11th Mar 2008 07:00
IPSA Group PLC11 March 2008 11 March 2008 IPSA Group PLC ("IPSA" or the "Company") Final Results IPSA, the AIM and AltX dual listed independent power plant developer withoperations in southern Africa, today announces its final results for the year to30 September 2007. Highlights of the period include: • Listing of IPSA's shares on the ALTx market of the Johannesburg Stock Exchange thereby facilitating the first phase of the Company's broad-based black economic empowerment programme. • Commissioning of, and first commercial revenues from, the first gas-fired independent power plant in South Africa. • Acquisition, refurbishment and upgrade of four Fiat Avio 501 D gas turbines with an aggregate generating capacity of around 500MW for the Coega project. • Initiation of the Elitheni Clean Coal Power Project at Indwe in the Eastern Cape. Highlights since the year end include: • Sale of a 50% interest in the Elitheni Clean Coal Power Project to Exodus Africa for a premium of US$5 million. • Memorandum of Co-operation with the South African Government's Central Energy Fund for a key role as private sector power plant developer to the integrated energy project being developed at the Coega Industrial Development Zone outside Port Elizabeth. • The appointment of the Standard Bank of South Africa as its mandated lead arranger on the financing of its 1,600 MW Coega Fast Track Combined Cycle Gas Turbine Project in Port Elizabeth. • Currently in advanced negotiations to finance, through bank debt, the third and final tranche (c.€15.6m) to satisfy the acquisition of the four Fiat Avio 501 D gas turbines. Shareholders will be informed once this funding has formally been put in place. Commenting, Stephen Hargrave, Chairman of IPSA, said: "The Company has made excellent progress towards meeting the challenge ofinstalling and commissioning fast track gas turbine capacity to meet theever-widening gap between supply and demand for power in South Africa. Webelieve that we have the skills, the resources and the drive to help resolveSouth Africa's energy crisis. The relationship with our broadly-based blackeconomic empowerment partners, Amandla Resources, is working very well and weare looking forward to reporting further substantial progress in the nearfuture." For further information please contact: Peter Earl, CEO, IPSA Group PLC +44 (0) 20 7793 5600Elizabeth Shaw, COO, IPSA Group PLC +44 (0) 20 7793 5600 Nick Naylor / Jamie Boyd, Noble & Company Limited +44 (0) 20 7763 2200(Nominated Adviser and Joint Broker) Sean Lunn, Hichens, Harrison (South Africa) Ltd +2721 950 2711(Joint Broker) Allan Piper, First City Financial +44 (0) 20 7242 2666(UK Public Relations Advisers) Jacques de Bie, College Hill (South Africa) +2711 447 3030(South African Public Relations Advisers) CHAIRMAN'S STATEMENT I am pleased to present to shareholders of IPSA Group PLC the Report andAccounts for the year to 30 September 2007. As anticipated, during this periodthe Group made an operating loss of £942,000 (2006 - £364,000) as IPSA continuedto bring South Africa's first independent gas fired power plant into fullproduction. In addition, we have taken a one-off charge of £2.3m in respect ofsurplus gas costs, further details of which are set out in note 8. During 2007 the Company made significant progress in its aim to become theleading private sector participant in the development, ownership and managementof independent power generation plants in Southern Africa. It successfullycommissioned its CHP (combined heat and power) generation plant in Newcastle,KwaZulu Natal. It also acquired 500 MW of gas turbine capacity for its CoegaCombined Cycle Gas Turbine (CCGT) Project as well as signing a Memorandum ofCo-operation with the South African Government's Central Energy Fund in order tointegrate IPSA's project into the national energy plan for the IndustrialDevelopment Zone at Coega. Another important landmark was the listing in October 2006 of the Company'sshares on the AltX market of the Johannesburg Stock Exchange, becoming thefirst AIM company to have its shares jointly quoted in this way. This duallisting facilitated the Company's first phase of its broadly based blackeconomic empowerment ("BBBEE") programme and in September 2007 the Companyplaced 13,434,612 new shares with Metropolitan Life. The placing was carried outat a premium to the market price at the time and Metropolitan Life granted anoption over the shares (representing 15% of the issued share capital) to AmandlaEnergy Resources (the trading name of Market Demand Trading 456 Pty. Ltd) ("Amandla Energy"). In January 2008, we welcomed Rizelle Sampson, a director and shareholder ofAmandla Energy, as a new member of the Board. Rizelle has extensive business andcivil service experience which will facilitate the Group's involvement in majorprojects. We estimate that about 35% of the Company's shares are now in SouthAfrican ownership and we look forward to taking further steps towards an evenmore broadly-based share ownership on a project by project basis. During the year IPSA initiated its Elitheni Clean Coal Power Project at Indwe inthe Eastern Cape and in November 2007 entered into a joint venture for itsdevelopment with Exodus Africa, a United States based, privately held integratedenergy company with its headquarters in Houston, Texas. IPSA expects to realisesome US $5 million on the sale of 50 per cent of its interest in this project.The Elitheni project has been increased from 400 MW to 500 MW as a result offavourable drilling results from IPSA's coal partner, Strategic NaturalResources PLC. IPSA and Exodus are now planning to accelerate the developmentof the initial 250 MW mine mouth plant in order to bring this capacity on lineas quickly as possible. No review of 2007 would be complete without an analysis of the rapid erosion ofSouth Africa's power generation reserve capacity which by the end of the yearcaused protracted and serious load-shedding throughout the country. Grossdomestic product is estimated to have risen by a 5.14 per cent in 2007 and 5.6per cent in 2006. Economic growth inevitably leads to an increased demand forelectricity. However with insufficient new power generation capacity beingconstructed - and South Africa needs a minimum of 3,000 MW of new capacity everyyear just for the supply-demand balance to stand still - power cuts acrossSouth Africa were inevitable. South Africa still needs a further 6,000 MW toreplace the reserve capacity that has been eroded by many years of inaction.While Eskom has announced a number of important initiatives to build newcoal-fired power plants, the lead time for coal-fired capacity is such that itwill be up to seven years before the full benefit of this investment programmewill be felt. It is IPSA's challenge to install and commission fast track gas turbine capacityto meet the ever-widening gap between supply and demand for power in SouthAfrica. We believe that we have the skills, the resources and the drive to helpresolve what is now being called South Africa's energy crisis. Our colleagues inSouth Africa have worked particularly hard to bring the Newcastle projectonstream and to develop new projects at Coega and elsewhere. On behalf of allshareholders, I thank all employees for the efforts they have made on our behalfsince the Company's formation. We look forward to sharing with them the rewardsof future success. Stephen HargraveChairman CHIEF EXECUTIVE'S REPORT South Africa is currently facing unprecedented shortages of power. In 2007 loadshedding became a national phenomenon following intermittent regional power cutsin 2006. However January 2008 saw the beginning of what has been termed anational power crisis. The lack of available power is primarily the result ofcapacity shortages following many years when no new power plants were built inSouth Africa. IPSA's 2007 financial year was important against this background since it sawthe entry into service of IPSA's Newcastle Co-generation Power Plant, recordingits first modest revenues. Since the year end, the plant has suppliedelectricity to City Power under a peaking contract and is now supplyingelectricity to the grid. In the meantime the Company has agreed substantiveterms for a new and additional steam contract with CISA, a major chemicalcompany on the Newcastle industrial site. As a result, IPSA is going ahead withplans to increase its installed capacity on site from 18 MW of nominal capacityto 26 MW as a first stage of expansion, installing six Deutz gas engines. Theseare expected to come into service in the middle of 2008 and will provide a fastsolution for increasing power capacity in the shortest possible space of timewhile IPSA continues to negotiate further power purchase agreements (PPAs) forlarger projects in the north-east of the country. During the financial year ended 30 September 2007, IPSA completed thecommissioning of the Newcastle combined heat and power plant, the firstgas-fired independent power plant ("IPP") in South Africa. In addition theCompany successfully listed its shares on Altx, the alternative exchange of theJohannesburg Stock Exchange, and was the first AIM company to do so. In the same period, the Group also acquired 500 MW of gas-fired turbines costing€31.2m (approximately £21.3 million) which are intended for the Coega IPPdevelopment project. The initial payments for these were financed through twocapital raisings intended to strengthen the balance sheet of IPSA and to providethe capital base needed for its long term expansion. The first was the placing of 10 million shares at 75 pence per share withBritish and South African institutions in March 2007 conducted simultaneously inLondon and Johannesburg. This placing was comfortably over-subscribed in bothmarkets. The second was the placing of 13.4 million shares at 60 pence per share withMetropolitan Life of South Africa working with a broadly based black economicempowerment ("BBBEE") group, Amandla Energy Resources. The BBBEE placingrepresented 15 per cent of the enlarged IPSA share capital and assisted theCompany in meeting its objective of including BBBEE qualifying shareholders atboth the corporate and the project level in accordance with South Africannational policy. The balance of funds (€15.6m) due on the units at the end of March 2008 will befinanced through bank debt secured either on the assets themselves at Companylevel, or through refinancing our wholly-owned subsidiary, NewcastleCogeneration (Pty.) Limited, which is currently fully financed with our equity. Coega remains the flagship project of IPSA. Initially conceived as an 800 MWcombined cycle gas turbine development, the original plant design was increasedto 1,600 MW following discussions with the Department of Minerals and Energy.1,600 MW is now the base case for the project split into two phases. Phase One consists of two separate power plant blocks of no less than 500 MWeach on two different sites at Coega's Industrial Development Zone ("IDZ").This 1,000 MW phase will see the two blocks running in open cycle as peakingunits providing back-up power to the IDZ and to the national grid using liquidfuels. The open cycle units can be installed quickly by comparison with allother large scale power plants, an important consideration at a time ofload-shedding and power cuts. IPSA believes that the first 500 MW could beinstalled in 2009 with the second 500 MW soon thereafter. Phase Two will occur when Coega's IDZ brings on stream its planned liquefiednatural gas ("LNG") re-gasification plant after 2011. In this second phase, 600MW of combined cycle capacity is installed running off the waste heat producedfrom the 1,000 MW capacity of the two initial blocks of gas turbines. Capturingwaste heat from gas turbines increases the thermal efficiency of the CCGT unitsand thereby makes them eligible for carbon credits in the form of certifiedemissions reductions ("CERs") under the United Nations Clean DevelopmentMechanism established under the Kyoto Protocol. The waste heat recapture usesmore of the calorific value of the fuel used in power generation than in aconventional power plant, improving the thermal efficiency from some 37 per centto around 56 per cent. This means a huge reduction in green house gas emissionsfor every unit of electricity produced. IPSA is in negotiations for all of theleases, permits and PPA's required to get the Coega project to financial close.However, in December 2007, IPSA signed an important Memorandum of Cooperationfor a public-private partnership at Coega with the Government of South Africa'sCentral Energy Fund, the holding company of PetroSA and iGas. In January 2008IPSA appointed Standard Bank as financial arranger for the Coega IPP. IPSA's other principal power project is the Elitheni Clean Coal Project. Thisproject is based on an exclusivity agreement signed in 2007 with Elitheni Coal(Pty.) Limited ("Elitheni Coal"), a subsidiary of Strategic Natural ResourcesPLC ("SNR"), for the right to use all coal for power generation. Originallyconceived as a 400 MW mine mouth power plant, the project was scaled up to 500MW by IPSA in 2007 based on favourable coal reserve reports and now consists oftwo separate blocks of 250 MW each. The first block of 250 MW is being pursuedas a fast track project following the announcement that Elitheni Coal has aminimum of 15 million tonnes of extractable coal, based on drilling of just 4per cent of Elitheni Coal's mining licence territory. A baseload coal-firedpower plant of 250 MW needs 1 million tonnes of coal a year, and so the firstblock has sufficient proven extractable reserves to get to financial close.Elitheni Coal is continuing its drilling programme. Just after the end of its financial year, IPSA sold a 50 per cent interest inits Elitheni Clean Coal project company to Exodus Africa, a Houston based powerdeveloper with coal-fired power development experience and working closely withBBBEE interests. IPSA expects to realise some US$5 million from the sale. IPSAand Exodus are in negotiations with South African institutions for developmentfunding of the Elitheni Clean Coal Power Plant. Since the start of 2008 the power market in South Africa has begun to recognizethe urgency of installing new power capacity. Power plants cannot be builtovernight. They are complex pieces of infrastructure with long lead times forplanning, environmental consents and ordering of critical capital equipment suchas turbines, generators, boilers and transformers. IPSA's management has astrong track record in using "grey market" equipment to cut lead times and toinstall fast track power blocks. However, South Africa is not alone in theworld in facing power generation shortages: lead times for turbines and boilersare being extended across the globe as other countries compete for equipmentdelivery. IPSA is well placed to deliver fast open cycle capacity at Coega andat Elitheni but its management is facing ever greater challenges to repeat thesuccess of finding fast solutions for turbine procurement. The greater realismin South Africa as it faces a winter of continued load-shedding means that someof the regulatory obstacles IPSA has faced in getting its capacity dispatchedinto the national grid will not be repeated in 2008 and 2009. We therefore look to the future with optimism and we expect to announce othernew power generation projects, supplying Eskom, municipalities and miningcompanies as they seek to meet electricity demand with new IPP capacity suppliedby IPSA. Peter EarlChief Executive CONSOLIDATED INCOME STATEMENT AND STATEMENTS OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 30 SEPTEMBER 2007 Consolidated income statement Notes 12 months ended 15 months ended 30.9.07 30.9.06 £'000 £'000 Revenue 4.7 37 - Cost of sales (57) - Gross profit (20) - Administrative expenses 7 (922) (364) Other expense 8 (1,980) (738) Finance income 9 72 75 Loss before tax (2,850) (1,027) Tax expense / credit 10 - - Loss for the year / period attributable to 21 (2,850) (1,027)equity shareholders of the parent Loss per share (basic and diluted) 12 (3.95p) (1.88p) All of the Group's activities are continuing activities. Statements of recognised income and expense a) Group Exchange differences on translation of foreign 21 (99) (451)operations Loss for the financial year / period 21 (2,850) (1,027) Total recognised income and expense for the (2,949) (1,478)year / period attributable to equityshareholders of the parent b) Company Loss for the financial year / period 21 (48) (109) Total recognised income and expense for the (48) (109)year / period attributable to equityshareholders of the parent The accompanying accounting policies and notes form an integral part of these financialstatements. CONSOLIDATED BALANCE SHEETAS AT 30 SEPTEMBER 2007 Notes 30.9.07 30.9.06 £'000 £'000Assets Non-current assets Property, plant and equipment 13 32,724 5,601Intangible assets 14 833 833Deferred tax asset 16 - - 33,557 6,434Current assetsTrade and other receivables 18 1,092 196Cash and cash equivalents 19 703 526 1,795 722 Total assets 35,352 7,156 Equity and liabilities Capital and reserves attributable to equityholders of the Company Share capital 20 1,792 1,093Share premium account 21 25,267 6,640Foreign currency reserve 21 (550) (451)Profit and loss reserve 21 (3,877) (1,027) Total equity 22,632 6,255 Current liabilities Trade and other payables 22 12,720 901 Total equity and liabilities 35,352 7,156 The financial statements were approved by the Board on 7th March 2008. The accompanying accounting policies and notes form an integral part of these financialstatements. CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2007 Notes 12 months ended 15 months ended 30.9.07 30.9.06 £'000 £'000 Net cash inflow / (outflow) from 23 7,907 (846)operating activities before interest Interest received 72 75 Net cash inflow / (outflow) from 7,979 (771)operating activities Cash flows from investing activities Purchase of plant and equipment (27,128) (5,603)Net cash from subsidiary acquired - 67Payment of deferred consideration - (400) Net cash used in investing activities (27,128) (5,936) Cash flows from financing activitiesIssue of shares (net of costs) 19,326 7,233 Net cash inflow from financing activities 19,326 7,233 Increase in cash and cash equivalents 177 526 Reconciliation and analysis of change in net funds Increase in cash during year / period 177 526 Cash and cash equivalents at start of 526 -year / period Cash and cash equivalents at end of year 19 703 526/ period The accompanying accounting policies and notes form an integral part of these financialstatements. NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 SEPTEMBER 2007 1 Nature of operations IPSA Group PLC and its subsidiaries' ("Group") principal activity is theconstruction, development and operation of electricity generation assets and thesupply of electricity to the wholesale market and major end-users. During theyear under review, all of the Group's operating activities were located in theRepublic of South Africa and comprised the construction of the plant situated inNewcastle. 2 General information IPSA Group PLC is the Group's ultimate parent company. It is incorporated anddomiciled in England and Wales. The address of IPSA Group PLC's registeredoffice is given on the information page, page 2. IPSA Group PLC's shares aretraded on the Alternative Investment Market (AIM) in London and, since October2006, the shares have had a dual listing on AltX (the Alternative Exchange ofthe Johannesburg market). The consolidated financial statements for the year ended 30 September 2007 wereapproved by the Board of directors on 7th March 2008. 3 Adoption of International Financial Reporting Standards The financial statements have been prepared in accordance with applicableInternational Financial Reporting Standards ("IFRS") as adopted by the EuropeanUnion and the IFRSs as issued by the International Accounting Standards Board. 4 Summary of accounting policies 4.1 Basis of preparation The financial statements have been prepared under the historical cost conventionand in accordance with applicable International Financial Reporting Standards ("IFRS") as adopted by the European Union and the IFRSs as issued by theInternational Accounting Standards Board. The measurement bases and principalaccounting policies of the Group are set out below. 4.2 Going concern As set out in the Chief Executive's review, there is a short term requirement tofinance the €15.6m final payment due on 31 March 2008 in respect of the 4turbines purchased during the year. In addition, there is the ongoingrequirement to fund future capital expenditure for the planned major projectdevelopments, initially the Coega Fast-Track Project and the Elitheni Clean CoalPower Project. The directors are considering a number of alternatives with respect toshort-term funding. The Company has received an indicative offer of bank financewhich satisfies the directors that the Company and the Group have adequateresources to continue to operate in the foreseeable future and accordingly thedirectors regard the 'going concern' basis for preparation of the financialstatements as appropriate. 4.3 Basis of consolidation The Group financial statements consolidate those of the Company and itssubsidiary undertakings drawn up to 30 September 2007. Subsidiaries are entities over which the Group has the power to control thefinancial and operating policies so as to obtain benefits from its activities.The Group obtains and exercises control through voting rights. Unrealised gains on transactions between the Group and subsidiaries areeliminated. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Amounts reported inthe financial statements of subsidiary entities have been adjusted wherenecessary to ensure consistency with the accounting policies adopted by theGroup. Acquisitions of subsidiaries are dealt with by the purchase method. The purchasemethod involves the recognition at fair value of all identifiable assets andliabilities, including contingent liabilities of the acquired company, at theacquisition date, regardless of whether or not they were recorded in thefinancial statements of the subsidiary prior to acquisition. On initialrecognition, the assets and liabilities of the acquired entity are included inthe consolidated balance sheet at their fair values, which are also used as thebases for subsequent measurement in accordance with the Group accountingpolicies. 4.4 Intangible assets acquired as part of a business combination In accordance with IFRS 3: Business Combinations, an intangible asset acquiredin a business combination is deemed to have a cost to the Group of its fairvalue at the acquisition date. The fair value of an intangible asset reflectsmarket expectations about the probability that the future economic benefitsembodied in the asset will flow to the Group. Where an intangible asset might beseparable, but only together with a related tangible or intangible asset, thegroup of assets is recognised as a single asset separately from the goodwillwhere the individual fair values of the assets in the group are not reliablymeasured. Where the individual fair value of the complementary assets isreliably measurable, the Group recognises them as a single asset, provided theindividual assets have similar lives. 4.5 Impairment of property, plant, equipment and intangible fixed assets At each balance sheet date, the Group reviews the carrying amount of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where it is not possible to estimate therecoverable amount of an individual asset, the Group estimates the recoverableamount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset (orcash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised immediately in profit or loss, unless the relevant asset iscarried at a revalued amount, in which case the impairment loss is treated as arevaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset(or cash-generating unit) is increased to the revised estimate of itsrecoverable amount, but so that the increased carrying amount does not exceedthe carrying amount that would have been determined had no impairment loss beenrecognised for the asset (cash-generating unit) in prior years. A reversal of animpairment loss is recognised immediately in profit or loss, unless the relevantasset is carried at a revalued amount, in which case the reversal of theimpairment loss is treated as a revaluation increase. 4.6 Foreign currency translation The financial information is presented in pounds sterling, which is also thefunctional currency of the parent company. In the separate financial statements of the consolidated entities, foreigncurrency transactions are translated into the functional currency of theindividual entity using the exchange rates prevailing at the dates of thetransactions (spot exchange rate). Foreign exchange gains and losses resultingfrom the settlement of such transactions and from the translation of remainingbalances at year-end exchange rates are recognised in the income statement under"other income" or "other expenses", respectively. In the consolidated financial statements, all separate financial statements ofsubsidiary entities, originally presented in a currency different from theGroup's presentation currency, have been converted into sterling. Assets andliabilities have been translated into sterling at the closing rate at thebalance sheet date. Income and expenses have been converted into sterling at theaverage rates over the reporting period. Any differences arising from thisprocedure have been charged / (credited) through the statement of recognisedincome and expenditure to the Foreign Currency Reserve. 4.7 Income and expense recognition Revenue from the sale of goods and services is recognised when i) the Group hastransferred to the buyer the significant risks and rewards of ownership of thegoods and services which is when supply has been made, ii) the amount of revenuecan be reliably measured and iii) the costs incurred or to be incurred inrespect of the transaction can be measured reliably. In the fifteen month periodto 30 September 2006 the Group's revenue was nil as there were no sales toexternal customers. In the year to 30 September 2007, revenues represent salesof Steam which commenced at the end of September. Supply of Electricity did notcommence until after the year end. Operating expenses are recognised in the income statement upon utilisation ofthe service or at the date of their origin. All other income and expenses arereported on an accrual basis. 4.8 Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and anyprovision for impairment. No depreciation is charged during the period ofconstruction. All operational plant and equipment in the course of construction is recorded asplant under construction until such time as it is brought into use by the Group.Plant under construction includes all direct expenditure. On completion, suchassets are transferred to the appropriate asset category. Depreciation is calculated to write down the cost or valuation less estimatedresidual value of all property, plant and equipment other than freehold land byequal annual instalments over their estimated useful economic lives. The periodsgenerally applicable are: Plant and equipment: 3 to 15 years The depreciation charged in the period to 30 September 2007 was minimal since itwas not until shortly before the year end that the plant became operational. Material residual values are updated as required, but at least annually, whetheror not the asset is revalued. Where the carrying amount of an asset is greaterthan its estimated recoverable amount, it is written down immediately to itsrecoverable amount. 4.9 Borrowing costs All borrowing costs, and directly attributable borrowing costs, are expensed asincurred except where the costs are directly attributable to specificconstruction projects, in which case the costs are capitalised as part of thoseassets. 4.10 Taxation Current income tax assets and liabilities comprise those obligations to, orclaims from, fiscal authorities relating to the current or prior reportingperiod, that are unpaid at the balance sheet date. They are calculated accordingto the tax rates and tax laws applicable to the fiscal periods to which theyrelate, based on the taxable profit for the period. All changes to current taxassets or liabilities are recognised as a component of tax expense in the incomestatement or through the statement of recognised income and expense. Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affect tax or accounting profit. Temporary differencesinclude those associated with shares in subsidiaries and joint ventures ifreversal of these temporary differences can be controlled by the Group and it isprobable that reversal will not occur in the foreseeable future. In addition,tax losses available to be carried forward as well as other income tax creditsto the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided for in full with no discounting. Deferredtax assets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective period ofrealisation, provided that they are enacted or substantively enacted at thebalance sheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity (such as revaluation of land) in whichcase the related deferred tax is also charged or credited directly to equity. 4.11 Financial assets Financial assets categorised as at fair value through profit or loss arerecognised initially at fair value with transaction costs expensed through theincome statement. The Group's financial assets include cash and cash equivalents, trade and otherreceivables. Cash and cash equivalents include cash at bank and in hand as well as short termhighly liquid investments such as money market instruments and bank deposits. Receivables are non-derivative financial assets with fixed or determinablepayment dates that are not quoted in an active market. They arise when the Groupprovides money, goods or services directly to a debtor with no intention oftrading the receivable. Receivables are measured initially at fair value andsubsequently re-measured at amortised cost using the effective interest method,less provision for impairment. Any impairment is recognised in the incomestatement. Trade receivables are provided against when objective evidence is received thatthe Group will not be able to collect all amounts due to it in accordance withthe original terms of the receivables. The amount of the write-down isdetermined as the difference between the asset's carrying amount and the presentvalue of estimated cash flows. 4.12 Financial liabilities Financial liabilities are obligations to pay cash or other financial instrumentsand are recognised when the Group becomes a party to the contractual provisionsof the instrument. All interest-related charges are recognised as an expense in"finance cost" in the income statement. Bank and other loans are raised forsupport of long term funding of the Group's operations. They are recognisedinitially at fair value, net of transaction costs. Finance charges, includingpremiums payable on settlement or redemption, and direct issue costs are chargedto the income statement on an accruals basis using the effective interest methodand are added to the carrying amount of the instrument to the extent that theyare not settled in the period in which they arise. 4.13 Hedging instruments The Group has not entered into any derivative financial instruments for hedgingor for any other purpose. 4.14 Equity Equity comprises the following: • "Share capital" represents the nominal value of equity shares. • "Share premium" represents the excess over nominal value of the fairvalue of consideration received for equity shares, net of expenses of the shareissue. • "Foreign currency reserve" represents the differences arising fromtranslation of investments in overseas subsidiaries. • "Profit and loss reserve" represents retained earnings. 4.15 Pensions During the year under review, the Group did not operate or contribute to anypension schemes. 4.16 Key assumptions and estimates The Group makes estimates and assumptions concerning the future. The resultingestimates will, by definition, seldom equal the related actual results. TheBoard has considered the critical accounting estimates and assumptions used inthe financial statements and concluded that the main area of significant riskwhich may cause material adjustment to the carrying value of assets andliabilities within the next financial year is in respect of the assumptions usedto value intangible and tangible fixed assets. The Board has valued intangibleand tangible fixed assets at cost. However, given the assets representagreements and plant under construction in respect of the supply of electricityover an extended period, changes in technology, prices or industry practices mayresult in the assumptions used in these valuations needing to be changed. 4.17 Accounting standards and interpretations not yet applied The directors, together with their advisers, are in the process of evaluatingthe impact of standards and / or interpretations that have not yet becomeeffective. Listed below are those standards and / or interpretations most likelyto impact the Group: i) Amendment to IAS 1 - 'Presentation of Financial Statements - CapitalDisclosures' (effective for 2007/08) ii) IFRS 7 - 'Financial Instruments - Disclosures' (effective for 2007/08) iii) IFRIC 8 - 'Scope of IRFS 2 (share based payments)' (effective for 2007/08) iv) IFRIC 11 - 'IFRS 2 Share Based Payments' (effective for 2007/08) v) IFRIC 10 - 'Interim Financial Reporting and Impairment' (already effective) vi) IFRIC 11 - 'IFRS 2 Group and Treasury Share Transactions' (effective for2007/08) vii) IFRS 9 - 'Operating Segments' (effective for 2008/09) Based on the Group's current business model and accounting policies it is feltthat these standards and / or interpretations are unlikely to have a materialimpact on the Group's earnings or shareholders' funds. 5 Principal activity The Group's activities comprise the acquisition and development of powergeneration assets in southern Africa. 6 Segment analysis The following table provides a segmental analysis by geographic region. Atpresent, there is only one geographic and business segment. Activities in RSA relate to Newcastle Cogeneration (Pty.) Ltd and activities inUK relate to IPSA Group PLC and Blazeway Engineering Ltd. i) Year ended RSA UK Intra-Group Total 30 September 2007 eliminations £'000 £'000 £'000 £'000 Revenue 37 - - 37 Cost of sales (57) - - (57) Administrative expenses (260) (662) - (922) Other income / expense (2,016) 36 (1,980) Finance income 4 578 (510) 72 Loss for the year (2,292) (48) (510) (2,850) At 30 September 2007 RSA UK Intra-Group Total eliminations £'000 £'000 £'000 £'000 Total assets 12,846 37,980 (15,474) 35,352 Total liabilities 14,380 11,078 (12,738) 12,720 ii) 15 months to RSA UK Intra-Group Total 30 September 2006 eliminations £'000 £'000 £'000 £'000 Administrative expenses (28) (336) - (364) Other expenses (1,120) (69) 451 (738) Finance income 8 296 (229) 75 Loss for the period (1,140) (109) 222 (1,027) At 30 September 2006 RSA UK Intra-Group Total eliminations £'000 £'000 £'000 £'000 Total assets 6,021 7,812 (6,677) 7,156 Total liabilities 7,160 189 (6,448) 901 7 Administrative expenses 12 months 15 months ended ended 30.9.07 30.9.06 £'000 £'000 Expenditure incurred in administrative expenses is as follows: Payroll and social security 466 185 Other administrative expenses 456 179 Total 922 364 Audit fees for the Group amounted to £36,000 (2006 - £20,000). Fees payable toGrant Thornton UK LLP in respect of advisory services amounted to £21,079 (2006- £80,474) in connection with the Company's listing on the AltX Exchange (2006 -AIM). These advisory fees have been treated as share issue costs and have beencharged to the share premium account. 8 Other expense 12 months 15 months ended ended 30.9.07 30.9.06 £'000 £'000Fees associated with listing on AltX (2006 - AIM) (55) (69)Excess commissioning costs (a) (2,308) -Foreign exchange gains / (losses) (b) 383 (669) (1,980) (738) a) Excess commissioning costs represents payments made and an accrual forpayments due to 30 September 2007 under a gas supply contract. Under the termsof the contract, which expires in June 2011, Newcastle Cogeneration (Pty.) Ltdis required to purchase minimum quantities of gas in each 12 month period endingon 30 June. During the first 12 months of the contract, to 30 June 2007, and inthe first 3 months of the current year, Newcastle Cogeneration (Pty.) Ltd wasunable to purchase and use the required minimum quantities as a result of delaysin obtaining the requisite licences to supply electricity into the national gridin South Africa. It is not anticipated than any further shortfalls will ariseduring the remaining period of the contract. b) Foreign exchange gains (2006 - losses) have arisen as a result of ZARdenominated assets and liabilities being converted into sterling at the exchangerate ruling at the balance sheet date as compared to the exchange rates rulingat the date of the individual transactions. 9 Finance income 12 months 15 months ended ended 30.9.07 30.9.06 £'000 £'000 Interest received on bank deposits 72 75 10 Tax expense / credit No UK corporation tax or foreign tax is payable on the results of the Group. Therelationship between the expected tax credit and the tax credit actuallyrecognised is as follows: 12 months 15 months ended ended 30.9.07 30.9.06 £'000 £'000 Loss for the year / period before tax (2,850) (1,027)Standard rate of corporation tax in UK 30% 30%Expected tax credit 855 308Tax effect of consolidation adjustments and rate differences (185) 67Tax losses carried forward (670) (375) No deferred tax asset has been recognised at the balance sheet date due touncertainty as to the timing of the expected utilisation of the tax losses. 11 Loss attributable to the parent company The loss attributable to the parent company, IPSA Group PLC, was £48,000 (15months to 30.9.06 - £109,000 loss). As permitted by Section 230 of the CompaniesAct 1985, no separate profit and loss account is presented in respect of theparent company. 12 Loss per share The basic and diluted loss per share is calculated by dividing the loss for theperiod attributable to shareholders by the weighted average number of shares inissue during the period. 12 months 15 months ended ended 30.9.07 30.9.06 Loss attributable to equity holders of the company £2,849,856 £1,026,798Average shares in issue during the year / period 72,216,664 54,629,630Basic loss per share (3.95p) (1.88p) 13 Property, plant and equipment Plant and Plant under Total equipment construction £'000 £'000 £'000a) GroupCostAdditions in period to 30.9.06 - 5,603 5,603Cost at 30 September 2006 - 5,603 5,603Additions in year to 30.9.07 27,128 27,128Classification transfers 10,894 (10,894) -Cost at 30 September 2007 10,894 21,837 32,731 DepreciationDepreciation charge for the period to 30.9.06 - 2 2Depreciation at 30 September 2006 - 2 2Classification transfer 2 (2) -Charge for the year to 30.9.07 5 - 5Depreciation at 30 September 2007 7 - 7 Net book value at 30 September 2007 10,887 21,837 32,724Net book value at 30 September 2006 - 5,601 5,601 b) Company CostCost at 30 September 2006 - - -Additions in the year to 30.9.07 - 21,837 21,837Cost at 30 September 2007 - 21,837 21,837 DepreciationDepreciation at 30 September 2006 - - -Charge for the year to 30.9.07 - - -Depreciation at 30 September 2007 - - - Net book value at 30 September 2007 - 21,837 21,837Net book value at 30 September 2006 - - - Property, plant and equipment has been valued at cost. No depreciation ischarged until plant becomes operational. At 30 September 2007, plant underconstruction represents 4 Siemens Tornado turbines which have been acquired bythe Company for use in the planned Coega Basin project in South Africa. At 30September 2006, plant under construction comprised the turbine which is now inuse in Newcastle. This equipment was brought into initial production inSeptember 2007 with the generation of steam. Electricity generation from thisplant commenced in October 2007. 14 Intangible assets 30.9.07 30.9.06 £'000 £'000 At beginning of year / period 833 -Additions arising on acquisition of subsidiary - 833Cost at end of year / period 833 833 The intangible asset represents the directors' estimate of the fair value of acontract, owned by Newcastle Cogeneration (Pty.) Ltd at the date of acquisition,to supply steam from the electricity generating plant. Amortisation over thelife of the contract will commence during the current year as the plant becomesfully operational. 15 Trade and other receivables 30.9.07 30.9.06 due in more than 1 year £'000 £'000a) Group - - b) CompanyAmount due from subsidiary 2,339 2,339 The amount due from subsidiary an interest free loan. 16 Deferred tax asset 30.9.07 30.9.06 £'000 £'000 Asset recognised in respect of tax losses - -Unrecognised asset in respect of tax losses 1,045 375 In view of the uncertainty over the timing of the utilisation of the tax losses,the Directors consider that it would be inappropriate to recognise the potentialdeferred tax asset at this early stage in the development of the Group. 17 Investments 30.9.07 30.9.06 £'000 £'000 At beginning of year / period 500 -Additions - 500At end of year / period 500 500 The Company owns 100% of the issued share capital of Blazeway Engineering Ltd.The investment has been valued at cost. Blazeway Engineering Ltd owns 100% ofNewcastle Cogeneration (Pty.) Ltd. 18 Trade and other receivables 30.9.07 30.9.06 due in less than 1 year £'000 £'000 a) GroupPre-paid taxes 325 162Other prepayments 767 34 1,092 196 b) CompanyPre-paid taxes 18 6Other prepayments 17 34Amounts due from subsidiary 12,739 4,443 12,774 4,483 Amounts due from subsidiary represent short term finance to NewcastleCogeneration (Pty.) Ltd in order to provide funding for the development of theplant in Newcastle. Interest is being applied to the balance outstanding at 6.5%per annum. It is the intention of the directors to arrange for the repayment ofthis loan during the next 12 months. 19 Cash and cash equivalents 30.9.07 30.9.06 £'000 £'000 a) GroupCash at bank and in hand 35 18Short term bank deposits 668 508 703 526b) CompanyCash at bank and in hand 28 15Short term bank deposits 502 476 530 491 20 Share capital 30.9.07 30.9.06 £'000 £'000 a) Authorised150,000,000 ordinary shares of 2p each 3,000 3,000b) Allotted, called-up and fully paid89,564,081 ordinary shares of 2p each 1,792 1,093(2006 - 54,629,630 shares) c) Reconciliation of movement in share capital Number £ On incorporation (1 July 2005) - 2 ordinary shares of £1 each 2 2Subdivision of each ordinary £1 share into 50 shares of 2p each in September 2005 98 -Allotment in consideration of acquisition of Blazeway Engineering Ltd in September 2005 at par 24,999,900 499,998Allotment on admission to the AIM market of the London Stock Exchange in September 2005 at 27p per share 29,629,630 592,593At 30 September 2006 54,629,630 1,092,593Allotment in October 2006 on listing on AltX Exchange at ZAR 5.84 (40p) per share 11,499,839 229,997Allotment in March 2007 at ZAR 10.67 (75p) per share 7,500,000 150,000Allotment in March 2007 at 75p per share 2,500,000 50,000Allotment in September 2007 at ZAR 8.85 (61p) per share 13,434,612 268,692At 30 September 2007 89,564,081 1,791,282 The difference between the total consideration, less related costs, arising fromshares issued and the nominal value of the shares issued has been credited tothe share premium account (note 21). 21 Statement of changes in shareholders' equity Share Share Foreign Profit and Total capital premium currency loss reserve reserve £'000 £'000 £'000 £'000 £'000a) GroupOn incorporation - - - - -Allotment - September '05 500 - - - 500Allotment - September '05 593 6,640 - - 7,233Effect of foreign exchange - - (451) - (451)translation adjustmentLoss for the period - - - (1,027) (1,027)Balance at 30 September 2006 1,093 6,640 (451) (1,027) 6,255Allotment - October '06 230 3,575 - - 3,805Allotment - March '07 200 7,273 - - 7,473Allotment - September '07 269 7,779 - - 8,048Effect of foreign exchange - - (99) - (99)translation adjustmentLoss for the year - - - (2,850) (2,850)Balance at 30 September 2007 1,792 25,267 (550) (3,877) 22,632 b) CompanyOn incorporation - - - - -Allotment - September '05 500 - - - 500Allotment - September '05 593 6,640 - - 7,233Loss for the period - - - (109) (109)Balance at 30 September 2006 1,093 6,640 - (109) 7,624Allotment - October '06 230 3,575 - - 3,805Allotment - March '07 200 7,273 - - 7,473Allotment - September '07 269 7,779 - - 8,048Loss for the year - - - (48) (48)Balance at 30 September 2007 1,792 25,267 - (157) 26,902 22 Trade and other payables 30.9.07 30.9.06 £'000 £'000 a) Group Trade payables 979 856Other payables 11,741 45 12,720 901 b) Company Trade payables 131 145Other payables 10,947 44 11,078 189 Other payables includes an amount of €15.6m (£10.9m) due on 31 March 2008, beingthe final instalment payment due on the 4 turbines acquired during 2007 for theproposed Coega Basin project. 23 Reconciliation of loss before tax to cash 30.9.07 30.9.06 outflow from operations £'000 £'000 a) GroupLoss before tax (2,850) (1,027)Depreciation 5 2Changes in working capitalTrade and other receivables (896) (196)Trade and other payables 11,819 901Exchange translation adjustment (99) (451)Interest received (72) (75)Net cash inflow / (outflow) from operating activities 7,907 (846) b) CompanyLoss before tax (48) (109)Changes in working capitalTrade and other receivables 5 (40)Trade and other payables 10,889 189Interest receivable (579) (296)Net cash inflow / (outflow) from operating activities 10,267 (256) 24 Financial risk management The Group is exposed to a variety of financial risks which result from both itsoperating and investing risks. The Group's risk management is coordinated tosecure the Group's short to medium term cash flows by minimising the exposure tofinancial markets. The Group does not actively engage in the trading offinancial assets for speculative purposes nor does it write options. The mostsignificant risks to which the Group is exposed are described below: a) Foreign currency risk The Group is exposed to translation and transaction foreign exchange risk.Foreign exchange differences on retranslation of these assets and liabilitiesare taken to the income statement of the Group. The Group's principal tradingoperations are based in South Africa and as a result the Group has exposure tocurrency exchange rate fluctuations in the Rand relative to Sterling. b) Interest rate risk Group funds are invested in short term deposit accounts, with a maturity of lessthan three months, with the objective of maintaining a balance betweenaccessibility of funds and competitive rates of return. c) Liquidity risk The Group seeks to manage financial risk by ensuring sufficient liquidity isavailable to meet foreseeable needs and to invest cash assets safely andprofitably. d) Credit risk Generally, the maximum credit risk exposure of financial assets is the carryingamount of the financial assets as shown on the face of the balance sheet (or inthe detailed analysis provided in the notes to the financial statements). Creditrisk, therefore, is only disclosed in circumstances where the maximum potentialloss differs significantly from the financial asset's carrying amount. TheGroup's trade and other receivables are actively monitored to avoid significantconcentrations of credit risk. e) Fair values In the opinion of the directors, there is no significant difference between thefair values of the Group's and the Company's assets and liabilities and theircarrying values with the exception of property, plant and equipment where thedirectors consider, on the basis on the professional valuations performed, thatthe fair values, based on 'open market values' are in excess of the carryingvalues. 'Open market value' assumes a willing buyer and a willing seller. 25 Capital commitments The Company has acquired (note 13) 4 gas turbines which are being prepared forthe proposed Coega Basin project. A contract to 'zero hour' these turbines hasbeen entered into at a cost of £7m. 26 Contingent liabilities Newcastle Cogeneration (Pty.) Ltd is party to a 'take or pay' contract topurchase gas. Under the terms of the contract, which commenced on 1 July 2006,Newcastle Cogeneration (Pty.) Ltd is required to make minimum annual purchasesamounting to a total of ZAR121m over the life of the contract, which expires on30 June 2011. For the reasons set out in note 8, there was a shortfall in theyear to 30 June 2007 which has been written-off, together with the shortfall inthe 3 months period to 30 September 2007. As the plant is now operational, nofurther shortfalls are anticipated and the directors do not consider that anyadditional provision is required. 27 Related party transactions Material transactions with related parties during the period were as follows: i) Payment by the Company of £60,000 to Independent Power CorporationPLC under a "Shared Services Agreement" for the provision of offices and otheradministrative services. P Earl and E Shaw are shareholders and directors ofIndependent Power Corporation PLC and J West is a director. A sum of £11,750(2006 - £22,670) was owing to Independent Power Corporation PLC at 30 September2007. ii) Payment by the Group of salaries to key management totalling £184,000 (2006 - £153,000). Transactions between the Company and Newcastle Cogeneration (Pty.) Ltd included: i) Expense recharges in relation to services provided - £113k (2006 - £114k). ii) Unsecured loans by the Company to Newcastle Cogeneration (Proprietary) Ltd of £12.7m (2006 - £6.8m). iii) Interest charges (at 6.5%) on loan balances outstanding - £510k (2006 - £229k). 28 Directors and employee costs 30.9.07 £'000 Aggregate remuneration of all employees and directors 224 Remuneration paid to the directors Salary Other Totalwho served during the year: emoluments £'000 £'000 £'000 S Hargrave (non-executive) 34 - 34 N Bryson (non-executive) - 15 15 P Earl 39 - 39 J Eyre 39 - 39 E Shaw 39 - 39 J West (non-executive) 3 15 18 Total 154 30 184 'Other' remuneration includes £15,000 paid to Balmyle Ltd, a company controlledby N Bryson and £15,000 paid to Jimmy West Associates Ltd, a company controlledby J West. The average number of employees in the Group, including directors, was 15. At 30September 2007, the total number of employees in the Group was 17. 29 Post balance sheet date events a) On 11 October 2007, Elitheni Clean Coal Holdings Ltd (ECCH) was incorporatedunder the British Virgin Islands Companies Act 2004 (company number 1437070) asa wholly owned subsidiary of the Company. On 28 November 2007, the Company sold50% of its interest in ECCH to Exodus Elitheni Holdings LLC (EEH) on terms suchthat the Company will receive $5m from EEH when ECCH secures funding for itsproposed project. b) On 24 January 2008, the Company entered into a Memorandum of Understandingwith the Central Energy Fund (Pty.) Ltd (CEF), the wholly owned subsidiary ofthe Government of South Africa for a key role as a private sector power plantdeveloper to the integrated energy project being developed at the CoegaIndustrial Development Zone (IDZ) outside Port Elizabeth. Further details of these transactions are set out in the Chief Executive'sreview of operations. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
IPSA.L