1st Aug 2007 07:01
Clean Energy Brazil PLC01 August 2007 Clean Energy Brazil PLC MAIDEN RESULTS FOR THE PERIOD ENDED 30 APRIL 2007 Clean Energy Brazil plc ("CEB") is a leading specialist investment companyfocused on Brazil's sugar cane/ethanol industry. The Company's investmentsproduce sugar, ethanol, electricity and other bi-products from our own sugarcane, a renewable feedstock. CEB operates through its investment manager, TempleCapital Partners Ltd. ("TCP"), which brings together the highly experienced teamfrom Czarnikow Group (a leading worldwide sugar and ethanol market servicesprovider), Agrop (a leading Brazilian agricultural and industrial specialistservices company) and Numis (a leading UK investment bank with specialistsfocusing on new energy). CEB invests through partnership with existing Brazilian sector participantsoffering funds for accelerated expansion, professional execution of businessgrowth, development of its own greenfield assets and the opportunity toconsolidate this highly fragmented business sector. These financial results are for the first period to 30 April 2007. The period ofthe 'off-crop' when cane is not harvested, runs from January until March.Therefore, this first reporting period is necessarily short and runs through the'dormant' off-crop economic activity in our investment in Usaciga. HIGHLIGHTS • Admission to AIM on 18 December 2006 and placing of £100 million • Completed initial investment of approximately US$127 million in Usaciga on 27 March 2007 • At the Usaciga site, agricultural and industrial efficiency gains have been achieved in line with management's best expectations • Maiden interim dividend of 2.5 pence was paid to shareholders on 19 July 2007 • Active risk management by TCP has meant that CEB's existing assets are largely protected from current short term price volatility. However, CEB is exposed to medium and longer term trends which management believes to be very positive • CEB is building an integrated group of scale, working with its chosen partners to take full advantage of the significant growth potential and consolidation opportunities in this industry • CEB is currently negotiating additional opportunities to replicate its existing strategy to build a significant profitable sugar and ethanol group with operating capacity to crush up to 30 million tonnes of sugar cane per annum • With Usaciga and the planned acquisition and subsequent capital expenditure in Pantanal (CEB's greenfield development in Mato Grosso do Sul), CEB has fully committed the investment funds raised at its IPO Antonio Monteiro de Castro, Chairman of Clean Energy Brazil, commented: "I am confident that our strategy of investing directly into existing andgreenfield Brazilian sugar/ethanol assets and actively managing and developingthem is creating value for shareholders. This has been clearly demonstrated bythe acquisition of Usaciga and the improvements CEB has already successfullymade in the relatively short period that we have been actively managing it. I am pleased to report that the partnership of service providers in ourinvestment manager is working very well, providing a flexible structure thatallows easy access to some of the best relationships in the industry whilstoffering expertise, enthusiasm and commitment. To date this team has achievedvery good results especially given the commercial environment in which we areoperating. I remain optimistic about the prospects for the company and I look forward toreporting further progress in the year ahead and beyond." www.cleanenergybrazil.com Further enquiries: Clean Energy Brazil Tel: +44 (0)20 7839 4321Antonio Monteiro de Castro [email protected] Temple Capital Partners Tel: +44 (0)20 7972 6643Peter Thompson [email protected] Numis Securities Limited Tel: +44 (0)20 7260 1000David Shapton Smith & Williamson Corporate Finance Limited Tel: +44 (0)20 7131 4000Azhic BasirovDavid Jones Fishburn Hedges Tel: +44 (0)20 7544 3133James Benjamin Mob: +44 (0)7747 113 930Andy Berry Mob: +44 (0)7767 374 421 [email protected] Chairman's Statement I am pleased to report my first set of results as Chairman of Clean EnergyBrazil. It has been a busy and successful period for the business. These financial results are for the first period to 30 April 2007. The Boardbelieves it is important for CEB to have an accounting year from May to April inorder to capture fully the economic activity of the sugar cane crop cycle where,in the centre-south of Brazil, the harvest runs from May until December eachyear. The period of the 'off-crop', when cane is not harvested, runs fromJanuary until March and is the time when modifications to existing industrialinfrastructure, investments and maintenance must be made prior to the run-up tothe harvesting season. CEB's investee companies, as is the case at our first investment in Usaciga,will where possible adopt a similar policy which, the Board believes, willenhance the transparency of our activities. Therefore, this first reportingperiod is necessarily short and runs through the 'dormant' off-crop economicactivity in our investment in Usaciga. I am pleased to confirm that a maiden interim dividend of 2.5 pence was paid toshareholders on 19 July 2007 and a further interim dividend of 2.5 pence isplanned to be paid during 2007. Dividends for 2007/08 are unlikely to befully covered by this stage in the development of our business. On 18 December 2006, CEB commenced trading on the AIM market in London having successfully raised £100 million through a placing. CEB's business model is to invest directly into existing and greenfield Brazilian sugar/ethanol assets and to actively manage and develop them - the Board believes that investing in new projects will capture the inherent development premium, whereas acquiring equityin existing assets will capture immediate cash flows. We are building an integrated group of scale, working with our chosen partnersto take full advantage of the significant growth potential and consolidationopportunities in Brazil's sugar/ethanol industry. Whilst CEB is a new entrant,its management team is not; the team has personal, long standing relationshipswithin the sector in Brazil. Our investment manager, Temple Capital Partners("TCP"), can count on professional executives from its services providers,Czarnikow and Agrop. The Board believes that this constitutes one of thelargest, most connected teams of professionals working in the sugar/ethanolsector in Brazil. The target assets comprise agricultural sugar cane plantations, industrial milling facilities, sugar/ethanol production facilities, and associated export logistics infrastructure - CEB invests in fully integrated businesses from caneto final customer. We produce sugar, ethanol and electricity from our own sugarcane which is a renewable feedstock. CEB is an energy company and the Boardbelieves that our wider prospects are related to the new energy revolution thatis taking place. The world needs more energy but from sources producing lesscarbon emissions. CEB has entered this arena and the Board believes our plansfor the future will take CEB advantageously to the fulcrum of this revolution. Brazil is the world's largest sugar producer and exporter and is the lowest costsignificant producer of raw sugar in the world. Ethanol produced from Brazilian sugar cane and processed using the energy derived from the plant itself, reducesgreenhouse gases by over 90% when it substitutes gasoline in motor cars. Growingacceptance of climate change therefore offers an excellent backdrop to our activities. Brazil is unique in having such a huge area of land available for cane expansionthat does not encroach into the rainforest or other environmentally protectedareas. Indeed cane itself will not flourish in such humid conditions. We completed our initial investment of approximately US$127 million in Usaciga on 27 March 2007. Usaciga is a new joint venture company and comprises interestsin a producing sugar/ethanol mill, three greenfield developments, a bulk sugar terminal and an ethanol trading company. At Usaciga, we are on track to increasesignificantly its cane crushing capacity over the next two to three years by utilising CEB's investment proceeds, active management expertise and debt refinancing, with the aim of creating a mill company with a cane crushing capacity of more than 8 million tonnes per annum. For this first period to 30 April 2007 no dividend income was received frominvested units and the financial results are the product of cash management andsome small commercial activity. Therefore, these accounts are not typical orrepresentative of future results, the expectations for which are dealt with inmore detail in the Investment Manager's Report below. Importantly for CEB, our first cornerstone investment in Usaciga, accounting forapproximately US$127 million of the US$182 million net funds raised from theIPO, was based on the business valuation as at 31 December 2006. This removedany of our business exposure for the economic period of the 2006/07 crop yearwhen CEB was not part of the Usaciga business. In addition, since CEB'sinvestment manager assumed operational control from January 2007, prior tocompletion of the investment transaction, this allowed CEB to implement fullyour plans to improve the operational performance of the existing mill and ourimplementation of the hedging programme under Usaciga's price risk managementpolicy initiated by CEB. CEB also successfully brought on stream Usaciga's new co-generation facility,beginning essential work on it during the 'off crop' period, and from which CEBis now benefiting in the current crop season. I would now like to comment on the financial results for Usaciga prior to ourinvestment, for the period ended 31 December 2006. This resulted in adisappointing loss of R$51.6 million (Brazilian GAAP). The principal reason forthis was a shortfall in the amount of cane harvested during the 2006 crop of 1.5million tonnes compared with our earlier expectations of 1.7 million tonnes.This was a result of a lack of investment in cane renovation over previousyears. In addition, general administrative expenses were higher than expectedand higher than industry averages. I am pleased to report that management is confident of reaching a crushingcapacity from the current harvest of approximately 2.0 million tonnes. Inaddition, we have been successfully taking out costs from within the jointventure since TCP assumed operational control and we expect to see the benefitsof this going forward. Prior to CEB's involvement, Usaciga had run an overly conservative approach torisk management which meant that it had not adequately participated in the pricespike in sugar prices seen during the course of 2006. This was not a surprise tous and we have now instituted a more appropriate risk management policy. Thisseeks to protect our business objectives against a defined 'aversion to risk'whilst using proactive market view driven actions in order to extract value fromthe typical volatility of the commodity markets. The financial results for Usaciga before CEB's investment led to a greater thanexpected indebtedness of approximately US$10 million above our estimates at thetime of the IPO. The CEB investment agreement with Usaciga allowed for ourinvestment consideration to be fully adjusted to reflect this, ensuring CEBshareholders will not have been impacted by the poor economic performance of themill in the period running up to our investment. Furthermore, your Board issatisfied that the underlying causes of the loss have all been addressed by TCPin the context of the 2007/08 crop season. With the completion of the investment in Usaciga and the planned acquisition andsubsequent capital expenditure in Pantanal (CEB's green field development inMato Grosso do Sul), the Company has fully committed the investment funds raisedat the IPO. By leveraging the personal, long standing relationships of our experiencedinvestment management team within TCP, CEB is currently negotiating additionalopportunities to replicate our existing strategy to build a significant,profitable sugar and ethanol group with operating capacity to crush up to 30million tonnes of sugar cane per annum. Should these negotiations develop intoinvestment opportunities, your Board anticipates that CEB would requireadditional equity funds. During the first 6 months of 2007 sugar prices have been under pressure and fromMay seasonal pressure was seen on the domestic ethanol price with the cropcoming on stream. However, CEB anticipates that sugar and ethanol prices willcontinue to show volatility providing opportunities to hedge risk. Beyond 2008the expectation is for the raw sugar futures market price as quoted on the NewYork Exchange (The No. 11 contract) to recover into a range of US12-15 cents,particularly given the sustained strength of the Brazilian Real currency whichhas the effect of increasing the dollar cost of production from Brazil. CEB intends to negotiate under exclusive terms with interested parties who wishto remain in the sector and do business with us, thus avoiding competitivebidding. TCP's strong relationships and CEB's partnership model together shouldhelp cushion CEB from the competitive landscape and should assist greatly inopening up and creating these investment opportunities from which the Companywill aim to maximise value. I am confident that our strategy of investing directly into existing andgreenfield Brazilian sugar/ethanol assets and actively managing and developingthem is creating value for shareholders. We are building an integrated group ofscale, working with our chosen partners to take full advantage of thesignificant growth potential and consolidation opportunities in this industrydespite the competition from other investors to acquire assets and enter thesector. This has been a very active period for CEB during a rapidly changing environmentboth in the context of market conditions and the investment and acquisitiondynamics of the Brazilian cane sector. Of paramount importance to CEB'sperformance is the effectiveness of our investment manager TCP. I am pleased toreport that the partnership of service providers is working very well, providinga flexible structure that allows easy access to some of the best relationshipsin the industry whilst also offering access to their expertise, enthusiasm andcommitment. To date this team, led by Peter Thompson and Marcelo Junqueira, hasachieved very good results especially given the commercial environment in whichwe are operating. I remain optimistic about the prospects for the Company and I look forward toreporting further progress in the year ahead and beyond. Antonio Monteiro de CastroChairman1 August 2007 Investment Advisor's Report Upon the Admission to AIM on 18 December 2006 of CEB, the Investment Manager'sAgreement between CEB and its investment manager Temple Capital Partners ("TCP")and, in turn, the Service Agreements between TCP and its service providers,Czarnikow and Agrop, were initiated. Within TCP we have established a number ofoperating and reporting procedures in order to manage effectively the businessentrusted to TCP by CEB. TCP acts as investment adviser to CEB with responsibility for originating,appraising and presenting investment opportunities in accordance with theGroup's investment strategy and aims. The Directors believe that therelationships enjoyed by Agrop and Czarnikow, to which CEB has access throughthese long term Service Agreements with TCP, is helping to provide a flow ofinvestment opportunities which meet CEB's investment objectives. TCP has accessto over 40 sugar/ethanol professionals based in Sao Paulo, Rio de Janeiro,Ribeirao Preto and London. TCP believes that this represents one of the largestprofessional teams dedicated to investment in sugar and ethanol assets inBrazil. Immediate Operations in Usaciga In January 2007, prior to CEB's formal completion of its investment, MarceloJunqueira, Director of TCP, assumed the position of temporary Chief ExecutiveOfficer within Usaciga in order that Marcelo and the team from TCP could managemore effectively the implementation of our business plans during the 'off crop'period. Gilberto Macioli from TCP was appointed temporary Operations Directorduring this period. Initial industrial improvements involving the investment of approximately US$3.0million have been made by the TCP team in the existing Usaciga facility, whichwe expect to yield an increase in industrial efficiency to 92% from an averageof 85% during the 2006 crop. In addition, the Usaciga joint venture investedapproximately US$32.0 million in a new co-generation facility which is nowoperational and was officially inaugurated on 30 July 2007. We expect that theelectricity generated will result in a new income stream which will addapproximately US$4.0 million to the 2007/08 crop year revenue for the Usacigajoint venture. Usaciga's co-generation facility now uses bagasse, the biomass remaining aftersugarcane stalks are crushed, as a renewable feedstock for power generation. Thebagasse is used as a fuel source for Usaciga's sugar mill, as it producessufficient heat energy to supply the needs of the sugar mill, with energy tospare. The spare energy is then sold into the consumer electricity grid where there is a growing regional demand for power. From January 2007, a comprehensive price risk management framework and policywas agreed for Usaciga. This policy, which includes details of the businessearnings objectives, risk profile and overall market exposure, is being appliedin order to assist the hedging actions. As at 30 June 2007, this has resulted inapproximately 65% of the sugar under management for the 2007/08 crop seasonbeing hedged or realised at an average of US12.44 cents (basis the No.11market). Commercial policies and production flexibility, successfully implemented by TCP,are addressing the early season selling opportunities where ethanol was tradingat a considerable premium to sugar values and, for the first time, white sugar,which has also been trading at attractive premiums, was produced from theUsaciga factory for the domestic retail market. TCP is continuing its financialrestructuring in order to reduce the current cost of debt. TCP decided on makingan early repayment of its US$ pre-payment facilities, which has also mitigatedUsaciga's US$/Real currency exposure for the 2007/08 crop which would otherwisehave been a concern given the current strengthening of the Brazilian Real. In comparison to the crop at 30 June the previous year, at the Usaciga site,agricultural and industrial efficiency gains have been achieved in line with ourbest expectations and its performance is very satisfactory in key areas: 1. field productivity in tonnes of cane per hectare has increased by 7%; 2. sugar/ethanol recovery has increased by 2.5%; and 3. fermentation efficiency has increased from 89% to 93%. These improvements have resulted in an increased forecast of 2.5 million tonnesto be crushed during the 2008/09 season, up from our earlier forecast of 2.3million tonnes. Developments of the Usaciga greenfield sites at Santa Monica and Rio Parana areprogressing well with cane planting, the ordering of the necessary industrialequipment and the build out of the factories all leading to ethanol productionin 2009. In addition, Usaciga has negotiated to take 100% control in Rio Paranafrom its previous ownership of 33% in return for a R$12 million cane plantinginvestment on behalf of the previous 67% owners. This will result in increasedcapital expenditure for the Usaciga joint venture but gives investors, theDirectors believe, greater opportunity to benefit from capital appreciation thananticipated at the IPO. On account of TCP's debt restructuring, we believeUsaciga will have sufficient funds to meet fully these commitments. A further development opportunity owned by Usaciga, Santa Cruz de Montecastelo,is now under consideration for the further expansion of the Usaciga business.This will potentially add a further 2 million tonnes of crushing capacity andwill be dependent on successful negotiation of debt finance. Since April 2007, we have completed the management reorganisation in Usacigaadding three new members to the executive team to service the needs of thebusiness more effectively. These comprise: - Finance & Administration Director ("Superintendente"), Dario Gaeta, 15 years' experience in multinational companies previously with Hoechst and Clariant - Commercial & New Business Development Director, Francisco Campiolo, agronomist with 26 years' experience - Operations Director, Rui Pinotti, agronomist with 36 years' experience We have also invested in Usaciga's infrastructure such as accounting and ITprocesses, together with new personnel incentive schemes, to help to underpinour growth strategy. This will incur some significant costs for Usaciga duringthe current crop year but will put in place the framework for a first class,professional management team, which will now report to a board consisting ofthree representatives on behalf of CEB and three from the Barea family. Usaciga is now on track to build a business which is expected to grow over thenext 4 years to a crushing capacity of approximately 8 million tonnes per annum. Investment Performance TCP reviews investment opportunities considering its key investment criteriadeveloped from CEB's investment strategy. Whilst we aim to meet most of these toa significant extent for any given investment, these are applied with a degreeof flexibility in consideration of the practical realities of the investmentlandscape. TCP's investment criteria comprises: a) We seek to maximise the proportion of own managed cane that is supplied within the business to give the greatest economic exposure to the long term positive outlook for ethanol and sugar prices; b) Balance between existing business acquisition which can generate current cash flow, brownfield expansion which can generate rapid increase in cash flow and greenfield growth which maximises the capital appreciation that CEB believes will be realised upon the sale of consolidated assets in the future; c) Underlying productivity/profitability with key indicators being: land yield versus land lease cost, industrial efficiency, industrial improvement potential, additional revenue streams such as electricity generation, product flexibility between sugar and ethanol and storage and logistics infrastructure. d) Consolidation potential. As CEB builds a network of investments that could be pulled together at a later stage, accessing the premium which CEB believes can be obtained by creating a group with critical mass; and e) Relationships with TCP service providers. We prefer to do business with partners known to Czarnikow and Agrop who already share our strategy and are willing to negotiate with CEB on an exclusive basis. During the first half of 2007, TCP has examined 29 investment opportunitiestaking 10 of these through to a more detailed investigation and negotiation.Some of these we reasonably expect will be able to be finalised on attractiveterms for which CEB will require further equity funds. Pantanal (as detailed at IPO) We have structured the investment agreement on this established greenfield sitein Mato Grosso do Sul which will give CEB 92% ownership and we are finalisingsome conditions precedent before completing the transaction. Planting has beencontinuing and factory equipment is held under options and will be orderedfollowing the completion of the acquisition to give expected ethanol productioncommencing in 2009. We are planning for an initial crushing capacity of 1.5million tonnes. CEB has the available funds to manage the capital expenditurerequired to reach this initial capacity and will later seek to use debt tofinance further expansion. Agua Limpa (as detailed at IPO) CEB is pleased to announce that the Environmental Licence for its greenfielddevelopment project located in Goias was awarded on 18th July 2007. This projectbenefits from irrigation which means that cane planting will commenceimmediately with a plan to grow out the plantation with the production ofethanol in 2010. The initial crushing capacity of this plant will be 1.6 milliontonnes. CEB will need to raise additional funds to meet all of the capitalexpenditure required to complete fully the Agua Limpa project. Investment Market Many new investors have arrived in the Brazilian market. This has had the effectof increasing asset values even though spot sugar and ethanol prices havedeclined. This has impacted on potential yields from investments but at the sametime has enhanced the total return from investment opportunities includingcapital appreciation. We believe that our partnership model offers an alternative investment case tosome of the other competition for assets in the cane sector and enables us toopen and maximise new opportunities that are exclusive to CEB. We understand that a number of existing milling groups are considering coming tothe market through IPO's mainly on the BOVESPA Sao Paulo exchange and we believethis will assist in the valuation of CEB's assets. These groups can be expectedto accelerate the consolidation of the sector and lead to an increasedwillingness on the part of some of our target opportunities to protect theirposition by partnering with CEB. Therefore, we see the dynamics and interest inthe sector as positive attributes for CEB's business. TCP's Sugar and Ethanol Market View Active risk management by TCP has meant that CEB's existing assets are largelyprotected from current short term price volatility. For 2008 exposure, webelieve whilst sugar prices could be under pressure from Indian exports, therewill be sufficient volatility to give hedging opportunities above costs ofproduction. Domestic ethanol prices will continue to show seasonality andtherefore the ability to carry stock into the off-crop period is an importantfeature for our business. Through 2008, we believe the trend of Dollar weaknessagainst the Real is a risk that should be protected against through hedging. CEB is also exposed to medium and longer term trends which we believe to be verypositive. Demand growth for commodities in general and energy in particular willcontinue to bring investor money into commodity markets. Ethanol blending aroundthe world will lead to increasing export business from Brazil but this will onoccasions have to be met by pricing ethanol out of the Brazilian flex-fuel fleetand into the international market. The 'tipping' point for this is US16 cents/lbbasis No 11 sugar price. In respect of the current international sugar prices, we would like to emphasiseour view that lower prices this year compared to last is not the result of theover-expansion of the Brazilian sugar cane sector. In fact, the additional caneis being absorbed by ethanol production which has shown a premium to sugarreturns and whilst ethanol prices have also fallen, this has opened up newdemand from flex-fuel motorists where the ethanol prices in some states were notcompetitive with gasoline. The potential untapped demand from this is estimatedat 4 billion litres and whilst we do not expect that all this will be accessed,we also anticipate that ethanol prices will recover substantially during thenext off crop period which is why we have planned to carry a substantialquantity of Usaciga ethanol production into 2008. With respect to sugar, giventhe diversion of cane towards ethanol we estimate that there will in fact bemarginally less sugar exports this season compared to last year, despite theincrease in the cane crop of about 50 million tonnes in the centre-south. The explanation for current sugar prices is to be found in India wheregovernment support of the sector has created a huge swing from deficit tosurplus production. Whilst most of this surplus is not able to come out into theinternational market since its cost of production is higher than theinternational market price and the government can only subsidise a certainquantity, it has created the negative sentiment which has in turn allowedspeculative funds to pressure the market lower. The mills in India which arerequired to buy the cane from the farmers are caught between the high cane priceand the low sugar price as a result of the surplus. These mills are losing moneyand building up payment arrears to the farmers who in turn can be expected to bedeterred from cane planting in the 2009 cycle, leading to a violent swing onceagain to deficit, which will create a more positive background to the sugarmarket, in our view. Therefore, we conclude that current prices do not reflect the underlyingstructure of the market and combined with the developments of increasing use ofcane towards ethanol, not only in Brazil, increasing concerns for climate changeand political appetite for action, we continue to see a positive market outlookover the medium term, two years out from the present. The strength of the Brazilian Real can negatively affect export margins and wedo have some concerns on this exposure. We have initiated a currency riskmanagement policy in Usaciga and will do so in other investments which will seekto reduce the business exposure to this risk, which we see as a part of a longerterm trend that should be addressed at the operating business level. MeanwhileCEB will continue to operate in US$ and report results in this currency. Looking Ahead Global sugar consumption continues to show sustained growth. Ethanol consumptiongrowth in Brazil is exponential due to new flex-fuel vehicles which today stillonly represent 15% of the overall domestic fleet. Electricity consumption inBrazil is increasing rapidly with the CNI (National Confederation of Industry)and many other analysts warning of actual shortages expected by 2009. Many countries are switching to a blend of ethanol in gasoline, initially basedon domestic supply but once introduced we believe there will be a ratchet effectthat will lead to increased blending rates that in turn will need to be suppliedwith imports. These facts give us great confidence for the market environmentinto which CEB sells its products. Our clear strategy of partnership, growth and consolidation is showing provenresults with our investment in Usaciga. As CEB is becoming established in thesector, it has also opened up new opportunities. We have been able to putinvestors money to work quickly and economically. We are confident that thebusiness will continue to deliver sustained profitability as CEB moves to becomean efficient low cost producer in Brazil. In addition, we believe CEB will bevery well placed to benefit from the revaluation of its assets as we move from aBrazilian agricultural based value to a value based on international energymarkets. Peter ThompsonChairman, Temple Capital Partners Ltd. Marcelo JunqueiraDirector, Temple Capital Partners Ltd. 1 August 2007 Consolidated Income StatementFor the period from 19 September 2006 (date of incorporation) to 30 April 2007 $'000 Bank interest received 2,662Foreign exchange gain 934Fees and commissions 240 -------Net investment income 3,836 -------Investment advisor's fees 952Other administration fees and expenses 728 -------Administrative expenses (1,680) -------Finance costs (31) -------Profit for the period before tax 2,125 -------Tax - -------Profit for the period after tax 2,125 ======= Earnings per share $0.02 Consolidated Balance Sheetat 30 April 2007 Group $'000 Non-current assetsInterests in subsidiaries -Investments 3 93,768 -------Total non-current assets 93,768 Current assetsTrade and other receivables 413Cash and cash equivalents 4 98,386Group balances - -------Total current assets 98,799 -------Total assets 192,567 -------Non-current liabilitiesLoan from portfolio company 5 (6,730)Current liabilitiesTrade and other payables (451) -------Total liabilities (7,181) ======= Net assets 185,386 =======Represented by:Share capital 6 1,964Share premium 7 181,297Retained reserves 2,125 ------- 185,386 ======= Net asset value per ordinary share ($ per share) $1.85 ======= Consolidated Statement of Changes in EquityFor the period from 19 September 2006 (date of incorporation) to 30 April 2007 Share Capital Share Premium Retained Total Reserves $'000 $'000 $'000 $'000 Share issueproceeds 1,964 194,381 - 196,345 Share issue costs - (13,084) - (13,084) Net profit for theperiod - - 2,125 2,125 -------- -------- -------- --------Net assets at endof period 1,964 181,297 2,125 185,386 ======== ======== ======== ======== Consolidated Cash Flow StatementsFor the period from 19 September 2006 (date of incorporation) to 30 April 2007 Group $'000Cash flows from operating activitiesProfit for the period after tax 2,125Change in trade and other receivables (413)Change in trade and other payables 451 --------Net cash flows from operating activities 2,163 --------Cash flows from investing activitiesPurchase of investments (93,768)Loan from portfolio company 6,730 --------Net cash flows used in investing activities (87,038) --------Cash flows from financing activitiesProceeds on issue of equity shares net of issue costs 196,345Issue costs paid (13,084) --------Net cash flows from financing activities 183,261 -------- Net Increase in cash and cash equivalents 98,386Cash and cash equivalents at start of period - --------Cash and cash equivalents at end of period 98,386 ======== Notes to the Financial StatementsFor the period from 19 September 2006 (date of incorporation) to 30 April 2007 1. General information The Company is a closed-end investment company incorporated on 19 September 2006in the Isle of Man as a public limited company. The address of its registeredoffice is IOMA House, Hope Street, Douglas, Isle of Man. The Company is listed on the AIM market of the London Stock Exchange. The Group has no employees. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of theseconsolidated financial statements are set out below. These policies have beenconsistently applied to all the entities included in the consolidated financialstatements. Basis of preparation The financial statements of the Company are prepared in accordance withInternational Financial Reporting Standards ("IFRS"), which comprise standardsand interpretations approved by the International Accounting Standards Board andInternational Accounting Standards and Standing Interpretations Committeeinterpretations approved by the International Accounting Standards Committeethat remain in effect, and applicable legal and regulatory requirements of Isleof Man law and the London Stock Exchange. All assets and liabilities are measured on an historical cost basis except forinvestments, which are stated at fair value. The period from 19 September 2006 to 30 April 2007 is the first period of theGroup's operation and, therefore, no comparatives are presented. Use of estimates The preparation of financial statements in conformity with InternationalFinancial Reporting Standards requires management to make judgements, estimatesand assumptions that affect the application of policies and the reported amountsof assets and liabilities income and expense. The estimates and associatedassumptions are based on historical experience and various other factors thatare believed to be responsible under the circumstances, the results of whichform the basis of making the judgments about carrying values of assets andliabilities that are not readily apparent from other sources. Actual results maydiffer from these estimates. In particular, the valuation of unquotedinvestments relies heavily on such estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The area of the financial statements most affected by the use of estimates isthe determination of the fair value of unquoted investments. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries andsubsidiary undertakings). Control is achieved where the Company has the power togovern the financial and operating policies of a portfolio company so as toobtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses areeliminated on consolidation. Segment reporting No segment reporting is provided as the Group is engaged in only one businesssector and geographic location. Income Dividend income from investments is recognised when the Company's right toreceive payment has been established, normally the ex-dividend date. Interest income is accrued on a time basis. Expenses All expenses are accrued for on an accruals basis and are presented as revenueitems except for expenses that are incidental to the disposal of an investmentwhich are deducted from the disposal proceeds. Taxation Income tax expense comprises current tax. Income tax expense is recognised inprofit or loss except to the extent that it relates to items recognised directlyin equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantively enacted at the reporting date, and anyadjustment to tax payable in respect of previous years. Foreign currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which itoperates (the "functional currency"). The consolidated financial statements arepresented in US dollars, which is the Company's functional and presentationcurrency. Transactions in currencies other than US Dollars are translated at the foreignexchange rate ruling at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies at the balance sheet date aretranslated into US Dollars at the foreign exchange rate ruling at that date.Foreign exchange differences arising on translation are recognised in the IncomeStatement. Non-monetary assets and liabilities that are measured in terms ofhistorical cost in a foreign currency are translated using the exchange rate atthe date of transaction. Non-monetary assets and liabilities denominated inforeign currencies that are stated at fair value are translated into US Dollarsat foreign exchange rates ruling at the dates the fair value was determined. The fair value of forward exchange contracts is their marked to market price atthe balance sheet date. Financial instruments Financial assets and financial liabilities are recognised on the Company'sbalance sheet when the Company becomes a party to the contractual provisions ofthe instrument. The Company shall offset financial assets and financialliabilities if the Company has a legally enforceable right to set off therecognised amounts and interests and intends to settle on a net basis. Investments The portfolio investments of the Company are initially recognised at cost as ofthe date of investment. The portfolio's unquoted investments are subsequentlyre-measured at fair value at least every six months by the Directors using themost appropriate valuation techniques. Unrealised gains and losses arising fromthe revaluation of investments at the year end are taken directly to the incomestatement. Securities quoted or traded on a recognised stock exchange or other regulatedmarket, will be valued by reference to the last available bid price quoted on anactive market. Securities which are quoted but not marketable due to securitieslaw restrictions will be valued at an appropriate discount rate from the publicmarket price. Other receivables Other receivables do not carry any interest and are short-term in nature and areaccordingly stated at their nominal value as reduced by appropriate allowancesfor estimated irrecoverable amounts. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangement entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Companyafter deducting all of its liabilities. Financial liabilities and equityinstruments are recorded at the proceeds received, net of issue costs. Interest-bearing loans and borrowings Interest-bearing borrowings are recognised initially at fair value lessattributable transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost with any differencebetween cost and redemption value being recognised in the Income Statement overthe period of the borrowings on an effective interest basis. Other payables Other payables are not interest bearing and are stated at their nominal value. Provisions A provision is recognised in the balance sheet when the Company has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle the obligation,and the obligation can be reliably measured. If the effect is material,provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessments of the time value of moneyand, where appropriate, the risks specific to the liability. Share issue costs The share issue costs of the Company directly attributable to the Placing andcosts associated with the establishment of the Company that would otherwise havebeen avoided have been taken to the share premium account Deferred income tax Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. However,the deferred income tax is not accounted for if it arises from initialrecognition of an asset or liability in a transaction other than a businesscombination that at the time of the transaction affects neither accounting nortaxable profit or loss. Deferred income tax is determined using tax rates (andlaws) that have been enacted or substantially enacted by the balance sheet dateand are expected to apply when the related deferred income tax asset is realisedor the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries and associates, except where the timing of the reversal of thetemporary difference is controlled by the Group and it is probable that thetemporary difference will not reverse in the foreseeable future. Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved. 3. Investments Investments comprise one holding as follows: Name Country of Proportion of Incorporation ownership interestUsaciga - Acucar,Alcool EEnergia Eletrica SA Brazil 49% The investment is stated at fair value, which the Directors' estimate to beequivalent to cost. 4. Escrow Account Under the terms of the Investment Agreement with Usaciga - Acucar,Alcool EEnergia Eletrica SA, an Escrow account was established to protect the Companyagainst certain possible liabilities. At 30 April 2007 $16.8 million was held inthe Escrow account. 5. Loan The Group has borrowed $6,730,000 from Usaciga - Acucar,Alcool E EnergiaEletrica SA on a market based floating rate. The loan is repayable no later than2012, but may be paid at the rate of 1/5 of the total outstanding per year.Repayment may be effected through offsetting against dividends due from thelender. 6. Share capital Ordinary shares of 1p each Number of Ordinary shares shares (thousands) £,000 Issued 100,000,000 1,000Authorised 600,000,000 6,000 The Company was incorporated on 19 September 2006 with an authorised sharecapital of £2,000 divided into 200,000 ordinary shares of £0.01 each. Atincorporation, two ordinary shares were subscribed for, nil paid, by thesubscribers to the Memorandum of Association. On 4 December 2006, the Company's authorised share capital was increased from£2,000 to £6,000,000 divided into 600,000,000 ordinary shares of £0.01 each. Following the admission of the ordinary shares to trading on AIM on 18 December2006, 100,000,000 ordinary shares of £0.01 par value were placed at £1.00 pershare. All shares are fully paid and each ordinary share carries one vote. In addition to the placing of ordinary shares, 25,000,000 equity warrants wereadmitted to trading on AIM. Each warrant entitles the holder to subscribe forone new ordinary share at £1.00 per share, subject to adjustment as detailed inthe Admission Document. 7. Share premium The Company's share premium has arisen on the issue of ordinary shares, andrepresents the difference between the issue price of £1.00 per share and the parvalue of £0.01 per share. Issue costs of $13,083,826 have been expensed againstshare premium. 8. Events after the balance sheet date On 15 June 2007, the High Court in the Isle of Man approved a reduction in theshare capital of the Company by way of cancellation of the share premiumaccount. The amount cancelled has been credited to distributable reserve. On 19 July 2007 an interim dividend of 2.5p per share was paid to holders ofordinary shares. On 16 July 2007 US$8.8million was released from the Escrow account followingagreement on the completion of terms contained within the Investment Agreementwith Usaciga. 9. Basis of preparation The above financial information does not constitute statutory accounts withinthe meaning of the Isle of Man Companies Acts. Statutory accounts for the periodended 30 April 2007 will be finalised on the basis of the information presentedin this preliminary announcement and will be delivered to the Isle of ManFinancial Supervision Commission and sent to shareholders following theirpublication. 10. Copies of the Annual Report and Accounts for the Company for the period ended 30 April 2007 will be sent to shareholders today and will be available from the offices of Smith & Williamson Corporate Finance Limited, 25 Moorgate,London, EC2R 6AY. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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