TIDMLEAF
RNS Number : 0176S
Leaf Clean Energy Company
18 September 2014
18 September 2014
The headline for the Leaf Clean Energy announcement released at
7 am under RNS Number 9683R should read Final Results.
The announcement text is unchanged and is reproduced in full
below.
Leaf Clean Energy Company
Results for the period ended 30 June 2014
The board of Leaf Clean Energy Company ("Leaf") announces the
Leaf Group's results for the period ended 30 June 2014.
Significant updates for the period are:
-- NAV per share for the Leaf Group was 89.90 cents or 52.57
pence at US$1.7103 to the GBP1 (30 June 2013: 142.66 cents).
-- US$63.4 million loss on revaluation in the carrying value of the portfolio companies.
-- On 31 July 2014 Leaf made a US$1.25 million investment in
preferred equity of Lehigh Technologies, Inc.
-- Leaf made an additional US$13.5 million of direct equity and
debt investments in existing portfolio businesses;
For further information, please contact:
Mark Lerdal +1 (415) 264 5096
Leaf Clean Energy Company
Ivonne Cantu +44 (0) 207 397 8980
Cenkos Securities plc
Chairman's statement
2014 has been a year of transition for Leaf Clean Energy Company
("Leaf") and its subsidiaries (together, the "Leaf Group"). In
April I was elected Chairman of Leaf. Mr. Stephen Coe and Mr. James
Potochny also joined the board in April and May, respectively. On
July 1, 2014, at an extraordinary general meeting (EGM) of Leaf's
shareholders, the investment policy of the Leaf Group was changed
to the orderly realisation of Leaf's investments and the return of
capital to the shareholders, with no predetermined timeframe and in
a manner that produces optimum realisation value to the
shareholders. Prior to, and during the transition to the new
investment policy, the board and management have continued to focus
on enhancing the value of the portfolio of companies and assisting
investees in reaching critical business milestones.
We believe that several companies in our portfolio are well
positioned for eventual realisation at optimal valuations.
Unfortunately, however, certain other investee operations in the
portfolio have not performed to forecasts or expectations and we do
not expect sales of these investments to result in material capital
returns to Leaf's shareholders. The timescale and other details of
the new investment policy are discussed below, under Operations and
in the Management Report.
Financial
These consolidated financial statements were approved by the
Leaf Board of Directors on 17 September 2014. During the year ended
30 June 2014, the Leaf Group's net asset value (NAV) per share
decreased by 37% from 142.66 cents (93.80 pence) to 89.90 cents
(52.57 pence). Of our US$115.7 million of net assets, US$12.1
million was held in cash and US$103.3 million is invested in
portfolio companies. The board believes that the cash balances
provide sufficient liquidity to meet the needs of the portfolio and
operations for the remaining life of the fund.
NAV per share fell by 51.37 cents (32.67 pence) to 89.90 cents
(52.57 pence) from the 31 December 2013 figure of 141.27 cents
(85.24 pence). The majority of this decrease has resulted from a
revaluation of the portfolio performed by the board and management
to reflect the operating performance of investee companies and our
realisation strategy. In addition administration expenses of US$2.6
million (6 months to 30 June 2013: US$2.5 million) have impacted on
NAV by 1.95 cents (1.16 pence) per share. The fall in NAV and write
off of certain investments are disappointing but reflect the
board's view as to current values.
Following a thorough board review, budgeted costs for the 12
months to 30 June 2015 are US$3.1 million (excluding staff
incentive payments). Actual costs for the 12 months to 30 June 2014
were US$5.4 million. The board also modified the compensation of
the Leaf staff, from 1 July 2014 to tie bonuses directly to cash
returned to the shareholders to ensure that the timing and amount
of incentive pay are aligned with the new strategy.
Portfolio Overview
As outlined and approved by the shareholders at the EGM, Leaf
will continue to make judicious additional investments in its
existing portfolio as appropriate in order to support these
investments to achieve optimum realisation value for the
shareholders. Leaf made US$13.5 million of additional investments
in its existing portfolio companies during the year, including
US$3.3 million in the fourth quarter ended 30 June 2014, and has
invested an additional US$1.6 million since 1 July 2014.
Energía Escalona, a hydroelectricity development company in
Mexico is in the process of securing financing to construct a 14.5
megawatt hydroelectric facility in Veracruz. In addition, the
Mexican electricity sector is undergoing a landmark reform process
that will open the market to additional private generators and will
create financial incentives for clean energy producers, which are
expected to be finalised in 2015. Leaf plans to review its options
and opportunities in the Mexican hydroelectric sector upon
completion of this financing and the ongoing reforms.
Johnstown Regional Energy, LLC, a landfill gas reclamation
company, completed its multi-year operations and financial
enhancement plans over the past year. Subsequently, the company
launched a targeted effort to monetise the enhanced assets during
the summer of 2014, with the sale process currently under way.
SkyFuel, Inc., the solar thermal power technology company, has
completed equipment delivery, on time and on budget, for two new
projects. Additionally, SkyFuel developed and launched the next
generation of its SkyTrough technology. It is currently in
negotiations with a buyer and due diligence by the potential
acquirer is well underway.
Lehigh Technologies, Inc., the green materials company and
newest Leaf investment, expanded its global presence in the tire,
industrial rubber, and plastics industries by establishing
marketing and distribution channel partnerships in Europe and South
America. Importantly, on 31 July 2014, JSR Corporation made a
strategic investment in Lehigh to further expand Lehigh's global
presence. JSR is a global chemical company and one of the leading
rubber chemical companies in Asia. As part of this investment
round, existing investors made follow-on investments of which Leaf
made a follow on investment of $1.25 million in the equity
financing.
Invenergy Wind LLC, North America's largest independently owned
wind power generation company, closed a significant equity
investment from the institutional fund manager Caisse de Depot et
Placement du Quebec ("CDPQ"). Invenergy continues to execute on its
capacity expansion plans across its core markets. Leaf is currently
evaluating options for monetising its investment in this
well-performing asset.
Vital Renewable Energy Company (VREC), the owner of an ethanol
plant and sugar factory in Brazil has operated during the 2014
crushing season according to plan. It expects to complete a
significant two-stage capacity expansion program in time for the
2015 and 2016 crushing seasons.
MaxWest Environmental Systems, Inc., a supplier of wastewater
biogasification systems, was unable to attract third party
financing to fund operational improvements at its existing plant
and commercialise its technology. The company has therefore filed
for bankruptcy protection under Chapter 7 of the United States
Bankruptcy Code. Leaf, which has a 44% interest in MaxWest, has
written off this investment.
Multitrade Rabun Gap, operator of a wood-fuelled biomass
facility in Georgia, U.S.,has experienced continued operational
issues for several months. After a thorough review of its physical
plant, Leaf management determined that the project required a
significant investment in capital improvements to improve the
electricity output. Leaf has declined to make such an investment,
preferring to rely on a new owner to implement this improvement
strategy. This project is not expected to result in any material
return of capital to Leaf's shareholders.
Multitrade Telogia, operator of a wood-fuelled biomass facility
in Florida, encountered forced outages and unexpectedly higher than
projected fuel costs over the past year, resulting in diminished
financial performance versus the prior year. A purchaser has
executed a purchase and sale agreement for the plant. However, the
agreement includes several contingent events that must take place
for the purchaser to be fully obligated. The proceeds from the sale
to Leaf and the other investors in Multitrade Telogia will be up to
US$2.5 million.
Operations
The Leaf Group's new investment policy directs the board to an
orderly realisation of the portfolio, which will occur in
timeframes appropriate for each asset.
While the board is committed to realising its investments as
soon as reasonably practicable, it is in the interest of maximising
return to shareholders to continually evaluate Leaf's portfolio in
order to assess the most appropriate strategy and timeline for each
investment.
In addition, as with all private equity investments, Leaf's
investments are illiquid and cannot be realised without the
assistance of the underlying portfolio company and/or other
shareholders. Therefore, there is no set timeline for realising
Leaf's investments and it is difficult to precisely predict when
the work of the Leaf Board and management will be complete.
However, it will likely take several years to realise all of the
investments.
Finally, I would like to take this opportunity to thank the
members of our high-calibre Leaf management team for their
continued efforts and dedication during this transitional time.
Mark Lerdal
Chairman
17 September 2014
Management report
Overview
The six-months ended 30 June 2014 was a period of transition for
the investment strategy of Leaf. Several portfolio companies
performed well, while others experienced challenges. Throughout the
period, the management team remained focused on maximising value of
existing investments.
At an extraordinary general meeting (EGM) held on 1 July 2014,
Leaf's shareholders voted to accept the board's proposed resolution
to change the Leaf Group's investment strategy to an orderly
realisation and return of capital to the shareholders, which will
occur on an asset-by-asset basis in timeframes appropriate for each
asset. Key elements of the new strategy, disclosed in the EGM
circular to shareholders in advance of the meeting are:
-- Orderly and expedient realisation: The investments are to be
realised in an orderly and expedient manner, at the Leaf Board's
discretion. The board will balance the goal of returning capital
expediently to investors with the goal of maximising the
realisation value of the investments.
In executing this aspect of the new strategy, Leaf will take a
flexible approach that appropriately balances timing of any
monetisation while still maximising value for shareholders. This
means that some investments may be considered appropriate for sale
in the short term, while others may be held for a longer period, as
required by circumstances and market conditions.
-- No new investments into new companies: Leaf will not invest
in any new portfolio companies, but will make judicious additional
investments in existing portfolio companies where required to
preserve or enhance the realisation value of these investments.
-- Timing of realisations and redemptions is unpredictable:
Leaf's holdings are all in the debt and equity of unlisted
companies. Therefore, realisations of these investments require the
cooperation of the investee companies and of other investors as
well as Leaf. In addition, the individual circumstances and market
conditions surrounding each investment must be taken into account,
affecting the timescale before which a particular investment can be
realised.
The result of this change in strategy will help to accelerate
the timing of cash distributions to shareholders. Any such cash
distributions, in the form of redemptions, resulting from each
realisation will depend on many factors, including Leaf Group's
working capital needs and the requirements of Cayman Island law
with respect to redemptions. As a result, Leaf will not announce a
redemption schedule.
In connection with the change of strategy, Leaf's board and
management have undertaken a thorough review of Leaf Group's costs.
Leaf's administrative expense budget for the twelve months to 30
June 2014 is US$3.1 million, while actual administrative expenses
for the year ended 30 June 2014 were US$5.4 million. This
favourable change reflects several actions taken by the board to
reduce the overall costs of the Leaf Group. The budget figure does
not include payment of incentive compensation to Leaf staff, due to
the uncertain timing and amount of such payments, and no amounts
have been accrued or otherwise reflected in the NAV per share.
As part of the review of operational costs, the board has
aligned the compensation plan for Leaf management with the new
strategy. Under a revised compensation plan, staff will only
receive incentive payments when cash is returned to the
shareholders. The revised compensation plan incorporated
third-party information to ensure consistency with market
practices, and results in a sliding scale of incentives. As an
example, if the Leaf Group returned cash to the shareholders equal
to Leaf Group's current net asset value ($115.7 million), total
incentive payments would equal US$2.6 million or 2.3% of the cash
returned.
Below is a summary of financial highlights across the Leaf
portfolio during the year ending 30 June 2014:
-- Leaf made an additional US$13.5 million of direct equity and
debt investments in existing portfolio businesses;
-- Leaf earned US$1.2 million of interest and dividend income
from debt and preferred equity investments in the portfolio
companies during the year; and
-- Leaf received cash payments of accrued and current interest
and repayments of principal on loans to its investee companies
totalling US$0.8 million and US$6.2 million respectively.
In addition, on 31 July 2014 Leaf invested $1.25 million in
Lehigh Technologies as part of a preferred equity financing led by
strategic investor JSR Corporation.
Financial performance
The Leaf Group's total net asset value ("NAV") on 30 June 2014
was US$115.7 million, US$67.9 million lower than on 30 June 2013.
This drop resulted entirely from a US$67.9 million comprehensive
loss for the year, caused by a US$63.4 million loss on revaluation
in the carrying value of the portfolio companies, US$5.4 million of
administration expenses, and US$0.2 million of taxation expense,
slightly offset by US$1.2 million of interest income on loans to
portfolio companies. At the end of the year, US$12.1 million of the
Leaf Group's NAV was held in cash and US$103.3 million in
investments.
The US$63 million loss on revaluation resulted from a
revaluation of the portfolio performed by the board and management
to reflect the operating performance of investee companies (see
below) and the new realisation strategy.
NAV per share for the Leaf Group was 89.90 cents or 52.57 pence
at US$1.7103 to the GBP1. This was a decrease of 37 per cent for
the year from 30 June 2013. The decrease was primarily due to the
unrealised loss on investments (-34.5%) and administration expense
(-3.1%), slightly offset by interest income on investments
(+0.6%).
Portfolio updates
Key performance milestones, as well as challenges, passed by
Leaf and its portfolio companies during the annual report period
included the following:
-- Energía Escalona (Escalona), the hydroelectric project
development company based in Mexico City, continued development of
its flagship hydroelectric development project and expects to close
financing and begin construction in the last calendar quarter of
2014. Importantly, the Mexican government passed sweeping
constitutional energy reforms that are expected to catalyse further
growth and investment in the country's power generation
markets.
-- Johnstown Regional Energy, LLC (JRE), a large landfill gas
reclamation company, received notice from the California Energy
Commission (CEC) in July 2013 that power produced by JRE's
customers using its green gas satisfies California's renewable
protocol standard. The California market provides an incentive for
green gas, which will partially offset the unfavourable impact on
JRE of lower natural gas prices triggered by shale gas
development.
-- SkyFuel, Inc., the solar thermal power technology company,
continued its commercial expansion. It has now completed three
commercial projects across several applications, including hybrid
plant and Integrated Solar Combined Cycle (ISCC) project, and a
fourth project has commenced construction. Most recently, the
company commissioned the first solar thermal desalination project
in North America.
-- Lehigh, the green materials company, continued its global
expansion with increased non-U.S. sales and significant overall
revenue growth. Highlights included making its first sales in the
European market, and continuing its growth in Japan and Korea. In
November and January, Lehigh added two independent directors to its
board: the former chief operating officer of Yokohama Tire
Corporation; and the former chief financial officer of Ashland Inc.
In April, Lehigh announced a partnership with Rheopave Technology
to combine Lehigh's proprietary technology with Rheopave's
suspension additives to provide a superior product for the asphalt
industry.
-- Invenergy Wind LLC (Invenergy), North America's largest
independently owned wind power generation company, commissioned
several new wind energy projects, increasing its installed capacity
by more than 500 megawatts. Invenergy has now developed and placed
into service more than 4,000 megawatts of wind generation capacity.
The company also completed over half a dozen new project financings
having previously raised over US$1 billion of project financings.
Additionally, Invenergy consummated a significant corporate equity
investment from institutional fund manager Caisse de Depot et
Placement du Quebec ("CDPQ").
-- Vital Renewable Energy Company (VREC), a developer of
sugar-cane-based ethanol facilities in Brazil, closed a US$31
million financing led by Darby Latin American Mezzanine Fund II,
L.P. VREC will use the proceeds, along with additional debt
financing from bank lenders to fund its agricultural and industrial
expansion plans, which include increasing its crushing capacity by
circa 50%. The company is on track to achieve a record 2014/2015
crushing season, and hit its key financial targets.
-- MaxWest Environmental Systems, Inc. (MaxWest), a supplier of
wastewater biogasification systems, was unable to attract third
party financing to fund operational improvements at its existing
plant and commercialise its technology. The company has therefore
filed for bankruptcy under Chapter 7 of the United States
Bankruptcy Code. As previously announced, Leaf wrote off this
investment, which had a $17.2 million impact on Leaf's results
since the 31 December 2013 interim report.
-- Multitrade Telogia, LLC (Telogia), owner of a wood-fuelled
biomass facility in Florida, followed an excellent year of
operations with a significantly degraded financial performance in
the year through June 2014. Frequent forced outages and
unexpectedly higher than projected fuel costs caused the change in
the company's fortunes.
Portfolio overview
A. Active investments - growth companies
SkyFuel Inc. ("SkyFuel") Concentrated solar power
Investment cost: US$39.2mm Ownership: Majority
------------------------------------------------------------- ---------------------------------------------------------------------
Company summary Recent developments
SkyFuel was founded in 2007
and is an emerging technology * Continued its commercial expansion, and has now
leader in the solar thermal completed three commercial projects across several
power equipment sector. different applications.
SkyFuel is one of the few remaining
stand-alone concentrated solar
power ("CSP") technology providers.
SkyFuel possesses proprietary * Introduced the next generation of its SkyTrough
and patented technologies which technology which expects to achieve a material
provide a meaningful cost advantage improvement and cost reduction over the current
over its competitors: generation.
* SkyTrough(R) - an advanced, low-cost, accurate
parabolic trough based on ReflecTech(R)
www.skyfuel.com/#/NEWS/
* ReflecTech(R) Mirror Film - a shatterproof glass
alternative.
Realisation update
SkyFuel is currently in negotiations
to be acquired and due-diligence
by the buyer is well underway.
www.skyfuel.com
------------------------------------------------------------- ---------------------------------------------------------------------
Lehigh Technologies, Inc. ("Lehigh") Green materials
Investment cost: US$5.0mm Ownership: Minority
------------------------------------------ -------------------------------------------------------------------
Company summary Recent developments
Lehigh is a leading sustainable
materials manufacturer whose * Booked first sales in the European market.
proprietary, cryogenic turbo
mill technology converts end-of-life
and post-industrial rubber material
into sustainable chemical additives * Added two independent directors to its board: the
used in a wide range of industrial former Chief Operating Officer of Yokohama Tire
and consumer applications. Corporation; and the former Chief Financial Officer
Lehigh's micronised rubber powder of Ashland Inc.
("MRP") products help customers
lower their consumption of oil-derived
and energy intensive materials,
cut costs, increase the sustainability * On July 31, 2014 Leaf invested an additional $1.25mm
profile of end products, and in Lehigh as part of a preferred equity financing led
deliver performance without sacrificing by strategic investor JSR Corporation.
the reliability offered by traditional
raw materials.
Lehigh is a high-growth company www.lehightechnologies.com/index.php/news_events/
with a disruptive technology
led by a top-tier management
team.
www.lehightechnologies.com
------------------------------------------ -------------------------------------------------------------------
B. Active investments - projects
Johnstown Regional Energy, LLC ("JRE") Landfill gas
Investment cost: US$35.5mm Ownership: Wholly owned
-------------------------------------------- ---------------------------------------------------------------------
Company summary Recent developments
JRE owns and operates three high-Btu
landfill gas-to-methane projects * Currently selling 100% of JRE's gas production to
in Pennsylvania. buyers in California.
JRE extracts raw landfill gas
that is subsequently cleaned
in advanced technology processing
plants and sold to utility gas * In July 2013, JRE's major customer in California
providers via connecting pipelines received CEC certification for JRE's green gas.
as an alternative to fossil-based
natural gas.
This high quality "green" gas
can displace the use of fossil-fuel-based
natural gas, making it eligible
for certain incentives in states
such as California.
Realisation update
This summer JRE launched a targeted
process to identify an acquirer
for the company, which is currently
under way.
-------------------------------------------- ---------------------------------------------------------------------
Multitrade Rabun Gap ("Rabun Gap") Wood-fuelled biomass
Investment cost: US$11.4mm Ownership: Majority
-------------------------------------- -------------------------------------------------------------------------
Company summary Recent developments
Rabun Gap is a 20 megawatt capacity
wood-fuelled biomass facility * After a thorough review of its physical plant, Leaf
in Georgia. management determined that the project required a
Rabun Gap utilises renewable significant investment in capital improvements to
fuel from the local forest industry improve the electricity output. Leaf declined to make
and sells power to a Georgia such an investment, preferring to find a new owner
co-operative under a long-term for the plant who would make the required investment
power purchase agreement. for these improvements.
Realisation update
Leaf and its co-investors are
currently considering several
offers to buy the plant. This
project is not expected to result
in any significant return of
capital to Leaf's shareholders.
-------------------------------------- -------------------------------------------------------------------------
Multitrade Telogia ("Telogia") Wood-fuelled biomass
Investment cost: US$7.3mm Ownership: Majority
------------------------------------------ ------------------------------------------------------------------------
Company summary Recent developments
Telogia is a 14 megawatt capacity
wood-fuelled biomass facility * Following an excellent year of operations, this year
in Telogia, Florida. Telogia experienced frequent forced outages and
Telogia utilises renewable fuel unexpectedly higher than projected fuel costs,
from the local forest industry resulting in diminished financial performance versus
and sells power to a local co-operative the prior year.
under a long-term power purchase
agreement.
Realisation update
A purchaser has executed a purchase
and sale agreement for the plant.
However, the agreement includes
several contingent events that
must take place for the purchaser
to be fully obligated. Reflecting
recent plant performance, the
proceeds from the sale to Leaf
and the other Telogia investors
will be up to $2.5 million.
------------------------------------------ ------------------------------------------------------------------------
Vital Renewable Energy Company ("VREC") Biofuels - ethanol
Investment cost: US$23.0mm Ownership: Minority
-------------------------------------------- ------------------------------------------------------------------
Company summary Recent developments
VREC is a renewable energy company
focused on the development of * Closed a US$31 million financing led by Darby Latin
sugar-cane-based ethanol facilities American Mezzanine Fund II, L.P.
and electricity generation in
Brazil, as well as related infrastructure
projects.
www.vrec.com.br * These proceeds, along with additional debt financing
from bank lenders will be used to fund VREC's
agricultural and industrial expansion plans, which
include increasing the crushing capacity of the Bom
Sucesso facility by 50%.
* Achieved a record 2013/2014 crushing season and hit
most of its key financial targets.
-------------------------------------------- ------------------------------------------------------------------
Energía Escalona ("Escalona") Hydro
Investment cost: US$10.1mm Ownership: Majority
-------------------------------------- ------------------------------------------------------------------------
Company summary Recent developments
Escalona is a hydroelectric project
development company based in * Over the past year, Mexico has passed sweeping
Mexico City. The company's flagship constitutional and legislative changes that will
development is a 14.5 megawatt reshape the energy in the country. The completion of
run-of-river hydroelectric facility these changes, which is anticipated in 2015, is
located in Veracruz, Mexico. expected to result in additional private
participation in the electricity sector and
implementation of an incentive system for clean
energy.
* Escalona successfully completed permits related to
the federal and municipal construction approvals as
well as certain associated permissions for
construction of roadways.
-------------------------------------- ------------------------------------------------------------------------
C. Passive investments
Invenergy Wind LLC ("Invenergy") Wind power
Investment cost: US$30.0mm Ownership: Minority
------------------------------------- -------------------------------------------------------------------
Company summary Recent developments
The largest independently-owned
wind energy developer in North * Completed project financings for its existing
America. Invenergy has now put Orangeville, Prairie Breeze, Gorzyce, Miami and Marsh
into service 45 wind farms in Hill wind energy projects.
the United States, Canada and
Europe, totalling over 4,000
megawatts.
In addition to its large portfolio * Commenced commercial operations at its Orangeville,
of operating assets, Invenergy Prairie Breeze, and Goldthwaite wind energy projects.
has a strong and diversified
pipeline of wind power projects
across North America and Europe.
Realisation update * Announced the sale of its 500 megawatt Highland
Leaf is currently reviewing its Energy wind project to MidAmerican Energy Company.
monetisation options for this
excellently performing investment.
www.invenergyllc.com
* Secured significant equity financing from
institutional fund manager Caisse de Depot et
Placement du Quebec ("CDPQ").
www.invenergyllc.com/news.html
------------------------------------- -------------------------------------------------------------------
17 September 2014
Report of the directors
The directors hereby submit their annual report of the audited
consolidated financial statements of the Leaf Group for the
financial year ended 30 June 2014.
The Company
Leaf was incorporated and registered in the Cayman Islands on 14
May 2007. Leaf was established to invest in clean energy projects,
predominantly in North America. Clean energy includes activities
such as the production of alternative fuels, renewable power
generation and the use of technologies to reduce the environmental
impact of traditional energy. The investments of Leaf will be
realised in an orderly and expedient manner, that is, with a view
to achieving a balance between: (i) returning cash to Shareholders
at such times and from time to time and in such manner as the Board
may (in its absolute discretion) determine; and (ii) maximising the
realisation value of Leaf's investments. In light of the
realisation strategy, there will be no specific investment
restrictions applicable to Leaf's portfolio going forward, except
that Leaf will not make any investment in a new portfolio
company.
Results and dividends
The results and financial position of the Leaf Group for the
year ended 30 June 2014 are set out in the attached consolidated
financial statements.
The directors do not intend to declare a dividend at this time
(2013: US$nil).
Directors and directors' interests
The directors during the year were:
Mark Lerdal (executive Appointed on 1 April
chairman) 2014
Stephen Coe (non-executive Appointed on 1 April
director) 2014
Peter O'Keefe (non-executive Appointed on 13
director) May 2014
James Potochny (executive Resigned on 10 April
director) 2014
Peter Tom (non-executive Resigned on 31 May
chairman) 2014
Bran Keogh (executive Resigned on 13 May
director) 2014
J. Curtis Moffatt (non-executive
director)
Details of interests
The interests of the directors in the share capital of Leaf as
at 30 June 2014 are set out below:
Name 2014 2013
Peter O'Keefe No. of ordinary No. of ordinary
shares shares
51,000 51,000
Notified shareholdings
As at the date of this report, the following interests in the
ordinary shares of Leaf of 3% and over of the issued share capital
had been notified to Leaf:
% of issued share
Name No. of shares capital
INVESCO Asset Management Limited 51,424,526 39.94%
Lansdowne Partners Limited 18,340,000 14.25%
Kames Capital 13,739,999 10.67%
Crystal Amber Advisers (UK) LLP 13,372,600 10.39%
Jupiter Asset Management Ltd. 9,100,000 7.07%
Woodford Investment Management LLP 7,575,474 5.88%
J.P. Morgan Chase 5,010,000 3.89%
BlueCrest Capital Management LLP 4,275,000 3.32%
Independent auditors
Our Auditors, KPMG, being eligible have expressed their
willingness to continue in office.
Corporate governance
The directors have taken measures to ensure that the Leaf Group
complies with the UK Corporate Governance Code to the extent they
consider appropriate, taking into account the size of the Leaf
Group and nature of its business.
Board of directors
Leaf has an experienced board which is currently comprised of
four directors, Mark Lerdal is the executive chairman of the board,
James Potochny is an executive director and Stephen Coe and Peter
O'Keefe are non-executive directors.
Audit committee
An audit committee has been established to operate with effect
from Admission. The current audit committee is chaired by
non-executive director Stephen Coe. Mr. Coe qualified as a
Chartered Accountant with PriceWaterhouseCoopers in 1990. Mark
Lerdal, Leaf's executive chairman, and non-executive director Peter
O'Keefe are the other members of this committee. It meets whenever
there is business to discuss and at least twice each year. The
audit committee is responsible for ensuring that the financial
performance of Leaf Group is properly monitored, controlled and
reported on. It communicates with the auditors and reviews the
auditors' reports relating to accounts and internal control
systems.
Remuneration committee
Leaf has established a remuneration committee, comprising Mark
Lerdal and Peter O'Keefe. The remuneration committee meets at least
once a year and reviews the level of directors' fees and staff
remuneration.
Leaf takes all reasonable steps to ensure compliance by the
directors, the directors' families and any employees with the
provisions of the AIM Rules relating to dealings in securities of
Leaf and has adopted the Model Code under the FCA's Listing Rules
for this purpose.
Nomination committee
Leaf does not currently consider it necessary to establish a
nomination committee.
Internal control
There are inherent limitations in any system of internal control
and such a system can provide only reasonable, but not absolute,
assurances against material misstatement or loss. The Leaf Group
does not have its own internal audit function but places reliance
on compliance and other control functions of its service
providers.
Where necessary the board obtains specialist advice from
advisers.
On behalf of the board
Mark Lerdal
Chairman
17 September 2014
Statement of directors' responsibilities in respect of the
annual report and the financial statements
The directors are responsible for preparing the directors'
report and the consolidated financial statements in accordance with
applicable law and regulations. In addition, the directors have
elected to prepare the consolidated financial statements in
accordance with International Financial Reporting Standards.
The consolidated financial statements are required to give a
true and fair view of the state of affairs of the Leaf Group and
the profit or loss of the Leaf Group for that year.
In preparing these consolidated financial statements, the
directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
International Financial Reporting Standards; and
-- prepare the consolidated financial statements on the going
concern basis unless it is inappropriate to presume that the Leaf
Group will continue in business.
The directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Leaf Group's
transactions and disclose with reasonable accuracy at any time its
financial position. They have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets
of the Leaf Group and to prevent and detect fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on Leaf's
website. Legislation governing the preparation and dissemination of
consolidated financial statements may differ from one jurisdiction
to another.
Report of the independent auditors to the directors of Leaf
Clean Energy Company
We have audited the accompanying consolidated financial
statements of Leaf Clean Energy Company (the "Company") which
comprises the consolidated statement of financial position as of 30
June 2014, and the related consolidated statements of comprehensive
income, changes in equity, and cash flows for the year then ended,
and the related notes to the consolidated financial statements.
Management's Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards; this
includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of
consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors'
judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and
fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. Accordingly, we
express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements referred
to above present fairly in all material respects, the consolidated
financial position of the Company as of 30 June 2014, and its
consolidated financial performance and its consolidated cash flows
for the year then ended in accordance with International Financial
Reporting Standards.
KPMG
Chartered Accountants
PO Box 493
Century Yard, Cricket Square
Grand Cayman KYT-1105
Cayman Islands
17 September 2014
Consolidated statement of comprehensive income for the year
ended 30 June 2014
Note Year ended Year ended
30 June 2014 30 June 2013
US$'000 US$'000
Interest income on cash balances 7 47
Interest income on investments
at fair value through profit
or loss 1,160 777
Net (losses)/gains on investments
at fair value through profit
or loss 11.1 (63,387) 5,955
Net foreign exchange loss (12) (10)
------------------------------------------- ------ -------------- --------------
Gross portfolio return (62,232) 6,769
Administration expenses 7 (5,446) (5,172)
------------------------------------------- ------ -------------- --------------
(Loss)/gain before taxation (67,678) 1,597
Taxation (249) (129)
------------------------------------------- ------ -------------- --------------
Total (loss)/gain and total comprehensive
(loss)/income for the year (67,927) 1,468
=========================================== ====== ============== ==============
Basic and diluted (loss)/earnings
per share (cents) 9 (52.76) 1.14
=========================================== ====== ============== ==============
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated statement of financial position as at 30 June
2014
Note Year ended Year ended
30 June 2014 30 June 2013
US$'000 US$'000
Assets
Investments at fair value
through profit or loss 11.1 103,300 162,633
Property, plant and equipment 15 20
Total non-current assets 103,315 162,653
Trade and other receivables 13 884 887
Restricted cash 6,14 69 3,171
Cash and cash equivalents 14 12,002 17,824
Total current assets 12,955 21,882
Total assets 116,270 184,535
Equity
Share capital 16 28 28
Share premium 16 306,809 306,809
Retained losses (191,097) (123,170)
Total equity 115,740 183,667
Liabilities
Trade and other payables 15 530 868
Total current liabilities 530 868
Total liabilities 530 868
Total equity and liabilities 116,270 184,535
Net asset value per share
(cents) 5 89.90 142.66
The accompanying notes form an integral part of these
consolidated financial statements.
The consolidated financial statements were approved by the board
of directors on 17 September 2014 and signed on their behalf
by:
Mark Lerdal Stephen Coe
Executive Chairman Non-executive Director
Consolidatedstatement of changes in equity for the year ended 30
June 2014
Share Capital Share Premium Retained Losses Total Equity
US$'000 US$'000 US$'000 US$'000
Balance at 1 July 2012 28 306,809 (124,638) 182,199
Total comprehensive gain for the year - - 1,468 1,468
Balance at 30 June 2013 28 306,809 (123,170) 183,667
Balance at 1 July 2013 28 306,809 (123,170) 183,667
Total comprehensive loss for the year - - (67,927) (67,927)
Balance at 30 June 2014 28 306,809 (191,097) 115,740
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated statement of cash flows for the year ended 30 June
2014
Year ended Year ended
30 June 2014 30 June 2013
Note US$'000 US$'000
Cash flows from operating activities
Interest received on cash balances 7 54
Interest received on loans 389 570
Dividend income (preferred return) 441 -
Operating expenses paid (5,825) (5,311)
Income tax paid (199) (267)
---------------------------------------------------- -------------- --------------
Net cash used in operating activities (5,187) (4,954)
---------------------------------------------------- -------------- --------------
Cash flows from investing activities
Purchase of financial assets at fair
value through profit or loss (9,883) (21,492)
Repayment of capital by investee companies 6,160 3,548
Net purchases of property, plant and
equipment (2) (21)
Net cash used in by investing activities (3,725) (17,965)
---------------------------------------------------- -------------- --------------
Net decrease in cash and cash equivalents (8,912) (22,919)
Cash and cash equivalents at start of
the year 20,995 43,924
Effect of exchange rate fluctuations
on cash and cash equivalents (12) (10)
---------------------------------------------------- -------------- --------------
Cash and cash equivalents at end of
the year 12,071 20,995
---------------------------------------------------- -------------- --------------
Non-cash transactions(1) :
Interest received on loans 11.1 331 -
Purchase of financial assets at fair
value through profit and loss 11.1 (3,619) -
Repayment of capital by investee companies 11.1 3,288 -
(1) During the year Leaf received repayment of secured senior
convertible promissory notes in the form of new secured senior
convertible promissory notes and the issue of preferred equity,
totaling US$3.6 million, in accordance with the terms of the
notes.
The accompanying notes form an integral part of these
consolidated financial statements.
Reconciliation of total (loss)/gain and Year ended Year ended
total comprehensive (loss)/gain for the 30 June 2014 30 June 2013
year to net cash used in operating activities US$'000 US$'000
Total (loss)/gain and total comprehensive
gain/(loss) for the year (67,927) 1,468
Adjustments for:
Net loss/(gain) on investments at fair
value through profit or loss 63,387 (5,955)
Depreciation expense 10 18
Written off tax receivables (53) -
Non-cash interest received on loans (331) -
Net foreign exchange loss 12 10
Taxation 249 129
Operating loss before changes in working
capital (4,653) (4,330)
Movement in trade and other receivables 3 (270)
Movement in trade and other payables (338) (87)
Income taxes paid (199) (267)
Net cash used in operating activities (5,187) (4,954)
The accompanying notes form an integral part of these
consolidated financial statements.
Notes to the consolidated financial statements for the year
ended 30 June 2014
1. Leaf
Leaf was incorporated and registered in the Cayman Islands on 14
May 2007. Leaf was established to invest in clean energy projects,
predominantly in North America. Clean energy includes activities
such as the production of alternative fuels, renewable power
generation and the use of technologies to reduce the environmental
impact of traditional energy. The investments of Leaf will be
realised in an orderly and expedient manner, that is, with a view
to achieving a balance between: (i) returning cash to Shareholders
at such times and from time to time and in such manner as the Board
may (in its absolute discretion) determine; and (ii) maximising the
realisation value of Leaf's investments. In light of the
realisation strategy, there will be no specific investment
restrictions applicable to Leaf's portfolio going forward.
The Shares of Leaf were admitted to trading on the AIM market of
the London Stock Exchange ("AIM") on 28 June 2007 when dealings
also commenced.
Leaf's agents and the management team (all employees of Leaf's
subsidiary) perform all significant functions. Accordingly, Leaf
itself has no employees.
The consolidated financial statements as at and for the year
ended 30 June 2014 are for the Leaf Group. Refer to note 18.
The consolidated financial statements of the Leaf Group as at
and for the year ended 30 June 2014 are available upon request from
Leaf's registered office at PO Box 309, Ugland House, George Town,
Grand Cayman KY1-1104, Cayman Islands or at
www.leafcleanenergy.com.
2. Basis of preparation
2.1 Statement of compliance
The Leaf Group's consolidated financial statements have been
prepared in accordance with International Financial Reporting
Standards (IFRS). Except for the changes below, Leaf has
consistently applied the accounting policies as set out in note 3
to all periods presented.
Changes in accounting policies:
a. IFRS 13 Fair Value Measurement;
Fair value measurement
In accordance with the provisions of IFRS 13, the Leaf Group has
applied the new definition of fair value, as follows: fair value is
the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date in the principal or, in its
absence, the most advantageous market to which the Leaf Group has
access at that date. The fair value of a liability reflects its
non-performance risk.
This change had no significant impact on the measurements of the
Leaf Group's assets and liabilities, however the Leaf Group has
included new disclosures in the financial statements, which are
required under IFRS 13, refer to note 11.2.
These consolidated financial statements were approved by the
board of directors on 17 September 2014.
2.2 Basis of measurement
The consolidated financial statements have been prepared on the
historical cost basis except for the investments held at fair value
through profit and loss that are measured at fair value in the
consolidated statement of financial position.
2.3 Functional and presentation currency
The consolidated financial statements are presented in United
States Dollars ("US$"), which is the Leaf Group's functional
currency. All financial information presented in US$ has been
rounded to the nearest thousand, except when otherwise
indicated.
2.4 Use of estimates and judgements
The preparation of consolidated financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the year
in which the estimate is revised and in any future years
affected.
The most significant area requiring estimation and judgement by
the Directors is the valuation of unquoted investments, see note
11.
3. Significant accounting policies
Except for the changes explained in note 2, the accounting
policies set out below have been applied consistently to all years
presented in these consolidated financial statements.
3.1 Financial instruments
(i) Non-derivative financial assets
The Leaf Group classifies non-derivative financial assets into
the following categories: investments at fair value through profit
or loss and, loans and receivables.
The Leaf Group initially recognises loans and receivables on the
date that they are originated. All other financial assets
(including assets designated as at fair value through profit or
loss) are recognised initially on trade date, which is the date
that the Leaf Group becomes a party to the contractual provision of
the instrument.
The Leaf Group derecognises a financial asset when the
contractual rights to the cash flows from the instrument expire, or
the rights to receive the contractual cash flows are transferred in
a transaction in which substantially all the risks and rewards of
ownership of the financial asset are transferred. Any interest in
such transferred assets that is created or retained by the Leaf
Group is recognised as a separated asset or liability.
Financial assets and liabilities are offset and the net amount
presented in the consolidated statement of financial position when,
and only when, the Leaf Group has a legal right to offset the
amounts and intends either to settle on a net basis or to realise
and settle the liability simultaneously.
Investments held at fair value through profit or loss
The Leaf Group designates its investments, including equity,
loans and similar instruments, as at fair value through profit or
loss on initial recognition. Attributable transaction costs are
recognised in the consolidated statement of comprehensive income as
incurred. Gains and losses arising from changes in fair value of
investments, including foreign exchange movements, are recognised
in the consolidated statement of comprehensive income. Unquoted
investments are valued at fair value using recognised valuation
methodologies, based on the International Private Equity and
Venture Capital Guidelines, which reflect the price that would be
received to sell the asset or paid to transfer the liability in an
orderly transaction between market participants at the measurement
date.
Loans and receivables
Loans and receivables are financial assets with fixed or
determinable payments that are not quoted in an active market. Such
assets are recognised initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition,
loans and receivables are measured at amortised cost using the
effective interest method, less any impairment losses.
Loans and receivables comprise cash and cash equivalents and
trade and other receivables.
Cash and cash equivalents
Cash and cash equivalents consists of cash balances and call
deposits with maturities of one year or less from the acquisition
date that are subject to an insignificant risk of changes in value,
and are used by the Leaf Group in the management of its short-term
commitments.
(ii) Non-derivative financial liabilities
The Leaf Group classifies non-derivative financial liabilities
into the other financial liability category. Such financial
liabilities are recognised initially at fair value less any
directly attributable transaction costs. Subsequent to initial
recognition, these financial liabilities are measured at amortised
cost using the effective interest method.
The Leaf Group initially recognises debt securities issued and
subordinated liabilities on the date that they are originated. All
other financial liabilities (including liabilities designated as at
fair value through profit or loss) are recognised initially on
trade date, which is the date that the Leaf Group becomes a party
to the contractual provision of the instrument.
The Leaf Group removes a financial liability when the
contractual obligations are discharged, cancelled or expire.
Financial liabilities comprise trade and other payables.
Bank overdrafts that are repayable on demand and form an
integral part of the Leaf Group's cash management are included as a
component of cash and cash equivalents for the purpose of the
consolidated statement of cash flows.
3.2 Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.
Repurchase of share capital
When share capital recognised as equity is repurchased, the
amount of the consideration paid, which includes directly
attributable costs, net of any tax effects, is recognised as a
deduction from equity.
3.3 Revenue and expense recognition
Interest income is recognised on a time-proportionate basis
using the effective interest rate method.
Dividends receivable on equity and non-equity shares, which
carry significant equity rights, are recognised as revenue when the
shareholders' right to receive payment has been established,
normally ex-dividend date. When no ex-dividend date is available,
dividends receivable on or before the year end are treated as
revenue for the year. Provision is made for any dividends not
expected to be received.
Fixed returns on debt securities and loans are recognised on an
effective interest rate basis, which is the rate that exactly
discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount.
Expenses are accounted for on an accrual basis and are charged
to the consolidated statement of comprehensive income. This
includes expenses directly related to making an investment which is
held at fair value through profit or loss.
3.4 Foreign currency translation
Transactions in foreign currencies are translated to the
functional currency of the Leaf Group at exchange rates at the
dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate at
that date. Non-monetary assets and liabilities denominated in
foreign currencies that are measured at fair value are retranslated
to the functional currency at the exchange rate at the date that
the fair value was determined. Foreign currency differences arising
on retranslation are recognised in the consolidated statement of
comprehensive income.
3.5 Dividends payable
Dividends payable are recognised as a liability in the period in
which they are declared and approved.
3.6 Earnings per share
The Leaf Group presents basic and diluted earnings per share
(EPS) data for its ordinary shares. Basic EPS is calculated by
dividing the basic earnings attributable to ordinary shareholders
of Leaf by the weighted average number of ordinary shares
outstanding during the year, adjusted for own shares held. Diluted
EPS is determined by adjusting the basic earnings attributable to
ordinary shareholders and the weighted average number of ordinary
shares outstanding, adjusted for own shares held, for the effects
of all dilutive potential ordinary shares, which comprise
convertible notes and share options granted to employees.
3.7 Income tax expense
Cayman Islands taxation
Leaf received from the Governor-in-Cabinet of the Cayman
Islands, an undertaking that, for a period of 20 years from 5 June
2007 no laws of the Cayman Islands imposing any tax on profits,
income, gains or appreciation shall apply to Leaf and that no such
tax or any tax in the nature of estate duty or inheritance tax
shall be payable on the shares, debentures or other obligations of
Leaf. Under the current Cayman Islands law, no tax will be charged
on profits or gains of Leaf and dividends of Leaf would be payable
to Shareholders resident in or outside the Cayman Islands without
deduction of tax.
In June 2010, Leaf established a subsidiary, Leaf Clean Energy
USA, LLC in Washington, DC which provides asset advisory, portfolio
management and certain administrative services to Leaf and pays
applicable taxes in the United States.
3.8 Subsidiaries
Subsidiaries are investees controlled by Leaf. Leaf controls' an
investee if it is exposed to, 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.
The Leaf Board concluded that Leaf meets the definition of an
investment entity and measures investments in its subsidiaries at
fair value through profit or loss.
3.9 Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC
(International Financial Reporting Interpretations Committee) have
issued the following standards and interpretations with an
effective date after the date of these financial statements:
New/Revised International Financial European Union Effective date
Reporting Standards (IAS/IFRS) (accounting periods commencing on
or after)
------------------------------------ ------------------------------------
Annual Improvements to IFRSs Not yet endorsed
- 2011-2013 Cycle IASB effective date 1 July 2014
IFRS 9 Financial Instruments Not yet endorsed
IASB effective date 1 January 2018
The impact on the Leaf Group's financial statements is currently
being considered by the Leaf Board.
4. Financial risk management
The Leaf Group's investments expose it to a variety of financial
risks: market risk (including market price risk, foreign exchange
risk and interest rate risk), credit risk and liquidity risk.
Market price risk
The portfolio companies in which Leaf invests operate in sectors
that may be affected by the prevailing prices of electricity, oil,
natural gas and other commodities. As energy and fuels derived from
non-renewable sources become more expensive or scarce, renewable
energy and alternative fuels become more valuable. Conversely, if
non-renewable energy and fuels become more abundant or, for other
reasons become less expensive, the value of renewable or
alternative fuels may be negatively affected. As a result, the
performance of the project companies is likely to be dependent upon
prevailing prices for these commodities, which have been
historically, and may continue to be, volatile and subject to wide
variations for a variety of reasons beyond the control of the Leaf
Group. These factors include the level of consumer product demand,
weather conditions, governmental regulations in producing and
consuming countries, the price and availability of alternative
fuels, the supply of oil and natural gas, and overall geo-political
and economic conditions. Therefore, volatility of commodity prices
may adversely affect the value of the Leaf Group's investments.
Leaf does not have any material direct market price risk. Leaf
does not manage the market price risk of its investee companies
either, relying instead on the management of each investee company
to appropriately manage its own risks.
All of the Leaf Group's investments comprise interests in
companies which are not publicly traded or freely marketable. The
Leaf Group may also be restricted from selling certain securities
by contract or regulatory considerations. Such investments may
therefore be difficult to value or realise. Any such realisation
may involve significant time and expense.
The below table summarises the valuation methodologies and key
assumptions in deriving the aggregate fair value of the investments
of $103.3 million (2013: $162.6 million):
Significant inputs
Name of Investment Valuation methodology / assumptions
------------------------------------- ---------------------- -----------------------
Johnstown Regional Energy LLC Market value Proposed transaction
("JRE") terms
Invenergy Wind LLC ("Invenergy") Market value Choice of comparable
companies, publicly
available data
about transactions
and operating
results
SkyFuel Inc ("SkyFuel") Market value Proposed transaction
terms, forecast
cash flows discount
rate
Multitrade Rabun Gap, LLC ("MRG") Estimated recovery Estimated recovery
value value
MaxWest Environmental Systems, Estimated recovery Estimated recovery
Inc. ("MaxWest") value value
Vital Renewable Energy Company, Market value Choice of comparable
LLC ("VREC") companies, publicly
available data
about transactions
and operating
results
Multitrade Telogia, LLC ("MT") Market value Transaction terms,
discount rate
Energia Escalona s.r.l. ("Escalona") Market value Forecast cash
Income approach flows discount
rate
Lehigh Technologies Inc. ("Lehigh") Market value Transaction terms
------------------------------------- ---------------------- -----------------------
The below table summarises the valuation methodologies and key
assumptions in deriving the aggregate fair value of the investments
as at 30 June 2013.
Significant inputs
Name of Investment Valuation methodology / assumptions
------------------------------------- ---------------------- -----------------------
Johnstown Regional Energy LLC Income approach Forecast cash flows
("JRE") Discount rate
Invenergy Wind LLC ("Invenergy") Market value Choice of comparable
companies, publicly
available data
about transactions
and operating results
SkyFuel Inc ("SkyFuel") Income approach Forecast cash flows
Discount rate
Multitrade Rabun Gap, LLC ("MRG") Income approach Forecast cash flows
Discount rate
MaxWest Environmental Systems, Income approach Forecast cash flows
Inc. ("MaxWest") Discount rate
Vital Renewable Energy Company, Market value Choice of comparable
LLC ("VREC") companies, publicly
available data
about transactions
and operating results
Multitrade Telogia, LLC ("MT") Income approach Forecast cash flows
Discount rate
Energia Escalona s.r.l. ("Escalona") Market value Transaction terms
Lehigh Technologies Inc. ("Lehigh") Market value Transaction terms
------------------------------------- ---------------------- -----------------------
Foreign exchange risk
The Leaf Group was exposed to foreign exchange risk with regard
to transactions made in Sterling and balances held in Sterling.
An analysis of net assets by currency exposure as at 30 June
2014 is as follows:
Net Assets Net Assets
US$'000s US$'000s
30 June 2014 30 June 2013
------------ ------------- -------------
US Dollars 115,740 183,552
Sterling - 114
Euro - 1
------------ ------------- -------------
Total 115,740 183,667
------------ ------------- -------------
An appreciation of the Sterling against the US Dollar of 5%
would have decreased net assets by US$nil (2013: US$8,670). A
decrease of 5% would have an equal and opposite effect.
The Leaf Group's investments in VREC and Escalona are exposed to
the Brazilian Real and the Mexican Peso, respectively. VREC has
primary operations in Brazil with most of its costs (including
debt-related costs) and revenues denominated in Reals. The Escalona
hydroelectric project is being developed in Mexico, with current
and future costs (including debt-related costs) and future expected
revenues denominated in Pesos. The Leaf Group does not currently
take any measures to hedge against these exposures.
Interest rate risk
The Leaf Group has no borrowings. As interest rates earned on
the Leaf Group's cash balances are minimal, and interest earned on
its loans to the portfolio companies are small, there was no
material interest rate risk to the Leaf Group as at 30 June 2014
and 2013.
Credit risk
Credit risk is the risk that the counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Leaf Group.
The carrying amounts of financial assets, excluding equity
investments in portfolio companies, best represent the maximum
credit risk exposure at the reporting date. This relates also to
financial assets carried at amortised cost, as they have a short
term maturity.
At the reporting date, the Leaf Group's financial assets exposed
to credit risk amounted to the following:
30 June 30 June 2013
2014
US$'000 US$'000
------------------------------------------ --------------- ---------------
Investments at fair value through profit
or loss 68,576 64,462
Trade and other receivables 884 887
Cash and cash equivalents 12,071 20,995
Total 81,531 86,344
------------------------------------------ --------------- ---------------
The maximum exposure to credit risk is represented by the
carrying amount of each financial asset in the consolidated
statement of financial position. No impairment provisions have been
made as at the year end and no debtors were past their due
date.
Leaf's intermediary subsidiaries are equity investments of the
Leaf Group which would not usually be subject to credit risk.
However, the purpose of these subsidiaries is to hold the Leaf
Group's underlying investments in the investee companies. Portions
of the underlying investments are in the form of loans, convertible
notes or other instruments that are subject to credit risk, and
therefore the value attributable to such instruments is provided in
the credit risk table above.
Cash balances are held with P-1* financial institutions.
*- A Moody's rating of Prime-1 (P-1) means that the issuer has a
superior ability to repay short-term debt for the obligations.
Liquidity risk
Liquidity risk is the risk that the Leaf Group will not be able
to meet its financial obligations as they fall due. The Leaf
Group's approach to managing liquidity is to ensure, as far as
possible, that it will have sufficient liquidity to meet their
liabilities when they fall due, under both normal and stressed
conditions, without incurring unacceptable losses. The Leaf Group's
liquidity position is monitored by Leaf's board of directors.
Residual undiscounted contractual maturities of financial
liabilities:
30 June 2014 Less 1-3 3 months 1-5 Over No stated
than months to 1 year years 5 years maturity
1 month US$'000 US$'000 US$'000 US$'000 US$'000
US$'000
-------------------------- ----------- ----------- ------------- ----------- ----------- ------------
Financial liabilities
Trade and other payables (530) - - - - -
Total (530) - - - - -
---------------------------- ----------- ----------- ------------- ----------- ----------- ----------
30 June 2013 Less 1-3 3 months 1-5 years Over No stated
than months to 1 year US$'000 5 years maturity
1 month US$'000 US$'000 US$'000 US$'000
US$'000
-------------------------- --------- --------- ----------- ---------- --------- ----------
Financial liabilities
Trade and other payables (868) - - - - -
Total (868) - - - - -
-------------------------- --------- --------- ----------- ---------- --------- ----------
Fair values
All assets and liabilities at 30 June 2014 are considered to be
stated at fair value.
5. Net Asset Value per Share
The net asset value per share as at 30 June 2014 is 89.90 cents
based on net assets of US$115.7 million and 128,745,726 ordinary
shares in issue as at that date (2013: 142.66 cents based on net
assets of US$ 183.7 million and 128,745,726 ordinary shares).
6. Restricted cash
The restricted cash balance at 30 June 2014 consisted of
collateral deposits of US$39,000 and US$30,134 associated with the
corporate credit cards for Leaf Clean Energy Company and Leaf Clean
Energy USA, LLC held by HSBC Cayman and HSBC US, respectively.
7. Administration expenses
Year ended Year ended
30 June 30 June
2014 2013
US$'000 US$'000
Salaries and related costs 1,756 1,757
Legal and professional fees 1255 887
Directors' remuneration (note 8) 812 1,166
Travel and subsistence expenses 597 501
Administration fees 225 225
Rental fees 170 163
Audit fees 117 119
IT and communication fees 92 92
Directors' and officers' insurance expense 90 97
Other expenses 332 165
Total 5,446 5,172
============================================ =========== ===========
The Leaf Board has aligned the compensation plan for Leaf
management with Leaf's new investment strategy. Under the revised
compensation plan, staff will only receive incentive payments when
cash is returned to the shareholders. The revised compensation plan
includes a sliding scale of incentives. As an example, if the Leaf
Group returned cash to the shareholders equal to the Leaf Group's
current net asset value ($115.7 million), total incentive payments
would equal US$2.6 million or 2.3% of the cash returned. Due to the
uncertain timing and amount of such payments, Leaf considers this
to be a contingent liability and no amounts have been accrued or
otherwise reflected in the NAV per share.
8. Directors' remuneration
Details of the directors' basic annual remuneration are as
follows:
Basic annual remuneration
US$'000
Mark Lerdal (executive chairman) appointed
1 April 2014 250
Stephen Coe (non-executive director)
appointed 1 April 2014 70
Peter O'Keefe (non-executive director) 43
James Potochny (executive director) appointed -
13 May 2014
Bran Keogh (executive director) resigned 31
May 2014 300
Peter Tom (non-executive chairman) resigned
10 April 2014 125
J. Curtis Moffatt (non-executive director)
resigned 13 May 2014 43
Mr. Potochny currently receives an annual base salary of
US$230,000 as CFO of Leaf's wholly-owned investment advisory
subsidiary, and will participate from 1 July 2014 in the employee
bonus plan described in note 7.
Directors' fees and expenses were:
30 June 2014 Directors' Annual bonus Reimbursements Total
fees
US$'000 US$'000 US$'000 US$'000
Mark Lerdal (Chairman) 62 - 30 92
Stephen Coe 58 - 9 67
Peter O'Keefe 64 - 8 72
James Potochny - - 4 4
Bran Keogh 283 175 7 465
Peter Tom 121 - - 121
J. Curtis Moffatt 49 - 2 51
Total 637 175 60 872
======================== =========== ============= =============== ========
30 June 2013 Directors' Annual bonus Reimbursements Total
fees
US$'000 US$'000 US$'000 US$'000
Peter Tom (Chairman) 200 - 2 202
Bran Keogh 400 350 5 755
J. Curtis Moffatt 106 - - 106
Peter O'Keefe 110 - 1 111
Total 816 350 8 1,174
====================== =========== ============= =============== ========
The composition of the board changed during the year with Mark
Lerdal appointed as executive chairman, Stephen Coe appointed as
non-executive director and James Potochny appointed as executive
director. Peter Tom, Bran Keogh and J Curtis Moffatt resigned.
Each director is also entitled to receive reimbursement of any
expenses in relation to their appointment. Total reimbursement to
the directors for the year ended 30 June 2014 amounted to US$59,694
(2013: US$7,857) of which US$7,708 was outstanding at 30 June 2014
(2013: US$Nil).
Leaf's wholly-owned U.S. investment advisory subsidiary paid Mr.
Potochny salary and bonus equal to US$302,500 for the year ended 30
June 2014 (2013: US$298,333)
9. Basic earnings/(loss) per share
Basic and Diluted
Basic and diluted earnings/(loss) per share is calculated by
dividing the earnings/(loss) attributable to equity holders of Leaf
by the weighted average number of ordinary shares in issue during
the year:
Year ended Year ended
30 June 2014 30 June 2013
(Loss)/earnings attributable to equity holders (US$'000) (67,927) 1,468
Weighted average number of ordinary shares in issue (thousands) 128,746 128,746
----------------------------------------------------------------- -------------- --------------
Basic and fully diluted (loss)/earnings per share (cents) (52.76) 1.14
================================================================= ============== ==============
There is no difference between the basic and diluted
earnings/(loss) per share for the year.
10. Investments
Investments in underlying investee companies (held through
various wholly owned intermediary subsidiaries) comprise ordinary
stock, loans, convertible notes and preferred stock carrying a
cumulative preferred dividend, preferential return of capital and
capped rights to share in profits. The directors, with advice from
the in-house management team, Leaf Clean Energy USA, LLC, have
reviewed the carrying value of each investment and calculated the
aggregate value of the Leaf Group's portfolio. Investments are
measured at the directors' estimate of fair value at the reporting
date, in accordance with IAS 39 'Financial Instruments: Recognition
and measurement'.
11. Critical accounting estimates and assumptions
These disclosures supplement the commentary on the use of
estimates and judgments (see note 2.4).
Key sources of estimation uncertainty
Determining fair values
The determination of fair values for financial assets for which
there is no observable market prices requires the use of valuation
techniques as described in accounting policy 3.1. For financial
instruments that trade infrequently and have little price
transparency, fair value is less objective, and requires varying
degrees of judgement depending on liquidity, concentration,
uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument. See also "Valuation of financial
instruments" below.
Critical judgements in applying the Leaf Group's accounting
policies
Critical judgements made in applying the Leaf Group's accounting
policies include:
Valuation of financial instruments
The Leaf Group's accounting policy on fair value measurements is
discussed in accounting policy 3.1. The Leaf Group measures fair
value using the following hierarchy that reflects the significance
of inputs used in making the measurements:
-- Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
-- Level 2: Valuation techniques based on observable inputs,
either directly (i.e., as prices) or indirectly (i.e., derived from
prices). This category includes instruments valued using: quoted
market prices in active markets for similar instruments: quoted
market prices for identical or similar instruments in markets that
are considered less than active; or other valuation techniques
where all significant inputs are directly or indirectly observable
from market data.
-- Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments where the valuation
technique includes inputs not based on observable data and the
unobservable inputs have a significant effect on the instrument's
valuation. This category includes instruments that are valued based
on quoted prices for similar instruments where significant
unobservable adjustments or assumptions are required to reflect
differences between the instruments.
Fair values of financial assets and financial liabilities that
are traded in active markets are based on quoted market prices or
dealer price quotations. For all other financial instruments the
Leaf Group determines fair values using valuation techniques.
Leaf, through its wholly-owned subsidiaries, holds full or
partial ownership interests in a number of unquoted clean energy
companies. These investments are classified as level 3 in the fair
value hierarchy.
11.1 Investments at fair value through profit or loss
The following table shows a reconciliation of the opening
balances to the closing balances for fair value measurements in
Level 3 of the fair value hierarchy
Year ended Year ended
30 June 2014 30 June 2013
------------------------------------------------- -------------- --------------
Balance brought forward 162,633 138,734
Additional investments in subsidiaries 13,502 21,492
Repayment of capital investment (9,448) (3,548)
Movement in fair value of investments (63,387) 5,955
Balance carried forward 103,300 162,633
------------------------------------------------- -------------- --------------
Total gains/(losses) for the year included in
profit or loss relating to investments held at
the end of the reporting period. (63,387) 5,905
================================================= ============== ==============
Investments are stated at fair value through profit or loss on
initial recognition. Loans are reviewed for impairment in
conjunction with the related equity investment in the investee
company. All investee companies are unquoted. Leaf has an
established control framework with respect to the measurement of
fair values. The directors, with advice from the in-house
management team, Leaf Clean Energy USA, LLC, has overall
responsibility for all significant fair value measurements,
including Level 3 fair values. The in-house management team
regularly reviews significant unobservable inputs and valuation
adjustments.
Leaf received repayment by one of its investee companies of a
US$1.2 million secured senior convertible promissory note along
with US$96,267 of accrued interest due in the form of a new secured
senior convertible promissory note with a principal amount of
US$1.296 million during the period. US$2.1 million of principal and
US$234,632 of accrued interest on a senior secured convertible
promissory note was converted into preferred equity of the borrower
in accordance with the terms of the note.
11.2 (a) Significant unobservable inputs used in measuring fair
value
The table below sets out information about significant
unobservable inputs used at 30 June 2014 in measuring financial
instruments categorised as Level 3 in the fair value hierarchy.
Sensitivity to
Fair value at 30 changes in
June 2014 Valuation Unobservable significant
Description US$'000 technique input Range unobservable inputs
----------------- ----------------- ----------------- ------------------ ------------------ ---------------------
Unlisted private US$103,300 Transaction and EBITDA multiple 10.4 The estimated fair
equity market value would increase
investments multiples, (decrease) if the
income approach, EBITDA or
transaction operational
terms multiples
were higher/lower.
Operational $108/mm tons -
multiples $97/mm tons
Operational $1,828/kW -
multiples $1,964/kW
Discount rates
13.6%-22.9% The estimated fair
value would
increase/(decrease)
if the discount rate
were lower/higher
Forecast cash n/a n/a
flows
Transaction n/a n/a
terms
Estimated n/a The estimated fair
recovery value value would
increase/(decrease)
if the recovery
value were
higher/lower
Significant unobservable inputs are developed as follows.
EBITDA and operational multiples: Represent amounts that market
participants would use when pricing the investments. EBITDA and
operational multiples are selected from comparable public companies
or publicly disclosed transactions based on geographic location,
industry, size, target markets and other factors that management
considers to be reasonable. The traded multiples for the comparable
companies are determined by dividing the enterprise value of the
company by its EBITDA or operational metric and further adjusted if
appropriate for considerations such as the lack of marketability
and other differences between the comparable peer group and
specific company.
Discount rate: Represents the rate used to discount projected
levered or unlevered forecasted cash flows and terminal value for a
project or company to their present values as part of the
calculation of enterprise value for the project or company. Leaf
uses a capital asset pricing model (CAPM) approach to calculate a
discount rate appropriate for each project or company.
Forecast cash flows: Cash flows are forecast by the Leaf Group
by considering possible operational scenarios and transaction
terms, the amount to be paid or received under each scenario and
the probability of each scenario.
Estimated recovery value: Estimated recovery value is the amount
estimated by management to be realised on an investment in a
liquidation scenario.
11.2 (b) Effects of unobservable input on fair value
measurement
Although the Leaf Group believes that its estimates of fair
value are appropriate, the use of different methodologies or
assumptions could lead to different measurements of fair value. For
fair value measurements in Level 3, changing one or more of the
assumptions used to reasonably possible alternative assumptions
would have the following effects on Leaf's net asset value (NAV) at
30 June 2014(US$ millions): (Favourable: US$29.1 million,
Unfavourable: US$29.4 million)).
The favourable and unfavourable effects of using reasonably
possible alternative assumptions for the above unobservable inputs
for the valuation of Leaf's unlisted private equity investments
have been calculated by varying these inputs in the applicable
valuation models based on a reasonable lower and upper range as
determined by Leaf Management. The discount rates used in the
models at 30 June 2014 ranged between 13.6% and 22.9% (with
reasonably possible alternative assumptions ranging between 12.6%
and 23.9%). The EBITDA multiple used in the models at 30 June 2014
was 10.4, with reasonably possible alternative assumptions of 13.0
and 8.0. The operational multiples used in the models at 30 June
2014 ranged from US$97/mm tons to US$108/mm tons, and US$1,828/kW
to US$1,964/kW, with reasonably possible alternative assumptions of
US$67/mm tons to US$127/mm tons, and US$777/kW to US$2,619/kW.
12. Financial instruments not measured at fair value
The financial instruments not measured at fair value through
profit or loss are short-term financial assets and financial
liabilities whose carrying amounts approximate their fair value,
these are all categorised within level 2 of the fair value
hierarchy.
13. Trade and other receivables
Year ended Year ended
30 June 2014 30 June 2013
US$'000 US$'000
Inter-company receivables 288 238
Prepayments 189 215
Income tax refund receivable 90 -
Other receivables 317 434
Total 884 887
------------------------------ -------------- --------------
Amounts due from group companies are unsecured, interest free
and receivable on demand.
14. Cash and cash equivalents
Year ended Year ended
30 June 2014 30 June 2013
US$'000 US$'000
Short term fixed deposits - 10,009
Bank current account balances 12,002 7,815
------------------------------- -------------- --------------
Sub Total 12,002 17,824
------------------------------- -------------- --------------
Restricted cash 69 3,171
------------------------------- -------------- --------------
Total 12,071 20,995
------------------------------- -------------- --------------
The short-term deposits are subject to interest rates at 0.002%
per annum and are fixed for periods ranging up to 8 months from the
consolidated statement of financial position date.
15. Trade and other payables
Year ended Year ended
30 June 2014 30 June 2013
US$'000 US$'000
Other creditors 378 362
Audit fees payable 96 76
Administration fees payable 56 56
Directors' fees payable - 374
Total 530 868
----------------------------- -------------- --------------
16. Share capital
Ordinary shares of GBP0.0001 Number of shares Share capital Share premium
each
US$'000 US$'000
At 30 June 2014 and 30
June 2013 128,745,726 28 306,809
The authorised share capital of the Leaf Group is GBP25,000
divided into 250 million Ordinary Shares of GBP0.0001 each.
Under the terms of the placement on 22 June 2007, Leaf issued
200,000,000 shares of GBP0.0001 each par value at a price of GBP1
each. The difference between the issue price and the par value was
transferred to share premium account, net of share issue
expenses.
Share capital and premium received was translated to US Dollars
at the exchange rate prevailing at the date of receipt of the
proceeds.
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of Leaf. All shares rank equally with regards to
the Leaf Group's assets.
Capital management
During the period, the board's policy was to maintain a strong
capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The
board managed the Leaf Group's affairs to achieve shareholder
returns through capital growth rather than income, and monitored
the achievement of this through growth in net asset value per
share. Subsequent to the 1 July 2014 extraordinary general meeting
of Leaf's shareholders, a board-recommended change in strategy was
approved by Leaf's shareholders and adopted by Leaf (see note
20).
The Leaf Group's capital comprises share capital, share premium
and reserves and is not subject to externally imposed capital
requirements.
17. Related party transactions
Parties are considered to be related if one party has the
ability to control the other party or to exercise significant
influence over the other party in making financial or operational
decisions.
Leaf's directors are related parties and details of their fee
arrangements are given in note 8 and their shareholdings are
disclosed under report of the directors. Note 7 provides
disclosures regarding contingent bonus payments to employees of
Leaf USA, one of whom is a director.
Leaf's wholly owned subsidiary, Leaf Clean Energy USA, LLC
("Leaf USA"), in Washington, DC provides asset advisory, portfolio
management and certain administrative services to Leaf.
18. The subsidiaries
The consolidated financial statements comprise Leaf and the
following consolidated subsidiary:
Country of Percentage of
incorporation shares held
---------------------------- ---------------- --------------
Leaf Clean Energy USA, LLC USA (Delaware) 100%
The following subsidiaries of the Leaf Group are held at fair
value on the consolidated financial statements in accordance with
IFRS 10:
Country of Principal activity Effective interest held
incorporation
-------------------------------------- -------------------- -------------------- ------------------------
Energía Escalona Coopertief U.A Netherlands Hydro Energy 87.5%
Escalona B.V Netherlands Hydro Energy 87.5%
Energíia Escalona I S.A. de C.V Mexico Hydro Energy 87.5%
Energía Escalona s.r.l. Mexico Hydro Energy 87.5%
Johnstown Regional Energy LLC USA (Pennsylvania) Landfill Gas 100%
Multitrade Rabun Gap LLC USA (Virginia) Biomass 75%(1)
Multitrade Telogia LLC USA (Virginia) Biomass 66.25%
Telogia Power LLC USA (Florida) Biomass 66.25%
SkyFuel Inc USA (Delaware) Solar Energy 54.4%
Leaf Escalona Company* Cayman Islands 100%
Leaf Hydro Company Cayman Islands 100%
Leaf Invenergy Company* Cayman Islands 100%
Leaf Invenergy US Investments, Inc* USA (Delaware) 100%
Leaf Lehigh Company Cayman Islands 100%
Leaf LFG Company Cayman Islands 100%
Leaf LFG US Investments, Inc.* USA (Delaware) 100%
Leaf MaxWest Company* USA (Delaware) 100%
Leaf Bioenergy Company Cayman Islands 100%
Leaf Biomass Company Cayman Islands 100%
Leaf Biomass Investments, Inc.* USA (Delaware) 100%
Leaf SkyFuels Company* Cayman Islands 100%
Leaf Solar Company Cayman Islands 100%
Leaf Wind Company Cayman Islands 100%
Leaf VREC* Cayman Islands 100%
Leaf Waste Energy Cayman Islands 100%
(1) Voting rights 81.9%
19. Capital commitments
As at 30 June 2014, there were no capital commitments in respect
of investments.
20. Subsequent Events
At an extraordinary general meeting ("EGM") held on 1 July 2014,
Leaf's shareholders voted to accept the board's proposed resolution
to change the Leaf Group's investment strategy to an orderly
realisation and return of capital to the shareholders, which will
occur on an asset-by-asset basis in timeframes appropriate for each
asset. The details of the new strategy are disclosed in the EGM
circular for this meeting, which can be found on Leaf's
website.
On 3 July 2014, Leaf investee company, MaxWest Environmental
Systems, Inc. filed for protection under Chapter 7 of the U.S.
bankruptcy code.
On 31 July 2014, Leaf made a follow-on investment of US$1.25
million in the preferred stock of Lehigh Technologies, as part of a
preferred equity financing round led by strategic investor JSR
Corporation.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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