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Econergy Intl. Plc (ECG)

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Tuesday 16 September, 2008

Econergy Intl. Plc

Interim Results

RNS Number : 4961D
Econergy International Plc
16 September 2008
 



For Immediate Release 

16 September 2008 


ECONERGY INTERNATIONAL PLC

Interim Results for Six Months Ended 30 June 2008


Econergy International PLC ("Econergy International" or "the Company"), the renewable independent power producer focused on the Americas, today announces interim results for the period ended 30 June 2008.

 

 

HIGHLIGHTS
Operational Highlights
·         Significant progress has been achieved to meet the goal of delivering 1 million MWh, gross, in 2009:
o       Empresa Eléctrica Corani S.A. produced 433,600 MWh of energy and achieved 99.5% availability during the first 6 months of 2008.
o       Construction of the 25.6 MW Beberibe wind project is complete and the plant entered commercial operation on 11 September 2008.
o       Areia Branca, the 19.8 MW hydroelectric project, is in construction and is expected to reach commercial operation by the end of December 2008.
o       Planta Eólica Guanacaste (PEG) is under construction and Phase I (25 MW) is expected to be complete in the first quarter of 2009; commercial operation will begin at the same time. In May 2008 Econergy International purchased an additional 44.1%interest in the 50 MW project bringing total ownership to 90%.
o       In June 2008 Cambria 33 executed a 10-year forward sales agreement for all Verified Emission Reductions (VERs) from the project. 
Corporate and Financial Highlights
·        On 25 June 2008 SESA BidCo Ltd (BidCo), a subsidiary of Suez Energy South America Participaçaões Ltda. (part of GDF Suez), extended a cash offer for the entire issued share capital of Econergy International at 45 pence per share. The offer represented a 50% increase in share price over the 30 pence price that was offered in cash by Trading Emissions PLC by means of a scheme arrangement on 4 June 2008.       
·        On 29 July 2008 BidCo announced it had received acceptances in respect to approximately 94.4% of Econergy International’s shares and declared its offer unconditional as to acceptances but still conditional as to certain Brazilian consents. 
·        Consolidated revenue increased by 36% to $13.6 million for the first half of 2008 compared to $9.95 million for the same period last year.
·        Gross profit increased by 39% to $9 million compared to $6.5 million last year.
·         Administrative expenses increased mainly due to project expenses of approximately $3.8 million related to the Beberibe and Areia Branca projects which cannot be capitalized for IFRS purposes.  Other operating expenses increased mainly as a result of costs incurred with the pending sale of Econergy International PLC (Econergy International, the Company or with its subsidiaries, the Group). 
·        Long-term and short-term financing obtained for Areia Branca and Beberibe projects.  Total amount drawn approximately $93.8 million.  Short-term financing for Beberibe has been replaced by long-term financing in August 2008.
·        Financing proceeds of approximately $110 million used for property, plant and equipment purchases and funding of construction costs for Areia Branca, Beberibe and Pedra do Sal projects in Brazil and PEG in Costa Rica.   
 

 

 

 


Tom Stoner, Chief Executive Officer of Econergy International, commented:  

"With the 2006 IPO the Company committed to generate 1 million MW hours of annual power generation by the end of 2009.  At this time two of the five power facilities are producing power and the Company remains on target to meet its energy generation commitments. The pending sale of the Company to Suez Energy South America Participaçaões Ltda. will bring to conclusion Econergy International's operation as an independent company. I am pleased that the facilities the Company has developed will be owned and managed by a world class organization and team."  

Enquiries


Econergy International PLC                        

Tom Stoner                                                                                                                                       Tel: + 303.473.9007


Pelham Public Relations                         

Chelsea Hayes                                                                                                                                  Tel: +44 (0)20 7743 6675 

Archie Berens                                                                                                                                   Tel: +44 (0)20 7743 6679



OPERATIONAL UPDATE

Takeover of the Company 

In April 2008, the Company announced that it was undertaking a strategic business review and would seek a buyer that would maximize the value of its existing portfolio and pipeline of Latin America and U.S. renewable energy assets and continue expansion of new business opportunities. On 15 May 2008, Trading Emissions PLC (TEP) announced its intention to acquire all of the share capital of the Company for approximately 30 pence per share by way of a scheme of arrangement under section 152 of the Isle of Man Companies Act of 1931 requiring shareholder approval.  On 13 June 2008, Suez Energy South America Participaçaões Ltda. (SESA) announced a cash offer (Offer) of 45 pence per Econergy International share, to be made by SESA or a subsidiary of SESA (BidCo), for the Company. The SESA Offer Document was sent to Econergy International's shareholders on 25 June 2008.  By 28 July 2008, BidCo had received valid acceptances of the Offer in respect of a total of 82,094,455 Econergy International shares, representing approximately 94.4 per cent. of the Company's existing issued ordinary share capital. Accordingly, the Offer has become unconditional as to acceptances. The Offer remains subject to the conditions and further terms which relate to the receipt of consents from certain Brazilian public authorities and entities.  The Directors have unanimously recommended SESA's offer and believe that Econergy International's projects will be developed to their full potential under the ownership by this world class organization and team.  

Operational Review 

The first six months of 2008 were very active for Econergy International PLC. The Group completed construction of the first of its development projects, Beberibe, a 25.6 MW wind facility in Brazil and placed into operation Cambria 33, a pipeline grade natural gas extraction facility at a retired coal mine in the U.S.  

Empresa Eléctrica Corani/hydroelectric/147 MW: Bolivia

Empresa Eléctrica Corani S.A. continues to perform well operationally, maintaining 99.5 per cent. availability during the first half of 2008. During the same period the facility produced 433.6 gigawatt-hours (GWh) of energy compared to 355.8 GWh in the same period in 2007. Financially Corani continues to perform well; revenue for the period was approximately $10.6 million as compared to $8.5 million for 5 months in 2007. EBITDA was $7.1 for the first half of the year compared to $5.8 million for 5 months in 2007.  

Beberibe/wind/25.6 MW: Brazil

The Beberibe wind project entered commercial operation on 12 September 2008. It is the first Econergy International built renewable energy project to go on line. Beberibe is configured with thirty-two Enercon/Wobben 800 kW wind turbines and will sell all of its electricity to Eletrobrás under a 20-year PPA. Econergy International is the sole owner of the facility and recently closed a R$94.9 MM (USD$59.3 MM) limited recourse long-term take out loan from Brazil's Banco Nacional de Desenvolvimento Econômico e Social (BNDES).

Hidrélectrica Areia Branca (HAB)/hydroelectric/19.8MW: Brazil

HAB is currently expected to reach commercial operation by the end of December 2008. Construction began in March 2007 and at this time the civil construction is in its final stage with construction of the dam near completion. The facility is located in the state of Minas Gerais in eastern Brazil and will sell all of its output to Eletrobrás under a 20-year PPA.  

Econergy International owns 80 per cent. of the project with the CleanTech Fund owning 20 per cent. The Group had previously entered into an agreement to sell down an additional 27 per cent. to FMOthe Netherlands Development Finance Company, which is also a limited partner in the CleanTech Fund. However, FMO and Econergy International mutually agreed to let FMO withdraw from its commitment to invest in the project.  

In Q1 2008 Areia Branca withdrew its first and second disbursement for a total of R$41 million (USD$25.6 millionfrom a limited recourse long-term take out loan from BNDES of R$55.6 million (USD$34.8 million) 

Pedra do Sal/wind/18 MW: Brazil

Pedra do Sal is scheduled to reach commercial operation in the first quarter of 2009.  Civil works are currently underway at the project site, which is located in northeastern Brazil in the state of Piauí. Pedra do Sal is configured with twenty Enercon/Wobben 900 kW wind turbines and will sell all of its electricity to Eletrobrás under a 20-year PPA.

Due to uncharacteristically heavy rains associated with the El Niño weather phenomenon and renegotiation of the land lease agreement, the cost of the project has increased by approximately $3 million. There is a possibility that commercial operation of the project will be delayed by two months due to the flood and renegotiation of the land lease. 

 Proyecto Eólico Guanacaste (PEG)/wind/50MW: Costa Rica

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. Construction started earlier in 2008 and to date preparation of the site has been completed and the turbine foundations poured. At this time erection of the towers is underway. The project will be composed of fifty-five Enercon 900kW wind converters and sell all of its electricity to ICE, the state-owned utility, under a 20-year build-own-operate-transfer scheme.  

In late 2007, Econergy International was forced 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 meet its share of capital requirements. On 2 May 2008 Econergy International entered into an agreement for the acquisition of Saret's 44.1 per cent. interest in the project. This agreement was executed and closed in June 2008, and Econergy International now owns 90 per cent. of the shares of PEG.  

In order to provide project financing to PEG, the Company entered into an exclusive mandate with Nord/LB (Nord). However, as of today, the Company has not reached any commercial agreement with Nord. As the project requires material payments to contractors in the coming weeks, particularly to Enercon, Econergy International has negotiated a bridge loan of up to $89.3 million with Suez Energy that will allow the project to fulfill its obligations while giving more time to address Nord's conditions.

Cambria 33/methane/VERsUnited States

Cambria 33 began commercial operation on 12 May 2008 by delivering pipeline grade natural gas into the Pennsylvania grid for sale to local brokers. The gas is produced at a retired coal mine. Engineering is now focused on further refinements in operation to attain optimal performance of all equipment in commercial configuration. On 30 June 2008Cambria 33 executed a 10-year forward sales agreement of all Verified Emission Reductions (VERs) from the project. The VERs will be transacted annually according to the measurement and reporting protocols of an independent third-party service provider.

Summary

In conclusion, the first half of 2008 was a time of great change and excitement for Econergy International. The Group now has three projects in operation and anticipates that its remaining projects in construction will all be operational and producing revenue by the end of the first quarter of 2009. Whilst Econergy International's strong teams work diligently to ensure the timely completion of the projects, the Group is simultaneously preparing for the pending acquisition by Suez Energy. The Directors are confident that the Group will thrive under Suez Energy's guidance as the projects will be owned and managed by a world class organization.  

The Board of Directors

16 September 2008

 


INDEPENDENT REVIEW REPORT TO ECONERGY INTERNATIONAL PLC


Introduction


We have been instructed by the Company to review the consolidated financial information of Econergy International PLC for the six months ended 30 June 2008 contained in the interim financial report which comprises the consolidated income statement, consolidated balance sheet, consolidat­ed cash flow statement, the consolidated statement of changes in equity and related notes 1 to 13 on pages 13 to 20. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.


Our Responsibility

Our responsibility is to express to the company a conclusion on the financial information in the interim financial report based on our review

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.


Directors' Responsibilities


The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market which require that the interim financial report be presented and prepared in a form consistent with that which will be adopted in the Group's annual accounts having regard to the accounting standards applicable to such annual accounts.


Scope of Review


We conducted our review in accordance with guidance contained in ISRE (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Review Conclusion


Based on our review, nothing has come to our attention that causes us to believe that the financial information in the interim financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

Emphasis of Matter - Going Concern

In forming our review conclusion, we have considered the adequacy of the disclosures made in note 1 to the financial information concerning the Group's ability to continue in operational existence for the foreseeable future with the current portfolio of assets. Currently, the Group has insufficient working capital to meet its corporate overhead obligations as they fall due. 

On 13 June 2008, Suez Energy South America Participações Ltda. ("SESA") announced an all cash offer to acquire the entire issued and to be issued share capital of the Company. The offer also included the availability of certain project specific funding from SESA. The offer is contingent upon certain conditions, including consent to the change of control by the Brazilian Development Bank, the Brazilian Electricity Regulatory Agency and Centrais Electricas do Brasil, S.A whose satisfaction, although reasonably expected, cannot be guaranteed. In the event that these conditions are not met the offer may be withdrawn.

In the event that the offer is withdrawn the Directors are confident that alternative sources of finance could be raised by the disposal of certain assets or the injection of debt/equity, but clearly there can be no certainty of a successful outcome given current market conditions. 

These conditions along with other matters disclosed in Note 1 to the financial information, indicate the existence of material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The financial information does not include the adjustments that would result if the Company was unable to continue as a going concern.

BDO STOY HAYWARD LLP

Chartered Accountants and Registered Auditors

London

16 September 2008 




 


Consolidated Income Statement 
unaudited results for the six months ended 30 June 2008 

(In US $000s)
Note
Six months ended
30 June 2008 Unaudited
Six months ended
30 June 2007 Unaudited
Year
ended
31 December 2007 Audited
 
Revenue
5
       13,570
       9,954
       25,429
Cost of sales
 
      (4,532)
    (3,468)
      (10,261)
GROSS PROFIT
 
       9,038
       6,486
     15,168
 
 
 
 
 
Other income
 
       (376)
       (150)
       (861)
Administrative expenses
 
     11,798
       7,329
     16,201
Other operating expenses
 
       2,750
            21
          211
LOSS FROM OPERATIONS
 
    (5,134)
       (714)
       (383)
 
 
 
 
 
Share of loss of investments accounted
 
 
 
 
 for under the equity method
 
             -  
         (82)
       (183)
Finance income
6
          560
       1,928
       5,923
Finance costs
6
 (10,044)
    (4,108)
    (9,206)
LOSS BEFORE TAXATION
 
 (14,618)
    (2,976)
    (3,849)
 
 
 
 
 
Taxation
 
         995
         738
      1,277
LOSS FOR THE PERIOD
 
 (15,613)
    (3,714)
    (5,126)
 
 
 
 
 
Minority Interest
 
      1,439
          941
       2,388
 
 
 
 
 
Attributable to Equity Holders of the Parent
 
 (17,052)
    (4,655)
    (7,514)
 
 
 
 
 
Loss per share:
 
 
 
 
Basic and diluted
4
 $   (0.20)
 $   (0.05)
 $   (0.09)


The Notes on pages 12 to 19 form part of these financial statements.


 


Consolidated Balance Sheet 

unaudited results for the six months ended 30 June 2008 

(In US $000)



Note

 30 June 2008 Unaudited

 30 June 

2007 Unaudited

31 December 

2007 

Audited


ASSETS








Non-current assets








Property, plant and equipment

11

   204,161 

   60,315 

   84,609 



Intangible assets


9

   9,436 

   2,261 

   3,034 



Interests in associates 


   2,592 

   535 

   1,658 



Available for sale financial assets

   3,268 

   -  

   2,552 



Other receivables


   4,443 

   3,409 

   2,490 


Total non-current assets



   223,900 

   66,520 

   94,343 










Current assets








Trade and other receivables

7

   26,499 

   34,170 

   45,225 



Inventory



   5,449 

   56 

   5,080 



Cash and cash equivalents


   43,062 

   68,063 

   37,333 


Total current assets



   75,010 

102,289 

    87,638 










TOTAL ASSETS



   298,910 

   168,809 

   181,981 










EQUITY AND LIABILITIES







Capital and reserves








Share capital



   1,517 

   1,517 

   1,517 



Share premium



   101,376 

   101,376 

   101,376 



Foreign exchange reserve


   23,597 

   12,575 

   12,975 



Retained deficit



    (38,468)

   (17,366)

   (19,988)


Equity attributable to shareholders of the parent

   88,022 

   98,102 

   95,880 










Minority Interest



   18,384 

   13,944 

   20,783 


Total Equity



   106,406 

   112,046 

   116,663 










Non-current liabilities








Financial Liabilities

10

   101,757 

    47,033 

   47,778 



Deferred tax liability


   3,421 

   723 

   519 



Other non-current liabilities


   364 

   200 

      -  


Total non-current liabilities



   105,542 

   47,956 

   48,297 










Current liabilities








Trade and other payables


   7,654 

   5,209 

   5,367 



Tax Payable



   1,024 

   -  

   1,736 



Financial Liabilities

10

   78,284 

   3,598 

   9,918 


Total current liabilities



   86,962 

   8,807 

   17,021 


Total liabilities



192,504

56,763

65,318


TOTAL LIABILITIES AND EQUITY


   298,910 

   168,809 

   181,981 

The Notes on pages 12 to 19 form part of these financial statements

  Consolidated Statement of Changes in Equity 

unaudited results for the six months ended 30 June 2008 

(In US $000s)

Share Capital

Share Premium

Foreign Exchange Reserve 

Retained Deficit

Total 

Minority Interest 

Total Equity 









Equity at 31 December 2006

   1,517 

101,376 

  11,455 

  (13,214)

101,134 

   

101,134 

Foreign currency translation

    

   

   1,120 

   

1,120 

   

1,120 

Net Income recognised directly in equity

   

   

   1,120 

   

1,120 

   

1,120 

Loss for the period

   

   

   

   (4,655)

(4,655)

   941 

(3,714)

Total recognised income and expense for the period

   

    

   1,120 

   (4,655)

(3,535)

   941 

(2,594)

Share option expense

   

   

   

   503 

  503 

   

  503 

Acquisitions

   

   

   

   

   

   16,943 

16,943 

Minority Dividend

   

      

   

   

   

   (3,940)

(3,940)

Equity at 30 June 2007

   1,517 

101,376 

   12,575 

  (17,366)

98,102 

   13,944 

112,046 

Foreign currency translation

    

   

   400 

   

  400 

   

   400 

Net Income recognised directly in equity

   

   

   400 

   

   400 

   

  400 

Loss for the period

   

   

   

   (2,859)

(2,859)

   1,447 

(1,412)

Total recognised income and expense for the period

   

      

   400 

   (2,859)

(2,459)

   1,447 

(1,012)

Share option expense

   

   

   

   237 

   237 

   

   237 

Acquisitions

      

   

   

   

   

   9,332 

9,332 

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 

Foreign currency translation

   

   

  10,622 

   

10,622 

    

10,622 

Net Income recognised directly in equity

   

   

   10,622 

   

10,622 

   

10,622 

Loss for the period

   

   

    

   (17,052)

(17,052)

   1,439 

(15,613)

Total recognised income and expense for the period

   

   

 10,622 

  (17,052)

(6,430)

   1,439 

(4,991)

Share option expense

   

   

   

   322 

  322 

   

  322 

Acquisitions

   

   

   

   (1,750)

(1,750)

   344 

(1,406)

Minority Dividend

   

   

   

   

   

   (4,182)

(4,182)

Equity at 30 June 2008

   1,517 

101,376 

 23,597 

  (38,468)

88,022 

   18,384 

106,406 


The Notes on pages 12 to 19 form part of these financial statements


   Consolidated Statement of Cash Flow

unaudited results for the six months ended 30 June 2008 

(In US $000s)


Note

30 June 2008 Unaudited

30 June 2007 Unaudited

 31 December 2007 Unaudited 

Operating activities











Loss for the period


   (15,613)

   (3,714)

   (5,126)







Adjustments for:






Share of loss of investments accounted 






  for under the equity method


  -  

   82 

   183 


Depreciation & Amortisation


   1,797 

   1,112 

   2,846 


Finance costs

6

   10,044 

   4,108 

   9,206 


Finance income

6

   (560)

   (1,928)

   (5,923)


Income Tax Expense


   995 


   1,277 


Share-based payment


   322 

   503 

   740 


Decrease (increase) in trade and other receivables

7

   18,726 

   (28,419)

   (41,392)


Increase in inventory


   (369)

   -  

   (2,639)


Increase in other assets


   (8,750)

   (200)

   (684)


Increase (decrease) in trade and other payables

   2,286 

   (2,472)

   2,293 








Cash from (used in) operations


   8,878 

   (30,928)

   (39,219)







Investing activities






Additions to property, plant and equipment

11

  (110,669)

   (960)

   (25,403)


Acquisition of interest in subsidiary (Net of Cash)

   (1,406)

   11 

   (286)


Acquisition of interests in associates and other investments     (1,650)

   (82)

   (3,855)


Deferred costs in projects


  395 

   (177)

   (724)


Interest received


  387 

   1,928 

   2,971 








Cash (used in) provided by investing


  (112,943)

   720 

    (27,297)







Financing activities






Repayment of borrowings


   (703)

   (2,459)

   (2,062)


Proceeds from borrowings

10

  113,812 

   -  

   3,201 


Finance (costs) income


      (458)

   (387)

   1,193 


Dividend paid to minority interest


   (4,182)

   (3,940)

   (3,940)


Cash generated from/(used in) financing


  108,469 

   (6,786)

   (1,608)







Net increase (decrease) in cash and cash equivalents


  4,404 

    (36,994)

   (68,124)







Effect of exchange rate changes on cash


  1,325 

   1,120 

   1,520 







Cash and cash equivalents, beginning of period


  37,333 

   103,937 

   103,937 







Cash and cash equivalents at 30 June 2008


  43,062 

   68,063 

   37,333 


 

 The Notes on pages 12 to 19 form part of these financial statements.
 
 
 
1.      Going Concern
These interim financial statements have been prepared on the basis of going concern as the Directors consider that the Group will be able to meet its current obligations and commitments for the foreseeable future.
On 15 May 2008, Trading Emissions PLC (TEP) announced its intentions to acquire all of the share capital of the Group for approximately 30 pence per share by way of a scheme of arrangement under section 152 of the Isle of Man Companies Act of 1931 requiring shareholder approval.  As part of this transaction TEP made a working capital facility of $20 million available to Econergy International to fund the construction of the Beberibe and PEG projects. In the event the scheme of arrangement was not approved the loan would become repayable after eight months from inception.
On 25 June 2008 SESA BidCo Ltd (BidCo), a wholly owned subsidiary of Suez Energy South America Participaçaões Ltda. (SESA), extended a cash offer to acquire the entire issued share capital of the Company.  As part of the offer Econergy International entered into a loan agreement with an affiliate of BidCo for a working capital facility of approximately $54 million to be used for working capital matters including the repayment of the $20 million TEP loan plus interest and the funding of the construction costs for the projects.  At the time of publishing these accounts the TEP scheme of arrangement has been withdrawn and BidCo has received approximately 97.3 per cent. unconditional acceptances.  Econergy International has drawn upon the working capital facility and repaid the TEP loan as well as provided the funds to the projects in Brazil and Costa Rica.
Due to the lengthy process of closing long-term financing for the PEG project as well as reduced leverage provided by Brazil’s Banco Nacional de Desenvolvimento Econômico e Social (BNDES) for the Brazilian projects, Econergy International has negotiated a second working capital facility with SESA which will provide a bridge loan for the PEG project as well as fund additional equity requirements by BNDES.
The Directors are reasonably comfortable that with the second working capital facility the Group should be able to meet current obligations and commitment related to its projects. Although the Directors believe that the Group only has sufficient funds to meet its corporate overhead until the end of the calendar year, they are confident (on the assumption that SESA’s offer becomes wholly unconditional) that additional funding will be available after this date to allow these obligations to be met.
In the event the offer is withdrawn, the Group will not have sufficient funding to meet its immediate financial obligations and will need to raise alternative sources of financing. The Directors are confident that the necessary funds can be raised by the sale of certain assets, or an injection of debt or equity. However, there can be no guarantee that funds will be raised or indeed on what terms. 
These matters indicate the existence of a material uncertainty which may cast significant doubt over the Group’s ability to continue as a going concern with its current portfolio of assets, and may not be able to realise its assets and discharge its liabilities in the normal course of business. The financial interim report does not include the adjustments that would result if the Group was unable to continue as a going concern.
2.         Basis of Preparation
The comparative figures for the year ended 31 December 2007 do not constitute the Group’s full statutory accounts.  The statutory accounts for that period have been reported on by the Group’s auditors and delivered to the Companies Registry.  The audit report was unqualified as to the Group’s financial statements and included a reference to going concern to which the auditor drew attention by way of a matter of emphasis without qualifying their report and did not contain a statement under chapter 2 section 15.4 (a) – (b) of the Companies Act 1982.
The interim results were prepared on a basis consistent with the accounting policies expected to be applied at 31 December 2008. The Group prepares its statements in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) issued by the International Accounting Standards Board.
3.      Dividends
No dividend was declared or paid by the Company in any period.
4.      Earnings per Share
Earnings per share are determined according to IAS 33 (Earnings per Share) by dividing the loss attributable to ordinary equity holders of the parent entity by the weighted average number of shares outstanding.
For the period ended 30 June 2008 the weighted average number of shares outstanding during the period was 87,000,000; for the period ended 30 June 2007: 87,000,000 and for the year ended 31 December 2007: 87,000,000.
There were no dilutive options, warrants or instruments convertible into ordinary shares outstanding at any period end.
5.      Revenue
Revenue (in US $000s) arises from:

 
Six months ended
 
Six months ended
 
Year ended
Revenues
30 June 2008 
 
30 June 2007 
 
31 December 2007
 
 
 
 
 
 
Consulting services
                      758
 
                      636
 
                     1,378
Energy related investments and services
                 12,585
 
                   8,958
 
                   23,224
Carbon Services
                      227
 
                      360
 
                        827
 
                 13,570
 
                   9,954
 
                   25,429
 
 
6.      Financial Income and Expenses

 
Six months ended
 
Six months ended
 
Year
ended
 
30 June 2008
 
30 June 2007
 
31 December 2007
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
Finance income
 
 
 
 
 
Bank interest received
                  387
 
               1,928
 
               2,971
Project related interest income
                      -
 
                      -
 
               1,882
Total interest income calculated using effective interest rate method
                  387
 
               1,928
 
               4,853
 
 
 
 
 
 
Foreign currency exchange gain
                  173
 
                      -
 
               1,070
Total finance income
                  560
 
               1,928
 
               5,923
 
 
 
 
 
 
Finance expense
 
 
 
 
 
Bank borrowings
                  751
 
                  476
 
               1,018
Interest on CER loan
                  740
 
                  427
 
                  956
Project related interest expense
                    85
 
                      -
 
                      -
 
               1,576
 
                  903
 
               1,974
Other finance expense
 
 
 
 
 
Revaluation of CER loan
               8,167
 
               1,817
 
               5,314
Total interest expense calculated using effective interest rate method
               8,167
 
               1,817
 
               5,314
 
 
 
 
 
 
Foreign currency exchange loss
                  301
 
               1,388
 
               1,918
 
 
 
 
 
 
Total finance expense
            (10,044)
 
              (4,108)
 
              (9,206)
 
The revaluation of the CER loan (a CERs denominated loan) is a non-cash item.
 
 
7.      Trade Receivables and Other Receivables

Current Receivables
 
 
 
 
30 June 2008 Unaudited $'000
30 June 2007 Unaudited $'000
31 December 2007
Audited
 $'000
Trade receivables
           3,002
            2,894
           5,966
Earnings in excess of contract billings
               73
                  -
                25
Employee accounts receivable
               30
                86
                69
Prepayments
         21,495
          30,882
          39,165
Other receivables
           1,899
              308
                  -
 
         26,499
          34,170
          45,225
 
Prepayments are advances made for construction of three projects. These advances will be reflected as Fixed Assets and Construction-in-Progress once the equipment has been installed on the sites.
Other Receivables included in Non-Current Assets at 30 June 2008 principally reflect deferred development costs of $1.9 million for projects, operating leases of $1.4 million and the accumulated cost of the substation for the PEG project of $946,000.   
8.      Forward Hedge of Debt Denominated in Foreign Currency
The Group’s Bolivian subsidiary, Corani, has a loan denominated in Euros.  The subsidiary entered into a forward contract to hedge against the foreign denominated loan.  The forward contract is not accounted for as a hedge under IAS 39 and is renewed every six months.  The changes in fair value of the hedge are recognised to profit and loss.  For the period ended 30 June 2008 the changes in fair value resulted in a loss of $331,000 (31 December 2007: $1,165,000; 20 June 2007: $nil).  The loss is mainly due to the increase in the Euro above the contract price.
 
9.      Intangible Assets
Intangible assets for the Group relate to contract rights to acquire Certified Emission Reductions (CERs) over the period to 2013.
Intangible assets are recognised at cost and amortised over the life of the asset.  Provision for impairment is made when recoverable amount exceeds book value.  There was no impairment charge for the first half of 2008.
During the period the Group invested in a project in Brazil which gave rise to an intangible under contract of $6,540,000 for a power purchase agreement with a useful economic life of twenty years.  Once the project goes into operation these costs are amortised over the life of the power purchase agreement.

$'000
Contract
Intangibles
Cost
 
At 1 January 2007
                  2,874
Additions
                      69
At 30 June 2007
                  2,943
 
 
Additions
                     915
At 31 December 2007
                  3,858
 
 
Additions
                  6,554
At 30 June 2008
                10,412
 
 
Accumulated amortisation
 
At 1 January 2007
                     625
Charge for the period
                       57
At 30 June 2007
                     682
 
 
Charge for the period
                     142
At 31 December 2007
                     824
 
 
Charge for the period
                     152
At 30 June 2008
                     976
 
 
Net book value
 
At 30 June 2007
                  2,261
At 31 December 2007
                  3,034
At 30 June 2008
                  9,436
 
 
 
10. Interest Bearing Loans and Borrowings

Financial Liabilities
30 June 2008
 
30 June 2007
 
31 December 2007
 
$'000
 
$'000
 
$'000
CER Loan
             21,600
 
                   9,435
 
                    12,867
Corani - IDB and KfW Loans
            24,960
 
                 24,683
 
                    25,136
Corani - Finance Leases
             15,899
 
                 16,319
 
                    16,319
Areia Branca - BNDES Loan
             27,226
 
                           -
 
                              -
Beberibe – ABN AMRO Loan
             66,621
 
                           -
 
                              -
TEP Loan
             20,000
 
                           -
 
                              -
Other borrowings
               3,735
 
                      173
 
                      3,374
Less current maturities
          (78,284)
 
                 (3,577)
 
                     (9,918)
Long-term financial liabilities
           101,757
 
                 47,033
 
                    47,778
 
The increase in total financial liabilities of the Group occurred principally as a result of the project financing for the Brazilian projects and the increase in the CER loan.  Other borrowings include a short-term loan from the CleanTech Fund for $3.2 million. The borrowings for Areia Branca and Beberibe were primarily for the payment of WECs, civil works and balance of plant. The TEP loan was primarily for the funding of construction costs of the Costa Rican wind project, PEG.    
In 2005 the Group obtained a loan of $4 million dollars that is repayable in tons of CERs over a period of eight years. The CER loan is accounted for as a financial liability with an effective interest rate of 13 per cent.  As the cash flows to settle the obligation change, the loan is re-measured at the original effective interest rate.  Any gain or loss is recognised in the Income Statement.
At 30 June 2008 the Group re-measured the loan obligation based on increased market prices for CERs. Consequently a charge of $8,167,000 was recognised in the Income Statement.  The Group also recorded the non-cash interest expense on the loan of $740,000.
Based on current market prices the undiscounted value of the financial obligation is measured at $28 million over the life of the loan. Using the revised cash flows to repay the loan with the original effective interest rate of 13 per cent. the current value of the loan including the current non-cash interest is $21.6 million.

CER Loan
 
 
 
 
 
 
Total
 
Total
 
Total
 
30 June 2008
 
30 June 2007
 
31 December 2007
 
$'000
 
$'000
 
$'000
 
Discounted
 
Discounted
 
Discounted
Maturing within one year
               3,000
 
                      579
 
                      2,315
within 2 to 5 years
              9,863
 
                   6,300
 
                      7,107
Over 5 years
              8,737
 
                   2,556
 
                      3,445
 
            21,600
 
                   9,435
 
                    12,867
 
 
 
11. Property, Plant and Equipment
The increase in property, plant and equipment was mainly due to the acquisition of Beberibe with approximately $80 million in property, plant and equipment and the additional construction costs incurred at the Areia Branca project for $19 million.  Both projects financed the cost of construction and purchases of equipment through equity contributions and short and long term financing.
Other increases in property, plant and equipment relate to construction of the PEG project in Costa Rica which has been funded with equity contributions and the TEP loan for $20 million.
12. Commitments
On 30 April 2008 the Group entered into an agreement with Saret de Costs Rica S.A. (Saret) to acquire its interest in PEG for $1,750,000. The Group had previously extended a loan to Saret for €1.06 million secured by 6 per cent. shares in PEG. Since the loan was not repaid and now in default the Group agreed to purchase the remaining non-controllable interest in PEG. Econergy International now holds a 90 per cent. interest in PEG. The transaction gave rise to a reduction in retained earnings through equity.  The purchase agreement provides for a final payment in April 2009 of $750,000.  Saret will hold a security interest in land owned by the Group.
 
In August 2007 Econergy International entered into an Asset Purchase and Sale Agreement with Seawest do Brasil and Eventure Desenvolvimentos de Projetos de Energia Ltd for certain assets pertaining to the Pedra do Sal project in Brazil.  The first installment of the purchase price of approximately $600,000 was dependent on certain conditions which are in the process of being finalized and should be complete by the end of the fourth quarter of 2008.  The second installment of approximately $3.5 million is not due until December 2011.
13. Post Balance Sheet Events
On 13 June 2008 Suez Energy South America Participaçaões Ltda. (SESA) announced the terms of a cash offer to be made by SESA or a subsidiary of SESA (BidCo) to acquire the entire issued and to be issued share capital of Econergy International PLC for 45 pence per share.  Subsequent to the announcement the offer was extended to all shareholders subject to certain conditions.  These conditions principally were valid acceptances of the offer in excess of 90 per cent. and consents from certain Brazilian public authorities.  As part of the offer Econergy International entered into a loan agreement with an affiliate of BidCo for a working capital facility of approximately $54 million to be used for working capital purposes including the repayment of the existing $20 million loan with Trading Emissions PLC and the funding of further construction in the projects. In July 2008 Econergy International was able to draw on the loan to fund construction for the Beberibe and Areia Branca projects in Brazil.   
 
On 9 September 2008, SESA and Econergy International finalized an amendment to the original working capital facility to allow for additional funding of $98.5 million. The proceeds from this working capital facility provide a bridge loan to the PEG project as well as fund additional equity requirements for Areia Branca and Beberibe.
 
On 15 May 2008, Trading Emissions PLC entered into a loan agreement with Econergy International to advance $20 million for the construction of the PEG and Beberibe projects.  TEP had reached an agreement with Econergy International to acquire all the issued share capital of Econergy International by way of a scheme of arrangement under section 152 of the Isle of Man Companies Act 1931.  On 12 August 2008 Econergy International drew against the working capital facility from SESA and repaid the loan plus interest.
 
In March 2008 the Board approved a guarantee to ABN AMRO for a bridge loan facility to finance the construction of Pedra do Sal.  The bridge loan was for a total of R$72.8 million (USD$45.5 million) and included a guarantee of R$64 million (USD$40 million) to Wobben, the manufacturer of the wind energy converters.  In July and August 2008 Pedra do Sal drew R$20 million (USD$12.5 million) against the bridge loan facility.  Econergy International continues to work with BNDES to secure long-term project financing.  The Pedra do Sal project is expected to reach commercial operation during the first quarter of 2009.
 
In March 2008 Hydro Partners, LLC brought an action against Econergy International to compel the Company to close the Pipoca stock transaction.  In July 2008 Econergy International reached an agreement with Hydro Partners, LLC and the matter was settled with no financial impact.   
 
In August 2008 BNDES made its first disbursement against the long term financing agreement for the Beberibe project.  Econergy International currently has a bridge loan facility in place with ABN AMRO to fund the construction of Beberibe.  BNDES’s first disbursement falls short of cancelling the total bridge loan facility.  The Group will provide the funds necessary from the SESA working capital facility to pay the remaining balance on the bridge loan until BNDES makes the second disbursement which is expected to occur in October 2008.  The project began commercial operation on 11 September 2008.
 
In July 2008 Econergy International received a distribution of $489,000 from the partial sale of its share of the NEOgas investment held by CleanTech Investor.  Econergy International is the General Partner for the CleanTech Fund (CTF) which owned 24 per cent. of NEOgas do Brasil Gas Natural Comprimido S.A. (NEOgas), prior to the sale. CTF sold 47.12 per cent. of its share in NEOgas.
 
14. Pending Litigation
 
On 5 August 2008 the Group commenced an arbitration relating to the Loreto Bay wind farm project in Mexico.  The project company, Econergy Mexicana Holdings y Compania S. en C. por A. de C.V. (EMHYC), is owned 51 per cent. by Econergy Mexicana Holdings S.A. de C.V. and 49 per cent. by Baja Renewable Energy Company LLC (BRE).
 
The dispute concerns BRE’s failure to pay its share of development costs for the Loreto Bay project. Econergy International’s 4 June and 11 July 2008 default notices to BRE demand payment of $163,000 under the original Development Budget.  Since BRE has failed to cure its default Econergy International intends to exercise its purchase option of BRE’s interest in EMHYC at the Defaulting Party Transfer Price which is book value less 50 per cent.
 
 
 
 
 
 
 

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