TIDMRUR
RNS Number : 4540O
Rurelec PLC
01 June 2020
Rurelec PLC
("Rurelec" or the "Company")
Notice of AGM
and
Audited results for the year ended
31(st) December 2019
Rurelec PLC (AIM:RUR), the electricity utility focused on
ownership and operation of power generation plants in Latin
America, announces its publication of Notice of Annual General
Meeting ("AGM") and audited results for the year ended 31 December
2019. Both the Notice of AGM and the annual report will be
available from the Company's website www.rurelec.com from 1 June
2020.
Highlights
-- Operating loss GBP3.1 million (2018: loss GBP2.9 million).
-- Loss before tax GBP4.4 million (2018: loss GBP0.6 million).
-- 2019 has seen a marked improvement in the Group's liquidity
position, current liabilities have fallen to GBP0.5 million (2018:
GBP2.0 million).
-- The Group was able to settle the outstanding GBP1.2m
repayment of BPAC secured debt principal during 2019 whilst
limiting the decrease in net cash to GBP214k (2018: increase
GBP188k).
-- The main drivers for the loss before tax of GBP4.4 million
were a provision of GBP2.0 million (2018: GBPnil) against the 701
turbines, and foreign exchange losses of GBP1.3 million (2018:
gains GBP1.7 million).
-- Write downs of assets by GBP2.0 million (2018: GBPNil) to
values the directors believe can be supported in current market
conditions.
-- Administration expenses of GBP1.2 million (2018: GBP1.5
million) reduced due to further employment cost savings and a
reduction in professional fees.
-- Total loss per share 0.79p (2018: 0.11p).
-- Net Asset Value per share 3.7p (2018: 4.4p).
The annual general meeting (the "AGM") of Rurelec PLC will be
held at 5 St. John's Lane, London England, EC1M 4BH at 11.00 a.m.
on 30 June 2020. Although Shareholders have "a right to attend" the
AGM, this right will be qualified by and subject to guidelines
issued by the UK Government in response to coronavirus (COVID-19).
UNDER CURRENT ARRANGEMENTS, ANY OTHER ATTEES WILL NOT BE PERMITTED
ENTRY TO THE MEETING.
Given that the current Government's restrictions prohibit
attendance at the AGM, shareholders are strongly encouraged to vote
by proxy. Shareholders will be able to submit questions related to
the business of the AGM up to the deadline for proxy voting (11.00
a.m. on 26 June 2020).
Please see COVID-19 Update section below and also the
Non-Executive Director's letter contained within the Notice of the
AGM for information relating to the AGM.
Commenting on the results, Simon Morris and Andy Coveney,
Rurelec's Executive Directors, said:
The loss before tax of GBP4.4 million (2018: loss GBP0.6
million) is disappointing, but is principally driven by foreign
exchange losses of GBP1.3 million (2018: exchange gain of GBP1.7
million) and a further provision against the carrying value of the
701 turbines of GBP2.0 million (2018: GBPNil).
The Group has started to benefit from being on a more secure
financial footing. December 2019 marked the first time since 2008
that the Group has received loan repayments due from the holding
company of our joint venture operation of GBP0.5 million. This
follows the completion of the major maintenance programme carried
out at the Argentinian plant in late 2018 and early 2019. The total
cash remittances by EdS to the Group and PEL described above amount
to GBP2.2 million which compares to total debt repayments by EdS of
GBP2.0 million in 2018. In addition, EdS ended the year with cash
reserves of GBP1.7 million (2018: GBP0.5 million).
To date, the COVID-19 pandemic has had little impact on the
Group. The Group's Head Office in London has operated on a remote
basis and the EdS plant in Argentina is situated in a region which
has to date had very little incidence of the virus. EdS's power
generation is considered part of an essential industry, and it has
implemented procedures and protocols to allow as near to normal
safe working practices in place. Output and profitability to the
end of April 2020 are in line with expectations, whilst cash
remittances are above forecast for 2020 year to date and higher
than for the same period in 2019.Notwithstanding the above, it is
not considered possible to estimate the long-term financial impact
of COVID-19 on the already-weak Argentinian economy at the present
time, nor to anticipate the economic and fiscal measures that the
Argentinian Government will impose.
As previously announced on 19 November 2019, the new Agreement
reached with the Group's 50:50 joint venture partner in the
Argentinian operation has established a framework regulating future
cash repayments. However, the Resolution 220/2007 Power Purchase
Agreement ("PPA") expires in September 2020, and will be superseded
by a new tariff or, at worst case, be sold on the energy spot
market. At the date of this report, the outcome remains
uncertain.
The cash remittances received by the Group have enabled current
liabilities to be significantly reduced to GBP0.5 million at 31
December 2019 (2018: GBP2.0 million). All secured debt owed by
Rurelec was repaid in full by 31 December 2019.
AGM: Additional Matters
At the AGM the Board is seeking shareholder approval to increase
the Company's distributable reserves by way of a capital
reorganisation and a capital reduction which will put the Company
in a position where it can lawfully pay dividends out of
distributable reserves or (if the Shareholders give appropriate
authority in the future) buy-back Ordinary Shares in the
future.
The proposals consist of:
(a) the Share Premium Reduction, pursuant to which the amount
standing to the credit of the Share Premium Account will be
cancelled;
(b) the Capital Reorganisation, pursuant to which the Existing
Ordinary Shares shall be subdivided into the New Ordinary Shares
and the New Deferred Shares;
(c) the Share Capital Reduction, pursuant to which the New Deferred Shares shall be cancelled.
Definitions used in this announcement are the same as set out in
the Notice of AGM, a copy of which is available on the Company's
website here www.rurelec.com/investors/circulars .
Capital Reorganisation and Capital Reductions
Background to, and reasons for, the Capital Reorganisation and
Capital Reductions
At present, the Company does not have sufficient distributable
reserves to pay dividends or (if the Shareholders give appropriate
authority in the future) to buy-back Ordinary Shares. The Board
therefore proposes that the Capital Reorganisation and Capital
Reductions be effected in order to increase the distributable
reserves of the Company, which will facilitate these actions should
the Board consider it desirable in the future.
As at 31 December 2019, the Company had an accumulated deficit
in its profit and loss account of GBP58,747,492 and the balance
standing to the credit of the Share Premium Account was
GBP22,753,689. In addition, as at 29 May 2020 (the "Latest
Practicable Date"), the Company had 561,387,586 Ordinary Shares in
issue.
The Company also undertook a reduction of its share premium
account in the sum of GBP45,000,000 which was approved by
Shareholders on 14 November 2014 by way of special resolution and
subsequently confirmed by the Court on 17 December 2014. As part of
that process, the Company gave an undertaking to the Court that the
reduction of GBP45,000,000 would be transferred to a special
reserve ("Special Reserve") which was prohibited from being treated
as distributable reserves whilst certain debts of the Company
remained outstanding. Such debts have now been settled and the
Company intends to treat the Special Reserve as distributable
reserves with effect from 21 May 2020. The treatment of the Special
Reserve together with the proposed Capital Reductions will increase
distributable reserves and, therefore, facilitate the payment of
dividends or (if the Shareholders give appropriate authority in the
future) the buy-back of Ordinary Shares.
Share Premium Account
A share premium arises where a company issues shares at a
premium to their nominal value. A premium (less any directly
attributable transaction costs) is credited to a company's share
premium account and is treated, in accordance with applicable law
and accounting standards (including the Act), as a
non-distributable capital reserve and part of the permanent capital
of a company unless its reduction or cancellation is first approved
by order of the Court.
With the approval of a company's shareholders, a company may, by
way of a special resolution and subsequent confirmation by the
Court, reduce or cancel its share premium account and in certain
circumstances, credit some or all of such sum arising to its profit
and loss account. To the extent that the release of such a sum from
a share premium account creates or increases a credit on the profit
and loss account, that sum represents distributable reserves of a
company.
The Board is, therefore, seeking to cancel the Share Premium
Account and will, subject to any undertakings required by the Court
(as explained below), be sufficient to eliminate the accumulated
deficit in the Company's profit and loss account, and enable the
Company to pay dividends or (if the Shareholders give appropriate
authority in the future) buy-back Ordinary Shares, should
circumstances in the future make it desirable to do so.
Accordingly, it is proposed that the total amount standing to
the credit of the Share Premium Account of GBP22,753,689 is
cancelled.
As a result of the Share Premium Reduction, there will be no
change to the number of Ordinary Shares in issue.
The rights attaching to the Ordinary Shares following the Share
Premium Reduction will remain the same and the Ordinary Shares will
continue to have voting, dividend and other rights as set out in
the Articles.
Capital Reorganisation
In addition to the Share Premium Reduction and to facilitate the
Share Capital Reduction, the Board has proposed the Capital
Reorganisation to ensure that each Shareholder's proportionate
interest in the Company's issued ordinary share capital will remain
unchanged as a result of the proposed Share Capital Reduction.
Accordingly, the Board has decided to implement a share
reorganisation so that:
every 1 Existing Ordinary Share will be sub-divided into
one New Ordinary Share and one New Deferred Share.
The Existing Ordinary Shares are currently admitted to trading
on AIM. Application has been made for the New Ordinary Shares to be
admitted to trading on AIM ("Admission") and it is anticipated that
Admission will occur, and trading will commence in the New Ordinary
Shares on 1 July 2020. The Existing Ordinary Shares will cease
trading from close of business on 30 June 2020. All of the New
Ordinary Shares may then be held and transferred by means of CREST.
It is expected that the New Ordinary Shares arising as a result of
the Capital Reorganisation in respect of the Existing Ordinary
Shares held in uncertificated form, i.e. in CREST, will be credited
to the relevant CREST accounts on 1 July 2020 and that definitive
share certificates in respect of the New Ordinary Shares arising as
a result of the Capital Reorganisation from the Existing Ordinary
Shares held in certificated form will be despatched to relevant
Shareholders by 14 July 2020. No temporary documents of title will
be issued. Share certificates in respect of the Existing Ordinary
Shares will cease to be valid at close of business on 30 June 2020
and, pending delivery of share certificates in respect of New
Ordinary Shares will be certified against the register. The record
date of the Capital Reorganisation is 30 June 2020.
The ISIN and the SEDOL in respect of the Existing Ordinary
Shares will continue to remain valid for the New Ordinary
Shares.
As a consequence of the Capital Reorganisation, each
Shareholder's holding of New Ordinary Shares will, immediately
following the Capital Reorganisation becoming effective, be half of
the nominal value of Existing Ordinary Shares held by them on the
Record Date. However, each Shareholder's proportionate interest in
the Company's issued ordinary share capital will remain unchanged
as a result of the Capital Reorganisation. There will be
561,387,586 New Ordinary Shares of GBP0.01 each and 561,387,586 New
Deferred Shares of GBP0.01.
The rights attaching to the New Ordinary Shares will be
identical in all respects to those of the Existing Ordinary
Shares.
The New Deferred Shares created will be effectively valueless as
they will not carry any rights to vote or dividend rights. In
addition, holders of New Deferred Shares will only be entitled to a
payment on a return of capital or on a winding up of the Company
after each of the holders of New Ordinary Shares have received a
payment of GBP10,000,000 on each such share. The New Deferred
Shares will not be listed or traded on AIM and will not be
transferable save that upon the death of any holder of the New
Deferred Shares such shares will be permitted to be transmitted
under the terms of the deceased Shareholder's will provided that
the persons to whom they are to be transmitted are a Privileged
Relation of the deceased Shareholder. No share certificates will be
issued in respect of the New Deferred Shares, nor will CREST
accounts of shareholders be credited in respect of any entitlement
to New Deferred Shares. It is intended that the New Deferred Shares
will be cancelled pursuant to the Share Capital Reduction. There is
no requirement for the holders of the Deferred Shares either to
receive notice or give their consent to the proposed cancellation
of the Deferred Shares.
The New Articles to be adopted pursuant to Resolution 7 set out
such rights attaching to the New Deferred Shares. Other than the
rights attaching to the New Deferred Shares, the New Articles are
in substantially the same form as the Articles. The New Articles
are available for inspection on the Company's website from the date
of this announcement until the end of the AGM.
Share Capital Reduction
As mentioned above, the Company does not have sufficient
distributable reserves to pay dividends or (if the Shareholders
give appropriate authority in the future) buy-back Ordinary Shares.
The Board therefore proposes that the Share Capital Reduction (in
addition to the Share Premium Reduction) be effected in order to
increase the distributable reserves of the Company.
It is proposed that the share capital of the Company arising
after the Capital Reorganisation of GBP11,227,751.72 divided into
561,387,586 New Ordinary Shares of GBP0.01 each and 561,387,586 New
Deferred Shares of GBP0.01 each be reduced to GBP5,613,875.86
divided into 561,387,586 New Ordinary Shares of GBP0.01 each, by
cancelling the paid-up New Deferred Shares in the sum of
GBP5,613,875.86.
As a result of the Share Capital Reduction, the nominal value of
the Company's New Ordinary Shares after completion of the Capital
Reorganisation will be reduced from GBP0.02 to GBP0.01 each.
Shareholder Approval
At the AGM, the Company is therefore seeking approval of the
Shareholders to (i) cancel the Share Premium Account, (ii) approve
the Capital Reorganisation (including the adoption of the New
Articles) and (iii) undertake the Share Capital Reduction by way of
cancellation of the New Deferred Shares (each in the manner set out
above), which together will create distributable reserves for the
Company of GBP14,620,074 (after taking into account the Special
Reserve) and will, subject to any undertakings required by the
Court (as explained below), be sufficient to eliminate the
accumulated deficit in the Company's profit and loss account, and
enable the Company to pay dividends or (if the Shareholders give
appropriate authority in the future) buy-back Ordinary Shares or
New Ordinary Shares (as applicable), should circumstances in the
future make it desirable to do so.
Court approval
In addition to the approval by the Shareholders of Resolutions 6
and 7, the Capital Reductions require the approval of the Court.
Accordingly, following approval of the Capital Reductions by
Shareholders, an application will be made to the Court in order to
confirm and approve the Capital Reductions.
In seeking the Court's approval of the Capital Reductions, the
Court is likely to require protection for the creditors (including
contingent creditors) of the Company whose debts remain outstanding
on the relevant date, except in the case of creditors which have
consented to the Capital Reductions. Any such creditor protection
may include seeking the consent of the Company's creditors to the
Capital Reductions or the provision by the Company to the Court of
an undertaking to deposit a sum of money into a blocked account
created for the purpose of discharging the non-consenting creditors
of the Company, or not to distribute reserves arising upon the
Capital Reductions until such creditors have been discharged.
It is anticipated that the initial directions hearing in
relation to the Capital Reductions will take place on 10 July 2020,
with the final Court hearing taking place on 31 July 2020 and the
Capital Reductions becoming effective on the following day, after
the necessary registration of the Court order with the Registrar of
Companies has taken place.
Shareholders should note that the Capital Reductions will not
involve any distribution or repayment of capital or share premium
by the Company and will not reduce the underlying net assets of the
Company. The distributable reserves arising from the Capital
Reductions will, subject to the terms of any undertakings required
by the Court as explained above, enable the Company to pay
dividends or (if the Shareholders give appropriate authority in the
future) buy-back Ordinary Shares or New Ordinary Shares (as
applicable) in the future.
The Board reserves the right to abandon or to discontinue (in
whole or in part) the application to the Court in the event that
the Board considers that the terms on which the Capital Reductions
would be (or would be likely to be) confirmed by the Court would
not be in the best interests of the Company and/or the Shareholders
as a whole. The Directors have undertaken a review of the Company's
liabilities (including contingent liabilities) and consider that
the Company will be able to satisfy the Court that, as at the date
(if any) on which the Court order relating to the Capital
Reductions and the statement of capital in respect of the Capital
Reductions have both been registered by the Registrar of Companies
at Companies House and the Capital Reductions therefore become
effective, the Company's creditors will be sufficiently
protected.
Following the Capital Reductions, the Company will continue to
meet the statutory requirement of having GBP50,000 minimum nominal
value of issued share capital.
Recommendation
The Directors believe that Resolutions 1 to 7 contained in the
Notice of the Meeting are in the best interest of the Company and
its shareholders as a whole and unanimously recommends that
shareholders vote in favour of them, as the Directors intend to do
in respect of their beneficial shareholdings.
COVID-19 Update
Please note that due to the on-going coronavirus (COVID-19)
outbreak, and in particular, the current UK Government guidance on
social distancing, and prohibiting non-essential travel and public
gatherings of more than two people (www.gov.uk/coronavirus)
shareholders will not be permitted to attend this year's AGM at
this time. The AGM will therefore be a purely functional meeting
which is anticipated will be attended solely by one Director and
the Company Secretary who will carry out the formal business of the
meeting, while still allowing shareholders to exercise their voting
rights in accordance with the proxy instructions. One of these
individuals will be the chair of the AGM who will act as duly
appointed proxy for shareholders and cast their votes in accordance
with their instructions. Any other attendees will not be permitted
entry to the meeting.
In the circumstances, you are strongly encouraged to vote by
proxy which will enable you to participate in the meeting by voting
on the resolutions set out in the Notice of AGM without attending
the meeting in person. All resolutions will be voted on by way of a
poll and the voting results will be posted on the Company's website
after the meeting (https://www.rurelec.com/investors). Please refer
to pages 18 and 19 of the Notice of AGM for further instructions on
the voting procedure at this year's AGM.
The Board would like to provide opportunity for engagement and
challenge by all shareholders in advance of the AGM. An online
Q&A for the AGM section is available on our website
https://www.rurelec.com/investors/circulars where shareholders will
be able to submit questions related to the business of the AGM up
to the deadline for proxy voting and where appropriate the answers
to those questions will be posted after the AGM. The answers to
those questions will be posted after the AGM by way of an update
announcement.
If the Board believes that it becomes necessary or appropriate
to make alternative arrangements for the holding of the AGM due to
COVID-19, we will ensure that shareholders are given as much notice
as possible. Further information will be made available through an
RNS announcement and through an upload to the Company's
website.
Action to be taken
If you would like to vote on the resolutions but will not be
attending the AGM, you may appoint a proxy electronically via
www.signalshares.com by following the instructions or, if you hold
your shares in CREST, you can appoint a proxy via the CREST system.
A form is not being provided this year, you may request a hard copy
form from the Registrars at Link Asset Services, PXS, 34 Beckenham
Road, Beckenham, Kent BR3 4TU or 0371 664 0391. Notice of your
appointment of a proxy should reach the Company's Registrar, Link
Asset Services, in any event not later than 11.00 am on 26 June
2020. If you hold your shares through a nominee service, please
contact the nominee service provider regarding the process for
appointing a proxy.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
2020
Date of this document
1 June
Latest time and date for receipt of a proxy 11.00 a.m. on 26
June
Annual General Meeting
11.00 a.m. on 30 June
Record date for the Capital Reorganisation
6.00 p.m. on 30 June
Admission of New Ordinary Shares and issue of Deferred
Shares
8.00 a.m. on 1 July
Despatch of share certificates to certificated holders
14 July
Expected date of Court hearing to confirm the Capital
Reductions
31 July
Expected effective date for the Capital Reductions
1 August
For further information please contact:
Rurelec PLC W.H.Ireland
Simon Morris, Executive Katy Mitchell and Lydia
Director Zychowska
Andy Coveney, Executive
Director
www.rurelec.com
-------------------------
Tel: +44 (0)20 7549 Tel: +44(0) 20 7220 1666
2829
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Rurelec PLC ("Rurelec") is an owner, developer and operator of
power generation capacity internationally.
Rurelec's main business consists of the ownership, operation and
development of power generation facilities on national and regional
grids, selling wholesale electricity as a generator on commercial
terms, through capacity payments and/or power purchase agreements
("PPAs").
Rurelec's current business is centred on Rurelec's share of an
operational plant in Argentina whilst also seeking to complete the
development of its project in Chile or sell its interests in that
project.
NON-EXECUTIVE DIRECTOR'S STATEMENT
Brian Rowbotham
Dear Shareholder
It is my duty to present the results of Rurelec PLC ("Rurelec")
for the financial year ended 31 December 2019. The year was
characterised by a further move towards financial stability, a key
goal of the Board of directors of Rurelec. Loan repayments from our
joint venture Argentinian asset, Energia del Sur SA ("EdS"), has
enabled the Group to settle all of the secured debt owed during
2019. The Bridge Properties (Arena Central) Limited ("BPAC") loan
was fully repaid on 20 December 2019. As a result, the security
held over the assets of the Group by BPAC under its debenture was
released.
Your Board wishes to thank the directors of BPAC for the loan,
who provided financial stability at an important time for the
Group.
Group current liabilities at 31 December 2019 stood at GBP0.5
million, which compares with the position at 31 December 2018 of
GBP2.0 million.
Outlook
Argentina
Following the extensive maintenance programme carried out at the
end of 2018 and early 2019 the joint venture Argentinian company
("EdS") has performed well.
The improvement in performance of the Argentinian plant enabled
the outstanding loan from Rurelec Project Finance Limited ("RPFL")
to be fully repaid during the period. Anticipating this, the
Rurelec Board prioritised the achievement of an improvement in the
working relationship with our joint venture partner in Patagonia
Energy Limited ("PEL"), the holding company of the Argentinian
asset, as future cash remittances from EdS would need to flow up
through PEL. In November 2019, Rurelec signed a new agreement with
the joint venture partner in PEL that, amongst other issues, sets
out how future cash receipts in PEL will be allocated between the
joint venture partners. This agreement represents a major step
forward in our working relationship with the joint venture
partner.
Of course, the new agreement does not determine the rate of cash
remittances from EdS. Despite the plant performing well, the
economic situation in Argentina remains in crisis. An annual to
April 2020 inflation rate was 45.6 per cent.. The value of the
Argentinian peso against the US Dollar declined by nearly 60 per
cent. during 2019. This inevitably has led to the new Argentinian
government to tighten Exchange controls. The Argentinian Central
Bank ("BCRA") exchange controls on US Dollars have a direct effect
on the cash remittances by EdS to PEL, the latter not being
resident in Argentina. The cost of transferring money out of
Argentina has increased dramatically since February 2020. In Q2
2020 the loss suffered on transferring US Dollars out of Argentina
rose to over 40 per cent. of the underlying face value.
In addition, earlier in 2020, the Argentinian Government
announced a policy change whereby energy spot prices will no longer
be linked to US Dollars but to Argentinian Pesos. This again will
increase the foreign exchange risk.
The above policy change will not affect the revenue derived from
EdS's Resolution 220 Power Purchase Agreement ("PPA"), which will
remain linked to the US Dollar. However, this PPA expires in
September this year, and will be superseded by a new tariff or, at
worst, the output will be sold on the energy spot market. The
discussions are expected to commence shortly on what rate will be
put in place in September 2020, but the situation as of now remains
uncertain. The local management team in Argentina are heading the
negotiations, with support and input from the Rurelec Board. This
includes a review of the operating cost base of the plant.
The COVID-19 pandemic was confirmed to have spread to Argentina
on 3 March 2020. On March 12, the Argentinian Government suspended
for 30 days all international flights, and on March 15 this was
extended to a cancellation of internal flights. On 19 March,
Argentina entered a nation-wide lockdown. The Argentinian
government responded with a 700 billion pesos (US $11.1 billion)
stimulus package.
On 8 May, the national lockdown entered its fourth phase such
that with the exception of the Greater Buenos Aires urban area,
there was a reopening of factories and business.
Because of the emergence of the COVID-19 pandemic, the major
maintenance work on one of the gas turbines scheduled for Q1 2020
was postponed.
Argentina's Government, viewing EdS's output as an essential
service, issued instructions whereby the power plant should operate
with the smallest number of people possible, covering operational
shifts and preventive cleaning work with specific teams. All but
essential staff have been working remotely and not been coming to
the plant unless there is an equipment-related problem to address
at the plant. A wide range of preventative measure were implemented
to protect and safeguard staff. According to information published
by the Argentinian Health Ministry and Argentinian press articles,
at 20 May 2020 the total number of COVID19 cases in Argentina were
8,809 with 373 COVID-19 related deaths. Chubut province, where the
EdS power plant is located, has had 4 confirmed cases and no
deaths. Clearly there is no guarantee that the apparent initial
success in mitigating the effect of COVID 19 will continue going
forwards in Argentina but as at 20 May 2020 the COVID-19 pandemic
had had relatively little impact on the ability of EdS to continue
in operation. Furthermore, the importance of EdS in the generation
of electricity in the Chubut province means that its output will be
allocated a high priority by CAMMESA.
Chile and the Group's two 701DU Siemens turbines
The Group's Central Illapa project ("Mejillones") remains
consented, and a key extension to the project timetable was granted
by the Chilean Government earlier this year. A dialogue continues
with potential third parties who may be interested in either
purchasing the project outright or entering into a joint venture
arrangement. The two 701DU turbines, which are stored in Italy,
could be used in the project (the turbines are consented for the
project), or be sold on the open market.
Summary
The year 2019 has seen a marked improvement in the Group's
liquidity position. The improvements in the performance of the
Argentinian asset, and the relationship with our joint venture
partner, have been encouraging. However, the effect of the current
poor state of the Argentinian economy, and the uncertainty around
the renegotiation of the Resolution 220 PPA later this year do cast
a shadow over future performance.
Despite this uncertainty, the Board is proceeding with a Capital
Reconstruction of Rurelec PLC. This will enable the proceeds of any
future asset realisations to be distributed to shareholders. This
remains the central plank to the Board's strategy.
________________
Brian Rowbotham
Non-executive Director
29 May 2020
STRATEGIC REPORT
Strategy
The overall strategy for the Group remains in line with that
adopted in 2016. The Board has continued to stabilise the financial
position of the Group, which will enable value to be realised from
the asset portfolio. That value will then be returned to
shareholders. In order to make it possible the Directors are
proceeding with a capital reconstruction of the Company as referred
to in Non-Executive Director's Statement.
Liquidity
The above strategy has been determined by the on-going financial
position of the Group and since 2015, the financial position has
gradually improved. The new main borrowing of the Group taken out
in 2016, had been the secured BPAC loan. As anticipated in last
year's strategic report, this was repaid in the year, thereby
saving interest payments which in 2018 had amounted to GBP0.4
million and enabling the associated debenture to be released.
Significant progress was made in the Group becoming debt-free.
Current liabilities have fallen from GBP2.0 million to GBP0.5
million.
The EdS plant operated at reduced output between September 2017
and January 2019 following the September 2017 turbine blade failure
event. During this period output and capacity payment revenue of
the steam turbine was restricted to 20 MW compared to the usual
43.7 MW and this reduced EdS monthly income by at least US $650k
per month.
The steam turbine was successfully restored to full output in
January 2019 following the major maintenance that took place
between October 2018 and January 2019 at a total cost of US $6
million, primarily funded by loans from CAMMESA. During that
maintenance programme, the steam turbine was completely overhauled,
the rotor and missing turbine blades were replaced, the steam
turbine generator was overhauled and one of the gas turbines also
underwent a rotor replacement and overhaul.
The material loss of revenue of EdS (and consequent intermittent
debt repayments to Rurelec) in 2018 resulted in depleted cash
reserves for EdS and Rurelec at the start of 2019.
However during 2019, a resumption in normal operations and cash
generation at EdS enabled it to remit secured debt repayments of
GBP1.1million (2018: GBP2.0 million) to RPFL, unsecured debt
repayments of GBP0.6 million (2018: GBPnil) to Rurelec and GBP0.6
million (2018: GBPnil) to Patagonia Energy Limited ("PEL"). Of this
amount, Rurelec received GBP0.5 million of debt repayments from PEL
under the terms of the November 2019 Umbrella Agreement regulating
the division of debt repayments to be made by PEL to its two joint
venture ("JV") partners. Thus, the total cash remittances by EdS to
the Group and PEL described above amount to GBP2.2 million which
compares to total debt repayments by EdS of GBP2.0 million in 2018.
In addition, EdS ended the year with cash reserves of GBP1.7
million (2018: GBP0.5 million).
Since EdS has now repaid all debts owed directly to the Rurelec
group companies, Rurelec liquidity is driven by the flow of
receipts from PEL. PEL's liquidity is in turn determined by the
ability of EdS to purchase US Dollars to repay the debts it owes to
PEL or to pay dividends to PEL. In September 2019 in an attempt to
stabilise markets as it faced a deepening economic crisis, the
Argentinian government imposed exchange rate controls as a result
of which the timing and quantum of payments from EdS to PEL is
heavily affected by the duration of exchange controls that firstly
restrict the ability of EdS to transmit funds to PEL and secondly
increase the money conversion cost of achieving those transfers.
Another effect of the economic crisis is shortages of funds by
CAMMESA resulting in delays being experienced by EdS and other
electricity generators in Argentina in receiving payments from
CAMMESA.
Liquidity is also affected by the increased foreign exchange
risk for the Group resulting from the policy change announcement by
the Argentinian Government in response to the economic crisis that
revenue deriving from the electricity generated by EdS from its gas
turbines and sold on the energy spot market will no longer be
linked to the US Dollar but to the Argentinian Peso.
The ability to forecast liquidity has been improved by Rurelec's
signing of the November 2019 Umbrella Agreement and Revised
Shareholders Agreement with the JV partner in the Argentinian
operations. Further details were included in the announcement on 19
November 2019. This has improved the clarity of how the cash
proceeds of the JV will be split between the parties given Rurelec
has greater outstanding debts owed to it by PEL than its JV
partner. In December 2019, the first debt repayment of GBP0.5
million was duly received by Rurelec from the JV in part payment of
the PEL Amended and Restated Loan Notes.
EdS's existing Resolution 220/2007 Power Purchase Agreement
("PPA"), which has governed the remuneration of capacity and
generation payments on the steam turbine since October 2010 is due
to expire in September 2020, affecting the liquidity of EdS from
December 2020. The level of the replacement tariff will have a
significant effect on EdS's cashflow generation from 2021 onwards.
Although there is no certainty of what will happen, it is the
Board's belief (based on informal information gathered by the local
management team in Argentina) that the revised pricing structure
will be lower than current contract levels.
COVID 19 - The impact of COVID-19 on the Group's source of cash,
EdS, has been assessed, Group cash flows have been prepared under
two scenarios:
i) that cash will be normally received under current conditions
and local management's expectations, and
ii) that other than cash currently in transit, no further cash
will be received in the next twelve months, also known as a
'reverse stress test'.
Post year end to date the Group have received from its JV
GBP1,129k with GBP774k in transit.
The Directors have performed stress testing of Rurelec's
cashflow as described below in the Going Concern section of this
report, following which it has been concluded that any impact of
the COVID-19 pandemic will have little adverse effect on the
Directors' view on going concern of the Group. However the effects
of the COVID-19 pandemic in Argentina are less clear in the future
and the Directors cannot rule out liquidity issues impacting on the
Group in future periods if the Argentinian government loses control
of the disease to the extent where it does have a material impact
on the operations of EdS or demands for electricity.
Financial results
The operating loss for the year of GBP3.1 million for 2019 does
not represent a significant change compared to the GBP2.9 million
operating loss for 2018. This is explained in more detail in Notes
8 and 9 to the accounts. Included in the loss are non-cash
write-downs in the carrying value of Group assets of GBP1.4 million
(2018: GBP2.7 million) coupled with administration expenses which
fell from GBP1.5 million in 2018 to GBP1.2 million in 2019.
These write downs reflect the Board's view of the carrying value
for the Group's assets in current market conditions.
The overall loss before tax for the year was GBP4.4 million
(2018: GBP0.6 million). This was significantly affected by a GBP3.0
million swing in foreign exchange gains/losses from a GBP1.7
million gain in 2018 to a GBP1.3 million loss in 2019.
As a consequence of the improved cash generation the Group was
able to settle the outstanding GBP1.2m repayment of BPAC secured
debt principle during the period.
Unless there is a significant disposal of assets, in the long
term, the Group is dependent upon debt repayments from Argentina
via PEL. There still exists some uncertainty as to the timing and
the quantum of those receipts given exchange rate controls and
other austerity measures imposed by the Argentinian Secretariat of
Energy and CAMMESA in response to the Argentinian economic crisis.
However, given that at the date of these accounts the Group was
largely debt free, the Directors are able to focus on using the
Argentinian receipts to fund the reduced administrative costs of
running Rurelec and on generating sufficient headroom to be able to
start distributing funds to shareholders.
At the date of the signing of the Financial Statements, having
considered the cash forecasts from the Argentinian operation the
Directors believe, bearing in mind the reduced outgoings of the
Group, there is currently sufficient headroom in existing working
capital facilities to avoid the need to seek further sources of
working capital.
Key performance indicators
The Directors use a range of performance indicators to monitor
progress in the delivery of the Group's strategic objectives, to
assess actual performance against targets and to aid management of
the businesses.
Rurelec's key performance indicators ("KPIs") include both
financial and non-financial targets which are set annually.
Financial KPIs
Financial KPIs address cashflow, operating profitability, net
asset value and earnings per share.
i) Cash Flows
The Group is heavily focused on optimising cashflow generation.
It regularly monitors actual and forecast Net Cashflows used in
Operating Activities, Net Cashflows Generated by Investing
Activities (predominantly the repayment of loans from PEL) and Net
Cash Used in Financing Activities (although those will in the
foreseeable future be minimal as the Group has become debt-free).
After repaying GBP1.2 million of outstanding debt to BPAC in the
period, the Net decrease in Cash and Cash Equivalents in the year
was GBP214k (2018: increase GBP188k).
ii) Operating profitability
Operating loss excludes all non-operating costs, such as
financing and tax expenses as well as one-off items and non-trading
items such as negative goodwill. The exclusion of these
non-operating items provides an indication of the performance of
the underlying businesses. The Group made an operating loss of
GBP3.1 million in the year (2018 GBP2.9 million loss).
iii) Net asset value
Net asset value is calculated by dividing funds attributable to
Rurelec's shareholders by the number of shares in issue. The net
assets of the Group reduced in the year to 3.7 pence per share
(2018: 4.4 pence per share).
iv) Earnings per share
Earnings per share provide a measure of the overall
profitability of the Group. It is defined as the profit or loss
attributable to each Ordinary Share based on the consolidated
profit or loss for the year after deducting tax. Growth in earnings
per share is indicative of the Group's ability to identify and add
value. The Group made a loss of 0.79 pence per share in the year
(2018: loss of 0.11 pence per share) and hence there were no
positive earnings per share.
Non-Financial KPIs
Non-financial KPIs address other important technical aspects of
the business, such as gross capacity, operating efficiency and
availability.
i) Gross capacity
Gross capacity is the total generation capacity owned by Group
companies and is affected by acquisitions, expansion programmes and
disposals. EdS in which the Group has a 50 per cent. interest has
an installed nominal capacity output of 138 MW. No additional
capacity was added in the period. The group continues to own three
turbines ready for deployment in projects or onward sales. Two of
these have a nominal capacity of 125 MW, the other 38 MW.
ii) Operating efficiency
Operating efficiency is the average operating efficiency of the
generating plant owned by Group companies. It can be improved
through the installation of more thermally efficient turbines,
refurbishment activities or through conversion to combined cycle
operation. With the return to full production in January 2019, the
annual heat rate fell to 8.53 BTU/kWh (2018: 9.78 BTU/kWh).
iii) Technical availability
Technical availability measures when a plant is available for
dispatch. The measurement method excludes time allowed for planned
maintenance activities which occur at regular intervals during the
life of the unit plus an allowance for unplanned outages. Unplanned
and forced outages in excess of the annual allowance will cause a
reduction in the technical availability factor. Average
availability through the year for our plant in Argentina increased
to 89.0 per cent. (2018: 64.4 per cent.). 2018 was affected by
operating at reduced output following the September 2017 steam
turbine blade failure and 2018 major maintenance.
Review of Financial Performance
Group Results
The Group loss after tax for the financial year under review is
GBP4.4 million (2018: GBP0.6 million loss). This included foreign
exchange losses of GBP1.3 million (2018: GBP1.7 million gain). The
impairments/(impairment reversals) are detailed below:
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
Impairments/(Impairment reversals)
Impairment of turbine for Arica Project - 236
Loans to Joint Venture Companies
(see note 22) 235 2,429
Reversal of impairment of investment (188) -
in SEA SA
Impairment of turbines for Central 1,982 -
Illapa
Total 2,029 2,665
----------- -----------
Group revenue was nil (2018: nil), Operating and Administrative
expenses amounted to GBP1.2 million (2018: GBP1.5 million).
Operating loss was GBP3.1 million (2018: GBP2.9 million loss). The
loss before tax is GBP4.4 million (2018: GBP0.6 million loss). The
basic loss per share is 0.79p (2018: 0.11p loss). Total assets are
GBP21.0 million (2018: GBP26.8 million). Total equity stands at
GBP20.5 million (2018: GBP24.8 million), or a Net Asset Value of
3.7 pence per share (2018: 4.4 pence per share).
The results for the operations in Argentina, and Chile are shown
below.
Energia del Sur S.A. Results
After the application of Argentine GAAP accounting treatments to
recognise the effects of hyperinflation, at the operating level the
plant in Comodoro Rivadavia and therefore based on 100 per cent. of
EdS's activities the net operating profit for the year was AR$
702.7 million (2018: AR$ 158.3 million) on revenues of AR$ 1,350.8
million (2018: AR$ 672.3 million), the net pre-tax profit for the
year at EdS was AR$ 224.8 million (2018: loss AR$ 20.4 million)
which included foreign exchange losses of AR$ 166.4 million (2018:
AR$ 172.7 million).
As set out in note 22 the Directors have determined that the
relationship with EdS is a joint venture and is therefore equity
accounted.
Rurelec Chile
The development of our 100 per cent. owned investments in Chile
have expensed limited direct costs in the year of GBP98k (2018:
GBP167k). Capitalised development costs are GBP 0.1 million (2018:
GBP0.2 million) on the Central Illapa project. In 2019 the Arica
project/turbine was impaired by GBPnil (2018: GBP0.2 million), see
note 8 (b) for further details of impairment expense. The
development costs associated with the Central Illapa project were
not impaired in 2019 or 2018.
Review of Operations
Argentina
In January 2019, the combined cycle power plant resumed output
at normal operational levels following its restart after the
shutdown of the plant during the major maintenance of the steam
turbine that had commenced in October 2018. Although the combined
cycle recovered its nominal power after major maintenance, 125 MW,
transmission network restrictions limited its dispatch, so the
gross energy generated for the year 2019, 598 GWh was approximately
equal to that corresponding to the year 2018, 602 MWh. 2018 output
had been constrained by operating at reduced capacity following the
September 2017 breakdown. The average heat rate of the plant was
8.53 MMBTU/kWh (2018: 9.78 MMBTU/kWh). The average heat rate for
the plant includes fuel consumption on both the gas turbines and
auxiliary firing of the steam turbine.
The following table sets out the Group's 50 per cent. share of
its interest in Patagonia Energy Limited ("PEL") the BVI registered
joint venture holding company of EdS, its 100 per cent. owned
Argentinian operating subsidiary. This illustrates a substantial
turnaround in the operation's financial performance in 2019:
Group share of Joint Venture results Year Ended Year Ended
and net assets
31.12.2019 31.12.2018
GBP'000 GBP'000
Results
Revenue 11,295 8,715
Operating Expenses - excluding foreign
exchange losses (6,082) (5,575)
Foreign exchange losses (1,391) (2,225)
EBITDA 3,822 914
Depreciation (1,198) (1,065)
EBIT 2,624 (151)
Intragroup interest - 2019 credit re
write back of prior year charge 2,570 (1,573)
Third party interest payable (1,406) (195)
Profit/(Loss) before tax 3,787 (1,918)
Tax (1,079) (430)
Profit/(Loss) after tax 2,709 (2,348)
Summary of Statement of Financial Position
Non-current assets 15,889 14,327
Cash 1,713 514
Current trade and other receivables 4,907 2,009
Non-current liabilities (25,785) (26,548)
Current liabilities (4,881) (3,714)
Net assets/(liabilities) (8,157) (13,412)
Chile
Arica
Following the reassessment of the project the Board is
considering deploying the Frame 6B turbine acquired for the project
elsewhere. A buyer is to be sought for the turbine.
Central Illapa
The project has continued to make some progress in development.
It has maintained the necessary environmental consents granted for
the project and an application was made for the extension of the
construction period for the project from Ministerio de Bienes
Nacionales, the Chilean Ministry of National Assets whilst the
company pursues various options. The application for the extension
of the construction period was duly approved in January 2020 given
there are a limited and diminishing number of unbuilt gas thermal
plants which have a consented site in Chile (and the Directors
believe these are needed to provide electricity in the periods
where sustainable sources cannot operate effectively).
The Group's carrying value for projects is assessed for possible
impairments. In light of current local market conditions, in order
for the project to be attractive to joint venture partners, the
capital value of the 701 Siemens turbines going into the project
has been assessed at US $9.4 million (2018:US $12.0 million). The
Directors also obtained an independent valuation produced by a
competent person. Bearing in mind the limited market for these
turbines, based on valuation advice the Directors have decided to
impair the carrying value of these turbines by $2.6 million (2018 -
nil impairment). After exchange rate movements these assets are
duly recorded at a value of GBP7.7 million (2018: GBP10.0
million).
Future developments have been considered in the non-executive's
Director's statement.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group are
possible changes in demand and pricing for electricity in the
markets in South America in which the Group operates, political
risk, and uncertainties in the financial markets, and unexpected
operational events.
a) Political risk - there exists significant political risks in
areas where the Group operates. These include potential for
unfriendly actions towards foreign investments, the imposition of
new tariffs and/or taxes and/or government cash shortages resulting
in slow payment for electricity generated. There is also the
possibility that domestic economic instability could lead to
political unrest or vice versa. These are significant risks to
Rurelec which are inherent in operating in such territories
b) Financial markets - Should, after careful assessment, the
Group wish to develop its project, whilst project finance may be
available in the markets in which the Group operates, the Group's
plans remain dependent on raising project finance from a
combination of local partners and lending institutions.
c) Exposure to foreign currency - The Group's activities are in
South America and therefore the Group's results will be affected by
exchange rate movements and local inflation rates. Furthermore, at
times of economic crisis (such as existing in Argentina in late
2019 and to date), exchange controls restrictions have been imposed
and may be further tightened. These may have a significant impact
on the Group's ability to repatriate funds to the parent company,
and introduce an additional cost of achieving that repatriation.
The Group seeks to limit these risks by raising funds in the
currency of the operating units.
d) Efficient operation - The Group has an effective maintenance
programme and has entered into long term service agreements to
reduce these risks as appropriate.
e) Liquidity - The Group needs to be in a position to meet its
short-term cash requirements. Please see Going Concern in the
Directors Report and note 1b for further details.
f) Economic, market and business operations risk resulting from
pandemics, particularly COVID-19 pandemic -
In March 2020, the World Health Organisation declared the spread
of COVID-19 to be a pandemic. The rapid spread of the virus and
consequent global emergency containment measures resulted in
business closures, travel shutdowns and restrictions that have
severely curtailed economic activity. If the COVID-19 pandemic is
prolonged there are negative impacts for the UK, Argentinian and
Chilean economies where the Group operates. The demand for
electricity will experience some decline from the reduced
industrial and commercial activity, but background demand will
still exist. Of greater risk is the effect on already fragile
economies such as that of Argentina and what measures may be put in
place by their governments to fund the social and industrial
support necessary to prevent massive social hardship.
To date, there has not been a significant impact on operations.
London head office operations of Rurelec have continued remotely
without disruption. All current Head Office records were digitised
before the UK lockdown to allow for remote access and work has
continued from employee's homes. In Argentina, the early adoption
of measures to control the spread of the virus by the Government,
coupled with the relative isolation of the city of Comodoro
Rivadavia in central Patagonia where EdS is located and measures
taken by EdS management to minimise disruption have mitigated any
major adverse effect on EdS operations to date. The EdS plant is
operating with reduced on-site manpower, including restricted
on-site access for non-essential personnel. As at 20 May 2020 there
have been no notified cases of COVID-19 with any EdS employees at
the plant and as referred to above there are only 4 confirmed cases
of COVID-19 in the whole of Chubut province (an area of some
225,000 sq km) and no deaths. The EdS plant has not experienced any
shutdowns, no emergency tariffs have been introduced by the
Government, and there has been no significant disruption to its
supply chains to date. The EdS operation has continued to generate
cash broadly in line with expectations.
However, the ultimate duration, spread and effect of the
COVID-19 pandemic and any subsequent pandemics remain uncertain.
Despite widespread global stimulus packages and efforts to control
and eradicate the virus, this could eventually have permanent
adverse effects on the growth of those economies, the demand for
electricity, the ability to operate and the ability to obtain spare
parts and engineering expertise in the event of maintenance or
equipment breakdowns. There are no guarantees that if the virus did
spread further in Argentina there would not be significant
disruption and this could extend to an inability to get funds out
of the country to fund debt repayments owed to the Group.
The Group has mitigated the exposure to such risks by holding
sufficient cash to cover outgoings for at least the next 12 months
after the signing of the financial statements. This is discussed
further in the Going Concern section of the Directors Report
below.
g) COVID 19 - The impact of COVID-19 on the Group's source of
cash, EdS, has been assessed, Group cash flows have been prepared
under two scenarios:
iii) that cash will be normally received under current
conditions and local management's expectations, and
iv) that other than cash currently in transit, no further cash
will be received in the next twelve months, also known as a
'reverse stress test'.
Post year end, to date, the Group has received, in line with
modelled expectations, repayments from PEL of GBP1,129k with
GBP744k in transit. COVID-19 has had no impact on these
remittances. In the unlikely scenario that no further cash should
be received, the board consider that the Group has sufficient
resources to continue as a going concern for one year after the
date of this report, without further receipts.
Directors' Section 172 Statement
Statement by the directors in performance of their statutory
duties in accordance with s172(1) Companies Act 2006.
The Board of Directors of Rurelec Plc acknowledge that they have
a statutory duty under s172 (1) (a-f) of the Act to promote the
success of the Company for the benefit of the members as a whole
considering broader stakeholder interests, and notably having
regard to:
a) the likely consequence of any decision in the long term;
b) the interests of employees;
c) the need to foster business relationships with suppliers, customers and others;
d) the impact of operations on the community and the environment;
e) the desirability of the company maintaining a reputation for
high standards of business conduct; and
f) the need to act fairly as between members of the Company
We report below on how in the year ended 31 December 2019 the
Board's strategies, actions and key decision making took place
observing these duties with the objective of delivering positive
outcomes for the Company, its shareholders and its wider
stakeholders the most relevant of which have been identified as
including creditors, employees of the Company and of interests in
foreign JV operations [and those impacted by its operations in the
wider community].
a) Regarding the likely consequences of long-term decision
making, those decisions were made with clear strategic focus on the
need to return value to shareholders and the need to continue to
build financial strength. That strategy drove cash conservation and
cost cutting decisions so that the business could withstand
financial stress. The success of this strategy has been borne out
by the Board prepared stress-tests in May 2020 in response to the
potential business uncertainties resulting from the COVID-19
pandemic which showed the business had adequate working capital for
the 12 months from signing these Accounts even if there were to be
a cessation of cash receipts for that period.
With the resilience of Rurelec in mind the Directors invested
much time and effort into achieving an improvement in relations
with its JV partner in Patagonia Energy Limited, owner of the
Argentinian operations. That culminated in the decision to
formalise that improved relationship by signing the November 2019
Umbrella Agreement, Revised Shareholder Agreement and Amended Loan
Notes. Inter alia by waiving accrued interest (which had been fully
provided), the subsequent alignment of interests paved the way for
both JV parties to maximise the cashflow of the Argentinian
operations and to maximise the submission of cash from EdS to the
JV.
b) Our employees are fundamental to the delivery of our
strategy. The Board has prioritised fair remuneration and pension
arrangements for those employees and undertakes regular
communication updates in an open environment. Decisions taken to
maximise the resilience of the business, preserving cash and
minimising risk, are taken after prioritising the continued
employment of those employee roles that have been instrumental to
the turnaround of the business. Rurelec's Directors have been
instrumental in using impending retirements and encouraging
part-time working to lower the future costs of its Argentinian
operations and it has not at 22 May 2020 been necessary to make any
redundancies in response to COVID-19.
c) Regarding the need to foster business relationships with
suppliers, customers and others, Rurelec has for some time been
keen to repay arrears to trade creditors who have supported the
business over a significant timescale and to repay its key secured
creditor, BPAC. The decision in December 2019 to repay BPAC in full
has honoured that obligation and the debenture held by BPAC has
been released accordingly. The Company has been freed from the
interest burden that was being paid on that loan, thereby
benefitting other stakeholders. These decisions pave the way
towards Rurelec becoming debt free and to realising the Board's
stated objective of returning value to shareholders.
d) Regarding the impact of operations on the community and the
environment, Rurelec take a close interest in the operations in
Argentina and were instrumental in the decision to perform major
maintenance programmes on a gas turbine and on the steam turbine in
2019. This decision involved significant investment and was taken
in the knowledge that inter alia the maintenance should extend the
longevity of the turbines and provide safe, and environmentally
compliant generation of electricity. At the operations level, EDS
has assumed sustainable development of its activity and in the
region. Its Environmental Policy is adapted to the nature,
environment, scale and environmental impact of the activities and
services of the plant. It has implemented an Environmental
Management System that has been certified by Bureau Veritas. This
system has procedures, instructions, and records in accordance with
the requirements of ISO 14.001: 2004, whose compliance is verified
through periodic, external and internal audits that contribute to
the continuous improvement of EDS process.
e) Regarding the desirability of Rurelec maintaining a
reputation for high standards of business conduct, the Board of
Directors' intention is to behave responsibly and ensure that the
business operates in a responsible manner within the high standards
of business conduct and good governance. Regular communication
amongst the Board and employees and effective, formally recorded
Board Meetings ensure such standards are maintained. Where
appropriate, independent legal advice is obtained to support the
decision making process.
f) Regarding the need to act fairly as between members of the
Company, all shareholders are welcome to express their views at the
Annual General Meeting. In December 2019, the Company took the
decision to apply to shareholders and the law courts for a capital
reconstruction in 2020. This is recommended by the Board as it will
permit the Company to make distributions to shareholders when the
Company has adequate working capital headroom and will reward those
shareholders for their long support. This will be to the benefit of
all shareholder members.
The Strategic Report was approved by the Board of Directors on
29 May 2020 and was signed on its behalf by:
_______________________
Simon Morris (Executive Director)
BOARD OF DIRECTORS
BRIAN ROWBOTHAM
Non-Executive Director
Brian is the Senior Independent Non-Executive Director and
Chairman of the Audit Committee. He worked as a Chartered
Accountant with Deloitte and Touche. He has extensive experience
working in the City of London, joined Teather and Greenwood in 1997
and was involved as partner and then Finance Director in the
company's flotation on AIM and subsequent move to the Official
List. He ran his own consultancy specialising in turnarounds and
start-ups until joining Hitchens, Harrison & Co plc in January
2005. He left Hitchens, Harrison & Co plc after its acquisition
by Religare in 2008. Brian is a Fellow of the Institute of
Chartered Accountants in England and Wales. He holds a number of
other board positions.
SIMON MORRIS
Executive Director
Fellow of the Institute of Chartered Accountants in England and
Wales qualified as a Chartered Accountant in 1980. After obtaining
a degree in Business Studies, spent his career with Grant Thornton
and became a partner in 1988. He specialised in corporate finance
and corporate recovery, principally restructuring work. He was
appointed Chief Operating Officer of Grant Thornton UK in 2008,
retiring in late 2011. Since then he has acted as a business
consultant. He is also an accredited mediator.
ANDY COVENEY
Finance Director
Member of the Institute of Chartered Accountants, qualified as
Chartered Accountant in 1990. After obtaining a degree in Geology
from the University of Durham he joined Deloitte Haskins &
Sells, in 1991 then specialising in Corporate Finance advisory
work. In 1993, Andy embarked on a 15-year spell as FD/MD of several
financial and operational turnarounds in the manufacturing and
distribution sectors, starting with the acquisition and subsequent
turnaround of CP Pharmaceuticals Limited, a loss-making division of
Fisons plc before it was sold to Wockhardt Group a decade later.
Subsequent roles included Benders Holdings Limited and Bernstein
Group Holdings Limited before returning to the advisory world.
Founded Coveney Associates Consulting in 2010 providing FD advice,
turnaround services and cashflow management advice to a portfolio
of businesses.
DIRECTORS' REPORT
The Directors submit their annual report together with the
audited financial statements for the year ended 31 December
2019.
Principal activities
The Company and the Group's principal activity is the
acquisition, development and operation of power generation assets
in markets in Latin America.
Since the Company's admission to AIM in August 2004, the Company
acquired assets in Argentina and commenced development of new power
generation projects in Peru and Chile. The power generation
projects in Peru were sold on 30 January 2018.
Results and dividends
The Group results for the year ended 31 December 2019 are set
out in the Consolidated Statement of Total Comprehensive
Income.
No dividend was paid during the year to 31 December 2019 (2018:
nil).
Share capital
Details of the issued share capital are set out in Note 16 .
Going concern
In previous years accounts, the Directors have reported that
because of uncertainty over the timing of receipts, they have had
to pursue alternative sources of working capital. However, as at
the date of this report and in the light of the known and unknown
effects of the COVID 19 pandemic, the Directors considered it
appropriate to assess the future cash flows in two circumstances;
one prepared in current conditions and expectations and another
utilising existing resources only, otherwise known as a 'reverse
stress test'. Having considered the cash forecasts both for
expected receipts and without further receipts, from the
Argentinian operation the Directors believe there is sufficient
headroom in existing working capital facilities to avoid the need
to seek further sources of working capital.
During the year, the Company has been in negotiations for
prospective sales of Group assets. There exists uncertainty as to
if and when these sales complete, in addition to the timing of the
sales of assets as well as the quantum of the corresponding
proceeds. In particular, certain negotiations regarding prospective
asset sales have been put on hold pending an improvement in the
economic environment following the COVID-19 pandemic.
Despite the relatively low impact of the COVID-19 pandemic on
the Group's operations to date, the Board acknowledges that the
duration and impact of the COVID-19 pandemic on economic activity,
on global and regional markets, on government actions and on the
ability for operations to operate smoothly is uncertain. In such
circumstances, the Group's cashflow, liquidity and financial
position could be adversely affected in the near and long term.
However the Directors do not believe the pandemic will have a
significant impact on the going concern position of the Group
considering the Group has been able to build up sufficient cash
headroom from remittances from Argentina in Q4 2019 and Q1 2020.
Future cash flows have been assessed in two circumstances; one
prepared with current conditions and expectations and another
unlikely worst case scenario utilising existing cash and
cash-in-transit resources only, assuming no further receipts from
the Argentinian operations, otherwise known as a 'reverse stress
test'. Having considered these stress tests, the Directors believe
there is sufficient headroom in existing working capital facilities
in either scenario to avoid the need to seek further sources of
working capital for the foreseeable future.
In November 2019, the signing of the Umbrella Agreement and
Revised Shareholder Agreement with the JV partner has significantly
improved the clarity of how the available cash balances of the JV
will be split between the parties. In December 2019, the first debt
repayment of GBP0.5 million was duly received from the JV in part
payment of the Amended and Restated Loan Notes. The quantum and
timing of such receipts may still be subject to variation
(particularly as a result of Argentine exchange rate controls) and
are not guaranteed or secured. Loan repayments received to date
from the joint venture are expected to be sufficient to meet the
working capital requirements for the Group for a period of at least
12 months from the signing of the financial statements.
In conclusion, the Directors have assessed that the Group has
sufficient working capital based on their review of cashflow
forecasts for a period of at least 12 months from the signing of
the financial statements.
Directors
The following Directors served during the year and up to the
date of signature of the financial statements as follows:
Brian Rowbotham - Non-Executive Director
Simon C. Morris - Executive Director
Andy H. Coveney - Executive Director
Directors' interests
The Directors' beneficial interests in the number of shares inf
the Company were on the reference dates as stated below:
28.05.2020 31.12.2019 31.12.2018
Brian Rowbotham 450,000 450,000 450,000
Simon C. Morris - - -
Andrew H. Coveney - - -
Brian Rowbotham's holding represents 0.8per cent. of the number
of shares in issue.
Directors' Indemnity
The Company's Articles of Association provide, subject to the
provisions of UK legislation, an indemnity for Directors and
officers of the Company in respect of liabilities they may incur in
the discharge of their duties or in the exercise of their powers,
including any liabilities relating to the defence of any
proceedings brought against them which relate to anything done or
omitted, or alleged to have been done or omitted, by them as
officers or employees of the Company. Appropriate directors' and
officers' liability insurance cover is in place in respect of all
the Directors.
Significant shareholdings in the Company
In addition to the shareholdings shown above, the Company is
aware of the following interests of 3 per cent. or more in the
issued ordinary share capital of the Company notifiable at 28 May
2020, being the last practicable date for reporting this
information.
Number of shares % holding
Sterling Trust Ltd 303,092,303 53.989
YF Finance Ltd 96,565,166 17.201
Mr & Mrs Scott 17,808,000 3.172
The percentages shown are based on 561,387,586 shares in
issue.
Risk management and objectives
The financial risk management policies and objectives are set
out in Note 24 .
Statement of directors' responsibilities
The Directors are responsible for preparing the Strategic
Report, the Directors' Report, Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRSs") as adopted by
the European Union. Under company law, the Directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs and profit
or loss of the Company and Group for that period. In preparing
these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and accounting estimates that are reasonable and prudent;
-- state whether applicable IFRSs have been followed, subject to
any material departures disclosed and explained in the financial
statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
Group, and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the annual report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the Directors.
The Directors' responsibility also extends to the ongoing integrity
of the financial statements contained therein.
Statement as to disclosure of information to auditor
As far as the Directors are aware, they have each taken all
necessary steps to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that
information.
As far as the Directors are aware, there is no relevant audit
information of which the Company's auditor is unaware.
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the Companies Act
2006.
Auditor
In February 2019, Moore Stephens LLP merged with BDO LLP. As
part of this process Moore Stephens LLP resigned and BDO LLP were
engaged.
Pursuant to Section 489 of the Companies Act 2006, BDO LLP has
expressed its willingness to continue in office as auditor and a
resolution to reappoint it will be proposed at the forthcoming
Annual General Meeting.
On behalf of the Board
_________________
Maria J. Bravo Quiterio
Company Secretary
29 May 2020
CORPORATE GOVERNANCE REPORT
for the year ended 31 December 2019
Introduction
Statement from the Board of Directors
Rurelec PLC applies the QCA Corporate Governance Code (the "QCA
Code") published in April 2018 and this Corporate Governance report
for the year ended 31 December 2019 is based upon the Code.
The principal means of communicating our application of the QCA
Code are this Annual Report (pages 15-19) and our Corporate
Governance section on our website ( www.rurelec.com ).
This report sets out the Group's application of the Code, by the
Board, and where appropriate, cross reference to other sections of
the Annual Report.
Where our practices depart from the expectations of the Code,
the Board has given an explanation as to why, at this time, it is
appropriate for the Group to depart from the Code.
The QCA Code is constructed around ten broad principles and a
set of disclosures which notes appropriate arrangements for growing
companies and requires companies who have adopted the QCA Code to
provide an explanation about how they are meeting those principles
through the prescribed disclosures. In the paragraphs below, the
Board explains how it has applied them.
The Board of Directors
Rurelec PLC
Principle 1. Establish a strategy and business model which
promotes long-term value for shareholders.
The Board is committed to strengthening the Group's underlying
financial position before seeking opportunities to consolidate or
expand its business. The Board sets out to deliver long-term value
to shareholders in the following ways:
-- Stabilising the Group's position by reducing cash outflows;
-- Reducing the Company's vulnerability to fluctuations in the
timing of debt repayments receivable from subsidiaries and joint
ventures;
-- Working with joint venture partners to ensure that debts from
those entities are repaid to the fullest extent possible;
-- Paying off debts and creditor arrears to restore the business to financial stability;
-- Using that financial stability to permit an orderly
realisation of assets and investments in a timescale that allows
maximisation of the proceeds of such sales;
-- Where asset realisations are not possible in the short term
due to market conditions, preserving the value of those assets
and/or maximising the cashflow generated by those assets;
-- Undertaking development of projects only where to do so
involves low risk and where appropriate funding for the project has
already been secured.
The execution of this strategy presents key challenges in the
maximisation of returns on assets given market conditions. Those
challenges are addressed by ensuring that the Company is stable
enough to be able to avoid having to offload such assets when to do
so would minimise value, instead choosing to seek opportunities to
maximise the long term returns that will optimise value for
shareholders.
The business model as to how the Company plans to make money for
its investors revolves around maximising the long term collection
of debts owed in connection with the Joint Venture formed to
develop the EdS business in Argentina, and the maximisation of
dividend payments after those debts are repaid, whilst repaying
Rurelec's own creditors and continually assessing the value and
saleability of its assets with a view to developing and/or
realising those assets in such a way as to maximise the returns to
all shareholders.
Principle 2. Seek to understand and meet shareholder needs and expectations.
The Board attaches great importance to providing shareholders
with clear and transparent information on the Group's activities,
strategy and financial position. Details of all shareholder
communications are provided on the Group's website.
The Board regards the annual general meeting as a good
opportunity to communicate directly with shareholders via an open
question and answer session.
The Company lists contact details on its website and on all
announcements released via RNS, should shareholders wish to
communicate with the Board.
The resolutions put to a vote at past AGMs can be found in
www.rurelec.com/investors/circulars
The Board seeks to engage with all shareholders as and when
relevant information needs to be disclosed. The Board is cognisant
or is aware of the fact that different shareholders may have
different priorities regarding when those shareholders wish to
realise their shareholdings and are mindful of the need to consider
the interests of shareholders as a whole in this regard.
Shareholders can communicate with the Company through the email
address in its website. The Board is responsible for reviewing all
communications received from members and determining the most
appropriate response.
Principle 3. Take into account wider stakeholder and social
responsibilities and their implications for long-term success.
The contraction of the Group and the focus on stabilisation of
the financial position of the Company and Group has led to frequent
communication at Board level within the Company and regular
communication with suppliers/funders to maintain their confidence
in the business model and strategy being pursued by the Board. The
long-term success of the Group relies on maintaining open
communication and good relationships with its stakeholders.
Communication also extends to the Board receiving regular
updates and feedback within the small London-based workforce within
the Company and there are also regular communications with the
Executive Directors of the Group's joint venture partner in the
British Virgin Islands. The Group's main trading asset is the joint
venture operation in Argentina. This operation is run by a
full-time local management team that maintains good relations with
all key stakeholders to the business in Argentina, and which
provides a close point of contact for the Board's overseas
operations.
The Executive directors travel regularly to Argentina to meet
its existing key stakeholders.
Principle 4. Embed effective risk management, considering both
opportunities and threats, throughout the organisation.
Given past changes in the Company's financial position, the
current Board consider risk management to be of paramount
importance and this has driven its strategy of pursuing financial
stability rather than risky expansion in order that shareholder
value can be maximised through an orderly realisation of the
Group's assets. The risk position of the Group is considered on a
very regular basis by the Board given the cash constraints that the
Group has had to work within. The feedback on its strategy of
pursuing a low-risk approach is received clearly in terms of
reductions in cash outflow as measured by weekly reviews of cash
forecasting models, and in terms of reduced exposure to
fluctuations in cash inflow.
Although the Company does not undertake specific risk
assessments, the Board as a whole undertakes regular reviews of the
principal risks and uncertainties facing the Group as reported in
the Strategic Report. The Company is in the process of implementing
a risk register which will be under the Audit Committee to be
compliant with the QCA Code.
Principle 5. Maintain the Board as a well-functioning, balanced team led by the chair.
Due to the size of the company, the Board believes that it can
collectively, and competency execute a clear leadership function
without the appointment of a Chairman.
The Board takes collective responsibility for the quality of,
and approach to corporate governance by the Company, governance and
the systems and procedures by which the Company is directed and
controlled. A prescribed set of rules does not itself determine
good governance or stewardship of a company and, in fulfilling
their responsibilities, the Directors believe that they govern the
Company in the best interests of the shareholders, whilst having
due regard to the interests of other 'stakeholders' in the Group
including, in particular, customers, employees and creditors.
The Board is responsible for running the Company, including all
major business and financial risks and taking strategic
decisions.
The Directors communicate at least weekly on significant
matters, in particular on matters affecting cashflow and on matters
concerning the joint venture in Argentina.
Brian Rowbotham is considered to be independent since his
appointment in October 2013. The board has evaluated the
independence requirements of the QCA Code and considers that Brian
Rowbotham continues to be independent.
The number of times the Board met during the year to 31 December
2019 was 18. All directors were present at all the Board
meetings.
The three principal standing committees of the Board are the
Audit, Nominations and Remuneration Committees.
Audit Committee
The Audit Committee comprises Brian Rowbotham and Simon Morris
and is chaired by Brian Rowbotham. The Company's Auditors are
normally in attendance. The Company is not compliant with its terms
of reference or the requirements under the QCA Code. This is
because Brian Rowbotham is the only independent Non-Executive
Director. Instead the Audit Committee is comprised of the Board's
Non-Executive Director and an Executive Director.
The Audit Committee has an oversight of the group as a whole. It
monitors the integrity of the financial statements of the Company,
including its annual and interim reports relating to the Company's
financial performance. Last year the Audit Committee reviewed the
content of the Annual Report and Accounts and the Interims.
It made recommendations to the board in relation to the external
auditor and approved their remuneration and terms of engagement and
scope of audit.
The Company does not issue an Audit Committee Report.
Remuneration and Nominations Committees
Currently only Brian Rowbotham is a member of these committees
and therefore the Company is not compliant with its terms of
reference or the requirements under the QCA Code, which requires
that at least two independent Non-Executive Directors should sit on
them.
The executive directors are part time directors of the Company
although all directors are expected to commit sufficient time to
the Company in addition to attending the Board meetings.
The Board minutes and papers are circulated to directors in good
time and ahead of the relevant Board meeting.
The Board has established audit, remuneration and nominations
committees which meet regularly. Details of the Audit, Remuneration
and Nominations Committees:
Director Role at Date of Board Committee
31 December (re-) appointment
2019
Brian Rowbotham Senior Independent 27.06.2018 N R A
Non-Executive
Simon C. Morris Executive Director 20.07.2017 - - A
Andrew H. Coveney Executive Director 27.06.2019 - - -
N = Nomination Committee
R = Remuneration Committee
A = Audit Committee
The Audit Committee met 2 times during the year to 31 December
2019. All the committee members were present at the meetings.
Due to the size of the Company the Board does not comply with
the principle that the Board should at least have two independent
directors and therefore its committees' membership is also not
compliant with their terms of reference. Given the current level of
transactions within the Company, the Board considers that adequate
resources are available at Board level. The Company does not issue
a Nomination or Remuneration Committee Report.
Principle 6. Ensure that between them, the directors have the
necessary up to date experience, skills and capabilities.
The Company has three directors, Brian Rowbotham, Senior
Independent Non-Executive Director, Simon Morris, Executive
Director and Andrew Coveney, Executive Director. Biographical
details of the Directors can be obtained in
www.rurelec.com/about-us/board-of-directors-and-senior-management
As the financial position of the Group evolved, so have the
skills required of its directors. The current directors have been
chosen for their skills in maintaining, preserving and realising
shareholder value by pursuing financial stability rather than by
pursuing the aggressive expansion of the past. The two Executive
Directors have a wealth of experience of dealing with the
consequence of deterioration in the financial positions of
businesses and in implementing the change necessary to restore such
businesses back to stability. Those skills have been honed within
financial and restructuring backgrounds. It is important that the
directors are seen to be professional, reliable, trustworthy and
represent a safe pair of hands. All three directors are Chartered
Accountants and have a variety of experience gained through long
careers as directors in industry and commerce, and/or at partner
level in professional firms. This experience has involved regular
and frequent acquisition of enhanced skills in response to a series
of challenges and situations encountered in different businesses
and industries to supplement the updating of skills obtained
through the membership of professional organisations.
The Board understands the challenges in regard to gender
diversity and understands that more can be done to improve the
gender balance as part of the composition of the Board.
The directors keep their skills up to date by attending regular
professional briefings.
The directors receive briefings covering regulations that are
relevant to their role as directors of an AIM-quoted Company from
our Nominated Adviser ("Nomad") and lawyers. For example, the Board
has consulted the Company's lawyers and Nomad on various
disclosures and Market Abuse Regulation issues, amongst other
corporate governance issues.
The Board is grateful for the regular, thorough and diligent
input of a qualified professional Company Secretary who inputs into
and is central to everything that goes on in the Company. As such
the Company Secretary provides frequent advice to the Board. On
legal matters, the Company Secretary is ably supported by external
part-time counsel and the Company's solicitors. The Independent
Non-Executive Director provides guidance and support on relevant
matters on a regular basis.
Principle 7. Evaluate Board performance based on clear and
relevant objectives, seeking continuous improvement.
The Board evaluates its own performance on a monthly basis and
also regularly considers any feedback from external parties as and
when that feedback is received.
Board performance is evaluated in the light of its own strategic
objectives and tactical plans, in particular in relation to cash
management and other financial forecasts. Any Board appointments
are considered closely in relation to the ability of the proposed
Director to make an active contribution to delivering value to
shareholders though the achievement of the strategies and plans
balanced against the cost of such an appointment.
The Company has not previously engaged any external evaluation
for the performance of the Board members or external advisors for
succession planning. Candidates to the Board have been proposed by
the Board members based on their skills and experience and the
requirements of the Company at the time of the appointment.
There are currently no formal evaluations of the Board.
Principle 8. Promote a corporate culture that is based on ethical values and behaviours.
The Group's corporate culture is based on creating an atmosphere
of trust, openness, communication and professionalism. Due to the
size of the Company, the Board is in very close contact with its
employees and is able to engender professional development through
teamwork in its day to day and strategic activities.
The Company currently has 6 employees (including the directors).
The Board seeks to ensure that all of its employees are aware of
its ethical values communicating on a personal basis with its
employees and encourages the adoption of these values through the
appraisal and recruitment process.
Principle 9. Maintain governance structures and processes that
are fit for purpose and support good decision making by the
Board.
In addition to the high level of explanation of the application
of the QCA Code set out in the corporate governance statement:
-- The Board of Directors (the Board) is responsible for
approving Company policy and strategy. The Board meets regularly
throughout the year. To enable the Board to perform its duties,
each director has access to advice from the Company Secretary and
independent professionals at the Company's expense.
-- The Board comprises of 2 Executive Directors and 1 Non-Executive Director.
-- Biographical details of the Board of Directors can be obtained in www.rurelec.com/about-us/board-ofdirectors-and-senior-management .
-- All matters are reserved for the Board although the Board has
chosen to delegate some of them to the Audit, Remuneration and
Nominations Committees which will issue advice to the Board on
those matters. Some of the matters reserved for the Board
include:
o Reviewing, approving and guiding group strategy, annual
budgets and business plans; setting performance objectives;
monitoring and implementing corporate performance; and overseeing
major capital expenditures and disposals;
o Monitoring the effectiveness of the Company's governance
arrangements and practices, making changes as needed to ensure the
Company's governance framework complies with current best practices
in accordance with the size of the Company;
o Monitoring and managing potential conflicts of interest that
may arise with Board members, shareholders and external
advisors;
o Overseeing the process of external disclosure and
communications.
-- The Board is also responsible for all other matters which are
considered to be of importance to the Group as a whole because of
their strategic, financial or reputational implications or
consequences.
-- The Board has established audit, remuneration and nominations
committees which meet regularly. Details of these committees are
set out in Principle 5 above.
-- The Board has not used external consultants in the appointment of Directors.
-- All Directors are subject to re-election by shareholders in
accordance with the Company's Articles of Association.
-- There are no plans to change the current governance framework.
Principle 10. Communicate how the Company is governed and is
performing by maintaining a dialogue.
Disclosure of the outcomes of all votes are in
www.rurelec.com/investors/proxy-results
Historical annual reports and other governance-related material,
including notices of all general meetings over the last five years
can be obtained in www.rurelec.com/investors/circulars
Further disclosure required under QCA Principle 10 can be found
in Principles 5 and 9 above.
__________________
Maria J. Bravo Quiterio
Company Secretary
29 May 2020
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF RURELEC PLC
Opinion
We have audited the financial statements of Rurelec Plc (the
'Parent Company') and its subsidiaries (the 'Group') for the year
ended 31 December 2019 which comprise the consolidated income
statement, the consolidated statement of comprehensive income, the
consolidated statement of financial position, the company statement
of financial position, the consolidated statement of cash flows,
the company statement of cash flows, the consolidated statement of
changes in equity, the company statement of changes in equity and
the notes to the financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and, as regards the Parent Company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and of the Parent Company's affairs as at 31
December 2019 and of the Group's loss for the year then ended;
-- the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union ;
-- the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies
Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Group
and the Parent Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Key Audit Matter How our audit addressed the
Key Audit Matters
Valuation of assets (Note In this area our procedures
12) included:
Accounting policy 2.8 * Verifying the existence of the assets, their storage
and condition;
The Group holds two Siemens
701 turbines which have been
partially impaired. At the * Reviewing the valuation report prepared by an
year end the directors obtained independent expert, confirming the expert's
independent valuations to independence, assessing the conclusions reached and
confirm that the assets were the underlying assumptions used and the competency
not overstated in the financial and qualifications of the expert;
statements and to calculate
the carrying value.
* Reviewing evidence, including independent valuations,
Management's assessment of that the value of the assets is recoverable through
the valuations contain significant sale; and
estimation and judgement.
Given the subjectivity involved,
the carrying value of property, * Reviewing insurance documentation and
plant and equipment is considered storage/maintenance documentation to assess the risk
to represent a key audit matter. of further impairment.
Key Observations
Our work did not indicate that
management's assessment of
the valuations was not appropriate
------------------------------------------------------------------
Going Concern (Note 1)
Accounting policy 1b. * Reviewing budget and cash flow forecasts for at least
12 months from the date of approval of the financial
The Group continues to make statements
a loss, with the only operational
part of the business being
its investment in a joint * Obtaining support for the management assumptions used
venture, EnergÃa del in the forecast
Sur S.A, which is now starting
to make profits and repay
its loans to Rurelec. * Confirming the actual cash repayments to the Group of
the loan to the joint venture for the months post
Management's assessment of year end
going concern contains a number
of key assumptions, including
the effects of COVID-19 on * Reviewing board minutes during the year and post year
the Group, that require significant end for evidence of any issues that may impact on the
estimation and judgement. ability of the group to continue as a going concern
Given the subjectivity involved,
going concern is considered
to represent a key audit matter. * Reviewing the going concern assessment of the joint
venture EnergÃa del Sur S.A
* Reviewing the impacts COVID-19 has had on
EnergÃa del Sur S.A the Group and the Company.
* Reviewing stress tests on the Group based on
receiving no additional repayments from EnergÃa
del Sur S.A
* Confirmation of the repayment of the BPAC loan during
the year.
Key Observations
Our observations in respect
of going concern are set out
in the Conclusions related
to going concern section of
our audit report.
------------------------------------------------------------------
Valuation of investment and In this area our procedures
recoverability of intercompany included:
loans, including loans to * Obtaining loan confirmations of balances and any
joint venture (Note 13 & 21) interest accrued;
Accounting policy 2.11
* Reviewing the going concern assessment of
The repayment of these loans EnergÃa del Sur S.A.; and
and the recoverability of
the investment is dependent
on the economic feasibility * Assessing recoverability of the loans and investment
of the underlying projects through auditing financial projections models,
within the Group. The recoverability including all the inputs and assumptions and net
of these loans is judgemental asset positions of subsidiaries and the joint
and hence there is a risk venture.
that the loans are overstated.
The loans to the joint venture
and the intercompany loans
due to the Parent Company Key Observations
were reviewed by the directors
and it was deemed that no Our work did not indicate that
impairment was required based management's assessment of
on the cash flow models in the valuation of investments
respect of the joint venture and the recoverability of intercompany
Management's assessment of loans was not appropriate.
the valuation of investments
and inter-company loans contain
a number of key assumptions
that require significant estimation
and judgement. Given the subjectivity
involved, the carrying value
of investments and recoverability
of loans is considered to
represent a key audit matter.
------------------------------------------------------------------
Our application of materiality
We set certain thresholds for materiality. These help us to
establish transactions and misstatements that are significant to
the financial statements as a whole, to determine the nature,
timing and extent of our audit procedures and to evaluate the
effect of misstatements, both individually on balances and on the
financial statements as a whole.
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. In order to reduce to an appropriately low level the
probability that any misstatements exceed materiality, we use a
lower materiality level, performance materiality, to determine the
extent of testing needed. Importantly, misstatements below these
levels will not necessarily be evaluated as immaterial as we also
take account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements
In establishing the audit strategy, it was determined that the
level of uncorrected misstatements judged to be material for the
financial statements and our audit overall materiality would be
GBP615,000 (2018: GBP744,000), which is 3% of net assets, due to
the Group's activities of investing in power assets. This is the
threshold above which missing or incorrect information in financial
statements is considered to have an impact on the decision making
of users. Performance materiality for the group was calculated at
60% of overall materiality, being GBP369,000 (2018: GBP521,000).
For the Parent Company financial statements, materiality was
calculated to be GBP520,000 (2018: GBP520,000) using a net asset
basis.
For the component entities materiality was set in the range of
GBP199,000 to GBP3,000 (2018: GBP278,000 to GBP6,000).
We agreed to report to the Audit Committee all potential
adjustments in excess of GBP30,000 as well as differences below
that threshold that, in our view, warranted reporting on
qualitative grounds.
An overview of the scope of our audit
The Group operates through two trading subsidiary undertakings
registered in the UK and one joint venture undertaking registered
in the British Virgin Islands which were considered to be
significant components for the purposes of the audit as well as a
number of non-trading subsidiary undertakings. In establishing our
overall approach to the group audit, we determined the type of work
that needed to be performed in respect of each component. This
consisted of us carrying out a full audit of all significant
components of the group and specific procedures on the remaining
components. For the audit work required on joint venture we worked
with non BDO component auditors. We provided them with group
instructions and directed the component materiality and procedures
that needed to be undertaken. 100% of group net assets were covered
by full scope audits. We reviewed the work programmes that were
provided at planning and took part in planning meetings and closing
meetings to discuss the results.
We directed our work toward areas of the financial statements
which we assessed as having the highest risk of containing material
misstatements, and tested and examined information using both
analytical procedures and tests of detail, to the extent necessary
to provide us with a reasonable basis to draw conclusions. These
procedures, together with our detailed review of procedures
performed by component auditors, gave us the evidence that we need
for our opinion on the financial statements as a whole.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the annual
report and accounts, other than the financial statements and our
auditor's report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the Strategic Report and the
Directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the Strategic Report and the Directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and
the Parent Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
Strategic Report or the Directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the Parent Company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of Directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities
statement set out on page 13, the Directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the Directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's and the Parent Company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities .
This description forms part of our auditor's report.
Use of our report
This report is made solely to the Parent Company's members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to
the Parent Company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Laura Pingree (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
31 May 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2019
Notes Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
-------------------------------------- ------ ----------- -----------
Revenue 4 - -
Gross Profit - -
Administrative Expenses 6 (1,168) (1,510)
Other Income 8b 130 1,250
Impairment Charges 8b (2,029) (2,665)
Operating Loss (3,067) (2,925)
Share of Joint Venture Profit/(Loss) 21,22 - -
Foreign Exchange (Losses)/Gains 8a (1,287) 1,724
Finance Income 9 6 756
Finance Expense 9 (70) (177)
Loss before Tax (4,418) (622)
Tax Expense 10 - -
Loss for the year attributable to
owners of the Company (4,418) (622)
-------------------------------------- ------ ----------- -----------
Earnings per Share - in pence 11
Basic Loss per Share (0.79) (0.11)
Diluted Loss per Share (0.79) (0.11)
-------------------------------------- ------ ----------- -----------
The Notes on pages 33 to 56 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2019
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
---------------------------------------------- ----------- -----------
Loss for the year (4,418) (622)
Other Comprehensive (Loss)/Income for
the year:
Items that will be subsequently Reclassified
to Profit & Loss:
Exchange Differences on Translation
of Foreign Operations 136 215
Total Other Comprehensive Income 136 215
Loss for the year attributable to owners
of the Company (4,282) (407)
---------------------------------------------- ----------- -----------
The Notes on pages 33 to 56 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2019
31.12.2019 31.12.2018
Notes GBP'000 GBP'000
------------------------------------- ------ ----------- -----------
Assets
Non-current Assets
Property, Plant and Equipment 12 7,685 10,038
Investment in Joint Venture 21,22 3,474 -
Trade and Other Receivables 13a 6,423 -
17,582 10,038
Current Assets
Trade and Other Receivables 13b 3,272 16,394
Cash and Cash Equivalents 15 137 351
3,409 16,745
Total Assets 20,991 26,783
------------------------------------- ------ ----------- -----------
Equity and Liabilities
Shareholders' Equity
Share Capital 16 11,228 11,228
Share Premium Account 17 22,754 22,754
Foreign Currency Reserve 923 787
Special Non-distributable Reserve 17 45,000 45,000
Accumulated Losses (59,385) (54,967)
Total Equity attributable to owners
of the Company 20,520 24,802
Current Liabilities
Trade and Other Payables 18a 465 774
Current Tax Liabilities 19 6 7
Borrowings 20 - 1,200
Total Liabilities 471 1,981
Total Equity and Liabilities 20,991 26,783
------------------------------------- ------ ----------- -----------
The financial statements were approved by the Board of Directors
on 29 May 2020 and were signed on its behalf by Andrew H. Coveney
and Brian Rowbotham
______________ ___________________
Andrew H. Coveney Brian Rowbotham
The notes on pages 33 to 56 form an integral part of these
Consolidated Financial Statements.
COMPANY STATEMENT OF FINANCIAL POSITION COMPANY NUMBER: 4812855
At 31 December 2019
Notes
31.12.2019 31.12.2018
GBP'000 GBP'000
----------------------------------- ------ ----------- -----------
Assets
Non-current Assets
Investment in Joint Venture 21,22 3,474 -
Trade and Other Receivables 13 6,423 -
9,897 -
Current Assets
Inventories 14 7,167 9,456
Trade and Other Receivables 13a 3,593 16,613
Cash and Cash Equivalents 15 137 350
10,897 26,419
Total Assets 20,794 26,419
----------------------------------- ------ ----------- -----------
Equity and Liabilities
Shareholders' Equity
Share Capital 16 11,228 11,228
Share Premium Account 17 22,754 22,754
Special Non-distributable Reserve 17 45,000 45,000
Accumulated Losses (58,747) (54,239)
Total Equity 20,235 24,743
Current Liabilities
Trade and Other Payables 18b 554 469
Current Tax Liabilities 19 5 7
Borrowings 20 - 1,200
559 1,676
Total Equity and Liabilities 20,794 26,419
----------------------------------- ------ ----------- -----------
As permitted by s408 Companies Act 2006, the Company has not
presented its own profit and loss account and related notes. The
Company's loss for the year was GBP4.5 million (2018: loss GBP3.2
million).
The financial statements were approved by the Board of Directors
on 29 May 2020 and were signed on its behalf by Andrew H. Coveney
and Brian Rowbotham.
______________ ___________________
Andrew H. Coveney Brian Rowbotham
The notes on pages 33 to 56 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2019
Notes Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
--------------------------------------- ------ ----------- -----------
Cash Flows from Operating Activities
Cash used in Operations 23 (1,260) (1,341)
Net Cash used in Operating Activities (1,260) (1,341)
Cash Flows from Investing Activities
Proceeds from Sale of Subsidiary 60 132
Loan Repayments from Joint Venture
Company 2,246 2,029
Settlement of Deferred Consideration - (232)
Net Cash generated from Investing
Activities 2,306 1,929
Net Cash Inflow before Financing
Activities 1,046 588
Cash Flows from Financing Activities
Loan Principal Repayments 20 (1,200) -
Loan Interest Repayments 20 (60) (400)
Net Cash used in Financing Activities (1,260) (400)
(Decrease)/Increase in Cash and Cash
Equivalents (214) 188
Cash and Cash Equivalents at the
Start of the year 351 163
Cash and Cash Equivalents at the
End of the year 137 351
--------------------------------------- ------ ----------- -----------
The notes on pages 33 to 56 form an integral part of these
Consolidated Financial Statements.
COMPANY STATEMENT OF CASH FLOWS
for the year ended 31 December 2019
Notes Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------------------------------------- ------ ----------- -----------
Cash Flows from Operating Activities
Cash used in Operations 23 (1,161) (1,230)
Net Cash used in Operating Activities (1,161) (1,230)
Cash Flows from Investing Activities
Proceeds from Sale of Subsidiary 60 132
Investment in and Loans to Subsidiaries (98) (112)
Loan repayments from Subsidiaries 1,235 2,031
Loan Repayments from Joint Venture 1,011 -
Company
Settlement of Deferred Consideration - (232)
Net Cash generated from Investing
Activities 2,208 1,818
Net Cash Inflow before Financing
Activities 1,047 588
Cash Flows from Financing Activities
Loan Principal Repayments 20 (1,200) -
Loan Interest Repayments 20 (60) (400)
Net Cash used in Financing Activities (1,260) (400)
(Decrease)/Increase in Cash and Cash
Equivalents (213) 188
Cash and Cash Equivalents at the
Start of the year 350 162
Cash and Cash Equivalents at the
End of the year 137 350
----------------------------------------- ------ ----------- -----------
The notes on pages 33 to 56 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
Share Share Foreign Accumulated Special Total
Capital Premium Currency Losses Non-distributable
Reserve Reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- ---------- ------------ ------------------- --------
Balance at 01.01.2018 11,228 22,754 572 (54,345) 45,000 25,209
Loss for the year
attributable to
owners of the parent - - - (622) - (622)
Exchange Differences - - 215 - - 215
Total Comprehensive
Loss - - 215 (622) - (407)
Balance at 31.12.2018 11,228 22,754 787 (54,967) 45,000 24,802
Loss for the year
attributable to
owners of the parent - - - (4,418) - (4,418)
Exchange Differences - - 136 - - 136
Total Comprehensive
Loss - - 136 (4,418) - (4,282)
Balance at 31.12.2019 11,228 22,754 923 (59,385) 45,000 20,520
Notes: 16 17 17
The notes on pages 33 to 56 form an integral part of these
Consolidated Financial Statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
Share Capital Share Accumulated Special Total
Premium Losses Non-distributable
Reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- --------- ------------ ------------------- --------
Balance at 01.01.2018 11,228 22,754 (50,989) 45,000 27,993
Loss for the year - - (3,250) - (3,250)
Total Comprehensive
Loss - - (3,250) - (3,250)
Balance at 31.12.2018 11,228 22,754 (54,239) 45,000 24,743
Loss for the year - - (4,508) - (4,508)
Total Comprehensive
Loss - - (4,508) - (4,508)
Balance at 31.12.2019 11,228 22,754 (58,747) 45,000 20,235
Notes: 16 17 17
The notes on pages 33 to 56 form an integral part of these
Consolidated Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. GENERAL INFORMATION, BASIS OF PREPARATION AND NEW ACCOUNTING STANDARDS
1a. General information
Rurelec PLC is the Group's ultimate parent company. It is
incorporated and domiciled in England and Wales. The address of
Rurelec's registered office is given on the information page.
Rurelec's shares are traded on the AIM market of the London Stock
Exchange PLC.
The nature of the Group's operations and its principal
activities are the generation of electricity in South America.
1b. Basis of preparation
The Company and the consolidated financial statements have been
prepared in compliance with International Financial Reporting
Standards ("IFRSs") and International Financial Reporting
Interpretations Committee ("IFRIC") interpretations as adopted by
the European Union and company law applicable to companies
reporting year ended 31 December 2019.
Basis of measurement
The presentational currency of the Group is Pounds Sterling. The
functional currencies of Group entities are Pounds Sterling,
Argentinian Pesos, Chilean Pesos and United States Dollars.
Going Concern
In previous year's accounts, the Directors have reported that
because of uncertainty over the timing of receipts, they have had
to pursue alternative sources of working capital. However, as at
the date of this report and in the light of the known and unknown
effects of the 2020 COVID 19 pandemic, the Directors considered it
appropriate to assess the future cash flows in two circumstances;
one prepared in current conditions and expectations and another
unlikely worst case scenario utilising existing cash and
cash-in-transit resources only, assuming no further receipts from
Argentinian operations, otherwise known as a 'reverse stress test'.
Having considered these stress tests, the Directors believe there
is sufficient headroom in existing working capital facilities to
avoid the need to seek further sources of working capital for the
foreseeable future, which is considered to be 12 months from the
date of signing of these financial statements under either
scenario.
During the year, the Company has been in negotiations for
prospective sales of Group assets. There exists uncertainty as to
if and when these sales complete, in addition to the timing of the
sales of assets as well as the quantum of the corresponding
proceeds. In particular, certain negotiations regarding prospective
asset sales have been put on hold pending an improvement in the
economic environment following the COVID-19 pandemic.
Despite the relatively low impact of the COVID-19 pandemic on
the Group's operations to date, the Board acknowledges that the
duration and impact of the COVID-19 pandemic on economic activity,
on global and regional markets, on government actions and on the
ability for operations to operate smoothly is uncertain. In such
circumstances, the Group's cashflow, liquidity and financial
position could be adversely affected in the near and long term.
The Directors do not believe the pandemic will have a
significant impact on the going concern position of the Group
considering the Group has been able to build up sufficient cash
headroom from remittances from Argentina in Q4 2019 and Q1
2020.
In November 2019, the signing of the Umbrella Agreement and
Revised Shareholder Agreement with the JV partner has significantly
improved the clarity of how the available cash balances of the JV
will be split between the parties. In December 2019, the first debt
repayment of GBP0.5 million was duly received from the JV in part
payment of the Amended and Restated Loan Notes.
The quantum and timing of such receipts may still be subject to
variation (particularly as a result of Argentine exchange rate
controls) and are not guaranteed or secured. Loan repayments
received to date from the joint venture are expected to be
sufficient to meet the working capital requirements for the
Group.
In conclusion, the Directors have assessed that the Group would
have sufficient working capital based on their review of cashflow
forecasts for a period of at least 12 months from the signing of
the financial statements.
1c. New accounting standards
The Directors consider that no revisions to IFRS standards
implemented in the year have had any significant effect on these
statements.
Effects of changes in accounting policies
The Group adopted IFRS 16 and IFRIC 23 with a transition date of
1 January 2019. The Group has chosen not to restate comparatives on
adoption of both standards, and therefore, the revised requirements
are not reflected in the prior year financial statements. Rather,
these changes have been processed at the date of initial
application (i.e. 1 January 2019) and recognised in the opening
equity balances. Details of the impact the two standards have are
given below. Other new and amended standards and interpretations
issued by the IASB did not impact the Group as they are either not
relevant to the Group's activities or require accounting which is
consistent with the Group's current accounting policies.
IFRS 16 Leases
Effective 1 January 2019, IFRS 16 has replaced IAS 17 Leases and
IFRIC 4 Determining whether an Arrangement Contains a Lease.
IFRS 16 provides a single lessee accounting model, requiring the
recognition of assets and liabilities for all leases, together with
the option to exclude leases where the lease term is 12 months or
less, or where the underlying asset is of low value. IFRS 16
substantially carries forward the lessor accounting in IAS 17, with
the distinction between operating leases and finance leases being
retained. The Group does not have significant leasing activities
acting as a lessor, also, there is no impact as a lessee.
The Directors have completed their assessment of the impact of
the adoption of this standard and consider that there will be no
impact to the current or future reporting, based on current
conditions.
IFRIC 23 Accounting for uncertain income tax treatments
Effective 1 January 2019. The Board does not consider that the
implementation of IFRIC 23 has any material impact on the Group's
tax treatment. The Board have engaged tax advisors to review the
Group's tax situation on an ongoing basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of Consolidation
The consolidated financial statements comprise the financial
statements of the Group and its subsidiaries as at 31 December
2019. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the
investee.
Generally, there is a presumption that a majority of voting
rights result in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an
investee.
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group loses control
of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
All intra-group assets and liabilities, equity, income, expenses
and cash flows relating to transactions between members of the
Group are eliminated in full on consolidation.
A joint venture is a joint arrangement whereby the Group and
other parties that have joint control of the arrangement have
rights to the net assets of the arrangement (IFRS 11). Under the
equity method, investments in joint ventures are carried in the
consolidated statement of financial position at cost as adjusted
for post-acquisition changes in the Group's share of the net assets
of the joint venture, less any impairment in the value of
individual investments. Losses of a joint venture in excess of the
Group's investment in that joint venture are not recognised, unless
the Group has incurred legal or constructive obligations or made
payments on behalf of the joint venture.
Any excess of the cost of acquisition over the Group's share of
the net fair value of the identifiable assets, liabilities and
contingent liabilities of the joint venture recognised at the date
of acquisition is recognised as goodwill.
The goodwill, if any is included within the carrying amount of
the investment and is assessed annually for impairment as part of
the investment. Any excess of the Group's share of the net fair
value of the identifiable assets, liabilities and contingent
liabilities over the cost of acquisition, after reassessment, is
recognised immediately as a profit or loss.
Unrealised gains on transactions between the Group and its joint
venture are eliminated to the extent of the Group's interest in the
joint venture. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset
transferred. Unrealised gains on transactions between the Group and
subsidiary entities are eliminated. Amounts reported in the
financial statements of subsidiary and joint venture entities have
been adjusted where necessary to ensure consistency with the
accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with by the acquisition
method. This method involves the recognition at fair value of all
identifiable assets and liabilities, including contingent
liabilities of the acquired company, at the acquisition date,
regardless of whether or not they were recorded in the financial
statements of the entity prior to acquisition. On initial
recognition, the assets and liabilities of the acquired entity are
included in the consolidated statement of financial position at
their fair values, which are also used as the bases for subsequent
measurement in accordance with the Group's accounting policies.
Investments in subsidiaries are stated at cost less impairment in
the statement of financial position of the Company.
2.2 Equity Accounted Joint Ventures
The Group reports its interests in joint ventures using the
equity method of accounting, except when the investment is
classified as held for sale. Whilst the Group does not directly
have revenues, its JV operating plant at EdS does. Revenues are
derived from electricity exported to the Argentinian grid. CAMMESA
records the level of exports, raising the required documentation,
on a monthly basis. This is agreed with EdS, the receivables then
become due for payment after 60 days.
2.3 Goodwill
Goodwill representing the excess of the cost of acquisition over
the fair value of the Group's share of the identifiable net assets
acquired is capitalised and reviewed annually for impairment.
Goodwill is stated after separating out identifiable assets and
liabilities. Goodwill is carried at cost less accumulated
impairment losses.
Any excess of interest in acquired assets, liabilities and
contingent liabilities over fair value is recognised immediately
after acquisition through the income statement.
2.4 Foreign Currency Translation
The financial information is presented in pounds sterling, which
is also the functional currency of the parent company.
In the separate financial statements of the consolidated
entities, foreign currency transactions are translated into the
functional currency of the individual entity using the exchange
rates prevailing at the dates of the transactions ("spot exchange
rate"). Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation of
remaining balances at year-end exchange rates are recognised in the
income statement within 'Foreign Exchange (Losses)/Gains'.
In the consolidated financial statements, all separate financial
statements of subsidiaries and joint ventures, originally presented
in a currency different from the Group's presentation currency,
have been converted into sterling. Assets and liabilities have been
translated into sterling at the closing rate at the reporting date.
Income and expenses have been converted into sterling at the
average rates over the reporting period. 2019 marks the second year
of inflation accounting adjustments in Argentina. It is the
Directors' judgement that the Argentine GAAP hyperinflation
adjustments to the accounts of the Group's Joint Venture operations
in Argentina give an approximate fair value of these operations.
There are no material differences arising from Argentine GAAP
inflationary accounting and IAS 29.
Non-monetary assets are valued at historic rates.
2.5 Expense recognition
Operating expenses are recognised in the income statement upon
utilisation of the service or at the date of their origin. All
other income and expenses are reported on an accrual basis.
2.6 Dividends
Dividends, other than those from investments in associates and
joint ventures, are recognised at the time the right to receive
payment is established. No dividends were paid or received during
the year (2018: nil).
2.7 Borrowing Costs
All borrowing costs are expensed as incurred except where the
costs are directly attributable to specific construction projects,
in which case the interest cost is capitalised as part of those
assets
2.8 Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of
depreciation and any provision for impairment. No depreciation is
charged during the period of construction.
All operational buildings and plant and equipment in the course
of construction are recorded as plant under construction until such
time as they are brought into use by the Group. Plant under
construction includes all direct expenditure and may include
capitalised interest in accordance with the accounting policy on
that subject. On completion, such assets are transferred to the
appropriate asset category.
Repairs and maintenance are charged to the income statement
during the financial period in which they are incurred. The cost of
major renovations and overhauls is included in the carrying amount
of the assets where it is probable that the economic life of the
asset is significantly enhanced as a consequence of the work. Major
renovations and overhauls are depreciated over the expected
remaining useful life of the work.
Depreciation is calculated to write down the cost less estimated
residual value of all property, plant and equipment other than
freehold land which is not depreciated by equal annual instalments
over their estimated useful economic lives. The periods generally
applicable are:
Plant and equipment 3 to 15 years
Material residual values are updated as required, but at least
annually. Where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down immediately to its
recoverable amount.
2.9 Impairment of Tangible and Intangible Assets
At each reporting date, the Group reviews the carrying amount of
its property, plant and equipment and intangible assets to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where it is not
possible to estimate the recoverable amount of an individual asset,
the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs of
disposal and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised immediately in
the income statement. The Group recognises a cash-generating unit
by its ability to independently earn income. The Group carries each
cash-generating unit in an individual special purpose company, so
they are easily recognised.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but only to the extent
that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior years.
A reversal of an impairment loss is recognised immediately in the
income statement.
2.10 Taxation
Current income tax assets and liabilities comprise those
obligations to, or claims from, fiscal authorities relating to the
current or prior reporting period, that are unpaid at the reporting
date. They are calculated according to the tax rates and tax laws
applicable to the fiscal periods to which they relate, based on the
taxable profit for the period. All changes to current tax assets or
liabilities are recognised as a component of tax expense in the
income statement or through the statement of changes in equity.
Deferred income taxes are calculated using the liability method
on temporary differences. This involves the comparison of the
carrying amounts of assets and liabilities in the consolidated
financial statements with their respective tax bases. However, in
accordance with the rules set out in IAS 12, no deferred taxes are
recognised in respect of non-tax-deductible goodwill. In addition,
tax losses available to be carried forward as well as other income
tax credits to the Group are assessed for recognition as deferred
tax assets.
Deferred tax liabilities are provided for in full with no
discounting. Deferred tax assets are recognised to the extent that
it is probable that the underlying deductible temporary differences
will be able to be offset against future taxable income. Current
and deferred tax assets and liabilities are calculated at tax rates
that are expected to apply to their respective period of
realisation, provided that they are enacted or substantially
enacted at the reporting date.
Deferred tax is provided on differences between the fair value
of assets and liabilities acquired in an acquisition and the
carrying value of the assets and liabilities of the acquired entity
and on the differences relating to investments in subsidiary and
joint venture companies if the difference is a temporary difference
and is expected to reverse in the foreseeable future.
Changes in deferred tax assets and liabilities are recognised as
a component of tax expense in the income statement, except where
they relate to items that are accounted for through other
comprehensive income or charged or credited directly to equity in
which case the related deferred tax is also charged or credited
directly to equity, or other comprehensive income.
2.11 Financial Assets
The Group's financial assets include cash and cash equivalents,
loans and receivables, held at amortised cost.
Cash and cash equivalents include cash at bank and in hand as
well as short term highly liquid investments such as bank
deposits.
Loans and receivables are non-derivative financial assets with
fixed or determinable payment dates that are not quoted in an
active market. These are assets held on a 'hold to collect' basis.
They arise when the Group provides money, goods or services
directly to a debtor with no intention of trading the receivable.
Receivables are measured initially at fair value and subsequently
remeasured to test for impairment, the carrying value is less
provision for impairment. Any impairment is recognised in the
income statement.
The portion of loans due from the Joint Venture which are
expected to be received in 2020 are shown as current assets,
repayments commenced in 2019. The remainder are expected in 2021 to
2027, these are shown as non-current assets.
2.12 Financial Liabilities
Financial liabilities are obligations to pay cash or other
financial instruments and are recognised when the Group becomes a
party to the contractual provisions of the instrument.
A financial liability is derecognised only when the obligation
is extinguished, that is when the obligation is discharged,
cancelled or expires.
Bank and other loans are raised for support of short-term
funding of the Group's operations. They are recognised initially at
fair value, net of transaction costs and are subsequently measured
at amortised cost using the effective interest method. Finance
charges, including premiums payable on settlement or redemption,
and direct issue costs are charged to the income statement on an
accruals basis using the effective interest method and are added to
the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
2.13 Short term leases
The Group have adopted IFRS 16 from 1 January 2019 however the
Group have not entered into any material operating leases.
2.14 Inventories
Inventories in the Company comprise turbines and associated
spare parts and similar items for use in the Group's plant and
equipment. Inventories are carried at the lower of cost and net
realisable value.
2.15 Shareholders' Equity
Equity attributable to the shareholders of the parent company
comprises the following:
"Share capital" represents the nominal value of equity
shares.
"Share premium account" represents the excess over nominal value
of the fair value of consideration received for equity shares, net
of expenses of the share issue.
"Foreign currency reserve" represents the differences arising
from translation of investments in overseas subsidiaries.
"Accumulated Losses" represents losses to date.
"Special Non-distributable reserves" comprises the reduction of
the share premium account.
2.16 Pensions
Under the Pensions Act 2008, every employer in the UK must put
certain staff into a workplace pension scheme and contribute
towards it. This is called 'automatic enrolment'. Rurelec staging
date was 1 October 2017. Rurelec chose to set up its auto enrolment
contribution plan pension scheme with NEST which ensures access to
suitable, low-charge pension provision to meet the new duty to
enrol all eligible workers into a workplace pension
automatically.
Rurelec also offers a Salary Sacrifice Scheme within NEST by
which employees sacrifice part of their salary in exchange for the
company to make an employer contribution on their behalf to the
pension scheme and also to contribute their national insurance
savings on the amount sacrificed by the employee.
During the year under review, the Company continued its
contributions to the contribution plan NEST Pension scheme.
2.17 Segment Reporting
In identifying its operating segments, management follows the
Group's geographic locations and are reported in a manner
consistent with the Chief Operating Decision Maker. The activities
undertaken by segments are the development of generation assets and
generation of electricity in their country of incorporation within
South America.
Each of the operating segments is managed separately as the
rules and regulations vary from country to country.
The measurement policies used by the Group for segment reporting
under IFRS 8 are the same as those used in the financial
statements.
3. KEY ASSUMPTIONS AND ESTIMATES
When preparing the financial statements, management makes a
number of judgements, estimates and assumptions about the
recognition and measurement of assets, liabilities, income and
expenses. The actual results may differ from the judgements,
estimates and assumptions made and will seldom equal the estimated
results. The areas which management consider are likely to be most
affected by the significant judgements, estimates and assumptions
on recognition and measurement of assets, liabilities, income and
expenses are:
Impairment - management review tangible and intangible assets,
including intra group and Joint Venture loans, at each balance
sheet date to determine whether there is in their judgement any
indication that those assets have suffered an impairment loss. This
review process includes making assumptions about future events,
circumstances and operating results. The actual results may vary
from those expected and could therefore cause significant
adjustments to the carrying value of the Group's assets. Details of
the assumptions underlying management's forecasts for the Group's
main Cash Generating Unit ("CGU") are set out in Note 8b.
4. SEGMENT ANALYSIS
Management currently identifies the Group's four geographic
operating segments; Argentina, Chile, Peru and the head office in
the UK, as operating segments as further described in the
accounting policy note. These operating segments are monitored, and
strategic decisions are made on the basis of segment operating
results. The Group's joint venture operations in Argentina have
been excluded, see note 22 for more detail.
The following tables provide an analysis of the operating
results, total assets and liabilities, in 2019 and 2018 for each
geographic segment.
a) 12 months to 31.12.2019
Chile Peru UK Consolidation Total
Adjustments
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- -------------- --------
Administrative Expenses (112) - (1,056) - (1,168)
Loss from Operations (112) - (1,056) - (1,168)
Other Income - - 130 - 130
Other Expense - - (2,029) - (2,029)
Foreign Exchange (Losses)/Gains (216) - (1,071) - (1,287)
Finance Income - - 609 (603) 6
Finance Expense (613) - (60) 603 (70)
(Loss)/Profit before Tax
from Operations (941) - (3,477) - (4,418)
Tax Expense - - - - -
Total (Loss)/Profit (941) - (3,477) - (4,418)
Total Assets 1,264 - 21,316 (1,589) 20,991
Total Liabilities 12,428 - 420 (12,377) 471
b) 12 months to 31.12.2018
Chile Peru UK Consolidation Total
Adjustments
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- -------------- --------
Administrative Expenses (120) - (1,407) 17 (1,510)
Loss from Operations (120) - (1,407) 17 (1,510)
Other Income - 1,250 - - 1,250
Other Expense (236) - - (2,429) (2,665)
Foreign Exchange (Losses)/Gains (10) - 1,734 - 1,724
Finance Income - - 568 188 756
Finance Expense (568) - (177) 568 (177)
(Loss)/Profit before Tax
from Operations (934) 1,250 718 (1,656) (622)
Tax Expense - - - - -
Total (Loss)/Profit (934) 1,250 718 (1,656) (622)
Total Assets 1,922 - 26,419 (1,558) 26,783
Total Liabilities 12,289 - 1,676 (11,984) 1,981
5. EXCHANGE RATE SENSITIVITY ANALYSIS
The key exchange rates applicable to the results were as
follows:
Year Ended Year Ended
31.12.2019 31.12.2018
----------- -----------
i) Closing rate
US $ to GBP 1.3116 1.2690
CLP (Chilean Peso) to GBP 977.2 879.8
ii) Average rate
US $ to GBP 1.2764 1.3306
CLP (Chilean Peso) to GBP 905.9 853.0
If the exchange rate of sterling at 31 December 2019 had been
stronger or weaker by 10 per cent. from the above, with all other
variables held constant, shareholder equity at 31 December 2019
would have been GBP2.0 million (2018: GBP2.5 million) lower or
higher than reported.
If the average exchange rate of sterling during 2019 had been
stronger or weaker by 10 per cent. with all other variables held
constant, the effect on the loss for the year would have been
GBP0.1 million (2018: GBP0.1 million) higher or lower than
reported.
If the average exchange rate of sterling during 2019 had been
stronger or weaker by 10 per cent. with all other variables held
constant, the effect on the total other comprehensive loss for the
year would have been GBP0.02 million (2018: GBP0.02 million) higher
or lower than reported.
6. ADMINISTRATIVE EXPENSES
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
Expenditure incurred in administrative
expenses is as follows:
Payroll and Social Security 550 632
Services, Legal and Professional 311 484
Office Costs and General Overheads 239 328
Audit Costs(1) 68 66
Total 1,168 1,510
----------- -----------
(1) Audit services include GBP58k (2018: GBP54k) paid to the
auditors for the audit of the Company and Group's financial
statements. GBP10k (2018: GBP10k) for the audit of the Group's
subsidiaries. Fees paid to other auditors, in respect of the audit
of joint venture companies, amounted to GBP16.8k (2018: GBP17.6k).
The group auditors also provided taxation services for the Group in
the year, the costs were GBP11.4k. (2018: GBP13.0k).
7. EMPLOYEE COSTS
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
a) Group
Aggregate remuneration of all employees
and Directors 517 592
Social Security Costs 20 28
Pension Costs 13 12
----------- -----------
Total 550 632
----------- -----------
The average number of employees in the Group, including
Directors, during the year was as follows:
Year Ended Year Ended
31.12.2019 31.12.2018
----------- -----------
Management 3 3
Administration and development 4 5
Total 7 8
----------- -----------
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
b) Company
Aggregate remuneration of all employees
and Directors 499 572
Social Security Costs 17 28
Pension Costs 13 11
----------- -----------
Total 529 611
----------- -----------
The average number of employees in the Company, including
Directors, during the year was as follows:
Year Ended Year Ended
31.12.2019 31.12.2018
----------- -----------
Management 3 3
Administration and development 3 4
Total 6 7
----------- -----------
c) Directors' remuneration
The total remuneration paid to the Directors was GBP314k (2018:
GBP322k). The total remuneration of the highest paid Director was
GBP186k (2018: GBP201k). There were no health insurance costs,
bonuses, pension costs or share based payments paid during the year
(2018: Nil).
Year Ended Year Ended Year Ended
31.12.2019 31.12.2019 31.12.2018
GBP'000 GBP'000 GBP'000
Base Salary/Fee Total Total
---------------- ----------- -----------
B Rowbotham 30 30 30
S Morris 98 98 91
A Coveney 186 186 201
---------------- ----------- -----------
Total 314 314 322
B Rowbotham has been on payroll in 2018 and 2019.
S Morris provided services under a service agreement contract
with SC Morris Ltd.
A Coveney provided services under a service agreement contract
with Coveney Associates Consulting Ltd.
8. a) FOREIGN EXCHANGE
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
Foreign Exchange (Losses)/Gains (1,287) 1,724
Total (1,287) 1,724
----------- -----------
Foreign currency-based assets are translated at the relevant
year end rates. The majority of foreign exchanges (losses)/gains
were incurred on the 701 turbines, 2019 carrying value US$9.4
million (2018: US$12.0 million) resulted in GBP0.3 million 2019
loss and JV receivables 2019 carrying value US$16.9 million (2018
US$20.3 million) resulted in 2019 losses of GBP0.7 million.
b) OTHER INCOME/IMPAIRMENT CHARGES/(REVERSALS)
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
Other Income
Realised gain on disposal - Cascade
Hydro Ltd - 1,250
Agency Fees on RPFL's loan to EdS 107 -
Director's fees due from EdS 23 -
----------- -----------
Total 130 1,250
----------- -----------
Impairment Charges/(Reversals)
Impairment of turbine for Arica Project - 236
Loans to Joint Venture Companies
(see note 22) 235 2,429
Reversal of prior year impairment (188) -
of investment in SEA
Impairment of turbines for Central 1,982 -
Illapa
Total 2,029 2,665
----------- -----------
During the year the directors tested all major assets for
indication of impairment the results of these were:
LOANS TO JOINT VENTURE COMPANIES:
Carrying Value 1.1.19 GBP16.0m
Exchange adjustment GBP(0.8)m
Repayments GBP(2.1m)
Impairment in year GBP(0.2m)
Amount recognised as investment GBP(3.5m)
(note 21)
Recoverable amount/Carrying GBP 9.4m
Value 31.12.19
The carrying value of the loans is based on the replacement
Amended Loan Notes, gross value at 31 December 2019 of GBP12.9
million. These notes bear zero interest and have a long stop
maturity of 31 December 2039. Carrying values have been determined
by discounting the predicted future repayments at a rate of 9 per
cent. pa, it is anticipated that the notes will be fully repaid in
2027. The notes are held in the Statement of Financial Position at
their discounted value.
TURBINES FOR CENTRAL ILLAPA (CHILE):
Carrying value of turbine 1.1.19 GBP9.5m
Exchange adjustment GBP(0.3)m
Impairment in year GBP(2.0)m
Carrying value of turbine 31.12.19 GBP7.2m
The carrying value of the turbines is based on the higher of
fair value less costs to sell and value in use. The Directors
obtained an independent valuation to determine an achievable market
valuation, less costs to sell. As a result, the Directors
determined a recoverable amount of GBP7.2 million (US $9.4 million)
(2018: GBP9.5 million (US $12.0 million)). The realisation of the
asset is dependent on a successful future sale or successful
development of the Central Illapa Project, both of which are
uncertain.
The Illapa turbines are included within Property, Plant and
Equipment in the Group and in the Company, they are included in
Inventories.
HELD FOR SALE ASSET (PERU)
Prior Year - Net assets held GBP1.3m
for sale 1.1.18
Prior Year - Disposal 30.1.18 GBP(1.3)m
During 2017 the Company entered into an arrangement to dispose
of Cascade Hydro Limited. The sale completed on 30 January 2018,
proceeds were GBP197k (US $250k), of which GBP137k (US $175k) were
received in 2018. The balance, GBP60k (US $75k), was received in
2019. Interest of GBP6k on late payment was also received in 2019,
see note 9.
TURBINE - ARICA (CHILE)
Carrying value of Arica turbine GBP0.4m
1.1.19
Foreign exchange revaluation GBP nil
Impairment in year GBP nil
Carrying value of Arica turbine GBP0.4m
31.12.19
The impairment in 2018 was determined by the diminution of
expected net realisable proceeds from the sale of the turbine. The
carrying value is assessed as fair value less costs to sell, based
on historic offers and an independent valuation report. The above
asset is included in Property, Plant and Equipment.
9. FINANCE INCOME & EXPENSE
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
Finance Income
Joint Venture Interest Received/Receivable(1) - 756
Other Interest Received 6 -
----------- -----------
6 756
----------- -----------
Finance Expense
Interest Expense Paid/Payable on
bank borrowings and loans(2) 60 400
Other interest payable 10 -
----------- -----------
70 400
----------- -----------
(1) In 2018 Joint Venture interest arises on loans by the
Company to its 50 per cent. owned joint venture companies (PEL and
EdS). Interest on loans has been charged at rates of between 0 per
cent. and 5.5 per cent.
.
(2) Interest paid/payable includes interest on the BPAC loan in
accordance with the terms of the payment plan following a
settlement agreement, the final payment was made in December 2019.
The details of the amounts due under the loans are shown in Note
20.
Sensitivity analysis arising from changes in borrowing costs is
set out in Note 20.
10. TAX EXPENSE
The relationship between the expected tax expense at basic rate
of 19 per cent. (2018: 19 per cent.) and the tax expense actually
recognised in the income statement can be reconciled as
follows:
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
Result for the year before tax (4,418) (622)
Standard rate of Corporation Tax
in UK 19% 19%
Expected Tax Credit (839) (118)
Tax effect not deductible in determining
taxable profits (49) 345
Unrecognised Loss carried forward 888 204
Actual Tax Expense - -
Comprising:
Current Tax Expense - -
Deferred Tax/(Net Credit) - -
----------- -----------
Total Credit (Expense) - -
----------- -----------
A deferred tax asset for the year of GBP0.9 million (2018:
GBP0.2 million) is not recognised as an asset due to the
uncertainty and unknown timing of its realisation against future
profits. The estimated accumulated unrecognised deferred tax asset
is GBP2.2 million (2018: GBP0.7 million), based on cumulative tax
losses of GBP12.8 million (2018: GBP8.4 million). As at the Balance
Sheet date of 31 December 2019, the enacted corporation tax rate to
apply from 1 April 2020 was 17 per cent.. On 17 March 2020, the
change to 17 per cent. was reversed, such that the 19 per cent. was
substantively enacted to continue to apply from 1 April 2020.
11. EARNING PER SHARE
Basic loss per share is calculated by dividing the loss for the
period attributable to shareholders by the weighted average number
of shares in issue during the period.
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------------------------------- ------------ ------------
Average number of shares in issue 561,387,586 561,387,586
Result for the year
Total Loss attributable to equity GBP4.4m GBP0.6m
holders of the parent
Basic Loss per share 0.79p 0.11p
Diluted Loss per share 0.79p 0.11p
----------------------------------- ------------ ------------
There is no difference between the Basic and Diluted loss per
share.
12. PROPERTY, PLANT AND EQUIPMENT
Plant Plant under Total
and
Equipment Construction
GBP'000 GBP'000 GBP'000
---------- ------------- --------
a) Group
Cost at 01.01.2018 15,334 2,157 17,491
Exchange Adjustments 55 55 110
Cost at 31.12.2018 15,389 2,212 17,601
Exchange Adjustments (500) (71) (571)
Cost at 31.12.2019 14,889 2,141 17,030
Accumulated Depreciation and Impairment
at 01.01.2018 6,440 1,352 7,792
Exchange Adjustments (507) 42 (465)
Charge for the year - - -
Charge for impairment for the year - 236 236
Accumulated Depreciation and Impairment
at 31.12.2018 5,933 1,630 7,563
Exchange Adjustments (193) (7) (200)
Charge for the year - - -
Charge for impairment for the year 1,982 - 1,982
Accumulated Depreciation and Impairment
at 31.12.2019 7,722 1,623 9,345
Net Book Value - 31.12.2019 7,167 518 7,685
Net Book Value - 31.12.2018 9,456 582 10,038
The plant and equipment of GBP7.2 million (2018: GBP9.5 million)
relates to two Siemens turbines, stored in Venice for use in the
Central Illapa project purchased for US $25.0 million, at the
year-end deferred consideration of GBPnil million (2018: GBP0.1
million) remains outstanding. The turbines are held as inventory in
the Company. Please see note 8b for details of impairments charged
in the year.
Plant under construction comprises of a turbine plant in Chile
GBP0.4 million (2018: GBP0.4 million) and Central Illapa
development costs of GBP0.1 million (2018: GBP0.2 million).
b) Company - The Company had no property, plant and equipment.
13. TRADE AND OTHER RECEIVABLES
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
a) Company - non-current
Amounts due from Joint Venture 6,423 -
Companies(1)
b) Company - current
Amounts due from Joint Venture
Companies(1) 3,005 14,879
Tax Receivable - VAT 10 13
Loans to subsidiaries(2) 514 1,577
Other Receivables and Prepayments 64 144
----------- -----------
3,593 16,613
----------- -----------
The amounts owed by subsidiary companies include:
(1) Amounts due from joint venture companies represent the
amounts lent by the Company, net of impairments, to PEL. Interest
on these amounts has been accrued at rates of nil per cent. (2018:
5.5 per cent.). These loans were replaced in the year with Amended
Loan Notes, as previously announced on 19 November 2019. These
notes bear zero interest. Carrying values have been determined by
discounting the predicted future repayments at a rate of 9 per
cent. pa, it is anticipated that the notes will be fully repaid in
2027, please see note 8b for details. In the prior year the loans
were due on demand and were shown as current assets. The first
repayment was received in December 2019, two repayments have been
received in 2020, the board expects that further repayments will be
received in the remainder of the year.
(2) Loans to subsidiaries in Cochrane Power Limited GBP10.6
million, repayable on demand. These loans have been impaired to
GBP0.5 million in Cochrane Power Limited, the UK holding company
for assets in Chile. The loans to Chile bear nil per cent.
interest.
All trade and other receivables are unsecured and are not past
their due by dates. The fair values of receivables are not
materially different to the carrying values shown above.
14. INVENTORIES
Company - Inventories Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
Inventories 7,167 9,456
----------- -----------
Inventories comprises of two Siemens 701DU turbines acquired
from IPSA in June 2013. Further details of which are set out in
note 12 . Storage and insurance costs for the turbines in the year
totalled GBP111k (2018: GBP100k).
15. CASH AND CASH EQUIVALENTS
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
a) Group - current
Cash and short-term bank deposits 137 351
b) Company - current
Cash and short-term bank deposits 137 350
----------- -----------
Cash and short-term bank deposits are held, where the balance is
material, in interest bearing bank accounts, accessible at between
1- and 30-days' notice. The effective average interest rate is less
than 1 per cent. The Group holds cash balances to meet its
day-to-day requirements.
16. SHARE CAPITAL
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
------------------------------------- ----------- -----------
In issue, authorised, called up and
fully paid
561,387,586 ordinary shares of 2p
each (2018: 561,387,586) 11,228 11,228
------------------------------------- ----------- -----------
Ordinary shares have no redemption rights and are entitled to
full rights to dividends and excess capital on winding up.
17. SPECIAL NON-DISTRIBUTABLE RESERVE
On 17 December 2014, the High Court approved the reduction in
the share premium account of the company of GBP45,000,000 and the
creation of a special reserve in the accounts of the Group. The
Group had accumulated losses on its profit and loss account of
GBP7,371,683. The existence of these losses prevents the Company
from paying dividends to its shareholders out of future profits
until these losses have been eliminated. The Board considered that
the accumulated losses represented a permanent loss and given the
size of the accumulated losses, there was in the opinion of the
Board no reasonable prospect of the losses being eliminated in the
short term. It was proposed that the permanent loss should be
recognised by eliminating the deficit on the profit and loss
account. This would be achieved by the reduction in the balance on
the Share Premium Account of the Company.
The Company had built up a substantial Share Premium Account
through the issue of shares for cash at values in excess of the
nominal value of those shares. At the time of the High Court
hearing, the balance standing to the credit of the share premium
account was GBP67,835,921. A resolution was proposed and
successfully passed at a General Meeting on 25 November 2014 to
reduce the amount standing to the credit of the share premium
account of the Company by GBP45,000,000 from GBP67,835,921 to
GBP22,835,921.
The resolution was subsequently confirmed by the High Court in
the terms proposed at the time by the Board, the effect of the
Capital Reduction was to release part of the amount standing to the
credit of the Share Premium Account of the Company so that after
certain creditors are repaid GBP45,000,000 (i) may be used by the
Company to eliminate the deficit on the profit and loss account and
(ii) the balance credited to the distributable reserves of the
Company to allow the Company to pay dividends in due course. Until
the creditors are repaid the balance is to be held in a Special
Non-distributable Reserve. The balance of unpaid creditors in these
accounts is GBPnil (2018: GBP88k).
Share Premium account, after the deduction of GBP45,000,000 is
GBP22,753,689.
The implementation of the Capital Reduction is subject to a
number of criteria which are explained further below.
Capital Reduction - Share Premium Account
Share premium is treated as part of the capital of the Company
and arises on the issue by the Company of shares at a premium to
their nominal value. The premium element is credited to the Share
Premium Account. The Company is generally precluded from the
payment of any dividends or other distributions or the redemption
or buy back of its issued shares in the absence of sufficient
distributable reserves, and the Share Premium Account can be
applied by the Company only for limited purposes.
In particular, the Share Premium Account is a non-distributable
capital reserve and the Company's ability to use any amount
credited to that reserve is limited by the Companies Act. However,
with the confirmed approval of our shareholders by way of a special
resolution and subsequent confirmation by the High Court, the
Company has reduced the share premium account and credited it to a
Special Non-distributable reserve pending the settlement of certain
creditors (please see above) and a Board resolution. As these
creditors are settled the Special Non-distributable reserve will be
credited to the profit and loss account during 2020, see note 28
Post Balance Sheet Events.
To the extent that the release of such a sum from the Share
Premium Account creates or increases a credit on the profit and
loss account, that sum represents distributable reserves of the
Company subject to the restrictions set out below.
Capital Reduction - Procedure
In order to approve the Capital Reduction, in 2014 the High
Court was required to be satisfied that the interests of the
Company's creditors will not be prejudiced by the Capital
Reduction. The Company was not required to seek written consent to
the Capital Reduction from its creditors. However, for the benefit
of those of its creditors from whom consent is not required, the
Company will not be capable of making a distribution to
shareholders until any such outstanding obligations have been
discharged, and the Company has given an undertaking to that effect
to the High Court.
The Capital Reduction does not affect the number of Shares in
issue, the nominal value per Share or the voting or dividend rights
of any Shareholder.
18. TRADE AND OTHER PAYABLES
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
a) Group - current
Trade Payables 251 677
Accruals 214 97
465 774
b) Company - current
Trade Payables 203 372
Group borrowings 236 -
Accruals 114 97
553 469
----------- -----------
19. TAX LIABILITIES
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
Group/Company - Current
Other tax and social security 6 7
6 7
----------- -----------
20. BORROWINGS
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
------------ -----------
Group/Company - Current
Other Loans - 1,200
- 1,200
Group/Company - Total Borrowings - 1,200
The Group's borrowings are repayable
as follows:
Within 1 year - 1,200
- 1,200
--------------------------------------------------- -----------
Group and Company
During the year the loan was repaid in full. The final repayment
was made on 27 December 2019.
Net Debt Reconciliation
Year Ended Year Ended
31.12.2019 31.12.2018
a) Group GBP'000 GBP'000
----------- -----------
Balance at the start of the year 1,200 1,448
Non-Cash Flow Transactions
Interest charge 60 152
Cash Flow Transactions
Interest Paid (60) (400)
Principal Repayment (1,200) -
Balance at the end of the year - 1,200
----------- -----------
Year Ended Year Ended
31.12.2019 31.12.2018
b) Company GBP'000 GBP'000
----------- -----------
Balance at the start of the year 1,200 1,448
Non-Cash Flow Transactions
Interest charge 60 152
Cash Flow Transactions
Interest Paid (60) (400)
Principal Repayment (1,200) -
Balance at the end of the year - 1,200
----------- -----------
21. INVESTMENTS
PEL Cascade Total
GBP'000 GBP'000 GBP'000
-------- -------- --------
Cost at 01.01.2018 8,178 100 8,278
Disposal - (100) (100)
Cost at 31.12.2018 8,178 - 8,178
Addition resulting from new
loan note 3,474 - 3,474
Cost at 31.12.2019 11,652 - 11,652
Accumulated Impairment at
01.01.2018 (8,178) - (8,178)
Accumulated Impairment at
31.12.2018 (8,178) - (8,178)
Accumulated Impairment at
31.12.2019 (8,178) - (8,178)
Carrying Value at 31.12.2019 3,474 - 3,474
Carrying Value at 31.12.2018 - - -
The amendment of the loan note receivable agreement to the JV
(GBP12.9m) is on a fixed term, but carries no interest. Because of
this, under IFRS 9, a market rate of interest (9 per cent.) was
used to fair value the loan. The difference been the GBP12.9m, and
the fair value adjustment amount of GBP3.5m has been treated as an
investment, with the GBP9.4m remaining in receivables.
At the year end the Company held the following investments:
Direct investments:
1. 50 per cent. (2018: 50 per cent.) of the issued share capital
of Patagonia Energy Limited ("PEL"), a company registered in the
British Virgin Islands under registration number 620522. PEL owns
100 per cent. of the issued share capital of EdS, a company
registered in Argentina. EdS is a generator and supplier of
electricity to the national grid in Argentina.
2. 100 per cent. (2018: 100 per cent.) of the issued share
capital of Cochrane Power Limited, a company registered in England
and Wales under registration number 8220905. Cochrane Power Limited
owned at the year-end, through intermediate holding companies, 100
per cent. interest in Central Illapa, S.A. and 100 per cent.
interest in Termoelectrica del Norte, S.A., both being companies
registered in Chile.
3. 100 per cent. (2018: 100 per cent.) of the issued share
capital of Rurelec Project Finance Limited a company registered in
England and Wales under registration number 7523554.
Indirect investments:
Name Trading address/registered Interest Held
address
--------------------------- -------------------------------- --------------
Energia del Sur, S.A.* Arroyo 880, Piso 2 50%
--------------
C10007AAB
--------------
Ciudad Autónoma de Buenos
Aires
Argentina
------------------------------------------------------------ --------------
Electrica del Sur,
S.A.* Arroyo 880, Piso 2 50%
--------------
C10007AAB
--------------
Ciudad Autónoma de Buenos
Aires
Argentina
------------------------------------------------------------ --------------
SEA Energy, S.A.** Arroyo 880, Piso 2 100%
--------------
C10007AAB
--------------
Ciudad Autónoma de Buenos
Aires
Argentina
------------------------------------------------------------ --------------
Rurelec Chile SpA*** c/o Guerrero Olivos 100%
--------------
Av. Vitacura 2939, Piso 8
--------------
Las Condes
Santiago
Chile
------------------------------------------------------------ --------------
Rurelec Chile Limitada*** c/o Guerrero Olivos 100%
--------------
Av. Vitacura 2939, Piso 8
--------------
Las Condes
Santiago
Chile
------------------------------------------------------------ --------------
Termoelectrica del
Norte, S.A.*** c/o Guerrero Olivos 100%
--------------
Av. Vitacura 2939, Piso 8
--------------
Las Condes
Santiago
Chile
------------------------------------------------------------ --------------
Central Illapa, S.A.*** c/o Guerrero Olivos 100%
--------------
Av. Vitacura 2939, Piso 8
--------------
Las Condes
Santiago
Chile
------------------------------------------------------------ --------------
*Held via Patagonia Energy Limited and equity accounted as a
joint venture, see Note 22
**Held via Rurelec Project Finance Limited
***Held via Cochrane Power Limited
The results of all of the above directly and indirectly held
subsidiaries have been included in the consolidated group accounts
except where joint ventures are equity accounted as indicated.
22. JOINT VENTURE
The Group's only joint arrangement within the scope of IFRS 11
is its 50 per cent. investment in Patagonia Energy Limited ("PEL"),
which owns 100 per cent. of EdS, its operating asset in Argentina.
Management has reviewed the classification of PEL in accordance
with IFRS 11 and has concluded that it is a joint venture and
therefore it has been accounted for using the equity accounting
method as set out in IAS 28.
As previously announced output in 2018 and early 2019 was
affected by major maintenance work on the steam turbine and the
knock-on effects from the 2017 turbine blade failure. These issues
were fully resolved in January 2019 and since then plant
availability continues to be within expectations, 2019 average 89.0
per cent. (2018: 64.4 per cent.).
The Group does not participate in the current year profits of
the joint venture, as they are exceeded by previous losses. In
prior years the losses had exceeded the investment in the joint
venture and therefore the Group has not recognised its share of
losses in the joint venture. During 2018 the joint venture made a
loss. Total loss position at the year-end was GBP40.2 million
(2018: GBP45.6 million).
The following table sets out the results of the joint venture in
Argentina of which the Group has a 50 per cent. share:
Group share of Joint Venture results Year Ended Year Ended
and net assets
31.12.2019 31.12.2018
GBP'000 GBP'000
Results
Revenue 11,295 8,715
Operating Expenses - excluding foreign
exchange losses (6,082) (5,575)
Foreign exchange losses (1,391) (2,225)
EBITDA 3,822 914
Depreciation (1,198) (1,065)
EBIT 2,624 (151)
Intragroup interest - 2019 credit
re write back of prior year charge 2,570 (1,573)
Third party interest payable (1,406) (195)
Profit/(Loss) before tax 3,787 (1,918)
Tax (1,079) (430)
Profit/(Loss) after tax 2,709 (2,348)
Summary of Statement of Financial
Position
Non-current assets 15,889 14,327
Cash 1,713 514
Current trade and other receivables 4,907 2,009
Non-current liabilities (25,785) (26,548)
Current liabilities (4,881) (3,714)
Net assets/(liabilities) (8,157) (13,412)
Revenue is derived from one principal customer, which the
directors consider is of a good quality .
23. RECONCILIATION OF PROFIT BEFORE TAX TO CASH GENERATED FROM
OPERATIONS
Year Ended Year Ended
31.12.2019 31.12.2018
a) Group GBP'000 GBP'000
----------- -----------
Loss for the year before tax (4,418) (622)
Net Finance Expense 64 (579)
Adjustments for:
Unrealised exchange (gains)/losses 1,287 (1,724)
Write down of loans 235 2,429
Gain on disposal - (1,250)
Write down of Turbine for Arica - 236
Write down of investment in SEA Energy (188) -
(reversal)
Write down of Turbines for Illapa 1,982 -
Movement in Working Capital:
Change in Trade and Other Receivables 88 12
Change in Trade and Other Payables (308) 157
Cash Used in Operations (1,260) (1,341)
----------- -----------
Year Ended Year Ended
31.12.2019 31.12.2018
b) Company GBP'000 GBP'000
----------- -----------
Loss for the year before tax (4,510) (3,250)
Net Finance Income (566) (1,147)
Adjustments for:
Unrealised exchange (gains)/losses 1,070 (1,741)
Loss on disposal 1,398
Write down of loans 1,003 2,249
Write down of 701 turbines 1,982 -
Movement in working capital:
Change in Trade and Other Receivables (62) 785
Change in Trade and Other Payables (78) 476
Cash Used in Operations (1,161) (1,230)
----------- -----------
24. FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of financial risks which
result from both its operating and investing activities. The
Group's risk management is coordinated to secure the Group's short
to medium-term cash flows by minimising its exposure to financial
markets. The Group does not actively engage in the trading of
financial assets for speculative purposes nor does it write
options. The most significant risks to which the Group is exposed
are described below:
a) Foreign currency risk
The Group is exposed to translation and transaction foreign
exchange risk. The Group's principal trading operations are based
in South America and as a result the Group has exposure to currency
exchange rate fluctuations in the principal currencies used in
South America. As a result of recent inflation, Argentine GAAP
measures for hyperinflation have come into force. The EdS
financials included in this report have been prepared with these
measures. The Directors are of the view that these accounts require
no further adjustment.
The Group also had exposure to the US Dollar as a result of
borrowings denominated in this currency.
b) Interest rate risk
Group funds are invested in short-term deposit accounts, with a
maturity of less than three months, with the objective of
maintaining a balance between accessibility of funds and
competitive rates of return.
c) Capital management policies and liquidity risk
The Group considers its capital to comprise its ordinary share
capital, share premium, accumulated retained earnings and other
reserves.
The Group's objective when maintaining capital is to safeguard
the entity's ability to continue as a going concern, so that it can
provide returns for shareholders and benefits for other
stakeholders.
The Company meets its capital needs primarily by equity
financing. The Group sets the amount of capital it requires to fund
the Group's project evaluation costs and administration expenses.
The Group manages its capital structure and makes adjustments to it
in the light of changes in economic conditions and the risk
characteristics of the underlying assets.
The Company and Group do not have any derivative instruments or
hedging instruments. It has been determined that a sensitivity
analysis will not be representative of the Company's and Group's
position in relation to market risk and therefore no such analysis
has been undertaken.
The following table sets out when the financial obligations fall
due:
Year Ended Year Ended
31.12.2019 31.12.2018
a) Group GBP'000 GBP'000
----------- -----------
Current - due within 1 year:
Trade Payables 251 681
Accruals 214 93
Tax Liabilities 6 7
Borrowings - 1,200
----------- -----------
Total due within 1 year: 471 1,981
Year Ended Year Ended
31.12.2019 31.12.2018
b) Company GBP'000 GBP'000
----------- -----------
Current - due within 1 year:
Trade Payables 203 376
Accruals 115 93
Intra Group borrowing 236 -
Tax Liabilities 5 7
Borrowings - 1,200
----------- -----------
Total due within 1 year: 559 1,676
c) Credit risk
Generally, the maximum credit risk exposure of financial assets
is the carrying amount of the financial assets as shown on the face
of the balance sheet (or in the detailed analysis provided in the
notes to the financial statements). Credit risk, therefore, is only
disclosed in circumstances where the maximum potential loss differs
significantly from the financial asset's carrying value. The
Group's trade and other receivables are actively monitored.
d) Fair values
In the opinion of the Directors, there is no significant
difference between the fair values of the Group's and the Company's
assets and liabilities and their carrying values and none of
Group's and the Company's trade and other receivables are
considered to be impaired.
The financial assets and liabilities of the Group and the
Company are classified as follows:
31 December 2019 Company Company Group Financial Group Borrowings
Financial Borrowings Assets and Payables
Assets and Payables At at
At at Amortised Amortised
Cost Amortised Cost
Amortised Cost
Cost
GBP'000 GBP'000 GBP'000 GBP'000
----------- -------------- ---------------- -----------------
Trade and Other Receivables
> 1 year 6,423 - 6,423 -
Trade and Other Receivables
< 1 year 3,005 - 3,005 -
Cash and Cash Equivalents 137 - 137 -
Trade and Other Payables
< 1 year - (438) - (259)
Borrowings < 1 year - - - -
----------- -------------- ---------------- -----------------
Total 9,565 (438) 9,565 (259)
----------- -------------- ---------------- -----------------
31 December 2018 Company Company Group Financial Group Borrowings
Financial Borrowings Assets and Payables
Assets and Payables At at
At at Amortised Amortised
Cost Amortised Cost
Amortised Cost
Cost
GBP'000 GBP'000 GBP'000 GBP'000
----------- -------------- ---------------- -----------------
Trade and Other Receivables
< 1 year 16,551 - 16,332 -
Cash and Cash Equivalents 350 - 351 -
Trade and Other Payables
< 1 year - (376) - (681)
Borrowings < 1 year - (1,200) - (1,200)
----------- -------------- ---------------- -----------------
Total 16,901 (1,576) 16,683 (1,881)
----------- -------------- ---------------- -----------------
25. SHORT TERM LEASE COMMITMENTS
Office premises
Low value, less than one year GBP22k (2018: GBP26k).
Office premises relates to the Company's offices.
26. RELATED PARTY TRANSACTIONS
During the year the Company and the Group entered into material
transactions with related parties as follows
a) Company
i) Paid salaries to directors, who are considered Key Management
Personnel which amounted to GBP0.3 million (2018: GBP0.3
million).
Year Ended Year Ended Year Ended
31.12.2019 31.12.2019 31.12.2018
GBP'000 GBP'000 GBP'000
Base Salary/Fee Total Total
---------------- ----------- -----------
B Rowbotham 30 30 30
S Morris 98 98 91
A Coveney 186 186 201
---------------- ----------- -----------
Total 314 314 322
B Rowbotham provided services under a service agreement contract
with Mountbeach Associates Ltd until June 2017, since then he has
been on payroll.
S Morris provided services under a service agreement contract
with SC Morris Ltd.
A Coveney provided services under a service agreement contract
with Coveney Associates Consulting Ltd.
ii) Charged interest on loans to its 100 per cent. subsidiary
Rurelec Project Finance Ltd ("RPFL") totalling GBP23k (2018:
negative interest of GBP0.1 million). The loan balance outstanding
at the year-end due to RPFL was GBP0.2 million (2018: due to
Rurelec GBP1.0 million).
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
Year-end Debtor - 1,008
Year-end Creditor 236 -
Interest credited
/(charged) 23 (81)
----------- -----------
iii) Charged interest on loans to its 50per cent. owned joint
venture company, Patagonia Energy Ltd ("PEL") amounting to GBPnil
(2018: GBP0.8 million). Received loan repayments of GBP488k (2018:
GBP nil). The Directors have assessed the recoverability of the
loans and consider that it is appropriate to recognise an
adjustment to the carrying value of GBP3.5 million at the
recognition of the Amended Loan Notes issued at value at GBP13.4
million (US$ 17.6 million) as a result of their zero interest rate.
Additionally, an impairment of GBP0.2 million was recognised during
the year (2018: GBP2.5 million). After impairment reviews and
expected credit losses the loan balances at the year-end totalled
GBP9.9 million (2018: GBP14.8 million). Interest on these loans has
been accrued at an effective rate of nil per cent (2018: 5.5 per
cent). The total outstanding before impairment is GBP32.3 million
(2018: GBP39.3 million).
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
Y/E Debtor 9,915 14,794
Repayment 487 -
Interest charged - 840
----------- -----------
iv) Received from its joint venture company Energia del Sur S.A.
("EdS") repayments totalling GBP0.5 million (2018: GBPnil) of a
loan previously given in support of a creditor of EdS. This loan
was fully repaid during the year (2018: GBP0.5 million).
v) Provided loans and charged interest of 0.5 per cent. per
month to its 100 per cent. subsidiary Cochrane Power Ltd. New loans
in the year totalled GBP0.1 million (2018: GBP0.1 million). The
total outstanding at the year-end was GBP10.6 million (2018: GBP9.9
million). These loans have been impaired to GBP0.5 million (2018:
GBP0.6 million).
Year Ended Year Ended
31.12.2019 31.12.2018
GBP'000 GBP'000
----------- -----------
Y/E Debtor 514 582
Further loans made 98 112
Interest charged 603 568
----------- -----------
b) Group
RPFL received from EdS full repayment of its loan during the
year totalling GBP1.1 million (2018: GBP2.0 million). The interest
rate on accrued interest was zero, the effective interest rate (on
principal and accrued interest) was nil (2018: nil). The total
outstanding at the year-end was GBPnil (2018: GBP1.1 million).
27. CONTROL
The Directors consider that the ultimate controlling party is
Sterling Trust Limited on the basis of their 53.9 per cent.
shareholding in the Company.
28. POST BALANCE SHEET DATE EVENTS
The COVID-19 pandemic spread globally in Quarter 1 2020.
Widespread measures have been implemented globally by governments
to control the virus and to support economies in the markets where
the Group operates. However, it is uncertain whether those measures
will be successful in the long-term eradication of the virus or in
achieving recovery in those economies and over what timescale. The
magnitude and duration of the disruption and decline in business in
the markets in which Rurelec operates is currently uncertain.
The Argentinian Government imposed a tight lockdown on 13 March
2020. Argentina's Government, viewing EdS's output as an essential
service, issued instructions whereby the power plant should operate
with the smallest number of people possible, covering operational
shifts and preventive cleaning work with specific teams. All but
essential staff have been working remotely and not been coming to
the plant unless there is an equipment-related problem to address
at the plant. A wide range of preventative measure were implemented
to protect and safeguard staff. Information published by the
Argentinian Health Ministry and Argentinian press articles , at 18
May 2020 the total number of COVID-19 cases in Argentina were 8,068
cases with 373 COVID-19 related deaths. Chubut province, where the
EdS power plant is located, has had four recorded cases according
to EdS Management and zero deaths. Clearly there is no guarantee
that the apparent initial success in mitigating the effect of 2020
COVID 19 will continue going forwards in Argentina but as at 18 May
2020 the COVID-19 pandemic had had relatively little impact on the
ability of EdS to continue in operation. Furthermore, the
importance of EdS in the generation of electricity in the Chubut
province means that its output will be allocated a high priority by
CAMMESA.
Notwithstanding the above, it is not considered possible to
estimate the long-term financial impact of COVID-19 on the
Argentinian economy at the present time, nor to anticipate the
economic and fiscal measures that the Argentinian Government will
impose is considered a non-adjusting balance sheet event. As
previously stated, the Board consider that the Group has sufficient
cash resources already in place to satisfy Going Concern
requirements.
At a Board Meeting held on 21 May 2020 a resolution was passed
approving the transfer of the GBP45 million Special Reserve to
Retained Losses.
COMPANY INFORMATION
Directors
S.C. Morris (Executive)
A.H. Coveney (Executive)
B. Rowbotham (Non-Executive)
Secretary
M J. Bravo Quiterio
Company number
4812855
Registered office and business address
5 St. John's Lane
London
EC1M 4BH
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Bankers
Barclays Bank plc
1 Churchill Place
London
E14 5HP
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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