RNS Number:7637T
Econergy International Plc
06 May 2008
6 MAY 2008
Econergy International PLC
Financial results for the year ended 31 December 2007
Econergy International PLC ("Econergy International" or "the Company"), the
renewable independent power producer focused on the Americas, today announces
preliminary results for the year ended 31 December 2007.
Highlights:
- Strategic Review currently underway
o Announced on 14 April 2008 that the Company is seeking a sale or merger
in order to achieve maximum value for shareholders
o A number of approaches have been received, but there can be no certainty
that a firm offer will be made for the Company
o The Company is working to address certain short term funding
requirements
- Financial Summary
o Revenues increased by 500 per cent. to $25.4m (2006: $5.0m) with 78.4
per cent. of revenues derived from power production
o Loss from operations reduced to $0.4m (2006: loss of $9.2m)
o Net loss for the period decreased by 40 per cent. to $5.1m (2006: $8.6m)
o Consolidated cash position at 31 December 2007 of $37m
- Operational Summary
o One project in operation and five further projects in construction, all
due to be operational within the next 12 months despite a number of
project delays
o Remain on track to deliver 1.2 million megawatt hours in 2009
Tom Stoner, CEO commenting on the results, "Econergy International has made
significant progress in establishing itself as a renewable independent power
producer focused on the Americas. Despite the strength of the Brazilian Real
versus the US Dollar and other inflationary pressures, the results achieved to
date clearly demonstrate both the inherent value in the business and the
significant opportunity that exists to develop further our assets."
Tom Stoner, CEO commenting on recent press releases, "The Company announced on
14 April that it is seeking to sell itself or merge in order that the value of
its existing portfolio and pipeline of Latin American and U.S. renewable energy
assets and other related business lines may be maximised and its future
development funded. The Board is pursuing the sales process expeditiously within
the constraints of the Company's working capital position."
Enquiries
Piper Jaffray Ltd. 020 3142 8700
Michael Covington / Nigel Daly (Investment Banking)
Amer Khan / Jamie Adams (Corporate Broking)
Pelham Public Relations 020 7743 6675
Chelsea Hayes / Archie Berens
Responsibility
The directors of the Company accept responsibility for all of the information
contained in this announcement. To the best of their knowledge and belief
(having taken all reasonable care to ensure that such is the case), the
information contained in this announcement is accurate and does not omit
anything likely to affect the import of such information.
Piper Jaffray Ltd., which is authorised and regulated by the Financial Services
Authority in the UK, is acting for the Company and no one else in connection
with matters referred to in this announcement and will not be responsible to any
person other than the Company for providing the protections afforded to the
clients of Piper Jaffray Ltd. nor for providing advice in relation to the
matters referred to in this announcement.
Dealing Disclosure Requirements
Under the provisions of Rule 8.3 of the City Code on Takeovers and Mergers (the
"Code"), if any person is, or becomes, "interested" (directly or indirectly) in
1% or more of any class of "relevant securities" of the Company, all "dealings"
in any "relevant securities" of the Company (including by means of an option in
respect of, or a derivative referenced to, any such "relevant securities") must
be publicly disclosed by no later than 3.30pm (London time) on the London
business day following the date of the relevant transaction. This requirement
will continue until the date on which the offer becomes, or is declared,
unconditional as to acceptances, lapses or is otherwise withdrawn or on which
the "offer period" otherwise ends. If two or more persons act together pursuant
to an agreement or understanding, whether formal or informal, to acquire an
"interest" in "relevant securities" of the Company, they will be deemed to be a
single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of
the Code, all "dealings" in "relevant securities" of the Company by the Company
or by any of its respective " associates", must be disclosed by no later than
12.00 noon (London time) on the London business day following the date of the
relevant transaction. A disclosure table, giving details of the companies in
whose 'relevant securities' 'dealings' should be disclosed, and the number of
such securities in issue, can be found on the Takeover Panel's website at
www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a
person has long economic exposure, whether conditional or absolute, to changes
in price or securities. In particular, a person will be treated as having an
"interest" by virtue of the ownership or control of securities, or by virtue of
any option in respect of, or derivative referenced to, securities. Terms in
quotation marks are defined in the Code, which can be found on the Panel's
website. If you are in any doubt as to whether or not you are required to
disclose a "dealing" under Rule 8, you should consult the Panel.
OPERATING REPORT
In 2007, Econergy International established itself as a renewable Independent
Power Producer, with over 78.4 per cent. of revenues derived from electricity
generation.
Econergy International now has one project in operation and five under
construction. By this time next year, we plan to have six of the projects,
acquired or developed using the proceeds from our IPO as well as external debt
facilities, operational and producing stable, long-term revenue from clean
energy. The Company's other operating divisions - Carbon Markets, Consulting
and Clean Tech Fund - performed well in 2007 and made significant advances.
A key development of 2007 was the acquisition of a 50 per cent. interest in a
147 gross MW hydroelectric project in Bolivia, which gave Econergy International
early access to a revenue generating asset. Execution risk of projects has
been decreasing as Econergy International has executed the following for its
projects in construction: PPAs with off-takers; turbine agreements; medium and
long-term project finance for its Brazilian projects; land rights agreements;
and construction agreements (EPC contracts).
BUSINESS STRATEGY
Our strategy continues to be to develop, build, own and operate renewable and
low-carbon power generation assets. The business model is characterised by
investment in long-term assets anchored by long-term contracts for the sale of
energy and, in some cases, carbon credits. Latin America is the principal
region for Econergy International's investments; the market has a need for power
generation and is supportive of clean energy. Longer term, the United States
also offers notable opportunities and one of Econergy International's initial
six projects is in the U.S.. Econergy International's team has significant
experience operating throughout the Americas.
The Company's business model in Latin America focuses on establishing joint
ventures with strategic partners, where Econergy International brings equity
investment as well as development, technical, asset management and financial
expertise.
The same principles are utilised in the U.S., where Econergy International's
team has a strong knowledge of the available technologies, as well as insight
and expertise in this burgeoning carbon market. Econergy International is
focusing its U.S. project development activities on generating renewable energy
from biomass resources. While other sources of renewable energy are explored in
line with Econergy International's business strategy, the market to convert
biomass to energy is largely untapped and provides the opportunity to generate
triple revenue streams: through the sale of electricity or biogas; carbon offset
allowances; and renewable energy credits (RECs).
OPERATIONAL OVERVIEW
The Company's 2007 operating loss (before minority interests) was $383,000
compared with a loss of $9,214,000 in 2006. While the Company's 2006 revenues
were generated entirely by our three other operating divisions: Carbon Markets,
Consulting and the CleanTech Fund, the majority of 2007 revenues were generated
by Econergy International's acquisition of a stake in its first operational
clean energy asset, the Corani hydroelectric company in Bolivia, acquired in
February 2007. Subject to resolution of the Company's short term funding
requirements, future revenues are expected to grow significantly, taking into
account the contributions of the three projects which are expected to be
operational before year end 2008, in addition to revenues from our other
operating divisions.
2007 has been a year of progress, but not without its challenges. The Company
has been affected by a weak US Dollar particularly versus the Brazilian Real, a
weakening credit environment, cost overruns and bank leverage reductions on some
projects.
FINANCING
During 2007 the Company arranged a loan from BNDES, the Brazilian development
bank, in the amount of Brazilian Reais 55.6 million ($32.7 million) to fund
construction activities at the Areia Branca project. Additionally, the Company
has arranged for construction loans from ABN AMRO Banco Real for the Beberibe
and Pedra do Sal projects in the amounts of Brazilian Reais 103 million and 67.8
million ($60.6 million and $39.9 million) respectively. The Company's strategy
has always been to replace these loans with permanent financing by the end of
2008. In March 2008 a mandate letter was signed with Nord LB bank to provide an
$81 million construction financing facility at the PEG project.
As a result of the public announcement of preliminary takeover approaches on 10
and 11 April 2008 the Board announced that the Company was seeking a buyer or
merger partner in order that the value of its existing portfolio and pipeline of
Latin American and US renewable energy assets and other related business lines
would be maximised. This process has, in the opinion of the Board, adversely
affected certain funding projects at group and project level. Subsequent to the
announcement of 14 April 2008, without access to further funding, the Company
has insufficient working capital to meet all of its project commitments as they
fall due over the short and medium term. The Board continues to seek this
additional financing and is in discussions with a number of potential finance
providers.
More specifically, in the near term, the Company requires additional working
capital of approximately $5 million plus financing of $15 million in order to
acquire and fund a defaulting partner's interest in its Proyecto Eolico
Guanacaste (PEG) wind project and proceed with the project. Alternatively the
Company may consider a sale of this project in its entirety.
As mentioned above, the Company has been affected by bank leverage reductions on
some of its projects. Consequently there is now a possibility that the Company
will be required to refinance certain projects by 31 July 2008 at a lower
leverage. If this were to be sought by project lenders, the Company would
require approximately an additional $18 million of financing from other sources.
The Company is currently in discussions with its project lenders to achieve the
targeted leverage of its Brazilian projects.
In addition, the Company is in talks with a number of other finance providers
regarding the provision of short and medium term financing. There can be no
certainty that the outcome of these discussions will be successful or as to the
terms on which such financing might be provided - see footnote 1 to the
financial statements. The financial statements do not include the adjustments
that would result if the Company were unable to secure the necessary financing.
OFFER UPDATE
As previously announced, the Company has received a number of preliminary offer
approaches. Talks regarding these approaches continue and in the case of one
party are at a relatively advanced stage. Furthermore the Board is exploring
the possible provision of a working capital loan with potential offerors. The
Company also continues to seek actively other buyers or merger partners. There
can be no certainty that an offer will be made for the Company's issued and to
be issued share capital or as to its terms.
BOLIVIA
Empresa Electrica Corani/hydroelectric/147 MW
In February 2007, Econergy International acquired a 50 per cent. share of the
147MW Corani hydroelectric company in Bolivia for $20 million. The purchase of
U.S.-based Duke Energy Corporation's interest was significant, both because the
facility has an installed cost of approximately $243 million and because the
facility provides baseload power to the Bolivian electric sector, producing
approximately 20 per cent. of the country's power needs. The Corani facility
has operated year-round for 40 years, and has a large dedicated reservoir.
Since Econergy International acquired Corani, Corani has paid to Econergy
International a total of $8 million in dividends.
Corani had a good year operationally, with 783 gigawatt-hours (GWh) of energy
produced, exceeding its annual target of 750 GWh. Corani maintained its
excellent operational performance with a 98 per cent. availability factor. As
part of routine major maintenance, the company installed new turbine runners,
resulting in approximately 1.5 MW of additional capacity, which will provide
additional revenue. This will be replicated in the second power house in 2008,
ultimately increasing total capacity of the combined plants to 150 MW.
Corani performed well financially in 2007, with revenue of approximately $23
million. Revenue in 2006 was also approximately $23 million, having been
re-expressed due to changes in accounting policy in Bolivia.
Corani is paid by the Bolivian electric system based on capacity and energy
generated, and the overall revenues remained stable in 2007, with a reduction in
the capacity component of the tariff, which was offset by higher energy prices
due to higher demand. This trend is expected to continue in 2008.
BRAZIL
1. Beberibe/wind/25.6 MW
Beberibe is expected to begin commercial operations by the end of June/early
July 2008. It will be the first Econergy International-built renewable energy
project to go on line, after 12 months of construction. Located along the
coast in northeastern Brazil, Beberibe will be configured with thirty-two
turbines of 800 kW each, designed and manufactured by Enercon/Wobben. The
project is wholly owned by Econergy International and will sell all of its
electricity to Eletrobras, the national utility, under a 20-year PPA. Econergy
International will manage the project utilising an operations and maintenance
agreement with Wobben.
2. Hidrelectrica Areia Branca (HAB)/hydro/19.8MW
HAB is currently expected to begin producing energy in mid-November 2008,
approximately 50 days beyond the original target completion date of 1 October
2008. Construction began in March 2007 and various challenges due to unexpected
geological conditions have been overcome. The facility is located in the state
of Minas Gerais in eastern Brazil. HAB will sell all of its output to
Eletrobras under a 20-year PPA. Continued equity investments of up to
approximately $3.4 million are expected in 2008 to completion.
Econergy International owns 80 per cent. of the project with the CleanTech Fund
owning 20 per cent.. The Company has agreed to sell down an additional 27 per
cent. for approximately $4.8m to FMO, a Dutch bank which is also a limited
partner in the CleanTech Fund. Econergy International is the general partner of
the CleanTech Fund. Both the CleanTech Fund and FMO disposals are subject to
approvals by Eletrobras and BNDES, and these approvals are expected in June
2008.
3. Pedra do Sal/wind/18 MW
Pedra do Sal is scheduled to begin producing electricity in January 2009. The
turbine supply agreement with Wobben was executed in August 2007 for the supply
of twenty turbines of 900 kw each, and in early March 2008, Econergy
International finalised the lease for approximately 440 hectares of land, which
allowed site construction to begin. Pedra do Sal is located in northeastern
Brazil in the state of Piaui; the site and commercial conditions of Pedra do Sal
are similar to Beberibe. Due to uncharacteristically heavy rains associated
with the El Nino weather phenomenon and re-negotiation of the land lease
agreement, the cost of the project has increased and there may be a two-month
delay to the schedule. A technical assessment has been performed and although
the flood does not represent any impediment to construction or operations, the
Company is considering a number of infrastructure upgrades to mitigate against
any risks of recurrence. The Company is working towards minimising this delay
by rescheduling construction activities. All output will be sold under a
20-year PPA to Eletrobras.
COSTA RICA
Proyecto Eolico Guanacaste (PEG)/wind/50MW
PEG, Econergy International's largest development project, is scheduled to begin
producing electricity in January 2009. At that time, Phase I of the project, 25
MW, will come on line, with Phase II, 25 MW, expected to come on line in January
2010. PEG is located on a 300 hectare freehold land plot owned by the project
company and this land has some of the world's highest demonstrated wind
generating capacity. The project will utilise 55 Enercon 900kW turbines and
sell all of its electricity to ICE, the state-owned utility, under a
build-own-operate-transfer scheme for 20 years. The PPA was executed in late
2007 and was ratified by the Costa Rican Government in April 2008. Econergy
International will own the 37,000 Certified Emission Reductions that PEG is
anticipated to generate annually through to 2012.
In late 2007, Econergy International began to restructure the project company in
response to the declaration by one of the original partners, Saret de Costa Rica
(Saret), that it would not be able to fund its share of the capital calls. On 2
May 2008 Econergy International entered into a conditional agreement for the
acquisition of Saret's 44.1 per cent. interest in the project. Completion of
Saret's interest is, inter alia, conditional upon the Company securing adequate
financing to fund the acquisition. PEG is continuing to finalise the project
loan documentation with Nord LB, and expects to close the financing in Q2 2008
subject to a successful completion of the restructuring of the project's
ownership.
UNITED STATES
The U.S. remains one of the largest untapped markets for project-based
greenhouse gas (GHG) emission reductions. The voluntary market for carbon
credits continues to grow and it seems increasingly likely that legislation for
a federal program to reduce GHGs will pass in the coming months.
Econergy International's U.S. development strategy is to continue focusing on
biomass-to-energy projects with the following attributes:
* Multiple revenue streams: electricity/gas, carbon credits and
renewable energy certificates;
* A "pre-compliance" offset value that could be recognised under a
mandated state, regional or federal program, such as the Regional Greenhouse Gas
Initiative (RGGI); and
* Replicable project development models and opportunities.
Econergy International, through its Consulting, Carbon Markets and Investment &
Development groups, has identified significant project development opportunities
utilising the following biomass resources: coal mine methane (CMM), livestock
methane, landfill gas and waste-to-energy.
Cambria/methane/VERs
In 2007, Econergy International invested $2.6 million for a 50 per cent.
interest in the Cambria coal mine methane project, located at a closed mine in
Pennsylvania. With additional capital calls, it is expected to reach $3.3m in
2008. The project will sell pipeline gas via the local interstate pipeline,
Dominion Peoples, in addition to Verified Emissions Reductions (VERs).
Econergy International is not responsible for construction management or
operations, but it is responsible for marketing of the VERs. The project
expects to commence commercial operations in May 2008.
Perspective on projects under construction and 2008 priorities
In the past year across the five projects under construction, Econergy
International has built relationships with leading suppliers (e.g. Enercon and
Siemens), lenders (e.g. BNDES and Nord LB), and customers (Eletrobras and ICE).
The Company has also been able to complete development and keep construction on
track as a result of the strong teams put into place in Brazil and Costa Rica,
and through the hard work of Econergy International's staff and affiliates. As
the Company looks to 2008, the key objectives are:
* Secure adequate long-term financing for the Company's development and
construction activities;
* Complete all construction projects on schedule, making the transition from
construction to operations; and
* Improve financial gearing on all projects.
Carbon Markets
The Carbon Markets Group took several steps in the second half of 2007 to
re-focus and streamline its strategy as well as to address a variety of market
and legal developments that impacted Econergy International. The Carbon Markets
Group's revised strategy includes 1) re-positioning Econergy International from
a broker of CER credits under the Clean Development Mechanism (CDM) to a primary
owner and manager of a portfolio of credits; and 2) increasing its origination
and transactional capacity whilst streamlining the business.
The increase in origination capacity includes broadening the Company's
geographic reach outside of Latin America to the Middle East, Africa and China,
where CDM markets are quite strong. While Latin America has strong CDM growth,
Econergy International's strategy is to manage a risk-balanced portfolio of
credits from diverse project types and regions at various stages of development.
This will allow Econergy International to cover the carbon denominated loan
with Trading Emissions PLC at a reasonable cost while also providing a platform
for sales.
The Carbon Markets Group is also moving forward on its U.S. strategy. It is
preparing to sell Econergy International's first U.S. Verified Emission
Reductions (VERs) from the Cambria project and is working with our investment
group to identify and develop new U.S. renewable energy and carbon offset
projects. The Company has also been actively evaluating development
opportunities in the U.S..
Consulting Services
Econergy International's Consulting Group recorded revenue of $1.4 million in
2007 compared to $1.3 million in 2006. During 2007, in addition to its revenue
generating activities, the Consulting Group spent a proportion of its time
providing critical strategic and due diligence support to Econergy
International's other divisions. The Company continues to reach into new
technology arenas and to create new alliances that benefit the entire
organisation, whilst producing positive cash flow and providing Econergy
International with strategic intelligence, deal origination and due diligence.
The Consulting Group has recently been appointed as a technical advisor to the
Colorado Carbon Fund and will focus its efforts on developing a viable supply of
carbon offsets in Colorado. The Colorado Carbon Fund is planning to establish
itself as a financial source for facilitating Colorado-based GHG reduction
projects and Econergy International is working with the Climate Trust to
implement the fund.
CleanTech Fund
Econergy International created the CleanTech Fund as a $25.2 million limited
partnership in 2004. Econergy International serves as the Fund's general
partner, and also participates as an investor (limited partner). By charter,
the Fund has a five-year period to invest its capital. As general partner,
Econergy International is paid a management fee and a share of profits or
capital gains.
Mid-way into its fourth year of operation, the Fund is currently 75 per cent.
invested. During 2007, the CleanTech Fund team placed investments in two
projects: an equity investment in Mexstarch, a bio-ethanol producer in Mexico,
and a co-investment in Areia Branca, Econergy International's hydroelectric
project in Brazil. In the first quarter of 2008, the Fund completed three
additional investments: Vehizero, a Mexican hybrid vehicle producer; Roncador,
a 4MW hydroelectric project in Peru; and Cancun landfill gas capture, a project
which generates CERs in Mexico. In April 2008 the Fund completed a partial exit
from its first investment; NEOgas do Brasil, a compressed natural gas
transporter/manufacturer.
Conclusion
By this time next year, all six clean energy projects are expected to be
producing stable revenue from long term power purchase agreements. While much
remains to be done in 2008 to ensure that the projects are completed and in line
with current budgets, the Board believes the most difficult and highest risk
milestones in the development of these projects were successfully completed in
2007.
We have reported good progress in all areas of our business during 2007. The
Board continues to believe that our key markets have good long-term growth
potential as energy scarcity remains a critical issue in Latin America and as
the US moves towards new state and federal regulations supporting renewable
energy. In addition, given its quality assets, the Board believes that, subject
to resolution of its short term funding requirements, the Company is well
positioned to deliver enhanced shareholder value over the long term. The Board
has for some time been considering potential options available for the Company
to fund its medium-term strategic development and also realise enhanced value
for shareholders. On 14 April 2008, we announced that the Company was seeking a
buyer or a merger partner in order that the value of its existing portfolio and
pipeline of Latin American and US renewable energy assets and other related
business lines would be maximized.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2007
(In $000s) 2007 2006
Unaudited Audited
Revenue 25,429 5,029
Cost of sales (10,261) (3,610)
GROSS PROFIT 15,168 1,419
Other income (861) (3)
Administrative expenses 16,201 10,517
Other operating expenses 211 119
LOSS FROM OPERATIONS (383) (9,214)
Share of loss from investments accounted
for under the equity method (183) (107)
Finance income 5,923 3,996
Finance costs (9,206) (3,220)
LOSS BEFORE TAXATION (3,849) (8,545)
Taxation 1,277 64
LOSS FOR THE PERIOD (5,126) (8,609)
Minority Interest 2,388 -
Attributable to Equity Holders of the Parent (7,514) (8,609)
Loss per share:
Basic and diluted $ (0.09) $ (0.11)
All amounts relate to continuing operations.
CONSOLIDATED BALANCE SHEET
at 31 December 2007
(In $000) 2007 2006
Unaudited Audited
ASSETS
Non-current assets
Property, plant and equipment 95,502 513
Intangible assets 3,034 2,249
Interests in associates 1,658 538
Investments 2,552 -
Other assets 2,490 1,639
Total non-current assets 105,236 4,939
Current assets
Trade and other receivables 34,332 3,462
Inventory 5,080 -
Cash and cash equivalents 37,333 103,937
Total current assets 76,745 107,399
TOTAL ASSETS 181,981 112,338
EQUITY AND LIABILITIES
Capital and reserves
Share capital 1,517 1,517
Share premium 101,376 101,376
Foreign exchange reserve 12,975 11,455
Retained deficit (19,988) (13,214)
Equity attributable to shareholders of the parent 95,880 101,134
Minority Interest 20,783 -
Total Equity 116,663 101,134
Non-current liabilities
Financial liabilities 47,778 7,067
Deferred tax 519 723
Total non-current liabilities 48,297 7,790
Current liabilities
Trade and other payables 5,367 3,074
Tax payable 1,736 -
Financial Liabilities 9,918 340
Total current liabilities 17,021 3,414
TOTAL LIABILITIES AND EQUITY 181,981 112,338
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended
31 December 2007
(In $000s) Share Share Foreign Retained Total Minority Total
Capital Premium Exchange Deficit Interest Equity
Reserve
Equity at 31 December 2005 Audited 3 2,868 - (5,357) (2,486) - (2,486)
Share option expense - - - 752 752 - 752
Foreign currency translation - - 11,455 11,455 - 11,455
Total amount recognised in equity - - 11,455 752 12,207 - 12,207
Loss for the year - - - (8,609) (8,609) - (8,609)
Total recognised loss for the year - - 11,455 (7,857) 3,598 - 3,598
Issuance of ordinary shares 1,514 108,031 - - 109,545 - 109,545
Offering Costs - (9,523) - - (9,523) - (9,523)
Equity at 31 December 2006 Audited 1,517 101,376 11,455 (13,214) 101,134 - 101,134
Share option expense - - - 740 740 - 740
Foreign currency translation - - 1,520 - 1,520 - 1,520
Total amount recognised in equity - - 1,520 740 2,260 - 2,260
Loss for the year - - - (7,514) (7,514) 2,388 (5,126)
Total recognised loss for the year - - 1,520 (6,774) (5,254) 2,388 (2,866)
Additions - - - - - 22,335 22,335
Minority Dividend - - - - - (3,940) (3,940)
Equity at 31 December 2007 1,517 101,376 12,975 (19,988) 95,880 20,783 116,663
Unaudited
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2007
(In $000s) 2007 Unaudited 2006 Audited
Operating activities
Loss for the period (5,126) (8,609)
Adjustments for:
Share of loss from investments
accounted for under the
equity method 183 107
Depreciation & amortisation 2,648 145
Impairment of intangible - 511
Finance costs 9,206 -
Finance income (5,923) (3,996)
Income tax expense 1,277 -
Share-based payment 740 1,492
Increase in trade and other
receivables (29,703) (1,417)
(Increase) decrease in
inventory (2,639) 974
Increase in other assets (851) -
Increase in trade and other
payables 2,293 592
Cash used in operations (27,895) (10,201)
Investing activities
Additions to property, plant
and equipment (36,296) (489)
Acquisition of interest in
subsidiary (net of cash) (750) -
Acquisition of investments (3,672) (571)
Deferred costs in projects (724) (1,533)
Finance income 2,971 3,996
Cash provided by (used in)
investing (38,471) 1,403
Financing activities
Repayment of borrowings (2,062) (97)
Proceeds from borrowings 3,201 -
Financing costs 1,193 -
Dividend paid to minority
interest (3,940) -
Proceeds from common shares
offering, net of offering costs - 97,154
Cash generated from financing (1,608) 97,057
Effect of exchange rate changes on cash 1,370 11,455
Net increase (decrease) in cash and cash equivalents (66,604) 99,714
Cash and cash equivalents, beginning of year 103,937 4,223
Cash and cash equivalents, end of year 37,333 103,937
1. Going Concern
The Company currently has insufficient working capital to meet all of its
project commitments when they fall due. The Board intends to secure additional
financing and is in discussions with a number of potential finance providers and
potential acquirers of the Company. Based on the current status of negotiations,
the Directors believe that sufficient funds should be raised within the
necessary timeframe, but clearly there can be no certainty of a successful
outcome with regard to additional funding given current market conditions.
These conditions indicate the existence of a material uncertainty which may cast
significant doubt over the Company's ability to continue as a going concern with
the current portfolio of assets and, therefore, it may be unable to realise its
assets and discharge its liabilities in the normal course of business. The
financial statements do not include the adjustments that would result if the
Company was unable to continue as a going concern.
2. Contingent Liabilities
In April 2007 and August 2007 the Company signed agreements with Wobben
Windpower to purchase wind turbines for the Beberibe project in Brazil. The
purchase agreement is backed by a letter of credit provided by ABN AMRO in
Brazil. The bank requested a comfort letter from the Company which guarantees
the payment of the turbines if project finance is delayed. The total guarantee
requested was $40 million. ABN AMRO has also been providing the financing under
a bridge loan arrangement until long-term financing is in place.
3. Post Balance Sheet Events
In January 2008 Econergy International concluded the project financing
arrangements for Hidrelectrica Areia Branca in Brazil. Banco Nacional de
Desenvolvimento Economico e Social (BNDES), a Brazilian state-owned development
bank, made it first disbursement on a project related loan representing
approximately 64 per cent. of the project cost. This hydroelectric project is
expected to be operational in the latter part of 2008.
In late 2007, Econergy International began to restructure the project company in
response to the declaration by one of the original partners, Saret de Costa Rica
(Saret), that it would not be able to fund its share of capital calls. Saret's
restructuring has yet to be completed but the intention is to either remove
Saret from the project company or to sell the project. The restructuring is
ongoing and a further announcement will be made as and when appropriate.
Econergy International is continuing to finalise the project loan documentation
with Nord LB, and expects to close financing in Q2 2008 subject to a successful
completion of the restructuring of the project's ownership.
During 2007 Econergy International entered into an agreement to purchase the
rights to develop the Eco Beberibe (Beberibe) wind project in Brazil. The
purchase price was placed in escrow until all conditions in the sale agreement
were met. In March 2008 the shares were transferred to Econergy International.
Through a loan agreement with the previous developers Econergy International had
funded the construction of the wind project until a bridge loan with ABN AMRO
was put in place in the latter part of 2007. The amounts funded through the loan
agreement are in the process of being converted into an equity contribution.
In March 2008, the Board approved the execution of an independent corporate
guarantee and indemnity in the amount of R94.9 million (Brazilian Reais) as part
of the financing of Beberibe. At that same time the Board also approved a
guarantee in favor of ABN AMRO in the amount of R80.4 million (Brazilian Reais)
for a bridge loan to finance the construction of the project while project
financing is obtained from BNDES.
On 28 March 2008, the Company appointed Piper Jaffray Limited to conduct a
strategic review of Econergy International with a view to a possible sale or
merger of the Company. Shortly after appointing Piper Jaffray, the Company
received a number of preliminary offer approaches (including those of Consensus
Business Group and Trading Emissions PLC, made in public announcements on 10 and
11 April respectively).
4. Pending Litigation
On 31 March 2008, Hydro Partners, LLC brought an action in the Northern
District of Ohio against the Company and its affiliate Econergy Energy
Generation Ltd. (the "Hydro Partners Action"). The complaint in the Hydro
Partners Action seeks specific performance of the 25 January 2007 Stock Purchase
Agreement among Econergy Energy Generation Ltd., Hydro Partners, LLC and Hydro
Partners do Brasil Empreendimentos e Participacoes LTDA relating to ownership of
the Pipoca hydroelectric project in Brazil. Hydro Partners seeks to compel
Econergy Energy to close the Pipoca stock transaction. The Company and Econergy
Energy contend that a number of conditions precedent to closing (including
obtaining necessary licenses) have not been satisfied, despite multiple
extensions of the original deadline from 31 March 2007 to 31 March 2008. The
Company intends to defend vigorously the allegations made in the Hydro Partners
Action. Although the Company cannot currently predict the impact or resolution
of these claims or reasonably estimate a range of possible loss, we believe that
this action will not materially affect our financial position or the results of
our operations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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