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IPSA GROUP PLCAnnual Report and Accountsfor the year ended 31 March 2012

IPSA Group PLC5th Floor, Prince Consort House27-29 Albert EmbankmentLondon SE1 7TJUnited Kingdom

Tel: +44 (0) 20 7793 5615Fax: +44 (0) 20 7793 7654

www.ipsagroup.co.uk

Stock code: IPSA

IPS

A G

roup PLC

Annual R

eport 31 March 2012

226116 IPSA Cover 3mm Spine.indd 1 30/08/2012 17:23

IPSA Group PLC Annual Report 2012

IPSA Group PLC is a company incorporated in England and Wales which has been established to develop, own and manage power generation plants in southern Africa. The Company has been quoted on the AIM Market of the London Stock Exchange PLC since September 2005 and on the Alt X market of the Johannesburg Stock Exchange since October 2006.

The Company’s management has an established track record in developing power projects worldwide and relevant experience in the electricity sector in South Africa. It has two principal business objectives:

• the development and ownership of power generation facilities in southern Africa in order to sell electricity and/or heat or steam to companies and communities on commercial terms; and

• in due course, the purchase, refurbishment and operation of existing power plants in the region

For more information on IPSA Group PLC go to www.ipsagroup.co.uk

COMPANY INFORMATION

DirectorsR Linnell (Non-Executive Chairman)P C Metcalf (Chief Executive)M CoxJ M EyreE R ShawN Bryson (Non-Executive)P R S Earl (Non-Executive)R Sampson (Non-Executive)

SecretaryS A Laker

Company number5496202

Registered Offi ce5th FloorPrince Consort House27-29 Albert EmbankmentLondonSE1 7TJ

AuditorsGrant Thornton UK LLPRegistered AuditorsChartered AccountantsGrant Thornton HouseMelton StreetEuston SquareLondonNW1 2EP

Business Address5th Floor Prince Consort House27-29 Albert EmbankmentLondonSE1 7TJ

BrokerW H Ireland Limited24 Martin LaneLondonEC4R 0DR

Bankers Coutts & Co 440 Strand LondonWC2 0QS

Nominated Adviser and BrokerExecution Noble & Co Limited10 P aternoster SquareLondonEC4M 7AL

Solicitors Pinsent Masons LLP 30 Crown PlaceLondonEC2A 4ES

Alt X Sponsor PSG Capital ( Pty) Limited 1st Floor Ou KollegeBuilding 35 Kerk StreetStellenbosch 7600 South Africa

226116 IPSA Cover 3mm Spine.indd 2 30/08/2012 17:23

www.ipsagroup.co.uk 01

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CONTENTS

Our PerformanceChairman’s Statement 2Chief Executive’s Review of Operations 3

Our GovernanceGroup Directors’ Report 5Corporate Governance Statement 8Report of the Independent Auditors 10

Our FinancialsConsolidated Statement of Comprehensive Income 12Consolidated Statement of Financial Position 13Parent Company Statement of Financial Position 14Consolidated Statement of Cash Flows 15Parent Company Statement of Cash Flows 16Consolidated Statement of Changes in Equity 17Parent Company Statement of Changes in Equity 18Notes to the Financial Statements 19Company Information IBC

HIGHLIGHTS• Revenue of £4.4 million (18 months to 31 March 2011 – £0.8 million)

• Group after tax profit of £5.6 million (18 months to 31 March 2011 – £5.2 millionloss). Key components are:

• Plant operating loss £0.9 million (18 months to 31March 2011 – £2.2 millionloss)

• Profit on sale of 2 turbines £6.1 million (18 months to 31 March 2011 – nil)

• Credit of £3.6 million arising from settlement with Sasol (18 months to31 March 2011 – release of accrual - £1.2 million)

Richard Linnell

Chairman

I am pleased to present to the shareholders

of IPSA Group PLC (the “Group”) the Report

and Accounts for the year ended 31 March

2012.

The year under review has seen a number

of very significant events, the principal one

being the completion of the sale in January

2012 of two of the four 701 DU turbines

(the “Turbines”) the Company has held since

acquiring them for a project in South Africa

in March 2007.

Group turnover has increased significantly

to £4.4 million (2011: £0.8 million) as the

operating results reflect 12 months of

electricity sales and 9 months of steam

sales from the Group’s plant in South Africa,

as compared to just a few weeks of sales

reported in the period ended 31 March

2011. Although the combined revenue of

£4.4 million from electricity and steam sales

was not sufficient to record an operating

profit after depreciation, it does nonetheless

represent a major improvement as,

excluding depreciation, the plant recorded

a gross profit of £730,000 (2011: gross loss

£630,000) and an operating loss, excluding

depreciation, of just £60,000 (2011:

£970,000 loss).

The profit for the year also includes a profit

of £6.1 million arising from the sale of the

two turbines and, as a result of this sale, I

am pleased to report a major reduction in

debt and trade creditors. Debt, comprising

loans and bank borrowings, at 31 March

2012 amounted to £7.3 million as

compared to £19 million at 31 March 2011.

Trade creditors have fallen from £21 million

to a little under £8 million. As previously

reported the Company originally acquired

the four turbines for a proposed project in

South Africa and when it became clear that

the project would be delayed, the Board

decided that it would be in the best interests

of shareholders to sell the turbines to a third

party rather than sell them to a Group

owned project company.

The process to sell the remaining two

turbines continues to experience delays.

The Board is currently negotiating with a

number of potential buyers and at least two

of these appear to offer a realistic prospect

of being able to complete on satisfactory

terms.

A major event since the year-end was

reaching settlement with Sasol Gas Limited

in South Africa, announced in early August

2012. As previously reported, Sasol Gas

was seeking penalties and other costs in

connection with their termination of the gas

contract in September 2009. Resolution of

this dispute has allowed us to release

provisions made in prior years and these,

net of the settlement amount, have been

credited to ‘other income’.

Taken together, the improvement in the

Newcogen plant operating performance,

the sale of two of the turbines and reaching

a settlement with Sasol means that if the

sale of the remaining two turbines is

completed at the prices being negotiated,

the Group will have a positive cash balance

and no debt, putting the Group in a strong

position to consider new power generating

projects in South Africa and neighbouring

areas. I therefore remain hopeful that the

plans to expand the facility at Newcastle in

order to maximise the benefit of the existing

MTPPP contract will be fulfilled enabling the

expanded operation to move into a strong

operating position before I next report to

you.

Finally, I wish to draw to your attention the

fact that the independent auditors have

again included an emphasis of matter

paragraph in their unqualified audit opinion.

Richard Linnell

Chairman

31 August 2012

2 IPSA GROUP PLC Annual Report 2012

CHAIRMAN’S STATEMENT


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Phil Metcalf

Chief Executive

NewCogen

In the past year we have seen reliable

operations at the Newcastle Cogeneration

power plant, with availability of over

95 per cent.

Over its first full year of operation ending in

March 2012, NewCogen generated 46,470

MWh of electricity, predominantly during

peak hours on a two shifting basis, and

delivered just under 57,000 tonnes of

steam. Electricity was delivered to Eskom

under the MTPPP contract, which remains

in place until March 2015. Steam was

delivered to Karbochem under ad hoc

arrangements in the absence of a firm long

term contract.

During this period we have established

excellent relationships with Eskom, the local

Newcastle Municipality and our gas

supplier, Spring Lights Gas (Pty) Limited

(“Spring Lights”). We consumed during the

12 months to end of March 2012

approximately 700,000 GJ of gas and

suffered no penalties under the contract we

have in place with Spring Lights.

Electricity prices are adjusted annually under

the MTPPP contract. In April 2012, the price

was increased by 9.8 per cent. in line with

the December 2011 inflation figures. Gas

prices are adjusted twice a year, now taking

place in April and October, based on a

combination of South African inflation

figures and the price of Brent Crude in ZAR.

The April increase was broadly in line with

the increase in the electricity tariff, though

an increase of 8.1 per cent. in July last year

means that margins have been slightly

eroded. Future projections for gas price

increases are currently forecast to be less

than the increase we are anticipating in the

electricity prices over the next year, but

margins are susceptible to oil price and

foreign exchange movements.

In the next six to nine months certain major

maintenance activities will be required on

the gas turbines, which will result in a

reduction of revenues over approximately

one month.

We continue to explore a number of

opportunities to increase and add to the

capacity at the Newcastle site, with one

programme having already been

completed. This was the implementation of

Water Injection for both gas turbines which

has increased output by over 300 kW, and

has the additional environmental benefit of

reducing NOx emissions from the power

plant. We are currently examining a project

which could add a further 50 MW to the

capacity at Newcastle although this

development will take around 18-24 months

to be implemented.

NewCogen takes the safety of its

employees seriously and only one incident

was experienced during the year and no

workplace injuries have been reported. A full

review of the incident was conducted and

the recommended changes in operating

procedures proposed have been

implemented.

The Turbines

The sale of two of the Gas Turbines was

completed for $35 million with Bright Day in

January 2012 and the proceeds distributed

to Standard Bank and Turbocare,

significantly reducing the level of debt to

both parties.

The contract for the sale of the second pair

of Turbines to Lezayre Holdings Limited

terminated at the end of January 2012 and

the deposit was distributed to creditors.

IPSA is continuing to work closely with this

potential buyer who continues to express

firm interest in the turbines and is hopeful of

closing the sale as soon as possible. In the


CHIEF EXECUTIVE’S REVIEW OF OPERATIONS

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226116 IPSA pp01-pp04 31/08/2012 12:06 Page 3

meantime a further buyer has come forward

and this transaction is also being

aggressively pursued. The IPSA Board is

minded to take whichever offer fully

materialises first.

When the sale of the remaining two turbines

is completed the Directors expect that IPSA

will be clear of all debts and will have surplus

funds which it can then apply to growing the

business in and around South Africa.

Working capital

Working capital has continued to be very

tight for IPSA, but no further support, other

than funding for the Sasol settlement, has

been required at NewCogen to date.

During the period we have been able to

reduce the exposure of IPSA to its creditors

as a result of the sale of two of the Turbines.

The Loan Notes previously held by RAB

Capital have been purchased by Sterling

Trust and others, and new loan terms have

been offered to unsecured lenders,

including the loan noteholders, who have

agreed to extend the loan terms to 31 July

2013 as announced on 27 July 2012.

With the much reduced level of exposure to

Standard Bank and Turbocare, and the

settlement with Sasol Gas having been

achieved, our creditor position is much

improved and we are examining options for

raising some modest additional funding to

resolve all outstanding creditor issues

regardless of the timing involved in selling

the remaining gas turbines.

General and other projects

As far as we have been able to with limited

funds, we have continued to monitor the

market and examine opportunities which

have arisen from time to time. With reserve

margins at an all-time low in South Africa

and with a backdrop of positive

encouragement towards independent

power producers (“IPPs”) in South Africa,

the resolution of the legacy problems at

IPSA is well timed, and we will have many

excellent opportunities to develop the

business in the coming 12 months. Since

joining as the CEO in September of last

year, there have been many challenging

moments, but I am encouraged to see the

options becoming available for growth in the

future, and for IPSA to start to realise its

potential in a growing and welcoming

market.

Phil Metcalf

Chief Executive

31 August 2012


CHIEF EXECUTIVE’S REVIEW OF OPERATIONS

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The Directors submit their report and

audited financial statements for the year

ended 31 March 2012.

Principal activities and review of the

business

The principal activities of the Group

comprise the acquisition and development

of power generation assets, initially in

markets in southern Africa. The Group’s

strategy is to create a portfolio of power

generation assets in southern Africa, in

conjunction with project partners where the

Directors believe this to be advantageous.

In the event that appropriate opportunities

present themselves outside this geographic

area, the Group’s investment boundaries

may be extended. The parent Company is

also engaged in the purchase and sale of

power related equipment and products.

The Company was incorporated on 1 July

2005 and was admitted to AIM in September

2005. In October 2006, the Company

obtained a secondary listing, on the

Alternative Exchange of the Johannesburg

Stock Exchange Limited (“AltX”).

A review of the Group’s activities and future

plans is set out in the Chairman’s Statement

and the Chief Executive’s Review.

Principal risks and uncertainties

In addition to those detailed in note 24

(Financial instruments and risk

management) there are a number of risks

and uncertainties which could have a

material impact on the execution of the

Group’s strategy. Risks are formally

reviewed by the Board and appropriate

processes and controls put in place to

monitor and mitigate them. Key business

risks include:

1) Completion of the sale of the remaining

two Turbines;

2) Expansion of the plant in South Africa

such that the operating profit provides an

acceptable return on the investment; and

3) Securing new electricity generating

opportunities in the region in order to

provide long term profitable growth for

shareholders.

In addition to these factors which, if

satisfactorily resolved, will have a significant

positive impact on the Group’s liquidity, the

future growth and profitability of the Group

will be influenced by:

1) The demand for and profitability of the

electricity supplied under the MTPPP

Agreement with Eskom which can be

affected by changes in economic activity

in South Africa, market capacity, and

pricing, including changes in the price of

both electricity and gas;

2) Movements in the value of the ZAR

relative to sterling since changes in the

rate of exchange affect the sterling value

of assets located in South Africa and will,

in the future, affect the value of dividends

which the Company expects to receive

from its activities in South Africa;

3) Political factors – the Directors believe the

Government of the Republic of South

Africa supports the provision of efficient

power generation by IPPs and that the

Company’s listing on AltX, with local

shareholders now owning a significant

portion of the Company, further

strengthens the Group’s position in the

Republic of South Africa; and

4) The credit market conditions remain

difficult and there exists continued

uncertainty with respect to the

restructuring of European sovereign debt,

which could adversely impact the global

economy. Accordingly, availability of

project finance to fund future expansion

of the existing plant and new projects

may be adversely affected if these

uncertainties are not satisfactorily

resolved.

Key performance indicators

Following the set-backs of earlier plans,

which included the proposed major project

at Coega, the Group is still at an early stage

in its development and accordingly the

current key performance indicators continue

to focus on:

1) Operating efficiency and input costs of

the NewCogen plant; and

2) Generation of positive cash flow from the

existing plant.

As the Group’s operations expand, further

key performance indicators will become

relevant.

Results and dividends

The Group results for the year ended

31 March 2012 are set out in the

Consolidated Statement of Comprehensive

Income. No dividend has been paid or is

proposed.

Going Concern

The Directors have continued to adopt the

‘going concern’ basis for the preparation of

the financial statements since the Directors

consider that the Company and the Group

will have sufficient financial resources

available to continue trading for the

foreseeable future (see also note 3.2).

However, the availability of these resources

is only fully secured by completing the sale

of the remaining two Turbines.


GROUP DIRECTORS’ REPORT

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The Company continues to engage in

discussions with institutions in South Africa

with the objective of raising local finance

now that the NewCogen plant is fully

operational and the claim by Sasol has been

resolved. The Directors believe that with

options being available to increase the

capacity of the plant, which would allow the

plant to generate a positive return after

depreciation, third party funding will be

available.

Share capital

Details of the authorised and issued share

capital are set out in note 21. During the

year, there were no changes in the issued

share capital of the Company.

Directors

The Directors who served during the period

are as follows:

R Linnell

N Bryson

M Cox

P Earl

J Eyre

P Metcalf

R Sampson

E Shaw


GROUP DIRECTORS’ REPORT

Directors’ interests

The beneficial interests of the current Directors in the share capital of the Company at 31 March 2012 and 17 August 2012, being the last

practicable date for reporting this information, were as stated below:

17.08.2012 31.03.2012 31.03.2011

N Bryson 50,000 50,000 50,000

M Cox 40,000 40,000 40,000

J M Eyre 1,250,000 1,250,000 1,250,000

E R Shaw 1,268,750 1,268,750 1,268,750

R Sampson has an indirect interest in the share capital of the Company as a result of being a director and shareholder of Amandla Energy

which has an option to acquire 13,434,612 shares from METC Metlife.

Significant shareholdings in the company

In addition to the shareholdings shown above, the Company is aware of the following notifiable interests of 3 per cent or more in the issued

share capital of the Company on 17 August 2012, being the last practicable date for reporting this information.

Number of shares % holding

Sterling Trust Ltd 31,794,105 29.57

Neville Registrars Ltd** 19,561,774 18.20

Fitel Nominees Ltd 6,430,000 5.98

Credit Suisse Securities. (Europe) Ltd 5,970,776 5.55

The Bank of New York (Nominees) Ltd 4,431,435 4.12

Vidacos Nominees Ltd 4,267,500 3.97

HSBC Client Holding Nominee (UK) Ltd 3,711,370 3.45

Credit Suisse Client Nominees (UK) Ltd 3,703,700 3.45

**includes 13,434,612 shares held as nominee for METC Metlife.

226116 IPSA pp05-pp11 31/08/2012 12:24 Page 6

Policy and practice on payment of

suppliers

It is the policy of all Group companies, with

respect to suppliers, to a) determine

payment terms when agreeing the terms of

each transaction, b) ensure suppliers are

made aware of the terms of payment and c)

pay in accordance with the contractual and

legal obligations. In view of the delay in

realising cash from the sale of the remaining

two Turbines and with the continued

support of creditors, the Company’s

average creditor payment period for the

year ended 31 March 2012 continues to

exceed one year.

Risk management policies and

objectives

The financial risk management policies and

objectives are set out in note 24.

Directors’ responsibilities

The Directors are responsible for preparing

the Annual Report and the financial

statements in accordance with applicable

law and regulations.

Company law requires the Directors to

prepare financial statements for each

financial year. Under that law the Directors

have elected to prepare financial statements

in accordance with International Financial

Reporting Standards as adopted by the

European Union (“IFRSs”). The financial

statements are required by law to give a true

and fair view of the state of affairs of the

Group and Parent Company and of the

profit or loss of the Group for that period. In

preparing these financial statements, the

Directors are required to:

• select suitable accounting policies and

then apply them consistently;

• make judgments and estimates that are

reasonable and prudent;

• state whether applicable IFRSs have

been followed, subject to any material

departures disclosed and explained in the

financial statements; and

• prepare the financial statements on the

going concern basis unless it is

inappropriate to presume that the

Company will continue in business.

The Directors are responsible for keeping

adequate accounting records that are

sufficient to show and explain the

Company’s transactions and disclose with

reasonable accuracy at any time the

financial position of the Company and

enable them to ensure that the financial

statements comply with the Companies Act

2006. They are also responsible for

safeguarding the assets of the Company

and hence for taking reasonable steps for

the prevention and detection of fraud and

other irregularities.

The Directors confirm that:

• so far as each of the Directors is aware,

there is no relevant audit information of

which the Company’s auditors are

unaware; and

• the Directors have taken all steps that

they ought to have taken to make

themselves aware of any relevant audit

information and to establish that the

auditors are aware of that information.

The Directors are responsible for the

maintenance and integrity of the corporate

and financial information included on the

Company’s website. Legislation in the

United Kingdom governing the preparation

and dissemination of financial statements

may differ from legislation in other

jurisdictions.

Auditors

The auditors, Grant Thornton UK LLP, have

indicated their willingness to continue in

office and a resolution concerning their re-

appointment will be proposed at the Annual

General Meeting.

By order of the Board

Susan Laker

Company Secretary

31 August 2012


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Policy statement

The Board is committed to applying high

standards of corporate governance and

integrity to all our activities. The Company is

not required by the rules of the AIM market

of the London Stock Exchange (“AIM”) to

comply with the UK Corporate Governance

Code (June 2010) (the “Code”). However

the Board has been briefed on the Code

and is accountable to the Company’s

shareholders for good corporate

governance and therefore seeks to comply

with the Code in so far as is practicable as

a smaller company.

The Company’s primary listing is on AIM

and as a result, the Group is exempt from

complying with the requirements of the King

Code of corporate governance in South

Africa.

Internal controls

The Directors are responsible for the

Group’s systems of internal control. Whilst

no risk management process or systems of

internal control can completely eliminate the

risk of material misstatement or loss, the

Group’s systems are designed to provide

the Directors with reasonable assurance

that problems are identified in a timely

manner and dealt with appropriately. The

Board considers that there have been no

substantial weaknesses in financial controls

resulting in material loss, contingencies or

uncertainties and thus disclosable in these

Accounts. The Board has considered the

need for an internal audit function and has

concluded that there is no current need for

such a function.

Board composition and independence

The Board currently comprises eight

members made up of a Non-Executive

Chairman, four Executive Directors and

three Non-Executive Directors. The Board is

responsible for the overall direction,

strategic objectives and key policies for

reviewing performance of the Company and

the Group as well as approving major capital

expenditure, potential acquisitions and

financial matters. The Board meets regularly

and has a schedule of business reserved to

it including raising new capital, entering into

financing facilities for projects, treasury

policies and approval of annual operating

budgets and monitoring of key risks. The

Board met 17 times during 2011 and the

first quarter of 2012. External advice is

available to the Directors if they consider it

necessary. The Chairman and Non-

Executive Directors met 3 times during the

financial year without the Executive

Directors being present.

The Chairman of the Board is Richard

Linnell. The other Non-Executive Directors

are Neil Bryson, Rizelle Sampson and Peter

Earl. The Executive Directors are Phil

Metcalf, who is Chief Executive; Elizabeth

Shaw, Chief Operating Officer; Michael Cox,

Finance Director and Mike Eyre, Director of

Technical Operations and Engineering. All

Directors are involved in significant

decisions.

Shareholder relations

The Group values the views of its

shareholders and recognises their interest in

the Group’s strategy and performance,

Board membership and quality of

management. It therefore holds regular

meetings with and gives presentations to its

institutional shareholders to discuss

objectives.

Corporate governance statement

The Annual General Meeting (“AGM”) is

used to communicate with private investors

with whom dialogue is encouraged.

Additional information is supplied through

the circulation of the interim report and the

Annual Report and Accounts. The

Company maintains up to date information

on the investor section of its website

www.ipsagroup.co.uk

Audit committee

The Audit Committee comprises Neil

Bryson and Rizelle Sampson who are both

Non-Executive Directors and is chaired by

Neil Bryson. The Committee’s remit is to

review financial reporting practices, internal

financial controls and internal and external

audit policy including the appointment of the

Company’s auditor. During the year, the

Audit Committee met twice to review the

draft half year and annual financial

statements.

Remuneration committee

The Remuneration Committee comprises

Richard Linnell, Neil Bryson and Rizelle

Sampson and is chaired by Richard Linnell.

The Remuneration Committee reviews the

remuneration policy for the Executive

Directors and for senior management. The

Executive Directors determine the

remuneration arrangements for the Non-

Executive Directors. No Director may

participate in decisions regarding his own

remuneration. Details of the Directors’

remuneration can be found in the

Remuneration Report in note 28.

Appointment of directors

The Nomination Committee presently

comprises Richard Linnell as Chairman and

Neil Bryson. The Committee is responsible

for monitoring the composition of the Board

and meets to make recommendations to

the Board on all new Board appointments

and succession planning. The Board has

not used external consultants in the

appointment of directors.


CORPORATE GOVERNANCE STATEMENTFor the year ended 31 March 2012

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Health, safety and environmental

protection policy

The Group is committed to compliance with

all relevant laws and regulations and

continues to assess its operations to ensure

protection of the environment, the

community and the health and safety of its

employees. The Group maintains

appropriate procedures to ensure that all

activities are carried out in compliance with

safety regulations, in a culture where the

safety of personnel is paramount and which

recognises environmental sustainability and

respect for cultural and heritage issues.

Share dealing code

The Company has a Share Dealing Code

which covers dealings by Persons

Discharging Managerial Responsibilities.

The Company’s code complies with the

provisions of the Code and restricts dealings

in shares during designated close periods

and at any time when they are in possession

of unpublished price sensitive information.

Statement of non-compliance

Peter Earl, being a former Chief Executive

Officer, and Rizelle Sampson, due to her

interest in an option to acquire more than

three per cent. of the issued share capital,

may not be regarded as independent as

defined by the Code.

Susan Laker

Company Secretary

31 August 2012


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226116 IPSA pp05-pp11 31/08/2012 12:24 Page 9

We have audited the financial statements of

IPSA Group PLC for the year ended

31 March 2012 which comprise the

consolidated statement of comprehensive

income, the consolidated and Parent

Company statements of financial position,

the consolidated and Parent Company

statements of cash flows, the consolidated

and Parent Company statements of

changes in equity and the related notes. The

financial reporting framework that has been

applied in their preparation is applicable law

and International Financial Reporting

Standards (IFRSs) as adopted by the

European Union and, as regards the Parent

Company financial statements, as applied

in accordance with the provisions of the

Companies Act 2006.

This report is made solely to the Company’s

members, as a body, in accordance with

Chapter 3 of Part 16 of the Companies Act

2006. Our audit work has been undertaken

so that we might state to the Company’s

members those matters we are required to

state to them in an auditor’s report and for

no other purpose. To the fullest extent

permitted by law, we do not accept or

assume responsibility to anyone other than

the Company and the Company’s members

as a body, for our audit work, for this report,

or for the opinions we have formed.

Respective responsibilities of

directors and auditors

As explained more fully in the Directors’

Responsibilities Statement as set out in the

Directors’ Report, the Directors are

responsible for the preparation of the

financial statements and for being satisfied

that they give a true and fair view. Our

responsibility is to audit and express an

opinion on the financial statements in

accordance with applicable law and

International Standards on Auditing (UK and

Ireland). Those standards require us to

comply with the Auditing Practices Board’s

(APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial

statements

A description of the scope of an

audit of financial statements is

provided on the APB’s website at

www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion:

• the financial statements give a true and

fair view of the state of the Group’s and

of the Parent Company’s affairs as at

31 March 2012 and of the Group’s profit

for the year then ended;

• the Group financial statements have been

properly prepared in accordance with

IFRSs as adopted by the European

Union; and

• the Parent Company financial statements

have been properly prepared in

accordance with IFRSs as adopted by

the European Union and as applied in

accordance with the provisions of the

Companies Act 2006; and

• the financial statements have been

prepared in accordance with the

requirements of the Companies Act

2006.

Emphasis of matter – going concern

In forming our opinion on the financial

statements, which is not modified, we have

considered the adequacy of the disclosures

made in note 3.2 of the accounting policy

note to the financial statements concerning

the Group and the Parent Company’s ability

to continue as a going concern.

As explained in note 3.2, the Group and the

Parent Company’s resources have been

impacted by delays in securing buyers for

the remaining 2 Turbines originally acquired

for the Coega project in South Africa. The

Directors have obtained an informal

extension of the finance facilities provided

by Standard Bank PLC and other creditors.

Since the contracts for the sale of the

remaining two Turbines have not been

exchanged, there remains an uncertainty

over the receipt and timing of the sale

proceeds and therefore the ability to repay

the overdue debt finance facilities. Those

conditions, along with the other matters

explained in note 3.2 to the financial

statements, indicate the existence of a

material uncertainty which may cast

significant doubt about the Group and the

Parent Company’s ability to continue as a

going concern. The financial statements do

not include the adjustments that would

result if the Group and the Parent Company

was unable to continue as a going concern.

Opinion on other matter prescribed by

the Companies Act 2006

In our opinion the information given in the

Directors’ Report for the financial period for

which the financial statements are prepared

is consistent with the financial statements.

Matters on which we are required to

report by exception

We have nothing to report in respect of the

following matters where the Companies Act

2006 requires us to report to you if, in our

opinion:

• adequate accounting records have not

been kept by the Parent Company, or

returns adequate for our audit have not

been received from branches not visited

by us; or


REPORT OF THE INDEPENDENT AUDITORS TO THEMEMBERS OF IPSA GROUP PLCFor the year ended 31 March 2012

226116 IPSA pp05-pp11 31/08/2012 12:24 Page 10

• the Parent Company financial statements

are not in agreement with the accounting

records and returns; or

• certain disclosures of Directors’

remuneration specified by law are not

made; or

• we have not received all the information

and explanations we require for our audit.

Christopher Smith

Senior Statutory Auditor

for and on behalf of Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

London

31 August 2012


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226116 IPSA pp05-pp11 31/08/2012 12:24 Page 11

12 months 18 months

31.3.12 31.3.11

Notes £’000 £’000

Revenue 4 4,371 801

Cost of sales 6 (4,438) (2,671)

Gross loss (67) (1,870)

Administrative expenses 7 (1,380) (1,876)

Operating loss (1,447) (3,746)

Profit on sale of non-current asset 8a 6,116 –

Other income 8b 2,200 955

Finance income 9 – 1

Finance expense 10 (1,227) (2,448)

Profit/(loss) before tax 5,642 (5,238)

Tax expense 11 – –

Profit/(loss) after tax 5,642 (5,238)

Other comprehensive income

Exchange differences on translation of foreign operation (980) (492)

Total comprehensive income 4,662 (5,730)

Profit/(loss) per ordinary share 13 5.25p (5.47p)(basic, diluted and headline)


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 March 2012

The accompanying accounting policies and notes form an integral part of these financial statements.

226116 IPSA pp12-pp18 31/08/2012 12:14 Page 12

31.3.12 31.3.11

Notes £’000 £’000

Assets

Non-current assets

Intangible 14 – –

Property, plant and equipment 15 11,070 13,319

11,070 13,319

Current assets

Trade and other receivables 18 816 2,966

Cash and cash equivalents 19 35 33

851 2,999

Non-current assets classified as assets held for sale 20 15,712 31,629

Total assets 27,633 47,947

Equity and liabilities

Equity attributable to equity holders of the parent:

Share capital 21 2,150 2,150

Share premium account 26,767 26,767

Foreign currency reserve (3,034) (2,054)

Profit and loss reserve (13,390) (19,032)

Total equity 12,493 7,831

Current liabilities

Trade and other payables 22 7,814 21,055

Borrowings 23 7,326 19,061

15,140 40,116

Total equity and liabilities 27,633 47,947

The financial statements were approved by the Board on 31 August 2012.

P C Metcalf E R Shaw

Director Director

Company registration number: 5496202


CONSOLIDATED STATEMENT OF FINANCIAL POSITIONat 31 March 2012

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31.3.12 31.3.11

Notes £’000 £’000

Assets

Non-current assets

Investments 16 500 500

Trade and other receivables 17 22,653 22,310

23,153 22,810

Current assets

Trade and other receivables 18 21 2,049

Cash and cash equivalents 19 14 17

35 2,066

Non-current assets classified as assets held for sale 20 15,712 31,629

Total assets 38,900 56,505

Equity and liabilities

Equity attributable to equity holders of the parent:

Share capital 21 2,150 2,150

Share premium account 26,767 26,767

Profit and loss reserve (3,630) (7,470)

Total equity 25,287 21,447

Current liabilities

Trade and other payables 22 6,664 16,342

Borrowings 23 6,949 18,716

13,613 35,058

Total equity and liabilities 38,900 56,505

The financial statements were approved by the Board on 31 August 2012.

P C Metcalf E R Shaw

Director Director

Company registration number: 5496202


PARENT COMPANY STATEMENT OF FINANCIAL POSITIONat 31 March 2012


226116 IPSA pp12-pp18 31/08/2012 12:14 Page 14

12 months 18 months

31.3.12 31.3.11

Notes £’000 £’000

Profit/(loss) for the year/period 5,642 (5,238)

Add back net finance expense 1,227 2,447

Add back profit on sale of asset held for sale (6,116) –

Adjustments for:

Depreciation 809 1,317

Impairment of intangible asset – 666

Impairment of asset held for sale 780 –

Translation and other unrealised exchange gains 464 (1,648)

Change in trade and other receivables 2,150 (586)

Change in trade and other payables (16,400) 1,179

Cash used in operations (11,444) (1,863)

Interest paid (8) (243)

Net cash used in operations (11,452) (2,106)

Cash flows from investing activities

Purchase of plant and equipment (1) (55)

Proceeds from sale of asset held for sale 22,912 –

Deposit on asset held for sale 1,257 624

24,168 569

Cash flow from financing activities

Loan note issued – 650

Other loans received 1,359 418

Other loans repaid (14,073) (624)

Issue of shares – 1,000

Issue costs – (10)

(12,714) 1,434

Increase/(decrease) in cash and cash equivalents 2 (103)

Cash and cash equivalents at start of year/period 33 136

Cash and cash equivalents at end of year/period 35 33


CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended at 31 March 2012

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12 months 18 months

31.3.12 31.3.11

Notes £’000 £’000

Profit/(loss) for the year/period 3,840 (2,603)

Add back net finance expense 1,185 219

Add back profit on sale of asset held for sale (6,116) –

Adjustments for:

Impairment of asset held for sale 780 –

Change in trade and other receivables 2,035 236

Change in trade and other payables (12,839) 1,573

Cash used in operations (11,115) (575)

Interest paid – (60)

Net cash used in operations (11,115) (635)

Cash flows from investing activities

Loan to subsidiary (343) (1,126)

Proceeds from sale of asset held for sale 22,912 –

Deposit on asset held for sale 1,257 624

23,826 (502)

Cash flow from financing activities

Loan note issued – 650

Other loans received 1,359 118

Other loans repaid (14,073) (624)

Issue of shares – 1,000

Issue costs – (10)

(12,714) 1,134

Decrease in cash and cash equivalents (3) (3)

Cash and cash equivalents at start of year/period 17 20

Cash and cash equivalents at end of year/period 14 17


PARENT COMPANY STATEMENT OF CASH FLOWSfor the year ended at 31 March 2012


226116 IPSA pp12-pp18 31/08/2012 12:14 Page 16

Share Foreign Profit

Share premium currency and loss Total

capital account reserve reserve equity

£’000 £’000 £’000 £’000 £’000

At 1.10.10 1,900 26,027 (1,562) (13,794) 12,571

Loss for the period – – – (5,238) (5,238)

Other comprehensive income/(loss) – – (492) – (492)

Total comprehensive income for the period – – (492) (5,238) (5,730)

Issue of shares 250 750 – – 1,000

Share issue costs – (10) – – (10)

Total transactions with owners 250 740 – – 990

At 31.3.11 2,150 26,767 (2,054) (19,032) 7,831

Profit for the year – – – 5,642 5,642

Other comprehensive income/(loss) – – (980) – (980)

Total comprehensive income for the year – – (980) 5,642 4,662

At 31.3.12 2,150 26,767 (3,034) (13,390) 12,493


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 March 2012

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Share Foreign Profit

Share premium currency and loss Total

capital account reserve reserve equity

£’000 £’000 £’000 £’000 £’000

At 1.10.10 1,900 26,027 - (4,867) 23,060

Loss for the period – – – (2,603) (2,603)

Total comprehensive income for the period – – – (2,603) (2,603)

Issue of shares 250 750 – – 1,000

Share issue costs – (10) – – (10)

Total transactions with owners 250 740 – – 990

At 31.3.11 2,150 26,767 – (7,470) 21,447

Profit for the year – – – 3,840 3,840

Total comprehensive income for the year – – – 3,840 3,840

At 31.3.12 2,150 26,767 – (3,630) 25,287


PARENT COMPANY STATEMENT OF CHANGES IN EQUITYfor the year ended 31 March 2012


226116 IPSA pp12-pp18 31/08/2012 12:14 Page 18

1 PRINCIPAL ACTIVITIES AND NATURE OF OPERATIONS

The principal activity of IPSA Group PLC and its subsidiaries (the “Group”) is the construction, development and operation of electricity generation

assets and the supply of electricity to the wholesale market and major end-users. The parent Company is also involved in the purchase and

sale of power related equipment and products.

During the year under review, the Group’s operating activities included the generation and sale of electricity by the Group’s gas fired plant in

Newcastle, Republic of South Africa, and the sale of 2 turbines originally bought for a proposed project near Port Elizabeth.

Further details are provided in the Chairman’s statement and the Chief Executive’s review of operations.

2 GENERAL INFORMATION

IPSA Group PLC is the Group’s ultimate Parent Company. It is incorporated and domiciled in England and Wales. The address of IPSA Group

PLC’s registered office is given on the information page. IPSA Group PLC’s shares are traded on the Alternative Investment Market (“AIM”) in

London and, since October 2006, the shares have had a dual listing on AltX (the Alternative Exchange of the Johannesburg market).

3 SUMMARY OF ACCOUNTING POLICIES

3.1 Basis of preparation

The financial statements have been prepared under the historical cost convention and in accordance with applicable International Financial

Reporting Standards (“IFRS”) as adopted by the European Union. The measurement bases and principal accounting policies of the Group are

set out below.

3.2 Going concern

As set out in the Chairman’s statement and the Chief Executive’s review, the Company’s subsidiary in South Africa is generating electricity

under a Medium-Term Power Purchase (“MTPPP”) Agreement with Eskom and is also supplying steam to local businesses, thereby producing

positive cash flow, before depreciation. The Directors are planning to increase the capacity of the plant which, if successful, will mean that the

plant will operate profitably after depreciation.

Completion of the sale of the 2 remaining turbines on the indicative terms proposed would enable the Company to repay the borrowings from

Standard Bank and other lenders, all of whom have granted informal extensions of the original repayment terms, settle the amounts owed to

Turbocare under the refurbishment agreement and provide sufficient working capital for the foreseeable future.

Following the proposed sale of the 2 remaining turbines, the Group’s only cash generating asset will be its subsidiary in South Africa, until new

projects are developed. The timing of receiving repayments of the £22.0 million funding provided by the Company for the construction of the

plant and future dividends from South Africa is dependent upon refinancing the plant which is expected to prove more attractive to local lenders

now that a satisfactory settlement of the sums claimed by Sasol under the previous “take-or-pay” gas supply agreement has been concluded.

Accordingly, until the sale of the turbines is completed, there remains a material degree of uncertainty regarding the Company and the Group’s

ability to continue as a going concern.

The Directors have concluded that the combination of these circumstances represent a material uncertainty that casts significant doubt upon

the Company’s ability to continue as a going concern. Nevertheless the Directors do consider that there is a reasonable expectation that the

sale of the remaining 2 turbines will complete on terms which will enable the Company to repay all its borrowings and other liabilities and

provide adequate resources to continue in operational existence for the foreseeable future. For these reasons, the Directors continue to adopt

the going concern basis in preparing the annual report and accounts.


NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 March 2012

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3.3 Basis of consolidation

The Group financial statements consolidate those of the Company and its subsidiary undertakings drawn up to 31 March 2012.

Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its

activities. The Group obtains and exercises control through voting rights.

Unrealised gains on transactions between the Group and subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction

provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiary entities have been

adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Acquisitions of subsidiaries are dealt with by the acquisition method. The acquisition method involves the recognition at fair value of all identifiable

assets and liabilities, including contingent liabilities of the acquired company, at the acquisition date, regardless of whether or not they were

recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the acquired entity

are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance

with the Group accounting policies.

3.4 Intangible assets acquired as part of a business combination

In accordance with IFRS 3: Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the

Group of its fair value at the acquisition date. The fair value of an intangible asset reflects market expectations about the probability that the

future economic benefits embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a

related tangible or intangible asset, the group of assets is recognised as a single asset separately from the goodwill where the individual fair

values of the assets in the group are not reliably measured. Where the individual fair value of the complementary assets is reliably measurable,

the Group recognises them as a single asset, provided the individual assets have similar lives. Subsequent to initial recognition, intangible

assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is provided to write-off the cost

of the intangible asset over its useful economic life.

3.5 Impairment of property, plant, equipment and intangible assets

At each balance sheet date, the Group reviews the carrying amount of its tangible and intangible assets to determine whether there is any

indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated

in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual

asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows

are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the

risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the

asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the

relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate

of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined

had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised

immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is

treated as a revaluation increase.



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3.6 Foreign currency translation

The financial information is presented in pounds sterling, which is also the functional currency of the Parent Company.

In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the

individual entity using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses

resulting from the settlement of such transactions and from the translation of remaining balances at year end exchange rates are recognised

in the income statement under “other income” or “other expenses”, respectively.

In the consolidated financial statements, all separate financial statements of subsidiary entities, originally presented in a currency different from

the Group’s presentation currency, have been converted into sterling. Monetary assets and liabilities have been translated into sterling at the

closing rate at the balance sheet date. Income and expenses have been converted into sterling at the average rates over the reporting period.

Any differences arising from this procedure have been recognised in other comprehensive income and accumulated in the Foreign Currency

Reserve.

3.7 Income and expense recognition

Revenue from the sale of goods and services is recognised when i) the Group has transferred to the buyer the significant risks and rewards of

ownership of the goods and services which is when supply has been made, ii) the amount of revenue can be reliably measured and iii) the

costs incurred or to be incurred in respect of the transaction can be measured reliably.

In the year ended 31 March 2012 the Group’s revenue comprised the sale of electricity and steam from the plant in South Africa and the sale

proceeds realised from the sale of 2 turbines held as assets for sale.

Operating expenses are recognised in Profit or Loss upon utilisation of the service or at the date of their origin. All other income and expenses

are reported on an accrual basis.

3.8 Property, plant and equipment

Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. No depreciation is charged during the

period of construction.

All operational plant and equipment in the course of construction is recorded as plant under construction until such time as it is brought into

use by the Group. Plant under construction includes all direct expenditure. On completion, such assets are transferred to the appropriate asset

category.

Depreciation is calculated to write down the cost or valuation less estimated residual value of all property, plant and equipment other than

freehold land by equal annual instalments over their estimated useful economic lives. The periods generally applicable are:

Plant and equipment: 3 to 15 years

Material residual values are updated as required, but at least annually, whether or not the asset is revalued. Where the carrying amount of an

asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

3.9 Non-current assets classified as held for sale

Assets are categorised as non-current assets classified as held for sale when the Directors intend that the asset be sold rather than employed

as an operating asset. Non-current assets classified as held for sale are valued at the lower of cost and fair value less costs to sell.


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3.10 Borrowing costs

All borrowing costs, and directly attributable borrowing costs, are expensed as incurred except where the costs are directly attributable to

specific construction projects, in which case the costs are capitalised as part of those assets.

3.11 Taxation

Current income tax assets and liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting

period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods

to which they relate, based on the taxable profit for the period. All changes to current tax assets or liabilities are recognised as a component

of tax expense.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities

and their carrying amounts.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary

differences can be utilised.

Deferred income tax is provided on temporary differences arising in investments in subsidiaries except where the timing of the reversal of the

temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate

to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

3.12 Financial assets

The Group’s financial assets include cash and cash equivalents, trade and other receivables.

Cash and cash equivalents include cash at bank and in hand as well as short term highly liquid investments such as bank deposits.

Receivables are non-derivative financial assets with fixed or determinable payment dates that are not quoted in an active market. They arise

when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Receivables are measured

initially at fair value and subsequently re-measured at amortised cost using the effective interest method, less provision for impairment. Any

impairment is recognised in Profit or Loss.

Trade receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in

accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the asset’s

carrying amount and the present value of estimated cash flows.

3.13 Financial liabilities

Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the Group becomes a party to the

contractual provisions of the instrument. All interest related charges are recognised as an expense in “finance expense” in the Statement of

Comprehensive Income except to the extent that the costs are directly attributable to specific construction projects. Bank and other loans are

raised for support of long term funding of the Group’s operations. They are recognised initially at fair value, net of transaction costs. In subsequent

periods, they are stated at amortised cost using the effective interest method. Finance charges, including premiums payable on settlement or

redemption, and direct issue costs are charged to Profit or Loss on an accruals basis using the effective interest method and are added to the

carrying amount of the instrument to the extent that they are not settled in the period in which they arise.



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3.14 Hedging instruments

The Group has not entered into any derivative financial instruments for hedging or for any other purpose.

3.15 Equity

Equity comprises the following:

• “Share capital” represents the nominal value of equity shares;

• “Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of

the share issue;

• “Foreign currency reserve” represents the differences arising from translation of investments in overseas subsidiaries; and

• “Profit and loss reserve” represents retained earnings.

3.16 Investment in subsidiary undertakings

The Company’s investments in subsidiary undertakings are stated at cost less any provision for impairment.

3.17 Amounts due from subsidiaries

Amounts due from subsidiaries are measured initially at fair value plus transaction costs and thereafter at amortised costs.

3.18 Key assumptions and estimates

The Group makes estimates and assumptions concerning the future. The resulting estimates will, by definition, seldom equal the related actual

results. The Board has considered the critical accounting estimates and assumptions used in the financial statements and concluded that the

main areas of significant risk which may cause material adjustment to the carrying value of assets and liabilities within the next financial year

are in respect of:

i) the value of the power plant in NewCogen, where recoverable, has been assessed on a value in use basis amount based on the assumptions

that a) the MTPPP contract with Eskom will continue for the foreseeable future and b) a discount rate of 13 per cent, no impairment to these

assets has occurred. (The value in use calculation shows a recoverable amount exceeding carrying value by £2.2 million. The discount rate

would need to increase to 15 per cent before the carrying value was less than the recoverable amount); and

ii) the value of non-current assets classified as held for sale where it has been assumed that the contracts in prospect will complete at not less

than their carrying value; and

iii) the going concern basis for the preparation of these financial statements, further details of which are set out in note 3.2.

3.19 Standards, amendments and interpretations to existing standards that are not yet effective and have not been early

adopted by the Group in the 31 March 2012 financial statements

At the date of authorisation of these financial statements certain new standards, amendments and interpretations to existing standards have

been published but are not yet effective. The Group has not early adopted any of these pronouncements. The new Standards, amendments

and Interpretations that are expected to be relevant to the Group’s financial statements are as follows:

Applicable for financial years

Standard/interpretation Content beginning on/after

IFRS 9 Financial instruments: Classification and measurement 1 January 2015

IFRS 10 Consolidated Financial Statements 1 January 2013

Amendments to IAS 1 Presentation of Items of Other Comprehensive Income 1 July 2012

Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities 1 January 2014


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IFRS 9, Financial instruments: Classification and measurement

In November 2009, the Board issued the first part of IFRS 9 relating to the classification and measurement of financial assets. IFRS 9 will

ultimately replace IAS 39. The standard requires an entity to classify its financial assets on the basis of the entity’s business model for managing

the financial assets and the contractual cash flow characteristics of the financial asset, and subsequently measures the financial assets as

either at amortised cost or fair value. The new standard is mandatory for annual periods beginning on or after 1 January 2013. The Directors

do not expect that the adoption of this standard will have a material impact on the financial statements of the Group.

IFRS 10, Consolidated Financial Statements

IFRS 10 replaces the portion of IAS 27 ‘Consolidated and Separate Financial Statements’ that addresses the accounting for consolidated

financial statements. It also includes the issues raised in SIC-12 ‘Consolidation — Special Purpose Entities’. IFRS 10 establishes a single control

model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise

significant judgement to determine which entities are controlled, and therefore are required to be consolidated by a parent, compared with the

requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013. The Directors do

not expect that the adoption of this standard will have a material impact on the financial statements of the Group.

Amendments to IAS 1, Presentation of Financial Statements (IAS 1 Amendments)

The IAS 1 Amendments require an entity to group items presented in other comprehensive income into those that, in accordance with other

IFRSs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions

are met. It is applicable for annual periods beginning on or after 1 July 2012. The Group’s management expects this will change the current

presentation of items in other comprehensive income; however, it will not affect the measurement or recognition of such items.

4 SEGMENT ANALYSIS

IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the chief operating decision

maker (considered to be the Board).

Management currently identifies two operating segments, being operations in RSA (comprising the business of generating electricity and steam)

and the head office in the UK. These operating segments are monitored and strategic decisions are made on the basis of segment operating

results. The electricity is sold to Eskom (the main buyer on behalf of the Government in South Africa) and the steam is sold to one industrial

customer which operates from premises adjacent to the plant.



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The following table provides a segmental analysis.

RSA UK Inter-group Total

Year ended 31.3.12 £’000 £’000 £’000 £’000

Revenue 4,371 – – 4,371

Cost of sales (4,438) – – (4,438)

Gross loss (67) – – (67)

Administrative expenses (791) (589) – (1,380)

Operating loss (858) (589) – (1,447)

Profit on sale of non-current asset – 6,116 – 6,116

Other income/(expense) 3,202 (1,002) – 2,200

Finance expense (42) (685) (500) (1,227)

Profit/(loss) for year 2,302 3,840 (500) 5,642

Total assets 12,221 32,076 (16,664) 27,633

Total liabilities 18,191 13,613 (16,664) 15,140

RSA UK Inter-group Total

Period ended 31.3.11 £’000 £’000 £’000 £’000

Revenue 801 – – 801

Cost of sales (2,671) – – (2,671)

Gross loss (1,870) – – (1,870)

Administrative expenses (336) (1,540) – (1,876)

Operating loss (2,206) (1,540) – (3,746)

Other income/(expense) 1,800 (845) – 955

Finance expense (879) (218) (1,350) (2,447)

Loss for the period (1,285) (2,603) (1,350) (5,238)

Total assets 14,573 50,195 (16,821) 47,947

Total liabilities 21,856 35,081 (16,821) 40,116

5 SENSITIVITY ANALYSIS

The value of shareholder equity and the results for the Group are affected by changes in exchange rates, prices for electricity, steam and gas,

and interest rates. The following illustrates the effects of changes in these variables.

i) Sensitivity to exchange rates

The Group’s electricity generating assets, which also provide steam to industrial customers, are located in South Africa and therefore the sterling

value of the revenues and costs from this activity are affected by movements in the value of sterling versus the ZAR.

The Parent Company has provided 100 per cent of the funding for the construction of the plant. The loans are denominated in sterling and

therefore the ZAR value of the loan is affected by movements in the value of the ZAR versus sterling.

In 2007 the Parent Company acquired the Turbines from an Italian manufacturer. The liability arising from the refurbishment, storage and interest

charges is denominated in euro and the sterling liability outstanding during the year and at the year end is therefore affected by movements in

the exchange rate between sterling and euro.


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The exchange rates applicable to the results for the current year and prior period were as follows:

Year to Period to

31.03.12 31.03.11

Closing rate

ZAR to £ 12.27 10.95

€ to £ 1.20 1.14

Average rate

ZAR to £ 11.83 11.42

€ to £ 1.16 1.15

The Group’s exposure to foreign currency risk is as follows

31.03.12 31.03.11

ZAR net assets of non-Sterling functional currency entities £7.1m £9.5m

€ Monetary liabilities not held in entities’ functional currency £4.6m £14.8m

A 10% change in the value of Sterling on result for the year/period

ZAR £0.2m £0.1m

€ £0.5m £1.3m

A 10% change in the value of Sterling on net equity

ZAR £0.7m £0.8m

€ £0.5m £1.3m

ii) Sensitivity to price changes in electricity sold and gas purchased

The results of the Group are affected by the price that electricity and steam is sold at and by the price paid for the gas which is used by the

turbines.

If the price of electricity and steam sold during the year had been 10 per cent higher or lower, the result for the year would have been £437,000

(18 months to 31.3.2011: £80,000) higher or lower.

If the price paid for gas used during the year had been 10 per cent higher or lower, the result for the year would have been £321,000 (18

months to 31.3.2011: £63,000) lower or higher.

iii) Sensitivity to interest rates

The majority of the Group’s funding has been provided by share capital. In 2008, the Group agreed a £15.0 million floating rate bank loan to

assist in the funding of the Turbines. At the beginning of the year, this loan plus accrued interest amounted to £17.2 million. In January 2012,

repayments of the loan reduced the value of the loan and accrued interest to £4.6 million. If the interest rate on the loan had been 10 per cent

higher or lower during the year, the effect on the finance expense for the year would have been to increase or decrease the finance expense

by £71,000 (18 months to 31 3.2011: £124,000).

The Group has other short term loans. A 10 per cent change in the interest rate applied to these loans would have changed the interest expense

for the year by £27,000 (31.3.2011: £12,000).



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6 COST OF SALES

Year ended Period ended

31.03.12 31.03.11

£’000 £’000

Gas 3,218 634

Depreciation 798 1,238

Other 422 799

4,438 2,671

7 ADMINISTRATIVE EXPENSES


31.03.12 31.03.11

£’000 £’000

Payroll and social security 786 1,113

Other administrative expenses 555 716

Audit fees 39 47

1,380 1,876

Audit fees comprise £29,000 (18 months to 31.3.2011: £31,000) paid to the Company’s auditors and £10,000 (18 months to 31.3.2011:

£16,000) paid to the auditors in respect of the audit of subsidiary companies.

8a PROFIT ON SALE OF NON-CURRENT ASSET


31.03.12 31.03.11

£’000 £’000

Sale proceeds 22,912 –

Costs (16,796) –

Profit on sale 6,116 –

In 2007, the Company acquired 4 gas turbines. Following refurbishment of the turbines, the Company intended to sell the turbines to its

subsidiary in South Africa which was tendering for a major power project. Due to weakening economic conditions, the project was delayed

and it was decided that it was in the best interests of shareholders to sell the turbines to a third party. During the year, 2 of the turbines were

sold. It is expected that the remaining two turbines will be sold during 2012 (see note 20).


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8b OTHER INCOME


31.03.12 31.03.11

£’000 £’000

Storage and insurance charges1 (256) (1,267)

Costs re loan for turbines2 (320) –

Write-down value of turbine equipment3 (780) –

Adjustment on gas ”take-or-pay” contract4 3,230 1,240

Foreign currency gains on inter-group loans5 – 1,226

Other foreign currency gains/(losses)6 326 422

Impairment charge7 – (666)

2,200 955

1 These costs relate to storage and insurance of the 2 remaining Turbines (see note 8a and note 20).

2 During the year, Standard Bank levied charges, including legal fees, on the loan in connection with the two turbines.

3 When the turbines were acquired in 2007, the Company also acquired some ancillary equipment at a cost of £1.2 million. This equipment

remains unsold and has been written-down to £400,000 which the Directors consider is the current market value.

4 In prior periods, the plant in Newcastle was unable to supply electricity due to the absence of an electricity offtake agreement with the result

that the gas purchased for the plant was less than the minimum offtake level required under a “take-or-pay” contract with Sasol, a gas supplier

in South Africa. At 30 September 2009 an accrual was made in respect of the shortfall in that year. The adjustment at 31 March 2011

represents a reduction in the accrual following a review of the accrual. The adjustment in the current year represents the difference between

the amount which Sasol has agreed to settle its claim for gas not supplied and the amount which had been provided in respect of potential

claims at 31 March 2011.

5 The Company’s loan to NewCogen is a sterling denominated loan. The gain in the 18 month period to 31 March 2011 arose as a result of the

strengthening of the ZAR versus sterling. Since 1 April 2011, any gain or loss arising on this loan as a result of movements in the value of the

ZAR versus sterling has been recognised as a movement through the Foreign Currency Reserve as the loan is now regarded as quasi-equity.

6 Exchange gains arising on the euro liability to Turbocare as a result of the value of the € weakening against sterling.

7 Following the temporary cessation of steam generation in 2009, the steam supply contract was terminated and accordingly the carrying value

of the contract was impaired to nil.

9 FINANCE INCOME


31.03.12 31.03.11

£’000 £’000

Interest received on bank deposits – 1



226116 IPSA pp19-pp37 31/08/2012 12:17 Page 28

10 FINANCE EXPENSE


31.03.12 31.03.11

£’000 £’000

Bank interest1 708 1,242

Loan note interest2 48 41

Other loans interest3 222 113

Other interest4 249 1,052

1,227 2,448

1 Bank interest comprises interest on the Standard Bank loan. (see also note 24).

2 Loan note interest comprises interest on the £650,000 loan note (see also note 24).

3 Other loans interest comprises interest on other loans (see also note 24).

4 Other interest represents an accrual for interest payable on the overdue sum due to Turbocare. In the prior period, other interest also included

a provision for interest which may have become payable to Sasol in respect of a claim which has now been settled with no interest becoming

due.

11 TAX EXPENSE/CREDIT

No UK corporation tax or foreign tax is payable on the results of the Group. The relationship between the expected tax credit and the tax credit

actually recognised is as follows:


31.03.12 31.03.11

£’000 £’000

Profit/(loss) for the year/period before tax 5,642 (5,238)

Expected tax charge/(credit) based on standard rate of UK corporation tax at 28% 1,580 (1,467)

Tax losses utilised (1,580) –

Reduction in/(addition to) tax losses carried forward 1,580 (1,467)

No deferred tax asset has been recognised owing to uncertainty as to the timing and utilisation of the tax losses. In the event that a deferred

tax asset was recognised at the balance sheet date, it is estimated that the value of the deferred tax asset would be £3.7 million (31.3.2011:

£5.3 million) in respect of the Group and £0.9 million (31.3.2011: £2.1 million) in respect of the Company.

12 PROFIT ATTRIBUTABLE TO THE PARENT COMPANY

The profit attributable to the Parent Company, IPSA Group PLC, was £3.8 million (18 months to 31.3.2011: £2.6 million loss). As permitted by

Section 408 of the Companies Act 2006, no separate profit and loss account is presented in respect of the Parent Company.


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13 PROFIT PER SHARE

The profit per share (period ended 31.3.2011 – loss) is calculated by dividing the result for the year/period attributable to shareholders by the

weighted average number of shares in issue during the year/period.


31.03.12 31.03.11

Profit/(loss) attributable to equity holders of the Company £5.6m (£5.2m)

Average number of shares in issue 107.5m 95.8m

Basic, diluted and headline profit/(loss) per share 5.25p (5.47p)

There is no difference between the basic and diluted earnings per share as the 6.8m warrants outstanding during the year were exercisable at

a price either at or above the share price of the Company and therefore had no dilution effect.

14 INTANGIBLE ASSETS

31.03.12 31.03.11

£’000 £’000

Net book value at beginning of year/period – 666

Adjustment following impairment review – (666)

Net book value at end of year/period – –

The intangible asset represented the Directors’ estimate of the fair value of a contract, owned by NewCogen at the date of acquisition, to

supply steam from the electricity generating plant. As a result of the termination of the contract following temporary cessation of the supply of

steam, the Directors wrote-off the asset.

15 PLANT AND EQUIPMENT

31.03.12 31.03.11

£’000 £’000

Cost

At beginning of year/period 16,075 15,312

Addition in year/period 1 55

Disposal – (510)

Exchange adjustment (1,767) 1,218

At end of year/period 14,309 16,075

Depreciation

At beginning of year/period 2,756 1,334

Charge for the year/period 798 1,317

Exchange adjustment (315) 105

At end of year/period 3,239 2,756

Net book value at start of year/period 13,319 13,978

Net book value at end of year/period 11,070 13,319

Property, plant and equipment has been valued at cost. It represents the 18 MW plant in NewCogen.



226116 IPSA pp19-pp37 31/08/2012 12:17 Page 30

16 INVESTMENTS

31.03.12 30.03.11

£’000 £’000

Investment in subsidiary companies 500 500

i) Investment in Blazeway Engineering Ltd

The Company owns 100 per cent of the issued share capital of Blazeway Engineering Ltd (a company incorporated in England and Wales,

company number 5356014). The investment has been valued at cost. Blazeway Engineering Ltd owns 100 per cent of Newcastle Cogeneration

(Pty.) Ltd (a company incorporated in the RSA).

ii) Investment in Elitheni Clean Coal Holdings Ltd

The Company owns 100 per cent of the issued share capital of Elitheni Clean Coal Holdings Ltd (“ECCH”), a company incorporated under the

British Virgin Islands Companies Act 2004 (company number 1437070). ECCH owns 100 per cent of the issued share capital of Indwe Power

(Pty.) Ltd (“IPPL”), a company incorporated in RSA. ECCH was incorporated as a vehicle to acquire land which, subject to planning approvals,

was intended as a potential site for the construction of a coal fired generating plant to be owned by IPPL. During a prior period, the company

acquired an option over suitable land at a cost, including fees, of £133,000. However, the Directors decided to allow the option to lapse following

the decision to terminate the coal supply agreement between IPPL and Strategic Natural Resources PLC. The cost of acquiring the option was

written-off in an earlier period.

17 TRADE AND OTHER RECEIVABLES DUE IN MORE THAN 1 YEAR

31.03.12 31.03.11

£’000 £’000

a) Group – –

b) Company

Amount due from subsidiary 22,653 22,310

Imputed interest at the rate of 3 month LIBOR plus 1.5 per cent, amounting to £0.5 million, has been added to the loan during the year

(18 months to 31.3.2011: £1.4 million). ZAR 30 million/£2.7 million of the loan has been subordinated in favour of other creditors of NewCogen.

18 TRADE AND OTHER RECEIVABLES DUE IN LESS THAN 1 YEAR

31.03.12 31.03.11

£’000 £’000

a) Group

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