Interim Results for the six months to 30 June 2020

RNS Number : 9623Y
Rurelec PLC
15 September 2020
 

 

15 September 2020

 

AIM: RUR

Rurelec PLC

("Rurelec" or "the Company")

 

Interim results for the six months ended 30 June 2020

 

 

Rurelec PLC (AIM: RUR), the owner, operator and developer of power generation capacity internationally, today announces its unaudited interim results for the six months ended 30 June 2020.

 

Financial Highlights:

 

· Post tax profit / (loss)  £0.68 million profit (2019: £(0.45) million loss)

· Profit / (loss) per share      0.12 pence profit (2019: (0.08) pence loss)

· Net asset value per share  3.9 pence (2019: 4.3 pence)

· Net cash balance  £0.60 million (2019: £0.31 million) 

 

 

 

Operational and Post Half-Year Highlights:

 

· The main factor behind the change in operating profitability from £0.45 million loss for 2019 to a £0.68 million profit for 2020 is the movement in the GBP/USD exchange rate which favourably affected foreign exchange movements on operating items and also affected the translation of foreign operations, resulting in an overall comprehensive profit for the period of £1.40 million (2019: £0.14 million profit).

 

· Further cash was generated by the Group, enabling a significant reduction in liabilities, including a reduction in trade payables, halving from £0.76 million in 2019 to £0.38 million in 2020.

 

· Despite reductions in creditors, cash reserves were also boosted, period-end cash nearly doubling from £310k in 2019 to £604 k in 2020.

 

· Loans due from joint venture companies were replaced in 2019 with Amended Loan Notes, as previously announced on 21.11.19.  As a result, there has been a reclassification of receivables from current assets to long term assets (investments and receivables).   In the prior year the loans were due on demand and were shown as current assets .

 

· Group secured borrowings have now been eliminated (2019: £0.15 million) and the Consolidated Statement of Comprehensive Income consequently shows no interest payable (2019:  50k).

 

· Reserve movements reflect the first stage of the group capital reconstruction in the period, being the transfer of the £45 million Other Reserve to Retained Losses. In August 2020 the second and final stage of this process enables a £28.37 million movement from undistributable to distributable reserves. The purpose of the Capital Restructure is to create the capacity to pay dividends in the future, dependent upon the availability of future cash flows and the Company's working capital requirements at the time. In addition, as previously announced, the year 2019 saw a marked improvement in the Group's   liquidity position and the improvements in the performance of the Argentinian asset. The relationship with the Company's joint venture partner, have also been encouraging. However, uncertainty around the timing of any future material asset disposals together with the effect of the current poor state of the Argentinian economy and the uncertainty around the renegotiation of the Resolution 220 PPA later this year do cast a shadow over future performance and therefore   there cannot be any guarantee as to when, or if, the Company will have the funds to make a dividend payment or   undertake a share buy-back in the future should there be sufficient cash to do so.

 

· Chile -The Rurelec Board continues to explore options for the Chilean operations and the Group's two 128 MW Turbines.

 

 

Commenting on the results, Simon Morris and Andy Coveney, Rurelec's Executive Directors, said:

 

"The Board continues to pursue measures to restore value to the Company and its shareholders through prioritisation of receiving  cash receipts from the power generation plant in Argentina, selling or developing its assets in Chile and reviewing options for its turbine assets, whilst looking for opportunities to reduce costs throughout the Group." 

 

For further information please contact :

 

Rurelec PLC

WH Ireland

Simon Morris

Executive Director

Andrew Coveney

Executive Director

Katy Mitchell

Lydia Zychowska

+44 (0)20 7549 2839

+44 (0)20 7220 1666

 

Executive Directors' Statement

 

Review of Operations

 

Argentina

Following the 2019 US $6 million major overhaul and repair of its steam turbine and the refurbishment of one gas turbine, EdS resumed a steady and consistent output which continued throughout the first 6 months of 2020. This  enabled EdS to generate sufficient cash to make  unsecured loan repayments to Patagonia Energy Limited ("PEL"), (the joint venture company which owns EdS and in which Rurelec has a 50% share), with US $1.82 million being remitted during the period to PEL, of which Rurelec received US $1.44 million or £1.12 million at actual exchange rates, in partial repayment of the Amended and Restated Loan Notes (the "loan notes") that were created as part of a new agreement with the joint venture partner in November 2019.  This agreement set out how future cash receipts in PEL will be allocated between the joint venture partners and represented a major step forward in our mutual working relationship.

 

The rate of cash remittances from EdS was lower than in the same period last year as a result of continuing uncertainties in the Argentinian economy and difficulties experienced in the market for wholesale electricity generation there. In 2020 remittances of secured and unsecured debt repayments to Rurelec totalled £1.12 million (2019:  £1.63 million).

 

Despite the plant performing well, the economic situation in Argentina remained in crisis:

 

1 .High inflation and a decline in the value of the Argentinian peso against the US Dollar led to the Argentinian Central Bank tightening exchange controls in September 2019.  The exchange controls on US Dollars have a direct effect on the cash remittances by EdS to PEL, the latter not being resident in Argentina.  The cost of transferring money out of Argentina has increased dramatically since February 2020.  In Q2 2020 the loss suffered on transferring US Dollars out of Argentina rose to over 40 per cent. of the underlying face value.  The duration and severity of these controls remains uncertain.

 

2 . Delays have been experienced by EdS along with other generators in Argentina in receiving payments of revenue from CAMMESA (the wholesale electricity market regulator and administrator).

 

3 . In March 2020, the Argentinian Government announced a policy change whereby energy spot prices will no longer be linked to US Dollars but to Argentinian Pesos retroactively to February 2020 and will be updated monthly from March 2020. This increased the foreign exchange risk of operating in Argentina.

 

4 . The above policy change will not affect the revenue derived from EdS's Resolution 220 Power Purchase Agreement ("PPA"), which will remain linked to the US Dollar.  However, this PPA expires in September 2020, and may be superseded by a new tariff or, at worst, the output will be sold on the energy spot market.  The discussions with the Argentinian authorities have commenced regarding what rate will be put in place from September 2020, but the situation remains highly uncertain.  The response to this situation includes an extensive review of the operating cost base of the EdS plant and its administrative headquarters.

 

The balance outstanding on the loan notes at 30 June 2020 is  US $15.48 million, with the first US $5 million of repayment shared 80/20 between Rurelec and Basic Energy Limited ("Basic"), the ultimate shareholders of PEL, and the balance paid 72:28 thereafter (Rurelec:Basic). 

 

Chile

In Chile, the necessary environmental consents and land leases were maintained in order to extend the project and the Board continues to review options in the light of the risks versus rewards of undertaking this project.

 

Head office

A tight rein continues to be maintained on overheads in the UK and administration costs for the period fell slightly to £501k (2019: £515k).

 

Debt repayments and Cash flow

As expected, Rurelec was able to pay off the last remaining balance of BPAC debt in December 2019 and during the first six months of 2020 has remained free of any secured debt and was consequently in the position of not having to pay any interest.

 

Rurelec was able to reduce unsecured trade creditors significantly - trade payables fell from £0.76 million to £0.38 million.  Despite this, Rurelec was able to nearly double its cash reserves compared to the previous year such that at the end of the period the balance was £604k (2019:  310k).

 

Although there were improvements in the Group's finances in the period, liquidity remains a significant issue for the Group. The Group has been able to cope with variability in the timing and quantum of cash receipts from Argentina due to long term reductions in Group operating costs which in 2019 and 2020 have stabilised at lower levels than in previous years.  The cash position is expected to recover further in line with expected remittances from EdS and PEL and when sales of remaining assets are achieved by the Group. However, there can be no guarantee as to the timing of any such asset sales, nor regarding when any further cash will be received from Argentina owing to the multiple uncertainties outlined above.  In particular there is no guarantee that the remuneration level of the tariff/PPA/spot prices after September 2020 will be favourable to EdS or that EdS will remain economical. The Directors however remain optimistic as to a sensible resolution.

 

Given the cash balances held by the Group and expected cash remittances from our Argentine operation, the directors continue to adopt the going concern basis of accounting.

 

Review of future strategy  

The strategy of the Group continues to be focussed on stabilising the financial position, keeping costs under tight control, whilst certain assets are sold. The underlying strategy is to preserve the value of the Group assets and to generate cash.  Given the Group is approaching the point where it becomes largely debt-free, this will in turn enable Rurelec to maximise returns to its shareholders.

 

COVID-19  

 

In terms of operational risk, to date the COVID-19 pandemic has had little direct impact on the Group's ability to operate effectively.  The Group's Head Office in London and the EdS head office in Buenos Aires have operated on a remote basis and the EdS plant in Argentina is situated in a region which has to 13 September 2020 had relatively low incidence of the virus with 2,084 positive cases, of which 831 are active cases, 42 are in Comodoro Rivadavia and only 18 deaths. Rurelec directors have not been able to travel to Argentina in this period but regular communication has taken place remotely with EdS and Rurelec's Joint Venture partner in PEL in order to make decisions and monitor progress.  EdS's power generation is considered part of an essential industry, and it has implemented procedures and protocols to allow as near to normal safe working practices. Notwithstanding the above, the COVID-19 pandemic does represent a potential business and financial risk as it is not considered possible to estimate the long-term financial impact of COVID-19 on the already-weak Argentinian economy at the present time, nor to anticipate the economic and fiscal measures that the Argentinian Government will impose or the level to which the further weakening of an already weak economy will influence the Government's decisions to drive down the market prices which it is prepared to pay for electricity after September 2020.

 

Additionally, COVID-19 is causing a potential slowdown to the market for turbines, at this point in time the impact on timing and possible sales value is not known.

 

The Directors performed stress testing of Rurelec's cashflow in the Going Concern section of the Audited results for the year ended 31 December 2019, following which it concluded that any impact of the COVID-19 pandemic would have little adverse effect on the Directors' view on the going concern of the Group.  As the economic consequences of the pandemic continue into the second half of 2020, the financial effects of the COVID-19 pandemic in Argentina are still subject to future uncertainty and the Directors cannot rule out the risk of  liquidity issues impacting on the Group in future periods if the Argentinian government loses control of the disease to the extent where it does have a material adverse impact on the operations of EdS or demands for electricity.

 

 

 

 

Simon Morris and Andy Coveney

Executive Directors

 

 

 

RURELEC PLC

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

for the half year ended 30 June 2020

(expressed in thousands of pounds)

  __________________ 

 

 

 

 

 

Audited

 

Notes

6 months to

6 months to

12 months to

 

 

30/06/20

£'000 

30/06/19

£'000

31/12/19

£'000

 

 

 

 

 

Administrative expenses

 

(583)

(541)

(1,168)

Other income

 

-

107

130

Other expense

 

-

-

(2,029)

Operating loss

 

(583)

(434)

(3,067)

 

 

 

 

 

Foreign exchange gains

 

1,259

30

(1,287)

Finance income

 

-

-

6

Finance expense

 

-

(50)

(70)

Profit / (Loss) before tax

 

676

(454)

(4,418)

 

 

 

 

 

Tax expense

 

-

-

-

Profit / (Loss) for the period

 

676

(454)

(4,418)

 

 

 

 

 

Profit / (Loss) per share

3

0.12p

(0.08p)

(0.79p)

 

 

 

 

 

Other comprehensive income

Items that will be subsequently reclassified to Profit & Loss:

 

 

 

 

 

 

 

 

 

Exchange differences on translation of foreign operations

 

722

595

136

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

722

595

136

 

 

 

 

 

Total comprehensive profit / (loss) for the period

 

1,398

141

(4,282)

 

 

 

 

 

 

 

 

 

RURELEC PLC

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (unaudited)

at 30 June 2020

(expressed in thousands of pounds)

  ___________ 

 

 

 

 

Audited

 

 

Notes 

30/6/20

£'000

30/6/19

£'000

31/12/19

£'000

Assets

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

8,229

10,048

7,685

Investment in Joint Venture

 

3,474

  -

3,474

Trade and Other Receivables

 

6,665

-

6,424

 

 

18,368

10,048

17,582

Current assets

 

 

 

 

Trade and other receivables

 

3,333

15,503

3,272

Cash and cash equivalents

 

604

310

137

 

 

3,937

15,813

3,409

 

 

 

 

 

 

 

 

 

 

Total assets

 

22,305

25,861

20,991

 

 

 

 

 

Equity and liabilities

 

 

 

 

Shareholders' equity

 

 

 

 

Share capital

 

11,228

11,228

11,228

Share premium account

 

22,754

22,754

22,754

Foreign currency reserve

 

  1,645

  1,382

923

Other reserve

4

-

45,000

45,000

Profit and loss reserve

 

(13,709)

(55,421)

(59,385)

Total equity

 

21,918

24,943

20,520

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

382

762

465

Current tax liabilities

 

5

5

6

Borrowings

 

-

151

-

 

 

387

918

471

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

387

918

471

 

 

 

 

 

Total equity and liabilities

 

22,305

25,861

20,991

 

RURELEC PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

for the half year ended 30 June 2020

(expressed in thousands of pounds)

    ___

 

 

 

 

 

Share capital £'000

Share premium £'000

Foreign currency reserve £'000

Retained earnings £'000

Other reserve £'000

Total equity £'000

Balance at 01.01.19

11,228

  22,754

  787

  (54,967)

  45,000

  24,802

Loss for the first 6 months

  - 

  - 

 -

  (454)

  - 

(454)

Exchange differences on translation

  - 

  - 

  595

 -

  - 

  595

Total comprehensive loss

  - 

  - 

  595

  (454)

  - 

141

Balance at 30.06.19

11,228

  22,754

  1,382

  (55,421)

  45,000

  24,943

Loss for the Period

  - 

  - 

  - 

  (3,964)

  - 

  (3,964)

Exchange differences on translation

(459)

  (459)

Total comprehensive loss

  - 

  - 

  (459)

  (4,144)

  - 

  (4,423)

Balance at 31.12.19

11,228

  22,754

  923

  (59,385)

  45,000

  20,520

Profit for the first 6 months

  - 

  - 

 -

  676

  - 

676

Transfer from Other Reserve

-

-

-

45,000

(45,000)

-

Exchange differences on translation

  - 

  - 

  722

 -

  - 

  722

Total comprehensive loss

  - 

  - 

  722

  45,676

  - 

1,398

Balance at 30.06.20

11,228

  22,754

  1,645

  (13,709)

  -

  21,918

 

RURELEC PLC

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

for the half year ended 30 June 2020

(expressed in thousands of pounds)

      __

 

 

 

Audited

 

6 months to

6 months to

12 months to

 

30/06/20

30/06/19

31/12/19

 

 

 

 

Result for the period before tax

676

(454)

(4,418)

from operations

 

 

 

Net finance (expense) / income 

-

(50)

64

Adjustments for:

 

 

 

Unrealised exchange (gains) / losses

(1,259)

(30)

1,287

Write down of loans

-

-

235

Impairment of Arica Turbine

-

-

236

Impairment of Illapa Turbine

-

-

1,982

Write down of investment in SEA Energy (reversal)

-

-

(188)

Change in trade and other receivables

19

78

88

Change in trade and other payables

(84)

(118)

(308)

 

 

 

 

Cash used in operating activities

(648)

(574)

(1,260)

 

 

 

 

Taxation paid

-

-

-

 

 

 

 

Net cash used in operating activities

(648)

(574)

(1,260)

 

 

 

 

Cash flows from investing activities

 

 

 

Proceeds from sale of subsidiary

-

-

60

Repayments from joint venture company

1,115

1,633

2,246

 

 

 

 

Net cash generated from investing activities

1,115

1,633

2,306

 

 

 

 

Net cash inflow before

 

 

 

financing activities

467

1,059

1,046

 

 

 

 

Cash flows from financing activities

 

 

 

Loan Principal Repayments

-

(1,050)

(1,200)

Loan Interest Repayments

-

(50)

(60)

 

 

 

 

Net cash used in financing activities

-

(1,100)

(1,260)

 

 

 

 

Increase / (Decrease) in cash

 

 

 

and cash equivalents

467

(41)

(214)

Cash and cash equivalents at start of period

137

351

351

Cash and cash equivalents at end of period

604

310

137

 

 

 

 

 

RURELEC PLC

 

Notes to the Interim Statement

for the six months ended 30 June 2020

   

 

1. Basis of preparation

 

These condensed consolidated interim financial statements do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the year ended 31 December 2019 were derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The financial information contained in this interim statement has been prepared in accordance with all relevant International Reporting Standards as adopted by the European Union and expected to apply to the Group's results for the year ending 31 December 2020 and on interpretations of those Standards released to date.

 

2. Accounting policies

 

These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies set out in the Group's financial statements for the year ended 31 December 2019.

 

3. Earnings per share

6 months to

6 months to

12 months to

 

30/6/20

30/6/19

31/12/19

 

 

 

 

Basic and diluted

 

 

 

Average number of shares

561m

  561m

561m

in issue during the period

 

 

 

Profit / (Loss) attributable to equity holders of the parent from continuing operations

£0.68m

£(0.45m)

£(4.42m)

 

 

 

 

Basic and diluted profit / (loss) per share on continuing operations

 

0.12p

 

(0.08p)

 

(0.79p)

 

 

 

 

 

4. Other Reserve

The Capital Reduction that took place during December 2014 resulted in the creation of a non-distributable reserve.  The condition for this reserve to become distributable is for the outstanding creditors in December 2014 to be settled. The Board of Directors consider that these amounts have been settled and therefore the £45 million has been transferred from the Other Reserve to Retained Losses.

 

5. The Board of Directors approved this interim statement on 15 September 2020. This interim statement has not been audited.

 

6. Copies of this statement are available at the Company's website www.rurelec.com 

 

 

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