Final Results

30th Jun 2009 07:00



Andes Energia plc

("Andes" or the "Company" and with its subsidiaries the "Group")

Final results for the year ended 31 December 2008

The Board of Andes, the Latin American energy group, with electricity distribution, hydroelectric 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 2008.

Andes Energia plc ("Andes" or the "Company" and with its subsidiaries the "Group") is a Latin American energy group, with electricity distribution, hydroelectric power and oil and gas interests in Argentina and certain other exploration interests outside Argentina. 

The Group's focus is on the Argentinean energy sector, which it believes offers premium assets at undervalued prices and the ability to generate additional value from integrating the whole price chain from the exploitation of natural resources through to the distribution of the energy produced. Its principal assets are a 51% indirect controlling interest in Empresa Distribuidora de Electricidad de Mendoza S.A., the main electricity distribution company in the Province of Mendoza ("EDEMSA"), an indirect controlling 47% interest in Hidroelectrica Ameghino S.A., a 60MW hydroelectric power plant in the Province of Chubut ("HASA") and oil and gas interests in Argentina which include four exploration licences covering nine licence blocks in the San Jorge and Neuquen basins.

Financial

Year ended 31 December	2008	2007	Change
	US$'m	US$'m
Revenue	138.1	111.3	24%
EBITDA(1)	9.9	9.1	9%
(Loss)/profit before tax(2)	(12.5)	69.6	n/a
(Loss)/profit for the year attributable to equity holders	(9.6)	7.1	n/a
Gross debt(3)	84.5	72.7	US$(11.8)m

Before exceptional charges of US$16.2 million in 2007

After finance income of US$89 million resulting from EDEMSA debt restructure and after exceptional charges of US$16.2 million in 2007 and non-cash finance charges of US$11 million in 2008 due to foreign exchange movements. 

Bonds stated at fair value at date of debt restructure. Has increased primarily as a result of the weakening of the AR$ against the US$

Operational

Acquisition of a further 25.5% indirect interest in the share capital of EDEMSA with effect from 21 February 2008. Andes now owns indirectly 51% of EDEMSA.

Increase in EDEMSA's EBITDA for the year ended 31 December 2008 to AR$52.5 million (US$16.6 million) from AR$32.8 million in the previous year.

Increase in electricity tariffs charged by EDEMSA by between 10% and 27%, implemented on 1 February 2008. This equates to an average tariff increase of 20%. The result of a further general tariff review was due to be implemented on 1 August 2008 and although this has been deferred, the Board remains confident that the new tariff regime will be forthcoming.

Presentation of technical, financial and economic studies for the EDEMSA five year tariff review.

Negotiations with financial creditors to extend maturities and minimize cash flow requirements in the short term.

Completion of airborne geophysical and ground magnetic/gravimetric surveys on the San Jorge basin licenses.

Drilling of the first exploration well in the south east of the Confluencia block.

Swabbing of the Meseta del Humo well, located in the Buen Pasto block, confirmed a reservoir presence.

Speaking today, Luis Alvarez Poli, Chief Executive Officer, said "Despite difficult markets Andes continues to make progress in developing its portfolio of energy assets in South America which it believes will deliver significant value for shareholders.".

A copy a of the Company audited accounts for the year ended 31 December 2008 together with a notice of annual general meeting to be held at the Offices of Nabarro LLP, Lacon House, 84 Theobald's Road, London WC1X 8RW at 10.00 a.m. on 29 July 2009 will be posted to shareholders today and is available from the Company's website at www.andesenergiaplc.com.ar.

Enquiries:

Andes Energia plc Tel: 020 7495 5326

Luis Alvarez Poli, Chief Executive Officer

Nigel Duxbury, Finance Director

Arbuthnot Securities Tel: 020 7012 2000

James Steel

Antonio Bossi

Bishopsgate Communications Tel: 020 7562 3350

Nick Rome

Michael Kinirons

Note to Editors:

Andes

Andes is a Latin American energy group, with electricity distribution, hydro-electric power and oil and gas interests in Argentina. The Company's focus is on the Argentinean energy sector, which it believes offers premium assets at undervalued prices.

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).

 

CHAIRMAN'S STATEMENT

Overview 

Our 2008 financial results incorporating the results of Andes together with its subsidiaries for the year ended 31 December 2008 are set out below. 

The Group recorded a loss before tax of US$12.5 million on revenue of US$138.1 million for the year compared to a profit of US$69.6 million on revenue of US$111.3 million in 2007. The revenue increase results primarily from the EDEMSA tariff increase and the pass through of increases in the cost of energy purchased. In 2007 EDEMSA benefited from the restructuring of EDEMSA's debt, which resulted in a write back of US$89 million. The loss for the year has also been adversely impacted by the weakening of the AR$ against the US$ resulting in a non-cash exchange loss of US$7 million on the EDEMSA US$ bonds and the weakening of £ against the US$ resulting in a non-cash exchange loss of US$4 million on US$ debt held at the Company level. The loss after tax attributable to equity shareholders was US$9.6 million compared to a profit of US$7.1 million in 2007. Basic and diluted loss per share was US$0.08 for the year compared to a basic earnings per share of US$0.15 and diluted earnings per share of US$0.14 in 2007. In line with the dividend policy set out in the Group's re-admission document, no dividend is proposed. 

As announced on 24 November 2008, EDEMSA expects the next tariff review for the third pricing period to take effect from 1 February 2009 but at the date of this announcement the provincial government law decree has not yet been issued. The Board remains confident that the new tariff regime will be forthcoming and will update the market as appropriate.

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. 

We drilled our first exploration well in the Confluencia block and continued our geochemical and airborne survey work. We are pleased with the results of the exploration program undertaken and believe the exploration licences we hold offer us excellent potential oil and gas production opportunities. Further details of the results of the work undertaken are included in the Chief Executive's Review.

Outlook

The Board is confident that the next tariff review that was due to be implemented 1 February 2009 will be approved by the Provincial Government in due course and management is hopeful that tariff adjustments will continue to be made to bring them closer to those applicable in other South American countries. 

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.

Whilst the international economic turmoil and the fall in commodity prices, specifically oil, have had an impact on oil companies and in particular exploration projects, following meetings with the Chubut regulatory authority and as announced on 12 May 2009, management believes the authorities will be flexible with regards to exploration licence commitments in this time of uncertainty, to ensure exploration activities continue.

The Group's prime focus for the balance of this year and the beginning of 2010 will be the continued 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

Andes's strategy of an integrated energy player has proved a resilient economic model in the face of the worldwide recession. 

Our quick reaction, with prudent financial planning, to the reality of the world's capital markets turmoil and the high volatility of commodity prices enabled us to minimise our cash requirements with a strong emphasis on liquidity, self financing and capital spending discipline.

In 2008 we have quietly performed our strategic plan. 

The highlights are:

Exercise of the option to acquire the remaining 50% of Sodem S.A. ("SODEMSA") and control of EDEMSA

Adjustment of EDEMSA electricity tariffs in February 2008 by an increase on average of 20%

Presentation of technical, financial and economic studies for the EDEMSA five year tariff review

Secretary of Energy resolution allowing HASA to sell and collect revenues at spot market prices

Negotiations with financial creditors to extend maturities and minimize cash flow requirements in the short term

Completion of airborne geophysical and ground magnetic/gravimetric surveys on the San Jorge basin licences

Drilling of the first exploration well in the south east of the Confluencia block

Swabbing of the Meseta del Humo well, located in the Buen Pasto block, confirming a reservoir presence

For 2009 we are analysing expansion projects for power generation, continuing with our oil and gas exploration working programs and looking to enter into production through the exercise of an option to acquire an interest in a producing license.

Electricity distribution and power generation

EDEMSA

2008 ended with a loss of AR$8.5 million (US$2.7 million) compared to a profit of AR$296.6 million in 2007. This loss is not directly comparable with the profit for 2007, since 2007 includes the effect of the financial debt restructuring that resulted in a gain of AR$275 million and the gain from reversing the allowance covering tax assets in the amount of AR$26 million. 

Sales for the year increased by 25% over sales for 2007. This increase was due to three factors; a 2.5% increase in the energy demand; the pass through of an increase in the cost of electric power and the rate adjustment effective from 1 February 2008.

 

Although gross profit increased to AR$100 million (US$32 million) from AR$51 million in 2007 operating expenses continue to increase resulting in an operating profit of AR$25 million (US$8 million) compared to an operating profit of AR$7 million in 2007.

 

Despite the improved operating profit, tariffs are still inadequate and operating profit has been lower than expected due to the ongoing increase in costs of supplies and services required by EDEMSA. The return on equity and the return on assets are below the levels needed to sustain investment in the infrastructure to maintain and improve the service to customers, which shows the urgent need to complete the review of tariffs for the third review period.

Whilst the financial debt restructuring completed in March 2007 has enabled us to maintain interest at low levels, the weakening of the AR$ against the US$ resulted in a non-cash adverse foreign exchange difference of AR$22 million (US$7 million). It is becoming increasingly difficult to enter into forward contacts to hedge this risk due to the lack of available contracts and the associated high cost. The company continues to evaluate all options available to it to minimise this currency risk and has recently secured approval to issue up to an equivalent of US$80 million of debt instruments denominated in AR$ or other foreign currencies at the Board's discretion, which would give the company more flexibility to manage this currency risk. The face value of the notes outstanding as at 31 December 2008 was US$90 million (2007: US$91 million). 

On 31 July 2007 a preliminary study was submitted in order to determine the rates applicable for the third tariff review period. The final report was submitted on 1 February 2008 within the time frames prescribed by local legislation. A further report was subsequently submitted, as requested by the regulators, on 31 July 2008. EDEMSA expects the next tariff review for the third pricing period to take effect from 1 February 2009 but at the date of this announcement the provincial government law decree has not yet been issued. The Board remains confident that the new tariff regime will be forthcoming and will update the market as appropriate.

HASA

HASA recorded a profit for the year of AR$1.2 million (US$0.4 million) compared to a profit in 2007 of AR$0.9 million. Sales decreased to AR$10 million (US$3.2 million) from AR$14 million in 2007.

On 27 November 2008 the historic peak demand of energy for a working day in Argentina was passed, recording a level of 394GWh when the peak capacity generated was 18.4GW.

Inflows from high rainfalls recorded during the months of May, July, August, September and October, helped to reverse the effects of a very dry period. This resulted in water flow 16% above the historical average and allowed 1,725.66 Hm3 to accumulate in the reservoir.

The power generated in the year was 141GWh, 22% below the historical annual average and 24% lower than the power generated in 2007; this was due to low rainfalls and low water levels. The maximum power generated in 2008 was recorded in the month of December with 17GWh, compared to a minimum in June of 8GWh, with a monthly average for 2008 of 12GWh. However, recent rainfalls have increased the water level, which is 5% higher than at the equivalent time last year.

Furthermore, changes to the regulatory framework for hydroelectric generators with an installed capacity of less than or equal to 150MW now allow these generators to sell all their energy to the spot market with priority of payment. As HASA has installed capacity of 60MW, this resolution allows HASA to sell the energy it generates to the spot market with 100% settlement without deduction for FONINVEMEM, a fund established to facilitate the increase of electric power supply in the Argentine wholesale electric power market. As the price in the spot market is nearly twice the price HASA had agreed with co-operatives, HASA resolved to terminate the co-operative agreements with effect from 31 October 2008 to enable HASA to sell its entire production on the spot market. During the year 101GWh of energy generated was sold to the co-operatives and 40GWh on the spot market. 

The change in regulations and recent rainfalls should significantly improve HASA's performance in 2009. 

Oil and gas interests

El Bloque Prospect - Well Kil.ch.EB.x-1001 - Confluencia Exploration Area - Chubut Province

During October 2008, the first exploration well, Kil.ch.EB.x-1001, was drilled in the South East region of the Confluencia licence block 295 km from Comodoro Rivadavia City to appraise the hydrocarbon bearing potential of the anticline structure called "El Bloque", attributed to the Chubutuianos and Neocomian (Lower Cretaceous) cycles. 

The primary objective of this exploration well was to investigate two levels of potential reservoirs:

the continental clastic levels of the Lower Bajo Barreal formation and the upper Castillo formation (Chubutiano cycle); and 

the Basal Conglomerate of the Matasiete formation and the tidal and deltaic sediments of the Pozo Cerro Guadal formation (Neocomian cycle).

The exploration well, Kil.ch.EB.x-1001, was successfully drilled by San Antonio Internacional, a subsidiary of Pride International Inc. and reached a final total depth of 6,573 feet and was cased with 5½ inch production casing. The well is located at approximately the same level as El Bloque 1 and probably lies at the edge of the closure area of the El Bloque structure. The drilling operations were completed within the planned time and within budget, with the following results: 

traces of hydrocarbons were detected; and 

gas peaks were observed (3,000 to 5,000 units).

However the petrophysical interpretation was not conclusive; the porosity interpretation was affected by the large caliper; the salinity of the water formation is 3.5 grams of salt per litre (Castillo Formation), which means that the resistivity differs very little from the oil resistivity, making it difficult to define a reliable water saturation; and an abundance of tuffaceous sedimentary rock with high resistivity was found from a depth of 1250 meters.

Further analysis and geochemical survey work will be conducted in 2009-2010, which will extend to the South West and West of the Kil.ch.EB.x-1001 well and will provide information to determine the shape of the structure. If the geochemical studies confirm the need to conduct 3D seismic work, this will be carried out regionally in 2010. The results of this work will also be used to target the location of further wells and define the completion works for the Kil.ch.EB.x-1001 well. 

Airborne Geophysical Survey

An airborne survey was performed, between September 2007 and October 2008, by Carson Helicopters, Inc. over the six blocks located in the Chubut Province. The flights covered 34,281km lines of data over a grid with North to South lines distanced 1km crossed and transversed by East to West lines distanced 4km apart. The preliminary results are promising with anomalies of 1 to 2 miligal.

Pampa Salamanca Norte Airborne Survey

In Pampa Salamanca Norte the survey showed clearly a structural low that can be interpreted as Neocomian graben, with the possibility of an area of petroleum generation. The shows of oil in wells Kinkelin 1001 and 1002 support this hypothesis.

Ground Magnetic and Gravimetric Surveys at the Laguna El Loro Block - Rio Negro Province

During November and December 2008, Quantec Geoscience Argentina S.A. conducted a gravimetric and ground magnetic survey at Laguna El Loro. The objectives of the geophysical surveys were to detect depth to basement and to establish the presence of possible fault structures in the survey area. The magnetic survey was conducted in order to establish the presence of basaltic material in the survey area, detect structural offsets and assist in the detection of depth to basement. The survey grid consisted of a survey block 28km from East to West and 28 km from North to South. A total of 465 gravimetric and 466 magnetic survey points were surveyed on centers located on a 1km by 1km grid pattern.

Geochemical Survey - Chubut Province

A regional soil gas geochemical survey was performed by Exploration Technologies, Inc. towards the end of 2007 over six blocks (Rio Senguerr, Confluencia, San Bernardo, Buen Pasto, Sierra Cuadrada and Pampa Salamanca Norte) that lie within the Northern and Western areas of the San Jorge Basin. 1196 soil gas samples were collected from a depth of four feet, which were then analyzed by dual detector gas chromatographic runs to characterize both hydrocarbon and non-hydrocarbon constituents of the soil gases. Large magnitude soil gas anomalies were identified within Rio Senguerr, Confluencia (North of the Rio Mayo) and Pampa Salamanca Norte respectively, suggesting a high potential for productive oil reservoirs to exist within the areas surveyed. The magnitudes and compositional signatures shown by the soil gas anomalies indicate the presence of mixed oil and gas sources. Our experience of soil gas surveys has shown that geochemistry can provide an inexpensive tool which can objectively determine the location of hydrocarbon seepages from buried source rocks, thus confirming the presence of potential oil and gas reservoirs.

Meseta del Humo Prospect - Well Meseta del Humo x1 - Buen Pasto Exploration Area - Chubut Province

In 1972 YPF drilled an exploration well, referred to as Meseta del Humo x1, located in the Buen Pasto Block in the North West flank of the San Jorge Basin. The well was drilled to a depth of 1,576 meters to investigate the Castillo, Matasiete and Pozo D129 formations in the structure named Meseta del Humo. A drill stem test was conducted in the Matasiete formation in an 8 meter interval from 720 meters to 728 meters, which recovered mud drilling fluid with traces of heavy oil.

In October 2008, the UTE technical team organised a swabbing operation for MH.es-1 well (Meseta del Humo), after finding abnormal pressure on the wellhead. As a result of this test 480 litres of crude oil were recovered and analyzed. The results showed rheological characteristics of viscous oil. 

A further inspection was carried out in March 2009 and it was noted that the wellhead pressure had built up to 116 pounds per square inch, with oil found under the safety valve; evidence of reservoir response.

Taking into account these results and the petrophysical studies carried out, recompletion works are planned to define the well productivity potential.

Reinterpretation of available data has enabled us to delineate a potential area where the source rock could be oil-generating. The structure of Meseta del Humo is close to a depocenter and confirms the existence of a petroleum system. This study together with the findings above mentioned, improves the likelihood of the prospectivity of the structure, pending further local geochemical survey, seismic reprocessing and well evaluation to better define the area and the associated resources.

Well El Bloque 1

A previous well, referred to as El Bloque 1, was drilled in 1997 by YPF, 5km West of the Kil.ch.EB.x-1001 well and good quality reservoirs were found in the Castillo formation. The well yielded on tests, from the interval 1,343 metres to 1,345 metres, 320 barrels per day of water with 6% oil and, from the interval 1,238 metres to 1,240 metres, 240 barrels per day of water with 10% oil. El Bloque 1 had the best test results of the nine wells drilled in the Confluencia exploration area. 

A petrophysical interpretation was commissioned with a local consultant group that has extensive experience of the area, EXE Energía S.A.. Although the formation water is of low salinity, similar to the Kil.ch.EB.x-1001 well, new intervals were found that could be oil producing.

In order to convert El Bloque 1 into a viable production well, our consultant has recommended that hydraulic fracturing stimulation treatment be carried out. This is a technique successfully used in the San Jorge Basin to improve initial productivity. 

In November 2008, the wellhead of El Bloque 1 was restored to evaluate the feasibility of mobilising a work-over unit. The cement plug was removed and the casing was extended. Further analysis will focus on re-testing perforated intervals and perforating or intervening new intervals in order to establish the well production capacity.

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

  CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

	2008	2007
	US$	US$
Revenue	138,087,122	111,303,946
Cost of sales	(105,837,484)	(95,441,770)
Gross profit	32,249,638	15,862,176
Other operating income	420,367	1,322,306
Distribution costs	(11,628,516)	(8,825,841)
Administrative expenses before exceptional expense	(20,091,895)	(7,891,138)
Exceptional expenses	-	(16,163,584)
Total administrative expenses	(20,091,895)	(24,054,722)
Operating profit/(loss)	949,594	(15,696,081)
Analysed as
Operating profit before exceptional expenses	949,594	467,503
Exceptional expenses	-	(16,163,584)
Operating profit/(loss)	949,594	(15,696,081)
Finance income	1,203,496	89,848,953
Finance costs	(14,675,946)	(4,570,943)
(Loss)/profit before taxation	(12,522,856)	69,581,929
Taxation	1,839,144	8,544,207
(Loss)/profit for the year	(10,683,712)	78,126,136
Attributable to:
Equity holders of the parent	(9,620,280)	7,083,993
Minority interests	(1,063,432)	71,042,143
	(10,683,712)	78,126,136
(Loss)/earnings per ordinary share	US$	US$
Basic	(0.08)	0.15
Diluted	(0.08)	0.14
Adjusted basic	(0.08)	0.48

  CONSOLIDATED BALANCE SHEET 31 DECEMBER 2008

	2008	2007
	US$	US$
Non-current assets
Intangible assets	90,559,507	109,837,883
Property, plant and equipment	150,710,046	165,503,182
Investments	10,452,546	4,576,208
Available for sale financial assets	300,543	599,571
Trade and other receivables	121,466	-
Deferred income tax assets	36,612,211	38,272,684
Total non-current assets	288,756,319	318,789,528
Current assets
Inventories	4,678,243	3,792,216
Available for sale financial assets	724,793	2,347,154
Trade and other receivables	32,088,564	34,194,011
Cash and cash equivalents	2,547,841	23,347,231
Total current assets	40,039,441	63,680,612
Current liabilities
Trade and other payables	38,522,363	30,085,155
Financial liabilities	10,289,176	6,565,197
Provisions	8,690,809	7,381,332
Current tax liabilities	43,491	125,546
Total current liabilities	57,545,839	44,157,230
Non-current liabilities
Trade and other payables	1,511,958	1,766,705
Financial liabilities	74,244,243	66,118,704
Deferred income tax liabilities	28,391,542	33,043,915
Total non-current liabilities	104,147,743	100,929,324
Net assets	167,102,178	237,383,586
Capital and reserves
Called up share capital	23,418,920	23,418,920
Share premium account	28,692,270	28,949,260
Profit and loss account	(47,332,067)	(42,308,581)
Merger reserve	66,195,556	66,195,556
Reverse acquisition reserve	42,045,342	42,045,342
Translation reserve	(17,516,645)	-
Fair value reserve	76,178	217,624
Equity attributable to equity holders of the parent	95,579,554	118,518,121
Minority interest	71,522,624	118,865,465
Total equity	167,102,178	237,383,586

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2008

Capital and reserves	Share	Share	Profit and	Other	Minority	Total
	capital	premium	loss	reserves	interest
	US$	US$	US$	US$	US$	US$
At 1 January 2007	76,438,000	-	(49,666,792)	359,756	26,098,697	53,229,661
Profit for the year	-	-	7,083,993	-	71,042,143	78,126,136
Total recognised income and expenses for the year	-	-	7,083,993	-	71,042,143	78,126,136
Issue of ordinary shares	18,615,890	90,310,029	-	-	-	108,925,919
Share issue costs	-	(1,180,139)	-	-	-	(1,180,139)
Reverse acquisition	(71,634,970)	(60,180,630)	170,968	108,098,766	21,724,625	(1,821,241)
Fair value of share based payments	-	-	103,250	-	-	103,250
At 31 December 2007	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)
Total recognised income and expenses for the year	-	-	(9,620,280)	-	(1,063,432)	(10,683,712)
Share issue costs	-	(256,990)	-	-	-	(256,990)
Fair value of share based payments	-	-	458,490	-	-	458,490
Exercise of option to acquire minority interest	-	-	4,138,304	-	(38,046,716)	(33,908,412)
Fair value adjustments	-	-	-	(141,446)	(133,427)	(274,873)
Translation differences	-	-	-	(17,516,645)	(8,099,266)	(25,615,911)
At 31 December 2008	23,418,920	28,692,270	(47,332,067)	90,800,431	71,522,624	167,102,178

Other reserves	Merger	Reverse	Translation	Fair value	Total
	reserve	acquisition	reserve	reserve	other
		reserve			reserves
	US$	US$	US$	US$	US$
At 1 January 2007	-	-	-	359,756	359,756
Profit for the year	-	-	-	-	-
Total recognised income and expenses for the year	-	-	-	-	-
Issue of ordinary shares	-	-	-	-	-
Share issue costs	-	-	-	-
Reverse acquisition	66,195,556	42,045,342	-	(142,132)	108,098,766
Fair value of share based payments	-	-	-	-	-
At 31 December 2007	66,195,556	42,045,342	-	217,624	108,458,522
Loss for the year	-	-	-	-	-
Total recognised income and expenses for the year	-	-	-	-	-
Share issue costs	-	-	-	-	-
Fair value of share based payments	-	-	-	-	-
Exercise of option to acquire minority interest	-	-	-	-	-
Fair value adjustments	-	-	-	(141,446)	(141,446)
Translation differences	-	-	(17,516,645)	-	(17,516,645)
At 31 December 2008	66,195,556	42,045,342	(17,516,645)	76,178	90,800,431

  CONSOLIDATED CASH FLOW STATEMENT 31 DECEMBER 2008

	2008	2007
	US$	US$
(Loss)/profit for the year before taxation	(12,522,856)	69,581,929
Adjustments for:
Depreciation	8,720,842	8,505,847
Movement in debt	13,077,587	(84,205,842)
Revaluation of investments	101,362	-
Profit on sale of property, plant and equipment	1,475	343,696
Increase in inventories	(9,011,621)	(5,255,853)
Increase in trade and other receivables	(10,875,326)	(2,731,522)
Increase in trade and other payables	10,777,973	1,667,667
Increase in provisions for liabilities and charges	4,518,354	1,921,659
Profit on disposal of investments	(34,091)	-
Movement in tax provisions	(248,283)	-
Impairment write down	317,449	16,255,487
Share based payments	458,490	103,250
Tax	-	232,621
Net cash generated from operating activities	5,281,355	6,418,939
Cash flows from investing activities
Purchase of property, plant and equipment	(3,716,132)	(6,296,322)
Purchase of exploration assets	(345,174)	(480,000)
Purchase of investments and minority interests	(32,465,984)	(697,098)
Proceeds from available for sale shares	458,725	42,025
Proceeds from grants	809,214	-
Acquisition of subsidiary	-	(2,523,232)
Net cash used in investing activities	(35,259,351)	(9,954,627)
Cash flows from financing activities
Repayments of borrowings	(2,681,160)	(8,735,105)
Funds from borrowing	14,059,253	-
Proceeds from issue of shares	-	31,271,112
Share issue costs	(256,990)	(1,180,139)
Net cash generated from financing activities	11,121,103	21,355,868
Net (decrease)/increase in cash and cash equivalents	(18,856,893)	17,820,180
Cash and cash equivalents at the beginning of the year	23,347,231	5,527,051
Effect of foreign exchange rate changes	(1,942,497)	-
Cash and cash equivalents at the end of the year	2,547,841	23,347,231

  1. GENERAL INFORMATION

1.1 Introduction

The financial information set out in this announcement does not constitute the group's statutory accounts within the meaning of section 240 of the Companies Act 1985 for the years ended 31 December 2008 or 31 December 2007. The financial information has been extracted from the Group's audited financial statements for those years. The auditors reported on those accounts; their reports were unqualified and did not contain a statements under either section 237(2) or section 237 (3) of the Companies Act 1985 nor did they draw attention to any matter by way of emphasis without qualifying their report. 

The statutory accounts for the year ended 31 December 2007 has been delivered to the Registrar of Companies, whereas those for the year ended 31 December 2008 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.The financial statements have been prepared in accordance with International Financial Reporting Standards adopted for use in the European Union

1.2 Business and geographical segments

	Revenue		Segment profit
	2008	2007	2008	2007
Analysis of revenue and profit:	US$	US$	US$	US$
Electricity distribution	134,883,349	110,700,763	7,920,823	2,188,968
Electricity generation	3,203,773	603,183	292,729	(655,619)
	138,087,122	111,303,946	8,213,552	1,533,349
Central administration costs			(7,263,958)	(1,065,846)
Finance income			1,203,496	89,848,953
Finance costs			(14,675,946)	(4,570,943)
Exceptional items			-	(16,163,584)
(Loss)/profit before tax (continuing operations)			(12,522,856)	69,581,929

			2008	2007
Analysis of total assets:			US$	US$
Electricity distribution			273,160,720	283,461,366
Electricity generation			18,260,956	26,314,781
Oil and gas interests			29,882,775	40,626,893
Total segment assets			321,304,451	350,403,040
Unallocated assets			7,491,309	32,067,100
Consolidated total assets			328,795,760	382,470,140

			2008	2007
Analysis of total liabilities:			US$	US$
Electricity distribution			141,889,769	134,404,449
Electricity generation			4,818,047	5,484,418
Oil and gas interests			8,432	19,679
Total segment liabilities			146,716,248	139,908,546
Unallocated liabilities			14,977,334	5,178,008
Consolidated total liabilities			161,693,582	145,086,554

			2008	2007
Analysis of total capital expenditure:			US$	US$
Electricity distribution capital expenditure			12,004,318	11,467,339
Electricity generation capital expenditure			21,911	13,782
Oil and gas interests			345,174	-
Total segment capital expenditure			12,371,403	11,481,121
Other capital expenditure			4,701	5,497
Consolidated total capital expenditure			12,376,104	11,486,618

  

			2008	2007
Analysis of total depreciation:			US$	US$
Electricity distribution depreciation			8,616,586	8,475,928
Electricity generation depreciation			100,718	28,435
Total segment depreciation			8,717,304	8,504,363
Other depreciation			3,538	1,484
Consolidated total depreciation			8,720,842	8,505,847

1.3 Finance income

		2008	2007
		US$	US$
Effect of debt restructuring		-	88,569,685
Interest receivable and similar income		1,203,496	1,279,268
		1,203,496	89,848,953

1.4 Finance costs

		2008	2007
		US$	US$
Interest costs		14,675,946	4,570,943
		14,675,946	4,570,943

1.5 Tax credit on (loss)/profit

		2008	2007
		US$	US$
Current tax		291,800	(209,154)
Deferred taxation		(2,130,944)	(8,335,053)
Tax credit		(1,839,144)	(8,544,207)

(Loss)/profit before tax		(12,522,856)	69,581,929
Tax (credit)/charge on (loss)/profit at standard rate of 35%		(4,383,000)	24,353,675
Effects of:
Expenses not deductible for tax purposes		1,299,041	157,078
Rate difference		-	45,776
Recovery of deferred tax position		-	(29,602,091)
Recovery of minimum notional tax		(8,723)	(12,373,005)
Unrelieved tax losses		1,253,538	3,217,106
Consolidation adjustment with no tax effect		-	5,657,254
Current tax credit		(1,839,144)	(8,544,207)

1.6 (Loss)/earnings per share

(Loss)/earnings per share is presented on four bases: basic (loss)/earnings per share; diluted (loss)/earnings per share; adjusted basic (loss)/earnings per share; and adjusted diluted basic/(loss) earnings per share. Basic (loss)/earnings per share is in respect of all activities and diluted (loss)/earnings per share takes into account the dilution effects which would arise on conversion or vesting of warrants in issue. Adjusted basic (loss)/earnings per share and adjusted diluted basic/(loss) earnings per share excludes exceptional items to enable comparison of the underlying (losses)/earnings of the business with prior periods.

		2008	2007
		Cents	Cents
Basic (loss)/earnings per share		(8.22)	14.72
Diluted (loss)/earnings per share		(8.22)	13.67
Adjusted basic (loss)/earnings per share		(8.22)	48.30
Adjusted diluted (loss)/earnings per share		(8.22)	44.86
(Loss)/profit for the financial year attributable to equity holders		(9,620,280)	7,083,993
Adjustments:
Exceptional items		-	16,163,584
Adjusted profit for the financial year attributable to equity holders		(9,620,280)	23,247,577
		No.	No.
Weighted average number of shares		117,094,598	48,133,737
Effect of dilutive warrants		-	3,693,146
Diluted weighted average number of shares		117,094,598	51,826,883

		No.	No.
Potential number of dilutive warrants		31,300,000	31,300,000
		31,300,000	31,300,000

1.7 Financial liabilities

		2008	2007
		US$	US$
Current
Bonds		4,959,972	2,550,893
Bank borrowings		-	-
Other borrowings		5,329,204	4,014,304
Accrued financial interest		-	-
		10,289,176	6,565,197

		2008	2007
		US$	US$
Non-current
Bonds		66,295,804	66,118,704
Other borrowings		7,948,439	-
		74,244,243	66,118,704

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 de-recognised 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 2008 the following EDEMSA debt securities were in issue:

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

 

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$8,754,481 (2007: US$4,014,304) 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:

		2008	2007
		US$	US$
Maturity profile
Within 1 year		10,715,456	2,637,675
Between 1 and 5 years		44,033,540	38,813,000
After 5 years		63,053,601	70,172,000
		117,802,597	111,622,675
Interest payments		(24,450,577)	(20,613,000)
		93,352,020	91,009,675

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 2008 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 1 year. Since the year end the Company has successfully refinanced this debt and will now pay a quarterly coupon at an interest rate of 12.75% per annum, with the principal due for repayment by March 2013. 

The Company is in the process of formalising a US$ 8,000,000 unsecured loan facility, which the Company expects to carry interest at 12% per annum with principal repayment after 4 years.

ENDFR FLMFTMMBTBTL

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