Final results for the year ended 31 December 2009

RNS Number : 6145M

Andes Energia PLC

27 May 2010

 

Andes Energia plc

("Andes" or the "Company")

 

Final results for the year ended 31 December 2009

 

HIGHLIGHTS

 

Andes Energia plc ("Andes" or the "Company" and with its subsidiaries the "Group"), the Latin American energy group, with electricity distribution, hydro-electric power and oil and gas interests in Argentina and certain other exploration interests outside Argentina, is pleased to announce its results for the year ended 31 December 2009.

 

 

Financial

 

Year ended 31 December	2009	2008	Change
	US$'m	US$'m
Revenue	139	138	1%
EBITDA	19	10	90%
Profit/(loss)before tax	4	(13)	N/A
Loss for the year attributable to equity holders	(1)	(10)	N/A

 

Operational

 

·; Increase in EDEMSA's EBITDA for the year ended 31 December 2009 to AR$68 million (US$18 million) from AR$52.5 million in the previous year.

·; Increase in electricity tariffs charged by EDEMSA by on average 12% on 1 August 2009 and 12% on 1 December 2009.

·; Full impact in HASA of improved tariff regulatory regime.

·; Successfully renegotiated terms of corporate debt with extended maturity dates.

·; Established Level 1 American Depositary Receipt program.

·; Successfully renegotiated terms of Chubut oil and gas licences.

·; Continuation of geophysical studies, seismic acquisition and seismic reprocessing.

·; Comisión Nacional de Valores and Buenos Aires Stock Exchange approval for listing Andes's shares

 

 

For further information please contact:

 

Andes Energia plc	Luis Alvarez Poli, CEO Nigel Duxbury, FD	T: +442074955326
Arbuthnot Securities	Antonio Bossi	T: +442070122000
Bishopsgate Communications	Nick Rome Michael Kinirons	T: +442075623350

 

 

 

Qualified Person Review

In accordance with AIM guidance for mining, oil and gas companies, Mr. Juan Carlos Esteban has reviewed the information contained in this announcement. Mr. Juan Carlos Esteban, an employee of the Group, is a petroleum engineer with over 20 years of experience and is a member of the SPE (Society of Petroleum Engineers).

 

A copy of the audited annual report for the year ended 31 December 2009 together with a notice of Annual General Meeting, to be held at the offices of Nabarro LLP at Lacon House, 84 Theobald's Road, London WC1X 8RW at 10.00a.m. on 29 June 2010, will be posted to shareholders shortly and will also be available from the Group' website at www.andesenergiaplc.com.ar.

 

 

CHAIRMAN'S STATEMENT

 

Overview

 

Our 2009 financial results incorporating the results of Andes together with its subsidiaries for the year ended 31 December 2009 are set out below.

 

The Group recorded a profit before tax of US$4million on revenue of US$139 million for the year compared to a loss of US$13 million on revenue of US$138 million in 2008. In local currency, revenue increased to AR$519 million from AR$438 million (18%). This revenue increase results primarily from the EDEMSA tariff increase, the pass through of increases in the cost of energy purchased and an increase in demand. The results for the year have been adversely impacted by the weakening of the AR$ against the US$ resulting in a non-cash exchange loss of US$7 million on the EDEMSA US$ denominated debt but have benefited from the strengthening of £ against the US$ resulting in a non-cash exchange gain of US$2 million on US$ debt held at the Company level. The loss after tax attributable to equity shareholders was US$1 million compared to a loss of US$10 million in 2008. Basic and diluted loss per share was 0.45 cents for the year compared to a basic and diluted loss per share of 8.22 cents in 2008. In line with the dividend policy set out in the Group's re-admission document, no dividend is proposed.

 

As announced on 22 September 2009, EDEMSA tariffs for the third pricing period were implemented resulting in an average increase of 12% effective from 1 August 2009. A further 12% increase was implemented from 1 December 2009 as referred in our announcement of 11 November 2009.

 

The results of HASA, our hydroelectric power plant, have benefited from a change in the regulations implemented in October 2008 that now allows HASA to sell all the electricity it generates to the wholesale market.

 

Exploration activity in Argentina and the rest of the world in 2009 was significantly reduced as a result of economic uncertainty. Notwithstanding, during 2009 we continued to accumulate and interpret data to better understand the properties of potential reservoirs to help us optimise a working plan for 2010 and 2011.

 

Outlook

 

Whilst the delay in the implementation of the EDEMSA tariff increases in 2009 adversely impacted the results for the year, the results for 2010 will benefit from these increases for the full year, which hopefully will lead to stability and economic and financial sustainability in the long term.

 

The change in the regulations that became effective in 2008, enabling HASA to sell all the electricity it generates to the wholesale market, has resulted in an increase of nearly 100% in the average selling price of electricity generated.

 

International economic turmoil has had an impact on oil companies and in particular exploration projects. However, following meetings with the company, the Chubut regulatory authorities agreed to extend the initial exploration period and reduce the licence commitments, to ensure exploration activities continue.

 

The Group's prime focus for the balance of this year and 2011 will be the development of its oil and gas interests in Argentina. The Group holds licences in prolific oil and gas provinces in Argentina all of which we believe have the potential for significant discoveries and reserves.

 

Neil Bleasdale

Chairman

 

 

 

 

CHIEF EXECUTIVE'S REVIEW

 

Introduction

 

2009 was Andes´s second full year since its admission to AIM. Despite the 2008/2009 commodity prices, credit market and capital market collapse we managed to increase revenues in our electricity operating companies.

 

For the second year in a row, our portfolio of investments provided a solid shield to overcome the volatility of the markets, however this volatility also meant that we were not able to accelerate and expand our business in the oil and gas sector as quickly as we would have liked.

 

The collapse of commodity prices in late 2008 and the first half of 2009, combined with the worldwide financial crisis, affected the oil and gas industry as a whole, particularly in the services and exploration areas. However, there are clear signs of a recovery in this sector and with oil prices back in the range of US$60 to US$80 per barrel for WTI, local players and the industry in general are regaining momentum and there are signs that international companies and the majors are again looking to invest in the region.

 

The highlights for 2009 are:

 

·; Adjustment of EDEMSA electricity tariffs in August and December 2009. We will benefit from the full impact of these increases in 2010.

·; Full impact in HASA of improved tariff regulatory regime.

·; Acquisition and interpretation of 3D seismic information on Laguna El Loro Block.

·; Chubut licence periods extended and new working plan approved.

·; Reinterpretation of 2D and 3D seismic information on Corralera Block.

·; New terms for existing Company debt facilities.

·; Level 1 American Depositary Receipt programme established.

·; Completion of feasibility study to expand power generation in HASA.

·; Comisión Nacional de Valores and Buenos Aires Stock Exchange approval for listing Andes´s shares

 

We believe that 2010 will be a promising year for Andes in general and particularly for our oil and gas assets as the industry recovers from the challenges of the last two years. We will focus on the acquisition of licences that have existing production and on the development of those licences that can provide positive cash flow in the short and medium term and balance Andes's portfolio of oil and gas assets, providing our shareholders with a broader base of risk between pure exploration and production.

 

Electricity distribution and power generation

 

EDEMSA

 

During 2009, progress was made in strengthening management and implementing the changes initiated with the new structures that were defined in mid-2008. Special emphasis has been placed on increasing productivity and the efficiency of processes. The objectives we established have been achieved through a focus on training and the better management and utilisation of available resources.

During 2009, we were able to reduce business process times to the minimum level acceptable by the regulator involving the following processes; contract renegotiations; invoice distribution; meter readings; and management. This has resulted in a reduction in the time taken to make claims and an effective reduction of three days in the meter reading cycle.

As of December 2009, EDEMSA has reached an historical minimum record for energy losses of 11.3%. Again, this has been the result of a co-ordinated effort between inspection activities, irregular situations detections, recovery of clients and a model of tracking anomalies and the consumption of our customers.

 

Losses Evolution

Dec 2006	Dec 2007	Dec 2008	Dec 2009
11.7%	12.0%	11.9%	11.3%

 

Evolution of Energy Demand

The energy consumption in Argentina in 2009 decreased by 1.8% compared to 2008, whilst our concession area in Mendoza saw an increase in demand of 1.7%, whilst the maximum power demand, recorded an increase of 5.5% over 2008. The volume of energy sold during 2009 was 3,019.6 GWh, representing a growth of 2.36% compared to 2008.

 

Cost of supply

 

During 2009 there was an increase in the average price of energy supplied of 12.1% due to seasonal price increases. These increases are recovered by the pass through of these increased costs to customers.

Social responsibility

On 30 October 2008 EDEMSA signed the Memorandum of Agreement on Social Security, with the Government of Mendoza. This ambitious plan includes, inter-alia, the commitment to sponsor rural schools within EDEMSA's concession area. As a consequence eleven schools with 1,600 students have benefited from this program. In addition, during 2009, the company inaugurated two classrooms in the Operations Centre which are dedicated to providing on a daily basis IT and English lessons to children from deprived areas and organized a daily Summer Camp for 400 children from 4 deprived neighbourhoods in Greater Mendoza.

Results

EDEMSA recorded a profit of AR$9 million in 2009 and EBITDA of AR$68 million. This represents a significant recovery from the loss of AR$9 million and EBITDA of AR$53 million in 2008. Sales for the year were AR$503 million, a 17.6% increase on 2008 revenues of AR$428 million. This increase is explained by a number factors; the tariff increases; an increase in physical energy demand of 2.36%; a decrease in energy losses and increases in the cost of power purchased of 12.1%. Increases in the cost of power purchased and increases in distribution costs led to cost of sales increasing to AR$382 million from AR$328 million in 2008, resulted in gross profit of AR$121 million, an increase of AR$21 million (21%) over 2008 gross profit of AR$100 million. Whilst the gross profit showed a significant improvement, operating and selling and marketing costs also increased. This was primarily due to increases in salaries and other employee benefits, resulting largely from collective bargaining agreements, increases in fees paid to third party service providers and an increase in bad debts. This resulted in an operating profit of AR$40 million compared to AR$25 million in 2008, an increase of AR$15 million or 60%.

 

The results for 2009 have obviously been adversely affected by the partial and delayed implementation of the tariff increases and the continued increases in the costs of inputs and services. This situation is expected to improve in 2010 when EDEMSA will benefit from the 2009 tariff increases for the full year and from a scheduled increase to the weighted average cost of capital contemplated in the tariff, applicable as of 1 February 2010, which led to an additional tariff increase of approximately 3% from that date. The introduction of a tariff polynomial formula that recognises the increase of costs due to inflation is still pending the decision of the Minister of Infrastructure, Housing and Transport. Should it be implemented, this would lead to stability and economic and financial sustainability in the long term.

 

Following the restructuring of the EDEMSA bonds in March 2007, the weakening of the AR$ against the US$ has resulted in EDEMSA recording a non-cash exchange loss of AR$26 million in 2009. For this reason, we have entered into forward contracts to cover the principal and interest payments in 2009 and the first quarter of 2010. Due to the high cost and lack of availability of long term forward contracts to match the maturity of EDEMSA's bonds, EDEMSA has established a Trust with the objective of investing in US$ denominated assets. At the year end EDEMSA had an investment of AR$63 million in the Trust.

  Equity and financial structure

 

The financial debt restructuring undertaken in 2007 allowed EDEMSA to better balance its equity structure. EDEMSA has a solvency ratio (net assets/liabilities) of 1.01. EDEMSA continues to meet its commitments under the Concession Agreement and has met and continues to meet all financial covenants and other commitments under the terms of the EDEMSA bond agreement.

 

HASA

 

The company recorded a profit for the year of AR$3.2 million, an increase of 167% compared to 2008 profits of AR$1.2 million. Sales increased to AR$16 million from AR$10 million in 2008. Inflows from high rainfalls were 19% higher than the historical average allowing 1,834.21Hm³ to accumulate in the reservoir. The power generated in the year was 149GWh, 5.7% higher than 2008 and higher than the annual average production. The production for the first quarter of 2010 was approximately 95GWh. HASA is also considering participation in two investment projects involving a) the generation of electricity for the city of Trelew and b) a 40MW wind-farm to take advantage of existing transportation lines. In conjunction with these possible new initiatives and in order to finance these projects HASA is looking to establish a US$35 million bond program.

 

Oil and gas interests

 

Corralera Block

 

Evaluation of petroleum characteristics

 

A local petrophysical consultant was hired to make a preliminary assessment of the characteristics of the potential oil present in the block. The main objective was to analyse the oil data in order to identify possible repairs and carry out a petrophysical study of the properties of the potential reservoirs. As with other blocks in this area, the results of the study showed lateral variations and loss of layers as well as a sharp decline in the quality of petrophysical values.

The "Siman" program, was used to interpret the logs in the zones of the Avile and Mulichinco formations, whilst for the Agrio formation, because of the high limestone content, a plot of Dt-Dtm against Rt was used in order to determine the existence of fractured areas.

 

Information recovery and seismic reinterpreting

 

2D seismic information was recovered in SGY format lines to allow us to map prospective horizons and the definition of a fault system, which should enable us to identify possible new plays. The LAS format was used to formulate data reconstructed from existing wells and coordinates checked. The information loaded included 65 lines of 2D seismic (800 km) and ten well logs.

 

Information recovery and seismic reinterpreting (continued)

 

As the 2D seismic lines had different qualities, we were not able to run amplitude and frequency attributes. However, the recovery of a 3D cube will allow us to optimise a new working plan and the exploratory prospects. The analysis of the information recovered will help us to build a static model with maps of porosity, saturation and thickness and enable us to define faulting systems and finally assess the possible plays within the area. Furthermore, the work plan included a surface geochemical survey with the primary purpose of determining the effect of soil gas near the surface of the block. These surveys will help us to identify oil and gas compositions and the distribution of the source of hydrocarbons at depth. The first phase of the surface geochemistry will have a regional character and we are planning to collect 300 soil samples in the period from May to September 2010. In the second phase we anticipate undertaking local geochemical tests in areas where positive anomalies are detected and where the reinterpretation of the 3D seismic identifies potential target plays.

 

Well testing proposal

We believe well PBx-3 presents the best opportunity for stimulation, especially in its gas producing segments. The Avile formation presents another interesting opportunity, but with the risk of water towards the base. Whilst the well BBx1 is placed structurally lower and its characteristics are impaired by water, there are some possible zones that can be considered for perforation. The acid fracturing technique is being considered as the chosen method for stimulation. 

 

Before drilling a new well, in order to improve the likelihood of success, a comprehensive study of the area will be carried out, based on 3D seismic reinterpretation, in order to reduce risk and uncertainty. The areas with improved conditions are towards the North (near the Rio Colorado) and to the East where they enter the zone of influence of the Avile formation (Chihuido de la Sierra Negra is the neighbour block).

 

Laguna El Loro Block

3D seismic cube information has been retrieved for Lago Pellegrini, Galdames and Flores. The reprocessing, integration and interpretation of the 3D seismic cube information is currently being undertaken to build a static model that will correlate wells drilled in the area with neighbouring blocks with producing wells.

 

Chubut

 

We have now received the final set of data for the airborne survey undertaken by Carson Helicopters, Inc., over the six blocks located in the Chubut Province. We will be analysing this data over the next few weeks to determine the next steps in our exploration program.

 

As announced on 12 May 2009, UTE representatives met with the Chubut government authority, Petrominera Chubut S.E. ("Petrominera"), to discuss the possibility of reformulating the work programs and extending the exploration periods. We are pleased to announce that Petrominera have agreed to extend the exploration periods by 1 year and reduce the work program commitments.

 

Other interests

 

The Group has also maintained its interest in certain non-Argentine assets acquired at the time of the reverse acquisition. These are primarily investments in early stage gas and mineral exploration assets located in North America, Europe and Mauritania.

 

Luis Alvarez Poli

Chief Executive Officer

GROUP INCOME STATEMENT

 

FOR THE YEAR ENDED 31 DECEMBER 2009

 

	31-Dec-09	31-Dec-08
	US$	US$
Revenue	138,644,164	138,087,122
Cost of sales	(104,513,429)	(105,837,484)
Gross profit	34,130,735	32,249,638
Other operating income	5,983,904	420,367
Distribution costs	(12,720,425)	(11,628,516)
Administrative expenses	(16,273,091)	(20,091,895)
Operating profit	11,121,123	949,594
Finance income	5,608,405	1,203,496
Finance costs	(13,105,611)	(14,675,946)
Profit/(loss) before taxation	3,623,917	(12,522,856)
Taxation	(2,558,090)	1,839,144
Profit/(loss) for the year	1,065,827	(10,683,712)
Total (loss)/profit attributable to:
Equity holders of the parent	(532,667)	(9,620,280)
Minority interests	1,598,494	(1,063,432)
	1,065,827	(10,683,712)
	Cents	Cents
Basic and diluted loss per ordinary share	(0.45)	(8.22)

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE YEAR ENDED 31 DECEMBER 2009

 

	31-Dec-09	31-Dec-08
	US$	US$
Profit/(loss) after tax	1,065,827	(10,683,712)
Fair value adjustment	340,103	(274,873)
Foreign exchange movements	(11,627,540)	(25,615,911)
Total comprehensive loss	(10,221,610)	(36,574,496)

 

Total comprehensive loss attributable to:
Equity holders of the parent	(4,995,493)	(27,278,371)
Minority interests	(5,226,117)	(9,296,125)
	(10,221,610)	(36,574,496)

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

31 DECEMBER 2009

 

	31-Dec-09	31-Dec-08
	US$	US$
Non-current assets
Intangible assets	88,385,607	90,559,507
Property, plant and equipment	138,966,406	150,710,046
Investments	20,390,284	10,452,546
Available for sale financial assets	520,778	300,543
Trade and other receivables	336,322	121,466
Deferred income tax assets	32,918,562	36,612,211
Total non-current assets	281,517,959	288,756,319
Current assets
Inventories	4,098,319	4,678,243
Available for sale financial assets	731,093	724,793
Trade and other receivables	31,621,550	32,088,564
Cash and cash equivalents	5,123,704	2,547,841
Total current assets	41,574,666	40,039,441
Current liabilities
Trade and other payables	44,578,011	38,522,363
Financial liabilities	8,312,753	10,289,176
Provisions	10,078,696	8,690,809
Current tax liabilities	47,990	43,491
Total current liabilities	63,017,450	57,545,839
Non-current liabilities
Trade and other payables	2,236,784	1,511,958
Financial liabilities	73,744,456	74,244,243
Deferred income tax liabilities	25,833,889	28,391,542
Total non-current liabilities	101,815,129	104,147,743
Net assets	158,260,046	167,102,178
Capital and reserves
Called up share capital	23,947,876	23,418,920
Share premium account	29,644,391	28,692,270
Profit and loss account	(47,614,929)	(47,332,067)
Merger reserve	66,195,556	66,195,556
Reverse acquisition reserve	42,045,342	42,045,342
Translation reserve	(22,148,975)	(17,516,645)
Fair value reserve	245,682	76,178
Equity attributable to equity holders of the parent	92,314,943	95,579,554
Minority interest	65,945,103	71,522,624
Total equity	158,260,046	167,102,178

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

FOR THE YEAR ENDED 31 DECEMBER 2009

 

Capital and reserves	Share	Share	Profit and	Other	Minority	Total
	capital	premium	Loss	reserves	interest
	US$	US$	US$	US$	US$	US$
At 1 January 2008	23,418,920	28,949,260	(42,308,581)	108,458,522	118,865,465	237,383,586
Loss for the year	-	-	(9,620,280)	-	(1,063,432)	(10,683,712)
Fair value adjustment	-	-	-	(141,446)	(133,427)	(274,873)
Foreign exchange movements	-	-	-	(17,516,645)	(8,099,266)	(25,615,911)
Total comprehensive loss for the year	-	-	(9,620,280)	(17,658,091)	(9,296,125)	(36,574,496)
Share issue costs	-	(256,990)	-	-	-	(256,990)
Exercise of option to acquire minority interest	-	-	4,138,304	-	(38,046,716)	(33,908,412)
Fair value of share based payments	-	-	458,490	-	-	458,490
At 31 December 2008	23,418,920	28,692,270	(47,332,067)	90,800,431	71,522,624	167,102,178
Profit/(loss) for the period	-	-	(532,667)	-	1,598,494	1,065,827
Fair value adjustments	-	-	-	169,504	170,599	340,103
Foreign exchange movements	-	-	-	(4,632,330)	(6,995,210)	(11,627,540)
Total comprehensive loss for the year	-	-	(532,667)	(4,462,826)	(5,226,117)	(10,221,610)
Issue of ordinary shares	528,956	952,121	-	-	-	1,481,077
Fair value of share based payments	-	-	249,805	-	-	249,805
Dividends	-	-	-	-	(351,404)	(351,404)
At 31 December 2009	23,947,876	29,644,391	(47,614,929)	86,337,605	65,945,103	158,260,046
Other reserves		Merger	Reverse	Translation	Fair value	Total
		reserve	Acquisition	reserve	reserve	other
			Reserve			reserves
		US$	US$	US$	US$	US$
At 1 January 2008		66,195,556	42,045,342	-	217,624	108,458,522
Loss for the period		-	-	-	-	-
Fair value adjustment		-	-	-	(141,446)	(141,446)
Foreign exchange movements		-	-	(17,516,645)	-	(17,516,645)
Total comprehensive loss for the year		-	-	(17,516,645)	(141,446)	(17,658,091)
Share issue costs		-	-	-	-	-
Exercise of option to acquire minority interest		-	-	-	-	-
Fair value of share based payments		-	-	-	-	-
At 31 December 2008		66,195,556	42,045,342	(17,516,645)	76,178	90,800,431
Profit/(loss) for the period		-	-	-	-	-
Fair value adjustments		-	-	-	169,504	169,504
Foreign exchange movements		-	-	(4,632,330)	-	(4,632,330)
Total comprehensive loss for the year		-	-	(4,632,330)	169,504	(4,462,826)
Issue of ordinary shares		-	-	-	-	-
Fair value of share based payments		-	-	-	-	-
Dividends		-	-	-	-	-
At 31 December 2009		66,195,556	42,045,342	(22,148,975)	245,682	86,337,605

 

CONSOLIDATED CASH FLOW STATEMENT

 

FOR THE YEAR ENDED 31 DECEMBER 2009

 

	31-Dec-09	31-Dec-08
	US$	US$
Profit/(loss) for the year before taxation	3,623,917	(12,522,856)
Adjustments for:
Depreciation	7,633,102	8,720,842
Movement in debt	9,450,297	13,077,587
Revaluation of investments	(66,251)	101,362
Profit on sale of property, plant and equipment	-	1,475
Increase in inventories	(3,341,122)	(9,011,621)
Increase in trade and other receivables	(7,456,546)	(10,875,326)
Increase in creditors and other payables	9,884,014	10,777,973
Increase in provisions for liabilities and charges	5,498,515	4,518,354
Loss/(profit) on disposal of investments	76,441	(34,091)
Movement in tax provisions	(529,482)	(248,283)
Amortisation	276,195	317,449
Share based payments	249,805	458,490
Net cash generated from operating activities	25,298,885	5,281,355
Cash flows from investing activities
Purchase of property, plant and equipment	(7,942,455)	(3,716,132)
Purchase of exploration assets	(40,021)	(345,174)
Purchase of investments and minority interests	(11,152,288)	(32,465,984)
Proceeds from available for sale shares	51,732	458,725
Proceeds from grants	1,434,117	809,214
Net cash used in investing activities	(17,648,915)	(35,259,351)
Cash flows from financing activities
Repayments of borrowings	(7,496,292)	(2,681,160)
Funds from borrowings	1,609,436	14,059,253
Proceeds from issue of shares	1,481,077	-
Share issue costs	-	(256,990)
Dividends	(351,404)	-
Net cash (used in)/generated from financing activities	(4,757,183)	11,121,103
Net increase/(decrease) in cash and cash equivalents	2,892,787	(18,856,893)
Cash and cash equivalents at the beginning of the year	2,547,841	23,347,231
Foreign exchange movements	(316,924)	(1,942,497)
Cash and cash equivalents at the end of the year	5,123,704	2,547,841

 

1. GENERAL INFORMATION

 

1.1 Introduction

 

The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 31 December 2009 or 31 December 2008.

 

The financial information has been extracted from the statutory accounts of the Company for the years ended 31 December 2009 and 31 December 2008. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 237 (2) or Section 237 (3) of the Companies Act 1985 or Section 498 (2) or Section 498 (3) of the Companies Act 2006 and did not include references to any matters to which the auditor drew attention by way of emphasis.

 

The Company will produce its statutory accounts for the year ended 31 December 2009 in accordance with International Financial Reporting Standards as adopted by the European Union and in accordance with the Group's accounting policies as set out in the 2008 statutory accounts.

 

The statutory accounts for the year ended 31 December 2008 have been delivered to the Registrar of Companies, whereas those for the year ended 31 December 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

 

1.2 Business and geographical segments

 

	Revenue		Segment profit
	31-Dec-09	31-Dec-08	31-Dec-09	31-Dec-08
Analysis of revenue and profit/(loss):	US$	US$	US$	US$
Electricity distribution	134,467,794	134,883,349	10,600,565	7,920,823
Electricity generation	4,176,370	3,203,773	1,159,715	292,729
	138,644,164	138,087,122	11,760,280	8,213,552
Central administration costs			(639,157)	(7,263,958)
Finance income			5,608,405	1,203,496
Finance costs			(13,105,611)	(14,675,946)
Profit/(loss) before tax (continuing operations)			3,623,917	(12,522,856)
			31-Dec-09	31-Dec-08
Analysis of total assets:			US$	US$
Electricity distribution			265,821,900	273,160,720
Electricity generation			16,264,546	18,260,956
Oil and gas interests			32,795,394	29,882,775
Total segment assets			314,881,840	321,304,451
Unallocated assets			8,210,785	7,491,309
Consolidated total assets			323,092,625	328,795,760
			31-Dec-09	31-Dec-08
Analysis of total liabilities:			US$	US$
Electricity distribution			144,775,122	141,889,769
Electricity generation			4,307,726	4,818,047
Oil and gas interests			16,916	8,432
Total segment liabilities			149,099,764	146,716,248
Unallocated liabilities			15,732,815	14,977,334
Consolidated total liabilities			164,832,579	161,693,582
			31-Dec-09	31-Dec-08
Analysis of total capital expenditure:			US$	US$
Electricity distribution capital expenditure			11,126,578	12,004,318
Electricity generation capital expenditure			10,744	21,911
Oil and gas interests			40,021	345,174
Total segment capital expenditure			11,177,343	12,371,403
Other capital expenditure			4,122	4,701
Consolidated total capital expenditure			11,181,465	12,376,104
			31-Dec-09	31-Dec-08
Analysis of total depreciation:			US$	US$
Electricity distribution depreciation			7,540,900	8,616,586
Electricity generation depreciation			90,283	100,718
Total segment depreciation			7,631,183	8,717,304
Other depreciation			1,919	3,538
Consolidated total depreciation			7,633,102	8,720,842

 

1.3 Finance income

 

		31-Dec-09	31-Dec-08
		US$	US$
Interest receivable and similar income		5,608,405	1,203,496
		5,608,405	1,203,496

 

1.4 Finance costs

 

		31-Dec-09	31-Dec-08
		US$	US$
Interest costs		13,105,611	14,675,946
		13,105,611	14,675,946

 

1.5 Taxation

 

		31-Dec-09	31-Dec-08
		US$	US$
Current tax		1,831,143	291,800
Deferred taxation		726,947	(2,130,944)
Tax charge/(credit)		2,558,090	(1,839,144)
Profit/(loss) on ordinary activities before tax		3,623,917	(12,522,856)
Tax charge/(credit) on profit/(loss) at standard rate of 35%		1,268,371	(4,383,000)
Effects of:
Expenses not deductible for tax purposes		403,307	1,299,041
Recovery of deferred tax position		(36,647)	-
Recovery of minimum notional tax		429,956	(8,723)
Unrelieved tax losses		493,103	1,253,538
Total tax expense/(credit)		2,558,090	(1,839,144)

 

1.6 Loss per share

 

Loss per share is presented on two bases: basic loss per share and diluted loss per share. Basic loss per share is in respect of all activities and diluted loss per share takes into account the dilution effects which would arise on conversion or vesting of warrants in issue.

 

		31-Dec-09	31-Dec-08
		Cents	Cents
Basic loss per share		(0.45)	(8.22)
Diluted loss per share		(0.45)	(8.22)
		US$	US$
Loss for the financial year attributable to equity holders		(532,667)	(9,620,280)
		No.	No.
Weighted average number of shares		117,519,203	117,094,598
Effect of dilutive warrants		-	-
Diluted weighted average number of shares		117,519,203	117,094,598
		No.	No.
Potential number of dilutive warrants		31,300,000	31,300,000
		31,300,000	31,300,000

 

1.7 Financial liabilities

 

	31-Dec-09	31-Dec-08
	US$	US$
Current
Bonds	6,585,434	4,959,972
Other borrowings	1,416,268	5,329,204
Accrued financial interest	311,051	-
	8,312,753	10,289,176

 

	31-Dec-09	31-Dec-08
	US$	US$
Non-current
Bonds	61,552,636	66,295,804
Other borrowings	12,191,820	7,948,439
	73,744,456	74,244,243

 

Bonds

 

The bonds represent the amounts owed to EDEMSA's bond holders following the successful restructuring of EDEMSA's debt on 28 March 2007. The previous debt has been derecognised and the new notes have been recognized at fair value based on the present value of management's best estimate of the expenditure required, taking into account all the requirements established in the agreement with bond holders. The discount rate used to determine the present value reflects current market assessments of the time value of money and the increases specific to the liability. EDEMSA has discounted the probable cash flows of the new debt applying a 10.2% annual rate in US$.

 

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

 

As at 31 December 2009 the following EDEMSA debt securities were in issue:

 

(i) Class A simple, non-convertible notes with a face value of US$1.00 each, due in 2018, for a total amount of US$58,650,000.

(ii) Class B simple, non-convertible notes with a face value of US$1.00 each, due in 2018, for a total amount of US$17,814,969.

(iii) Class D simple, non-convertible notes with a face value of US$1.00 each, due in 2018, for a total amount of US$14,544,706 and US$14,544,706 Class D Certificates, due in 2027.

 

The basic terms of the securities are as follows:

 

(i) The notes are direct, unconditional and general obligations of EDEMSA and will be treated, at all times, pari passu with other outstanding present or future non-priority, general obligation notes of EDEMSA, except for notes with priorities according to effective legal regulations. The company may redeem the notes at any time in certain cases.

(ii) The notes provide for the payment of principal on arrears in quarterly installments on 31 March, 30 June, 30 September and 31 December, each year, beginning on 31 March 2007. The annual principal amortisation schedule steps up.

(iii) The notes establish that interest will be paid quarterly in arrears on the principal payment dates. The first interest payment date was 31 March 2007.

(iv) The class A and class B notes provide that interest will accrue on the outstanding principal as from the date of issue at a step-up annual fixed rate established in accordance with the following: a 1% interest rate during the first two years as from the date of issue, a 2% interest rate in the third and fourth years and a 4% interest rate as from that year (i.e. from the fifth year onwards).

(v) The class D notes provide that interest will accrue on outstanding principal as from 1 January 2009 at a step-up annual fixed rate established in accordance with the following: no interest will accrue during the first two years as from the date of issue, a 1% interest rate in the third and fourth years and a 3% interest rate as from the fifth year.

(vi) The class D notes include an additional payment with excess cash flows semi-annually from 30 April 2008 to 31 October 2027. This right is represented in the Class D certificates.

 

Under the agreement with bondholders, EDEMSA must comply with certain covenants including:

 

(i) Debt/EBITDA ratios

(ii) Capital expenditures restrictions

(iii) Working capital restrictions

 

The terms and conditions of the notes also include standard commitments for these transactions related to the following:

·; Restrictions on liens

·; Restrictions on new indebtedness

·; Restrictions on transactions with shareholders and related companies

·; Restrictions on restricted payments

·; Delivery of financial statements

·; Restrictions on mergers and consolidations

 

As of the end of this period, all the above commitments have been fulfilled.

 

The bonds were fair valued at the time of the debt restructuring and are subsequently carried at amortised cost. The carrying amount of the bonds equates approximately to their fair value. Other borrowings are carried at amortised cost with a fair value of US$11,660,823 (2008: US$8,754,481) using discounted cash flow analysis using a cost of capital for similar types of borrowings.

 

The maturity profile financial liabilities based on gross undiscounted cash flows is summarized below:

 

	31-Dec-09	31-Dec-08
	US$	US$
Maturity profile
Within 1 year	9,284,700	5,715,456
Between 1 and 5 years	50,555,112	49,033,540
After 5 years	60,706,135	63,053,601
	120,545,947	117,802,597
Interest payments	(22,669,878)	(24,450,577)
	97,876,069	93,352,020

 

Other borrowings

 

During 2002, as a result of the economic crisis in Argentina, HDS restructured its debt. All creditors apart from one agreed to the restructure. HDS and this creditor are renegotiating the final amount and payment schedule and HDS has recorded the debt as of 31 December 2009 in other borrowings, at management's best estimate of the debt fair value.

 

Loan facilities

 

At the year end the Company had a US$5,000,000 senior secured loan facility repayable within 4 years. This debt carries a quarterly coupon at an interest rate of 12.75% per annum, with the principal due for repayment by March 2013. In addition the Company had a US$7,191,820 unsecured loan facility repayable within 4 years. This debt carries a quarterly coupon at an interest rate of 12.50% per annum, with the principal due for repayment by May 2013. The payment of interest for the period to 30 October 2009 was satisfied by the issue of 3,369,147 ordinary shares at 28 pence on 9 November 2009 and the payment of interest for the period from 31 October 2009 to 14 February 2010 was satisfied by the issue of 580,706 ordinary shares at 28 pence on 16 February 2010. The lender has the option to convert the loan, in whole or part, into ordinary shares of the Company on 30 days notice at a price equal to the average price of the ordinary shares of the Company for the previous 90 days, subject to the terms of the loan agreement. 

 

1.8 Contingencies

 

(a) Contingent assets

 

On 3 July 2006, EDEMSA was notified by the Argentine fiscal bureau of the disallowance of a portion of value added tax credits used in prior years. The assessment is based on an objection by that authority that the credits used by EDEMSA derived from drawbacks on exports acquired from third parties.

 

On 7 August 2006, an appeal was lodged before the General Director of the Argentine fiscal bureau against the administrative resolutions that disallowed the above-mentioned credits.

 

At the date of these financial statements, the Group has paid to the tax authority as a result of that claim AR$2,667,163. The Group has received from the tax bureau a demand to pay interest of AR$2,734,301 on the amount claimed, which the Group has made a provision for. An appeal has been lodged to avoid payment of the interest.

 

In the opinion of EDEMSA's tax advisors, the criterion used by the Argentine fiscal bureau is not in line with tax regulations. The directors of EDEMSA believe it will recover this amount from the Argentine fiscal bureau and have taken the necessary steps to enforce its rights in the face of the Tax Authority's claim. Notwithstanding, EDEMSA has accrued the interest requested by the fiscal authority.

 

(b) Contingent liabilities

 

EDEMSA has received a claim from the Argentine fiscal bureau in respect of a different interpretation of tax assessed in certain years. On 25 June 2007 EDEMSA received notice from the authorities of its intention to pursue the claim plus interest and penalties. In the opinion of EDEMSA's tax advisors, the criterion used by the Argentine fiscal bureau is not in line with tax regulation. For this reason the Company has not made a provision for this claim. On 19 July 2007 EDEMSA filed appeals with the National Tax Court. The Group does not believe an estimate of its financial effect is practicable and could be misleading.

 

On 21 February 2008 the Company exercised the option to acquire the remaining 50% indirect interest in SODEMSA for a consideration of US$33,637,333 plus costs of US$269,079 at a rate of US$2 to £1. The terms for the acquisition of the final 50% indirect interest in SODEMSA included the possibility of an earn-out payment, which may be satisfied in cash and/or through the issue of new Company shares at the Company's option. However, under the terms of the stock purchase agreement, certain elements of the earn-out were open to interpretation and as the parties failed to reach agreement an arbitrator has now been appointed. The directors have submitted to the arbitrator a paper to support their belief that no earn-out is payable and therefore no provision has been made for any earn-out as at 31 December 2009.

 

Apart from the above there are no other contingencies, other than those which have been specifically provided for in the financial statements.

 

 

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