrease in receivables 8,378 180
Increase in inventories (145,796) (27,142)
Increase in other current assets (32,629) (9,338)
Increase in trade and other payables 16,053 6,591
Increase in provisions for liabilities and charges 5,043 -
Decrease in income taxes payable (236) -
Increase in other non current liabilities 209 31
Increase in other assets (36) (19)
Increase/(decrease) in payments received in advance 121,010 (151)
Net cash used in operating activities (99,498) (38,559)
Cash flows from investing activities
Purchase of property, plant & equipment (1,877) (1,091)
Additions to intangible assets (92) (65)
Net cash used in investing activities (1,969) (1,156)
Cash flows from financing activities
Capital element of finance lease payments (59) (56)
Proceeds from exercise of share options 1,299 132
Net cash from financing activities 1,240 76
Net decrease in cash and cash equivalents (100,227) (39,639)
Cash and cash equivalents at beginning of period 218,814 104,041
Exchange (losses)/gains on cash and cash equivalents (139) 81
Cash and cash equivalents at end of period 118,448 64,483
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest 65 30
Income taxes 54 -
Non-cash activities:
Purchase of equipment in trade payables
and accrued expenses 1,205 518
Available for sale investment marked up to fair value 3,037 -
Finance lease obligations incurred to acquire assets 692 32
Increase in decommissioning liability 467 -
Consolidated Statement of Changes in Shareholders' Equity
Foreign
currency
Share Share Revaluation Other translation Retained Total
capital premium reserve reserves reserve earnings equity
$'000s $'000s $'000s $'000s $'000s $'000s $'000s
Balance at 1 January 2006 17,443 104,108 - 36,681 (11) (36,275) 121,946
Net loss for the period - - - - - (11,035) (11,035)
Exchange differences arising on
translation of foreign currency
recognised directly in equity - - - - 81 - 81
Employee share option scheme - - - - - - -
Exercise of options 50 83 - - - - 133
Issuance of options - - - 690 - - 690
Balance at 30 June 2006 17,493 104,191 - 37,371 70 (47,310) 111,815
Net loss for the period
- - - - - (9,287) (9,287)
Exchange differences arising on
translation of foreign currency
recognised directly in equity - - - - (100) - (100)
Share options and warrants issued 11,709 11,709
Tax on warrants - - - (307) - - (307)
Cost of options and warrants issued (494) (494)
Issuance of share capital 1,797 83,276 - - - - 85,073
Cost of issuance of share capital (1,274) (1,274)
Employee share option scheme 236 1,320 - (602) - 602 1,556
Revaluation of available for sale
asset - - 3,037 - - - 3,037
Balance at 31 December 2006 19,526 187,513 3,037 47,677 (30) (55,995) 201,728
Net loss for the period - - - - - (78,042) (78,042)
Exchange differences arising on
translation of foreign currency
recognised directly in equity - - - - (54) - (54)
Employee share option scheme
Exercise of options 186 1,112 - (951) - 951 1,298
Issuance of options - - - 2,083 - - 2,083
Balance at 30 June 2007 19,712 188,625 3,037 48,809 (84) (133,086) 127,013
Notes to the consolidated interim financial statements
1. Basis of preparation
The consolidated interim results of Clipper Windpower Plc for the six months to
30 June 2007 have been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards (IFRS) and
International Financial Reporting Interpretations Committee interpretations that
have been adopted for use in the European Union, and with those parts of the
Companies Act 1985 applicable to companies reporting under IFRS.
The interim financial information for the six months ended 30 June 2007 and
comparatives are unaudited but have been reviewed by the auditors and their
report is set out at the end of this statement. These interim accounts do not
constitute statutory accounts as defined in section 240 of the Companies act
1985.
The Group's results have previously been prepared in accordance with United
Kingdom Generally Accepted Accounting Practice (UK GAAP) until 31 December 2006.
UK GAAP differs from IFRS in a number of areas. The effect of such transition on
the Group's loss, net assets and cash flows for the period to 30 June 2007 are
provided in note 11.
Statutory accounts for Clipper Windpower Plc for the year to 31 December 2006,
on which the auditors have given an unqualified opinion, have been delivered to
the Registrar of Companies. The comparative financial information for that
period has been extracted from such accounts and restated to reflect IFRS
adjustments.
This interim report was approved by the Board of Directors on 26 September 2007.
The presentation currency of these financial statements, as defined in IAS 21
The Effects of Changes in Foreign Exchange Rates, is the U.S. dollar. All
amounts presented are rounded to the nearest thousand dollars, unless otherwise
stated.
2. Significant accounting policies
The interim financial statements have been prepared under the historical cost
convention and in accordance with IFRS adopted by the European Union and
therefore the Group financial statements comply with Article 4 of the EU IAS
Regulation. The disclosures required by IFRS 1 concerning the transition from UK
GAAP to IFRS are given in Note 11. The principal accounting policies under IFRS
are summarised below.
Basis of consolidation
The consolidated financial statements incorporate the results of the Company and
entities controlled by the Company (its subsidiaries) for each period reported.
Control is achieved where the Company has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits from its
activities.
Minority interests in the net assets of consolidated subsidiaries are identified
separately from the Group's equity therein and stated at the minority's
proportion of fair value of assets and liabilities recognised. Losses
applicable to the minority in excess of the minority's interest in the
subsidiary's equity are allocated against the interests of the Group except to
the extent that the minority has a binding obligation and is able to make
additional investment to cover the losses.
The results of subsidiaries acquired or disposed of in the year are included in
the consolidated income statement from the effective date of acquisition or up
to the effective date of disposal, as appropriate.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
The results of joint venture undertakings are accounted for on an equity basis
where the Group exercises joint control under a contractual agreement. Where
the Group transacts with its jointly controlled entities, unrealised profits and
losses are eliminated to the extent of the Group's interest in the joint
venture.
Business combination
Under IFRS 3 Business Combinations, the insertion of Clipper Windpower Plc as
the holding company on 14 September 2005 was accounted for as a reverse
acquisition, whereby Clipper Windpower, Inc. (being the previous Group holding
company), the legal subsidiary, acquired Clipper Windpower Plc, the legal parent
company.
First time adoption of IFRS
The Group's date of transition to IFRS is 1 January 2006 and all comparative
information in the interim financial statements has been restated to reflect the
Group's adoption of IFRS, except where otherwise required or permitted by
International Financial Reporting Standard 1- First Time Adoption of
International Financial Reporting Standards ('IFRS 1').
Upon transition to IFRS, the Group has taken advantage of the exemption
contained within IFRS 1 to apply IFRS 2 Share-based Payment to equity
instruments issued after 7 November 2002 that were unvested at 1 January 2005.
Reconciliations showing the impact of IFRS adoption on the Group's equity, net
income and cash flows are included in Note 11.
Revenue
Revenue is measured at the fair value of the consideration received or
receivable, net of value-added tax, rebates and discounts and after eliminating
sales within the Group. Turbine revenue is recognised when the turbines have
been commissioned or contractual obligations are considered complete such that
the Group has transferred the risks and rewards of ownership, the Group does not
retain managerial involvement at the level of an owner, the amount of revenue
and costs can be measured reliably and it is probable that the Group will
receive the economic benefits.
Turbine sales typically include a two year warranty period. Consideration
received and estimated costs for the warranty for these years is recognised at
the date of turbine commissioning. The Group offers extended warranties on
separate contracts and they are only taken up in some instances. Revenue and
related costs for extended warranties beyond two years are recognised ratably
over the applicable extension period; where estimated extended warranty costs
exceed expected contract revenues, the excess is immediately recognised as
expense.
The Group also offers operations and maintenance contracts on the wind turbines
and, as these are separate contracts and are only taken up in some instances,
revenue is recognised ratably over the applicable contract period.
Interest income is accrued on a time basis, by reference to the principal
outstanding and using the effective interest rate applicable.
Construction contracts
Where the outcome of a construction contract can be estimated reliably, revenue
and costs are recognised by reference to the stage of completion of the contract
activity at the balance sheet date. This is normally by the proportion that
contract costs for work performed to date bear to the estimated total contract
costs, except where this would not be representative of the stage of completion.
Where the outcome of a construction contract cannot be estimated reliably,
contract revenue is recognised to the extent of contract costs incurred where it
is probable they will be recoverable. Contract costs are recognised as expenses
in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract
revenue, the expected loss is recognised as an expense immediately.
Share based payments
The Company issues equity-settled, share-based payments to certain employees and
non-employees. Equity-settled, share-based payments are measured at fair value
(excluding the effect of non market-based vesting conditions) at the date of
grant. The fair value determined at the grant date of the equity-settled,
share-based payments is expensed on a ratable basis over the vesting period,
based on the Company's estimate of shares that will eventually vest and adjusted
for the effect of non market-based vesting conditions. Share-based payments to
non-employees are re-measured at each balance sheet date.
Fair value is measured by use of the Black-Scholes option pricing model. The
expected life used in the model is adjusted, based on management's best
estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations including expected forfeiture rate. Expected
volatility is based upon historical volatility of the Company's stock since the
date of its listing on the AIM market. The Company has not paid dividends in
the past and does not currently plan to pay dividends in the near future. The
risk free interest rate is based on the UK treasury yield.
The principal assumptions incorporated into the Black-Scholes option pricing
model are as follows:
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December 2006
Risk free interest rate 5.4% 4.6% 4.7%
Dividend yield 0.0% 0.0% 0.0%
Expected life (in years) 4.1 5.8 6
Forfeitures 6.0% 6.0% 6.0%
Research and development
Expenditure on research activities is recognised as an expense in the period in
which it is incurred. Development expenditure is capitalised when the criteria
of IAS 38 Intangible Assets are met. In such cases, the identifiable
expenditure is deferred and expensed over the period during which the Group is
expected to benefit. Provision is made for any impairment.
Inventory
Inventory is valued at the lower of cost or net realisable value. Cost includes
materials, direct labour and those overheads that have been incurred in bringing
the inventories to their present location and condition. Net realisable value
is based on estimated selling price less all estimated costs expected to be
incurred to completion and costs to be incurred in marketing, selling and
distribution. Provision is made for any slow moving, obsolete or defective
inventory where appropriate.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation and any
provision for impairment. Assets in the course of construction are not
depreciated. Depreciation is provided on property, plant and equipment in use,
other than freehold land, at rates calculated to write off the cost or
valuation, less estimated residual value, of each asset on a straight-line,
reducing balance or unit of production basis over its expected useful life, as
follows:
Asset Life Method
Leasehold improvements term of the lease straight-line
Anemometry equipment 3 years straight-line
Molds & tooling 3 years unit of production
Office equipment and fixtures and fittings 3-5 years straight-line
Motor vehicles 5 years straight-line
Test turbine 20 years reducing balance
Residual value is calculated on prices prevailing at the date of acquisition.
The discounted cost of future decommissioning of the operating turbine is
included in the carrying value. Assets held under finance leases are
depreciated over their expected useful lives on the same basis as owned assets
or, where shorter, over the term of the relevant lease.
Intangible assets
Patents and trademarks are included at cost and depreciated in equal annual
installments over the shorter of the duration of the patent and its useful
economic life, being estimated at 20 years, and three years for trademarks,
being their estimated useful economic life. Provision is made for any
impairment.
Impairment of tangible and intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts of its tangible
and intangible assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent
(if any) of the impairment loss.
Financial instruments
Financial assets and liabilities are recognised on the Group's balance sheet
when the Group becomes a party to the contractual provisions of the instruments.
Trade receivables
Trade receivables are measured upon initial recognition at fair value. An
allowance is recognised in the income statement for irrecoverable amounts when
there is evidence that the asset is impaired. The allowance is calculated as
the difference between the carrying amount and the expected future cash flows
from the asset.
Investments
After initial recognition, investments which are classified as held for trading
or available for sale are measured at fair value. Gains or losses on
investments held for trading are recognised in income. Gains or losses on
available for sale investments are recognised as a separate component of equity
until the investment is sold, collected or otherwise disposed of, or until the
investment is determined to be impaired, at which time the cumulative gain or
loss previously reported in equity is included in income.
For investments that are actively traded in organised financial markets, fair
value is determined by reference to stock exchange quoted market bid prices at
the close of business on the balance sheet date. For investments where there is
no quoted market price, fair value is determined by reference to the current
market value of another instrument which is substantially the same or calculated
based on the expected cash flows of the underlying net asset base of the
investment.
Cash and cash equivalents
Cash and cash equivalents comprise cash at hand and other short-term liquid
investments which are readily convertible to known amounts of cash and are
subject to an insignificant risk of changes in value.
Financial liabilities and equity
Equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences
a residual interest in the assets of the Group after deducting all of its
liabilities.
Interest bearing loans and borrowings
Interest bearing bank loans and overdrafts are initially measured at proceeds
received, net of direct issue costs. Foreign currency denominated bank loans
are restated at closing exchange rates with any movements going through the
income statement unless it is designated as a cash flow hedge. Any differences
between the proceeds and the settlement/redemption of the borrowings are
measured and recognised over the life of the instrument.
Trade payables
Trade payables are initially measured at fair value and subsequently measured at
amortised cost, using the effective interest rate method.
Provisions
Provisions are recognised when the Group has a present obligation as a result of
a past event and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the directors' best estimate of the
expenditure required to settle the obligation at the balance sheet date and are
discounted to present value where the effect is material.
Leases
Assets held under finance leases and other similar contracts, which confer
rights and obligations similar to those attached to owned assets, are
capitalised as property, plant and equipment and are depreciated over their
useful lives. The capital elements of future lease obligations are recorded as
liabilities, while the interest elements are charged to the profit and loss
account over the period of the leases to produce a constant rate of charge on
the balance of capital repayments outstanding.
Rentals under operating leases are charged on a straight line basis over the
lease term, even if the payments are not made on such a basis. Benefits
received and receivable as an incentive to sign an operating lease are similarly
spread on a straight line basis over the lease term, except where the period to
the review date on which the rent is first expected to be adjusted to the
prevailing market rate is shorter than the full lease term, in which case the
shorter period is used.
Foreign currency
The functional currency of the Group is the US dollar as the majority of its
costs and revenues are denominated in US dollars. Transactions in currencies
other than US dollars are recorded at the rate of exchange at the date of the
transaction. Monetary assets and liabilities in currencies other than US
dollars at the balance sheet date are reported at the rates of exchange
prevailing at that date.
Exchange differences arising on the settlement of monetary items and on the
translation of monetary items are included in profit or loss for the period.
For the purpose of presenting consolidated financial statements, the assets and
liabilities of the Group's foreign operations are expressed in US dollars using
exchange rates prevailing at the balance sheet date. Income and expense items
are translated at the average exchange rates for the period, unless exchange
rates fluctuated significantly during that period, in which case the exchange
rates at the dates of the transactions are used. Exchange differences arising,
if any, are classified as equity and transferred to the Group's translation
reserve. Such exchange differences are recognised in profit or loss in the
period in which the foreign operation is disposed of.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on the taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred income tax is recognised on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such
assets and liabilities are not recognised if the temporary differences arise
from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary differences and it is probable that the temporary differences will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the assets to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
addressed in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
Defined contribution pension scheme
The Group operates a defined contribution pension scheme. Employer
contributions are charged to the income statement account as they become payable
in accordance with the rules of the scheme. The assets of the scheme are held
separately from those of the Group.
3. Segment information
The following is an analysis of the Group's revenue and results by operating
segment for the periods under review. Wind project development includes
activities associated with developing wind energy facilities including
engineering, construction, project financing, project asset management and
ownership. This segment includes revenue, net loss, assets and liabilities
related to the Group's turnkey construction project (40 turbines). Turbine
technology and manufacturing includes designing, engineering, manufacturing and
the sale and servicing of wind turbines.
Revenue Net Loss
Six months Six months Year Six months Six months Year
ended ended ended ended ended ended
30 June 2007 30 June 2006 31 December 30 June 2007 30 June 2006 31 December
2006 2006
$'000s $'000s $'000s $'000s $'000s $'000s
Continuing operations
Wind project
development 35 7,083 7,160 (34,050) 1,821 13,157
Turbine technology
and manufacturing 20,340 42 104 (34,852) (7,205) (19,589)
Corporate - - - (9,140) (5,651) (13,890)
Total 20,375 7,125 7,264 (78,042) (11,035) (20,322)
All of the segment revenue reported above is from external customers located in
North America. One customer accounted for 99.8% of revenue for the six months
ended 30 June 2007. A different customer accounted for 96.1% of revenue for the
six months ended 30 June 2006 and the year ended 31 December 2006. The following
is an analysis of the Group's assets and liabilities by operating segment:
Assets Liabilities
30 June 2007 31 December 2006 30 June 2007 31 December 2006
$'000s $'000s $'000s $'000s
Continuing operations
Wind project development 133,379 55,575 (12,821) (5,108)
Turbine technology and
manufacturing 235,211 146,594 (352,132) (216,930)
Corporate 129,749 226,391 (6,373) (4,794)
Total 498,339 428,560 (371,326) (226,832)
Segment assets consist primarily of operating and invested cash, inventories,
property, plant and equipment, intangible assets and investments at fair value.
Segment liabilities consist largely of payments in advance received for future
turbine deliveries.
4. Operating loss
The operating loss is stated after charging the following non-recurring items to
Cost of Sales:
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December 2006
$'000s $'000s $'000s
Provision for loss making contracts 22,972 - -
Provision for drive train remediation 14,956 - -
Provision for high speed pinion cartridges 2,897 - -
Total 40,825 - -
The provision for loss making contracts primarily relates to cost overruns on
the Group's turnkey construction project (40 turbines) and one other
construction-related sale contract (20 turbines). The losses were mainly due to
construction delays, initial production and procurement inefficiencies and
legacy sale pricing. The provision for drivetrain remediation relates to costs
expected to be incurred to test, remediate and replace, as needed, gearsets due
to supplier quality deficiencies and excludes potential recoveries from the
supplier as these are not sufficiently certain to allow recognition under IAS
37. The provision for high speed pinion cartridges relates to a component
quality upgrade which necessitated the replacement of turbine components.
5. Loss per share
The calculation of the basic and diluted loss per share is based on the
following data:
($'000s except share amounts) 30 June 2007 30 June 2006 31 December 2006
Loss
Loss for the purpose of basic and diluted loss per share (78,042) (11,035) (20,322)
Number of shares
Weighted average number of ordinary shares for the purpose
of basic and diluted loss per share 107,256,694 95,838,410 98,640,635
Basic and diluted loss per share $ ( 0.73) $ (0.12) $ (0.21)
Unexercised stock options and warrants to purchase 13,956,888 shares, 6,130,129
shares and 14,388,727 shares for the six months ended 30 June 2007 and 30 June
2006 and the year ended 31 December 2006, respectively, were not included in the
computation of basic and diluted EPS because the exercise of the options and
warrants would be antidilutive.
6. Inventories
30 June 2007 30 June 2006 31 December 2006
$'000s $'000s $'000s
Material and components 150,495 21,057 95,802
Development projects held for sale 120,045 12,635 31,395
Total 270,540 33,692 127,197
The provision for obsolete material and component inventory was $3.2 million at
30 June 2007 (six months ended 30 June 2006: $0.7 million; year ended 31
December 2006: $2.1 million). There is no material difference between the
balance sheet value of inventories and its replacement cost.
7. Called up share capital
Company and Group
30 June 2007 30 June 2006 31 December 2006
Authorised $'000s $'000s $'000s
150,000,000 ordinary shares of 10 pence each 27,392 27,392 27,392
50,000 redeemable preference shares of #1 each 91 91 91
Allotted, called up and fully paid
107,884,112 ordinary shares of 10 pence each (30 June
2006:95,966,805, 31 December 2006:106,873,944) 19,712 17,493 19,526
Issued share capital as at 30 June 2007 amounted to $19.7 million. During the
period ended 30 June 2007, the actual number of share options exercised was
1,010,168. The total consideration received from the exercise of these options
was $1.3 million (six months ended 30 June 2006: $0.1 million) of which $0.2
million was credited to share capital (six months ended 30 June 2006: $50
thousand) and the remaining $1.1 million (six months ended 30 June 2006: $83
thousand) was credited to share premium.
8. Reconciliation of Movements in Group Shareholders' Funds
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December 2006
$'000s $'000s $'000s
Loss for the financial period (78,042) (11,035) (20,322)
Exchange differences on foreign currency translation (54) 81 (20)
(78,096) (10,954) (20,342)
Par value of new shares issued 186 50 2,083
Share premium arising
1,112 83 84,680
Cost of shares issued - - (1,274)
Share options and warrants issued 2,083 690 12,399
Cost of warrants issued - - (494)
Tax on warrants issued - - (307)
Available for sale asset marked to fair value - - 3,037
Net (deduction from) addition to shareholders' funds (74,715) (10,131) 79,782
Opening shareholders' funds 201,728 121,946 121,946
Closing shareholders' funds 127,013 111,815 201,728
9. Contingencies
Contingent asset
In 2006, the Group sold a 50% membership interest in four project limited
liability companies ("LLCs") and an 85% membership interest in one project LLC.
In the event certain notice-to-proceed conditions in the contracts are
satisfied, the Group will receive additional contingent purchase price
consideration for the project companies up to a maximum of $33.3 million for the
first four project companies with payments on the fifth based on the final
generation capacity of the site. During the period, no additional contingent
purchase price consideration was received.
Contingent liability
In 2004, a former employee initiated litigation alleging various monetary claims
related to breach of an employment agreement and entitlement to 875,000 ordinary
shares of Clipper Windpower Plc at a purchase price of $0.25 per share. The
market price of the shares at 30 June 2007 was # 8.47 or US$16.97. (30 June
2006: US$5.45; 31 December 2006: US$ 11.66). During the period, the Company was
notified that a judgement was entered in favour of the plaintiff. The Company
has filed an appeal and has been advised by counsel that it is more likely than
not that the Company will prevail.
In 2006, the Group sold part of its investment in five subsidiary undertakings.
It has retained an interest, either as a joint venture partner or investor in
each of these wind farm development projects. Each project was sold on the
basis that on completion, it would achieve a contractually-agreed capacity. If
one of the Group's projects has a lower capacity upon completion than that
anticipated at commencement, or falls short of other contractually-agreed
commitments, the Group is required to transfer a new project in its place or,
failing that, the Group is responsible for reimbursing its joint venture partner
for any amounts paid plus interest at 2% up to a maximum of $4 million. The
Directors consider it remote that any payments will arise under this arrangement
and, accordingly, have recognised revenue based on their view of the probable
outcome of this transaction.
The Group has signed turbine supply agreements with customers that require the
Group to make payments to the buyers in the event the Group is unable to meet
certain conditions of the contracts relating to delivery, commissioning and
assembly dates in the ordinary course of business. The specific terms vary by
contract but, in general, the maximum potential future payments under the
guarantees are subject to daily and overall project limits. Such costs are
accrued once the agreed delivery date expires, as time passes and in accordance
with contractual terms.
10. Events after the balance sheet date
On 6 September 2007, the Group announced the signing of a binding term sheet
with Hemeretik S.L., the Spanish construction and real estate group. Clipper
and Hemeretik will combine the renewable energy assets held by their
wholly-owned subsidiaries, Clipper Windpower Development Company and Helium
Energy, to form Clipper Capital and Generation ('CAPGEN'). CAPGEN, initially,
will be owned 72% by Clipper and 28% by Hemeretik. CAPGEN intends to raise
substantial capital through a sale of equity which is likely to dilute the
ownership interests of Clipper and Hemeretik.
11. Reconciliations of UK GAAP to IFRS
The adjustments to restate the results of the Group from UK GAAP to IFRS are
summarised below:
Reconciliation of Net equity under UK GAAP to Net equity under IFRS
1 January 2006 30 June 2006 31 December 2006
$'000s $'000s $'000s
Net equity under UK GAAP 121,382 111,155 197,875
IAS 38: Intangible assets 272 346 407
IAS 31: Joint venture interests 292 314 409
IAS 39: Financial instruments-recognition and
measurement - - 3,037
Net equity reported under IFRS 121,946 111,815 201,728
Reconciliation of Net loss under UK GAAP to Net loss under IFRS
Six months ended Year ended
30 June 2006 31 December 2006
$'000s $'000s
Net loss under UK GAAP (11,132) (20,880)
IAS 38: Intangible assets 75 136
IAS 31: Joint venture
nterests 22 115
IAS 12: Income taxes - 307
Net loss under IFRS (11,035) (20,322)
In addition to the above, the Group has made certain reclassifications on the
income statement. Cost of Sales now includes the cost of manufacturing and
servicing wind turbines as well as costs associated with the construction of
wind projects. Project Development and Research and Development expenses have
been reclassified from Cost of Sales to separate expense categories below Gross
Profit to reflect the key operations of the business.
Reconciliation of the Group cash flow statement under UK GAAP to the Group cash
flow statement under IFRS for the six months ended 30 June 2006
Effect of
transition
UK GAAP to IFRS IFRS
$'000s $'000s $'000s
Cash flows from operating activities
Cash used in operations (36,599) 1,856 (34,743)
Interest paid (30) 30 -
Income tax paid - - -
Net cash used in operations (36,629) 1,886 (34,743)
Cash flows from investing activities
Purchase of PP&E (4,953) 56 (4,897)
Interest received 1,892 (1,892) -
Additions to intangible assets - (75) (75)
Net cash used in investing activities (3,061) (1,911) (4,972)
Cash flows from financing activities
Capital element of finance lease payments - (56) (56)
Issuance of stock 132 - 132
Net cash generated from financing activities 132 (56) 76
Net increase in cash and cash equivalents (39,558) (81) (39,639)
Cash and cash equivalents at beginning of
period 104,041 - 104,041
Exchange gains on cash and cash equivalents
- 81 81
Cash and cash equivalents at end of period 64,483 - 64,483
IAS 38: Intangible assets
In order to capitalise the legal expense and filing costs for patents under
IFRS, it must be probable that the future expected economic benefits
attributable to the asset will flow to the Group and that the cost of the asset
can be measured reliably. Under UK GAAP, expenditures must have a readily
ascertainable market value. The threshold for capitalisation is, therefore,
lower under IFRS and, as a result, previously expensed intangible costs have
been reinstated.
IAS 31: Interests in joint ventures
Under UK GAAP, the Group recognised its share of a joint venture's net
liabilities on the gross equity basis. The Group considers that it has no
further obligations to provide investment into its Mexican joint venture,
except at its discretion and accordingly, under IFRS, no longer recognises its
share of the liabilities arising where it has no obligation to meet those
liabilities. Therefore, upon conversion to IFRS, losses that were previously
recognised in relation to Fuerza Eolica were derecognised.
IAS 39: Financial instruments; recognition and measurement
Under UK GAAP, investments held by the Group were recognised at cost, adjusted
through provision for any impairment. IAS 39 Financial instruments; recognition
and measurement requires investments to be treated as financial assets,
classified into one of four categories and measured accordingly. Those
financial assets classified as available for sale, are required to be recognised
at fair value with any gains or losses recorded in equity. The Group's 15%
interest in Silver Star I Power Partners LLC was therefore carried at cost under
UK GAAP but has been revalued under IFRS in order to reflect the fair value of
the shares held.
IAS 12: Income taxes
Under UK GAAP, current tax should be recognised in the profit and loss account
except to the extent that it is attributable to a gain or loss that is
recognised in the Statement of Total Recognised Gains and Losses. As a result,
in 2006, the current tax charge arising in respect of a warrant over the shares
of the Group was recognised in the profit and loss account in 2006. IAS 12
requires current tax to be charged directly to equity if the tax relates to
items that are credited directly to equity. Accordingly, a reclassification has
been made to recognise the current tax charge directly in equity under IFRS.
IAS 7: Cash Flow Statements
The capitalisation of patent costs and derecognition of joint venture losses
under IFRS have led to differences in cash flows from operations and investing
activities. Funds spent on development projects held for sale are classified as
inventory under IFRS. The principal payments under capital leases are
classified as a financing cash flow under IFRS.
Independent Review Report to Clipper Windpower Plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprises the income statement, the
balance sheet, the cash flow statement, the statement of changes in equity and
related notes 1 to 11. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the company, in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are also responsible for ensuring that the accounting policies and presentation
applied to the interim figures are consistent with those applied in preparing
the preceding annual accounts except where any changes, and the reasons for
them, are disclosed.
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with International Financial Reporting Standards as
adopted for use in the EU. Accordingly, the interim report has been prepared in
accordance with European Law, the AIM rules for Companies of the London Stock
Exchange and the requirements of International Financial Reporting Standard 1, "
First Time Adoption of International Financial Reporting Standards" relevant to
interim reports.
First-time adoption of International Financial Reporting Standards
As disclosed in note 1, the annual financial statements of the company are
prepared in accordance with IFRSs as adopted by the European Union.
Accordingly, the interim report has been prepared in accordance with the
recognition and measurement criteria of IFRS and the disclosure requirements of
the Listing Rules that would be applicable if the company were admitted to the
Official List
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.
Deloitte & Touche LLP
Chartered Accountants London
26 September 2007
This information is provided by RNS
The company news service from the London Stock Exchange
END
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