UGEN Sociedad Anónima

Transcription

1 Unaudited interim financial statements for the nine-month period ended September 30, 2017

2 UNAUDITED INTERIM FINANCIAL STATEMENTS as of September 30, 2017 for the nine-month period beginning January 1, 2017 and ended September 30, 2017 Contents Page Review report on interim financial statements General information 1 Unaudited interim statement of financial position 2 Unaudited interim statement of profit or loss and other comprehensive income 3 Unaudited interim statement of changes in equity 4 Unaudited interim statement of cash flows 5 6 NOTE 1 - GENERAL INFORMATION 6 1.1) Description of the business 6 1.2) Going Concern 6 NOTE 2 - BASIS OF PRESENTATION 7 2.1) Adoption of International Financial Reporting Standards 7 2.2) Basis of measurement and presentation 7 2.3) Comparative information 7 2.4) Translation of financial statements 7 2.5) Early adoption of Standards 8 2.6) New and revised IFRS not yet effective to date 8 2.7) Statement of compliance 8 2.8) Significant accounting policies 8 NOTE 3 - USE OF JUDGMENT AND ESTIMATES 11 NOTE 4 - OPERATING SEGMENTS 12 NOTE 5 - EARNINGS PER SHARE 12 NOTE 6 - INCOME TAX 12 NOTE 7 - FINANCIAL INSTRUMENTS - CLASSIFICATION AND RISK MANAGEMENT 13 NOTE 8 - BREAKDOWN OF THE MAIN ACCOUNT BALANCES OF THE INTERIM STATEMENT OF FINANCIAL POSITION 16 NOTE 9 - BREAKDOWN OF THE MAIN ACCOUNT BALANCES OF THE INTERIM STATEMENT PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 18 NOTE 10 - BALANCES AND TRANSACTIONS WITH PARENT COMPANY, SHAREHOLDERS AND OTHER RELATED COMPANIES 19

3 UNAUDITED INTERIM FINANCIAL STATEMENTS as of September 30, 2017 for the nine-month period beginning January 1, 2017 and ended September 30, 2017 Contents Page NOTE 11 - LOANS BECOMING DUE 19 NOTE 12 - CAPITAL AND PLEDGE OF SHARES 21 NOTE 13 - CONTRACTUAL COMMITMENTS 21 NOTE 14 - RESTRICTED ASSETS 21 NOTE 15 - SUBSEQUENT EVENTS 22

4 REVIEW REPORT ON INTERIM FINANCIAL STATEMENTS UGEN S.A. Cerrito th Floor Suite 26 City of Buenos Aires Report on the interim financial statements We have reviewed the accompanying interim financial statements of UGEN S.A. ( the Company ), which comprise the statement of financial position as of September 30, 2017, the statements of profit or loss and other comprehensive income for the three and nine month period then ended and the statements of changes in equity and cash flows for the nine-month period then ended, as well as a summary of significant accounting policies and other explanatory notes. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board ( IASB ). Therefore, the Company's board of Directors is responsible for the preparation and fair presentation of the interim financial statements in accordance with International Financial Reporting Standards (IFRS) including the requirements of IAS 34, Interim Financial Reporting. Scope of the review Our responsibility is to express a conclusion on these interim financial statements based on our review. Our review was made in compliance with the International Standard on Review Engagements 2410 Review on Interim Financial Information Performed by the Independent Auditor of the Entity, as approved by the International Auditing and Assurance Standards Board. In accordance with such standard, a review is limited primarily to the performance of analytical procedures applied to financial data included in the interim financial statements and inquiries of personnel responsible for the preparation thereof. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing 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 on the interim financial statements. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial statements of UGEN S.A. as of September 30, 2017 and for the nine-month period then ended are not presented fairly, in all material respects, in accordance with IFRS including the requirements of IAS 34. City of Buenos Aires, January 8, KPMG Tamara Vinitzky Partner

5 Unaudited interim financial statements as of September 30, 2017 for the nine-month period beginning January 1, 2017 and ended September 30, Stated in USD Legal address: Cerrito th Floor - Suite 26, City of Buenos Aires Main business: Generation and distribution of electric power Start date of the Corporation: April 24, 2015 Parent company s information: Name: MSU Energy Holding Ltd. Legal address: Vineyards Business Centre Suite 3,36 Gloucester Avenue, London NW1, United Kingdom Main business: Investments Ownership interest and voting stock: 99.98% Subscribed, paid-in and registered capital (Note 12): Quantity Type, nominal value and No. of votes of each share Subscribed and paid-in ARS USD 70,046,000 Registered, common shares, with a nominal value of ARS 1, one vote per share 70,046,000 4,213,793 1

6 ASSETS NON-CURRENT ASSETS UGEN Sociedad Anónima UNAUDITED INTERIM STATEMENT OF FINANCIAL POSITION Notes 09/30/ /31/2016 Property, plant and equipment 8 f) 130,103,659 1,570,795 Other receivables 8 a) 14,755,108 9,959 Total non-current assets 144,858,767 1,580,754 CURRENT ASSETS Other receivables 8 a) 14,696, ,269 Cash and cash equivalents 8 b) 9,788,428 12,739 Total current assets 24,485, ,008 Total assets 169,344,017 1,746,762 Shareholders EQUITY Capital 4,213,793 13,793 Accumulated loss ( 1,642,484) ( 3,321) Total equity (as per related statement) 2,571,309 10,472 LIABILITIES NON-CURRENT LIABILITIES Deferred tax liabilities 253,349 - Loans 8 d) 146,003,272 - Total non-current liabilities 146,256,621 - CURRENT LIABILITIES Loans 8 d) 13,731, Other liabilities 8 e) 895,364 1,722,949 Taxes payable 2,545 5,678 Trade payables 8 c) 5,886,353 7,610 Total current liabilities 20,516,087 1,736,290 Total liabilities 166,772,708 1,736,290 Total liabilities and equity 169,344,017 1,746,762 The accompanying notes are part of these unaudited interim financial statements. 2

7 UNAUDITED INTERIM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the three and nine-month period ended September 30, 2017 (in USD) Notes 09/30/ /30/2017 (3 months) (9 months) Administrative expenses 9 b) ( 9,031) ( 75,600) Operating loss ( 9,031) ( 75,600) Financial income and expenses net 9 a) (688,812) (1,308,460) Loss before income tax (697,843) (1,384,060) Income tax 6 (172,449) ( 255,103) Net loss for the period (870,292) (1,639,163) Other comprehensive income (870,292) (1,639,163) Loss per share The accompanying notes are part of these unaudited interim financial statements. 3

8 UNAUDITED INTERIM STATEMENT OF CHANGES IN EQUITY for the nine-month period ended September 30, 2017 (in USD) Shareholders contributions Items Capital Accumulated loss Total Subscription of capital as per bylaws 13,793-13,793 Net loss for the period - ( 3,321) ( 3,321) Balances as of December 31, ,793 ( 3,321) 10,472 Capital increase (1) 4,200,000-4,200,000 Net loss for the period - (1,639,163) (1,639,163) Balances as of September 30, ,213,793 (1,642,484) 2,571,309 (1) As per voted at the Extraordinary Shareholders Meeting held on June 30, 2017 The accompanying notes are part of these unaudited interim financial statements. 4

9 CAUSES OF CHANGES IN CASH Operating activities UGEN Sociedad Anónima UNAUDITED INTERIM STATEMENT OF CASH FLOWS for the nine-month period ended September 30, 2017 (in USD) 09/30/2017 (9 months) Net loss for the period ( 1,639,163) Adjustments for: Accrued income tax 255,103 Depreciation of property, plant and equipment 3,905 Foreign exchange loss 1,311,727 Interest expenses, net ( 3,267) Changes in operating assets and liabilities: Increase in other receivables ( 19,345,696) Increase in trade payables 5,878,743 Decreases in taxes payable ( 3,133) Net cash flows used in operating activities ( 13,541,781) Investment activities Interest income 14,556 Acquisition of property, plant and equipment ( 98,376,272) Advances for property, plant and equipment ( 6,839,189) Net cash flows used in investing activities (105,200,905) Financing activities Increase in loans 131,516,686 Payments related to financing expenses ( 2,159,437) Interest expense ( 11,289) Decrease in other liabilities ( 827,585) Net cash flows provided by financing activities 128,518,375 Net increase in cash 9,775,689 Cash and cash equivalents at beginning of year 12,739 Cash and cash equivalents at period-end 9,788,428 Net increase in cash 9,775,689 Transactions that did not imply changes in cash Purchases and advances for property, plant and equipment in the amount of $ 27,285,393 (including capitalized interest amounting to $ 2,714,602) and $ 1,060,448, respectively, which were in behalf of the Company by its financial creditor. Loans used for the payment of other receivables (VAT tax credit) in the amount of $ 1,953,369, respectively, which were paid at in behalfof the Company by its financial creditor. Unpaid interest capitalized to Property, plant and equipment in the amount of $ 3,057,573. Capitalization of loans in the amount of $ 4,200,000 The accompanying notes are part of these unaudited interim financial statements. 5

10 NOTE 1 - GENERAL INFORMATION 1.1) Description of the business Based on the Argentine Government s search for a comprehensive solution to the energy supply shortage, on December 16, 2015, Decree No. 134/2015 was signed. By means of such Decree, the Argentine Government declared the energy emergency and instructed the Energy and Mining Department to prepare, implement and enforce a plan of actions required for the energy generation and distribution segments in the national jurisdiction, in order to tailor the quality and assurance of the energy supply and secure the supply of the electric power service in technical and economic conditions. One of the first actions taken when the government took office at the end of 2015was the adjustment of the electric power rates and benchmark framework, by means of the Resolution of the Department of Energy No. 22/2016 (SEE Resolution No. 22/2016). In order to meet the short term needs, according to SEE Resolution No. 21/2016 dated March 22, 2016, such Department called for a bidding process for new capacity of thermal generation and electricity production associated with the commitment of being available in the Wholesale Electric Market to meet the basic requirements of demand in the season periods of summer 2016/2017, winter 2017 or summer 2017/2018. In the same resolution, the Department of Energy instructed Compañía Administradora del Mercado Mayorista Eléctrico S.A. (CAMMESA) to define the terms and conditions of the supply under the bidding process and submit the results thereof for approval. The project awarded by the Department of Energy to UGEN S.A. (the Company ) consists in adding a nominal power of MW to the Argentine Interconnection System (SADI) through the installation of a thermoelectric generation plant (the Thermal Plant or the Plant ) in Barker, Province of Buenos Aires (the Project ). The Company will sell all its generation capacity of the Thermal Plant based on the regulatory system created by Resolution No. 21/2016 of the Department of Energy, through the Wholesale Demand Agreement signed by the Company and Compañía Administradora del Mercado Mayorista Eléctrico S.A. (CAMMESA) on July 25, 2016, in connection with the hired power of MW for a term of ten (10) years, at a price of $ 19,900 ($/MW-month) as awarded by Resolution 216/2016 issued by the Department of Energy. The Company estimates that the Thermal Plant will start operating in December The Thermal Plant will be connected to the SADI through high voltage lines of 132 KV. Additionally, on October 17, 2017, by means of Resolution 926 E/2017 of the Department of Energy, CAMMESA was authorized to enter into a new Wholesale Demand Agreement with UGEN S.A. as a result of the fact that the Company was awarded the project for completing the combined cycle (4+1). The project consists in adding a nominal power of 105 MW to the Argentine Interconnection System (SADI) through the installation of a fourth gas turbine and one steam turbine in the Thermal Plant of Barker. The associated supply agreement will be effective for a term of 15 years as from the start-up expected by year ) Going Concern The interim financial statements have been prepared on a going concern basis, which assumes that the company will be able to meet the current liabilities as disclosed in Note 8 c) and d). Considering that the fully operational phase will start on early January the company was authorized to conduct commercial operations with the Argentine Interconnection System (SADI) on December 28, 2017, as from such date, the Wholesale Demand Agreement signed with CAMMESA became effective - current liabilities are planning to be paid with operating income then generate and with cash in banks. Management believes that the payment of their current liabilities will occur as required. Moreover, on November 8, 2017, a general partner of MSU Energy Holding Ltd., sole shareholder of the Company, has expressed its commitment and ability to continue with financial support. Management acknowledges that uncertainty remains over the company ability to meet its funding requirements and to refinance or repay its current liabilities as they fall due. However, as described above, management has a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. 6

11 NOTE 2 - BASIS OF PRESENTATION 2.1) Adoption of International Financial Reporting Standards The Company has applied for the registration with the public offering regime for the issuance of corporate bonds and, consequently, is bound to apply the standards issued by the Argentine Securities and Exchange Commission (CNV) and Technical Resolution No. 26 (as amended) of the Argentine Federation of Professional Councils of Economic Sciences (FACPCE), which require the presentation of financial statements under International Financial Reporting Standards (IFRS). These interim financial statements have been prepared in accordance with the IFRS issued by the International Accounting Standards Board ( IASB ), which are mandatorily applicable to the Company, due to the decision adopted by the Extraordinary Meeting of Shareholders dated September 7, 2017 approving the creation of a program for the issuance of one or more classes or series of short-term debt securities subject to the public offering regime in a total outstanding nominal value of up to $ 650,000,000 or its equivalent in other currencies, through a co-issuance between RIO ENERGY S.A., UENSA S.A. and the Company. The Company, as coissuer, shall receive 35% of the funds obtained from such placement, i.e. up to $ 227,500,000 or its equivalent in other currencies. The Company is a first time adopter of IFRS in the annual financial statements ending December 31, Consequently, the interim financial statements for the period ended September 30, 2017 are related to the first period in which information is presented under IFRS, for which the Company has applied IFRS 1: First-time Adoption of IFRS. As it relates to the criteria adopted by the Company in the transition to IFRS regarding the alternatives available pursuant to IFRS 1, the items of property, plant and equipment have been stated at cost in the functional currency defined by the Company (see Note 2.4), applying (for purchases in Argentine pesos) the exchange rates prevailing at the dates of addition of each asset. For the preparation of these interim financial statements, the Company applied IFRS as issued by the IASB, including the requirements of IAS 34 Interim financial statements. Management elected not to present the financial statements in condensed form. 2.2) Basis of measurement and presentation These interim financial statements have been prepared on the historical cost basis. The presentation in the statement of financial position makes a distinction between current and non current assets and liabilities. Current assets and liabilities are those expected to be recovered or paid within twelve months after the reporting date. Additionally, the Company presents the statement of cash flows using the indirect method. These interim financial statements are stated in USD, except as otherwise indicated. 2.3) Comparative information The interim statement of financial position is comparatively presented to balances as of December 31, The interim statements of profit or loss and other comprehensive income, changes in equity and cash flows consider operations for the nine-month period ended September 30, The company was created on April 25, 2016 and commenced its activities during the last quarter of 2016, therefore no comparatives figures appears in the interim statement of profit or loss and other comprehensive income as of September for the three and nine month period then ended and on the interim statement of cash flow as of September for the period then ended, as no activities made by the company during this period (April 25, September 30, 2016). 2.4) Translation of the financial statements (a) Functional currency The Company s functional and presentation currency is the US dollar, determined on the basis of the analysis of various relevant factors under IAS 21 issued by the IASB. (b) Transactions and balances Transactions denominated in foreign currencies other than the functional currency are translated to the functional currency by applying the exchange rates prevailing at the dates of the transactions or the fair value measurement, as applicable. The interim statement of profit or loss and other comprehensive income includes exchange gains or losses derived from the settlement of these transactions and the translation of monetary assets and liabilities with an original currency other than the US dollar at exchange rates prevailing at periodend. 7

12 NOTE 2 - BASIS OF PRESENTATION (cont.) 2.4) Translation of the financial statements (cont.) Exchange gains or losses are presented in the interim statement of profit or loss and other comprehensive income under the Financial income and expenses-net line. 2.5) Standards early adopted The Company has not adopted any IFRS before the mandatory effective date. 2.6) New and revised IFRS not yet effective The Company is evaluating the impact that the following standards may have on its comprehensive profit or loss and financial position: (a) IFRS 9 Financial Instruments was issued by the IASB in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 applies a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules of IAS 39. The approach applied by IFRS 9 is based on the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Most of the IAS 39 requirements for the classification and measurement of financial liabilities were adopted by the IFRS 9 without any changes. The new standard also requires a single impairment analysis method to be used, replacing the multiple impairment methods of IAS 39. The effective date of IFRS 9 was postponed to fiscal years beginning on or after January 1, (b) IFRS 15 Revenue from contracts with customers sets forth a comprehensive framework to determine when revenue is recognized. It replaces existing guidelines on revenue recognition, including IAS 18 Revenue. IFRS 15 is effective for fiscal years beginning on or after January 1, The company is currently evaluating the adoption of IFRS 15. (c) IFRS 16 Leases sets the principles for the recognition, measurement, presentation and disclosure of leases applicable to both parties of an agreement, the IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ( lessee ) and the supplier ( lessor ). IFRS 16 will be effective as from January 1, Early adoption is only permitted if IFRS 15 Revenue from contracts with customers is also applied. The following new or revised standards are not expected to have a significant impact on the Company s financial statements: - IFRS 14 Regulatory Deferral Accounts - Clarification of acceptable methods of depreciation and amortization (Amendments to IAS 16 and IAS 38) - Equity Method in Separate Financial Statements (Amendments to IAS 27) - Annual improvements to IFRS cycle - various standards - Disclosure Initiative (Amendments to IAS 1) - Disclosure Initiative (Amendments to IAS 7) - Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12) 2.7) Statement of compliance As mentioned in Note 2.1 to these financial statements, these interim financial statements have been prepared for the purposes of registering the issuance of corporate bonds under the public offering regime and, therefore, they have been prepared under IFRS. The issuance of these interim financial statements for the period ended September 30, 2017 was authorized by the Company s Board of Directors on January 8, ) Significant accounting policies The main accounting policies applied to the preparation of these interim financial statements are presented below. These policies have been consistently applied to the fiscal years/periods presented: 8

13 NOTE 2 - BASIS OF PRESENTATION (cont.) 2.8) Significant accounting policies (cont.) (a) Property, plant and equipment The items of property, plant and equipment are recognized at acquisition cost less accumulated depreciation, if applicable, and impairment losses, if any. The historical cost includes the spot purchase price and costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating as expected by Management. Works in progress (the plant under construction) have been stated at cost incurred up to period-end date. The cost of works in progress includes the capitalization of interest accrued at the effective rate relating to the external financing of works, included in the definition of qualified asset, under the terms of IAS 23. The disbursements arising from feasibility studies before deciding whether to invest in an asset or deciding which asset to be acquired were recorded as expenses as they were incurred. After completing the construction of the plant, the Company will amortize acquisition and construction costs by applying the straight-line method throughout its estimated useful life (10 years), recognizing the related depreciation in net profit or loss. The book value of the land where the plant is located will not be depreciated. The useful life of items of depreciating property, plant and equipment has been estimated at 3 years (computers) and at 5 years in the case of furniture and fixtures. (b) Losses on impairment of non-financial assets After starting up the Plant and other items of property, plant and equipment related to its operation, at each period-end, Management reviews the carrying amounts of this property to determine whether there is any indication of impairment in assets, to determine whether the carrying amount exceeds the recoverable amount of the assets, defined as the higher of the value in use and the net realizable value. In case any such indication of impairment is identified, the recoverable value of the asset shall be estimated to determine the amount, if any, of the impairment loss. (c) Financial instruments As of September 30, 2017, the Company classifies non-derivative financial assets as loans and receivables. The Company classifies non-derivative financial liabilities as other financial liabilities. (i) Non-derivative financial assets and liabilities - recognition and derecognition The Company initially recognises loans and receivables on the date that they are originated. Other financial assets are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the rights to receive the contractual cash flows in a transaction where substantially all the risks and rewards of ownership of the financial asset are transferred, or substantially all the risks and rewards of ownership are not transferred or retained and the control over the transferred assets is not retained. Any interest in such derecognized financial assets that is created or retained by the Company is recognized as a separate asset or liability. The Company derecognizes a financial liability when its contractual obligations have been paid or settled, or have expired. A financial asset and a financial liability shall be offset and the net amount presented in the statement of financial position when, and only when, the Company currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. 9

14 NOTE 2 - BASIS OF PRESENTATION (cont.) 2.8) Significant accounting policies (cont.) (c) Financial instruments (cont.) (ii) Non-derivative financial assets - measurement Financial assets carried at fair value through profit or loss A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and any variations, including revenues from dividends or interest, are recognized in profit or loss. Loans and receivables They are initially recognized at fair value plus any directly attributable transaction cost. After initial recognition, loans and receivables are carried at amortized cost, using the effective interest rate method to calculate amortization over the useful life of the asset. Impairment of financial assets At each period end, the Company evaluates whether there is objective evidence that a financial asset carried at amortized cost might have suffered impairment losses. A financial asset is considered to be impaired if there is objective evidence of impairment as a consequence of one or more events that have occurred after initial recognition and had a negative effect on the future cash flows of that asset, which can be estimated reliably. The criteria used by the Company to determine whether there is objective evidence of impairment include significant financial difficulties of the debtor; a breach of contract, such as a default or delinquency in interest or principal payments; it becoming probable that the borrower will enter bankruptcy or other financial reorganization. (iii) Non-derivative financial liabilities - measurement Non-derivative financial liabilities are initially recognized at fair value less the directly attributable transaction costs. After initial recognition, these liabilities are carried at amortized cost, using the effective interest rate method. The costs incurred by the Company and directly related to the issuance of debt and/or financing are recognized as advances in the statement of financial position until the issuance of debt instruments, and then deducted from the financial debt balance when it is initially recognized, or recognized as a loss in the event the financing is not effective. (d) Current and deferred income tax and minimum presumed income tax (i) Current and deferred income tax As of December 31, 2016, the Company applied the deferred tax method to recognize the effects for accounting purposes of the income tax. The income tax expense for the year includes the current tax expense, determined on the basis of applicable tax regulations, and the deferred tax expense or benefit. The deferred tax is recognized on temporary differences between the carrying amount of assets and liabilities included in the financial statements and the tax bases used to assess the taxable income and also include tax loss carryforwards. The deferred tax liabilities are generally recognized for all taxable temporary differences. A deferred tax asset is generally recognized for deductible temporary differences, to the extent it is likely that the Company may record future taxable income against which these deductible temporary differences may be used. The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and the deferred tax assets are reduced to the extent it is probable sufficient taxable profit will be earned in the future to recover all or part of the asset. 10

15 NOTE 2 - BASIS OF PRESENTATION (cont.) 2.8) Significant accounting policies (cont.) (d) Current and deferred income tax and minimum presumed income tax (cont.) (i) Current and deferred income tax (cont.) Deferred tax assets and liabilities are measured at the tax rates expected to be applicable in the period where the liabilities are settled or the assets are realized, based on tax rates and laws approved or substantially approved at the end of the reporting period. The effective tax rate applicable to the Company in the Republic of Argentina is 35 % as of the date of issuance of these interim financial statements. Both current and deferred income tax expenses are recognized in profit or loss, except to the extent they have been recognized in other comprehensive profit or loss or directly in equity, in which case the tax is also recognized, respectively, in the other comprehensive profit or loss or directly in equity. (ii) Minimum presumed income tax: The Company determines the minimum presumed income tax (IGMP) by applying the effective 1% rate on the taxable assets at year-end. This tax is supplementary to the income tax. The Company s tax liability in each period will be represented by the highest of the minimum presumed income tax amount assessed and the income tax amount assessed. However, if minimum presumed income tax exceeds income tax in a given fiscal year, such excess can be computed as a credit towards future income taxes occurring in any of the next ten fiscal years. e) Cash and cash equivalents Cash and cash equivalents in the interim statement of cash flows comprises cash and banks. f) Equity accounts Capital It includes the nominal value of the owners contributions. NOTE 3 - USE OF JUDGMENT AND ESTIMATES The preparation of these interim financial statements under IFRS requires Management to apply judgment, estimates and assumptions that affect the application of accounting policies and the amounts of assets, liabilities and expenses reported. The related estimates and assumptions are based on expectations and other factors deemed reasonable in the circumstances, the results of which are the basis of judgment on the value of assets and liabilities not easily evident from other sources. The actual value of future results may differ from these estimates. Estimates and underlying assumptions are continuously reviewed. The effect of reviews of accounting estimates is prospectively recognized. The critical judgments made in the application of accounting policies to these interim financial statements are related to the type of disbursements to be capitalized, such as works in progress (see Note 2.8), as the determination of capitalizable items requires a high degree of professional judgment. At the same time, Management recognizes estimation uncertainties with a significant effect on amounts recognized in these interim financial statements in relation to the following: - the assumptions to determine the amount of deferred tax assets related to tax loss carryforward, and - the recoverability of tax credit and property, plant and equipment balances, which will depend on the Company's operating income/loss once it starts conducting business. 11

16 NOTE 4 - OPERATING SEGMENTS The Company s chief operating decision maker ( CODM ) is the Board of Directors. As the Company is in start-up phase, as of September 30, 2017, it has not yet generated any revenue. However, taking into account that there is only a energy plant, the Company has determined only one operating segment. All of the Company s non-current assets are located in Argentina as of September 30, 2017 and December 31, The company will make their revenue to an unique client - CAMMESA (Note 13), which is the local government entity in charge of the management of the Wholesale Energy Market (WEM) administered and the dispatch of electricity into the SADI, Argentina s main interconnected power grid, covering most of Argentina. NOTE 5 - EARNINGS PER SHARE Basic The basic earnings per share were calculated by dividing net profit or loss by the weighted-average number of ordinary shares outstanding Loss for the nine-month period ended September 30, 2017 (1,639,163) Weighted-average number of ordinary shares outstanding 23,737,846 Basic earnings per share for the period ended September 30, 2017: (0.069) Diluted The diluted earnings per share do not differ from the basic earnings per share because the Company has no instruments that may be converted into shares. Note 6 - INCOME TAX The breakdown of the main components of deferred tax assets and (liabilities) is as follows: 9/30/ /31/2016 Deferred tax assets and (liabilities) Accumulated tax loss carryforwards 2,804, Difference in the measurement of property, plant and equipment acquired (2,308,491) 4,266 Difference in the measurement of financial loans and borrowings ( 757,464) - Other 7,904 - Total deferred tax (liabilities) assets ( 253,349) 4,281 As of September 30, 2017, the tax loss carryforwards estimated in relation to the income tax were broken down as follows, at the tax rate of 35%: Fiscal year Amount Expires in (estimated for the 9 month period) 2,804, Total 2,804,702 The Company s income tax differs from the theoretical amount to be obtained in case of using the weighted average tax rate applicable to income, as follows: 9 months 3 months 9/30/2017 9/30/2017 Loss before income tax (1,384,060) (697,843) Benefit for the period at the tax rate of 35 % 484, ,245 Non-deductible exchange differences due to the capitalization of financial loan ( 739,055) (416,694) Non-deductible expenses ( 469) - Total income tax expense charged to profit or loss ( 255,103) (172,449) 12

17 NOTE 7 - FINANCIAL INSTRUMENTS - CLASSIFICATION AND RISK MANAGEMENT (a) Classification of financial instruments The company uses the following hierarchy to determine the fair value of its financial instruments: 1 - Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. 2 - Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices) and 3. - Level 3: Inputs that are unobservable. The table below shows the classification of financial instruments held by the Company: Financial assets Account Balances as of September 30, 2017 Loans Note and receivables Other financial liabilities Other receivables 8 a) 8,438,117 - Cash and cash equivalents 8 b) 9,788,428 - Total financial assets 18,226,545 - Financial liabilities Loans 8 d) - 159,735,097 Trade payables 8 c) - 5,849,294 Other liabilities 8 e) - 895,364 Total financial liabilities - 166,479,755 Financial assets Account Balances as of December 31, 2016 Loans Note and receivables Other financial liabilities Cash and cash equivalents 8 b) 12,739 - Total financial assets 12,739 - Financial liabilities Loans 8 d) - 53 Trade payables 8 c) - 7,610 Other liabilities 8 e) - 1,722,949 Total financial liabilities - 1,730,612 As of the date of issuance of these interim financial statements, the balances disclosed for financial instruments are a reasonable estimate of their related fair values. (b) Financial risk management Financial risk management is addressed by the global policies of the Company, which are focused on the uncertainty of the financial markets and the alternatives to minimize the potential adverse effects on its financial performance. The Company s activities entail certain financial risks: 1. Market risk 2. Liquidity risk 3. Credit risk The Administration and Finance Department is responsible for the financial risk management, which identifies, assesses and hedges the financial risks. 13

18 NOTE 7 - FINANCIAL INSTRUMENTS - CLASSIFICATION AND RISK MANAGEMENT (cont.) (b) Financial risk management (cont.) 1. Market risk Market risk stems from the potential fluctuation to which the Company is exposed upon changes in fair value or future cash flows that may be adversely affected by variations in the exchange rates, interest rates or other variables. Below we include a description of the referred risks as well as a detail of the extent to which the Company is exposed, and a sensitivity analysis for potential changes in each of the relevant market variables. Currency risk It is the risk that the fair value or future cash flows of financial instruments may fluctuate due to exchange rate changes. Given that the functional currency of the Company is the US dollar, the currency increasing exposure in terms of effects on profit or loss is the Argentine peso (legal tender in Argentina). In order to minimize the results arising from exchange variations and, in an attempt to hedge the volatility risk in the fair value of assets and liabilities in foreign currency, the Company seeks to maintain a balance between assets and liabilities. The table below provides a breakdown of the net monetary position of the Company regarding the currencies used, stated in the functional currency and the reporting currency: Net monetary position assets (liabilities) Functional currency (US dollar) 09/30/ /31/2016 Argentine pesos 23,183,908 ( 699,714) Total 23,183,908 ( 699,714) Based on the table above, the Company s analysis considers the exposure of local currency in relation to the US dollar (functional currency). The Company estimates that, for each period, should other factors remain constant, a 5% strengthening (or weakening) of the local currency in relation to the functional currency at period-end would increase (decrease) income before tax, as described in the table below (amounts stated in functional currency): Functional currency (US dollar) September 30, 2017 December 31, % -5% +5% -5% Argentine pesos 1,220,206 (1,103,996) (36,827) 33,320 Total 1,220,206 (1,103,996) (36,827) 33,320 Interest rate risk It is the risk that the fair value or future cash flows of certain financial instruments may fluctuate due to changes in market interest rates in accordance with the different maturities and currencies in which the loans have been taken or investments have been made. To mitigate interest rate risks, the Company has long term financial loans with its majority shareholder and banks. Loans accrue interest at a weighted fixed interest rate of 8.37%. 2. Liquidity risk The liquidity risk is related to the Company s capacity to finance its obligations and investments and business plans with stable financing resources. It is also associated with the level of indebtedness and the maturity profile of loans. As the Company is engaged in the construction of its single plant for the generation of electricity to the date of issuance of these interim financial statements, it is mainly indebted with private banks to finance those liabilities. Additionally, the trade payables are supported by the contract entered into with General Electric for the construction and start-up of the plant of Barker. Considering that the fully operational phase will start on January 2018, current liabilities are planning to be paid with operating income then generate and with cash in banks. Management believes that the payment of their current liabilities will occur as required. 14

19 NOTE 7 - FINANCIAL INSTRUMENTS - CLASSIFICATION AND RISK MANAGEMENT (cont.) (b) Financial risk management (cont.) 2. Liquidity risk (cont.) The table below includes an analysis of assets and liabilities of the Company grouped by maturity. The amounts in the table are undiscounted contractual cash flows: Other receivables Trade payables As of September 30, 2017 Taxes payable Other Liabilities / deferred tax liabilities Loans To become due: 1st quarter 5,460,140 1,032,644 2, ,364 2nd quarter 9,236,682 4,853,709-2,575,205-3rd quarter ,057,945-4th quarter ,098,675-2nd year 14,755, ,529, ,349 3rd year or higher ,473,938 - Subtotal 29,451,930 5,886,353 2, ,735,097 1,148,713 Overdue Total 29,451,930 5,886,353 2, ,735,097 1,148,713 Not accruing any interest 29,451,930 5,886,353 2,545-1,148,713 At a fixed rate ,735,097 - Total 29,451,930 5,886,353 2, ,735,097 1,148,713 Receivables and payables, except for financial loans do not have adjustment clauses or accrue interest. Financial loans in US dollars accrue interest at a weighted annual fixed interest rate of 8.37%. Other receivables Trade payables As of December 31, 2016 Taxes payable Other liabilities Loans To become due: 1st quarter 153,269 7, ,722,949 2nd quarter - - 5, nd year 9, Subtotal 163,228 7,610 5, ,722,949 Total 163,228 7,610 5, ,722,949 Not accruing any interest 163,228 7,610 5,678-1,722,949 At a fixed rate Total 163,228 7,610 5, ,722,949 Receivables and payables, except for financial loans do not have adjustment clauses or accrue interest. Financial loans in local currency accrue interest at an annual nominal interest rate of around 25 %. 3. Credit risk The credit risk is defined as the possibility that a third party be unable to meet its contractual obligations, generating losses to the Company. As the Company is in an investment stage, the credit risk it may face is related to the balances of advances to suppliers and tax credits. Regarding tax credits, the Company filed with the Energy Office the proceedings for the acknowledgement of the project as critical to be eligible to apply for the benefits under Law 26,360, which provides the early refund of the VAT. Additionally, the balances of advances to suppliers are supported by the contract entered into with General Electric for the construction and start-up of the plant in Barker.. 15

20 NOTE 8 - BREAKDOWN OF THE MAIN ACCOUNT BALANCES OF THE INTERIM STATEMENT OF FINANCIAL POSITION (a) Other receivables Non current 09/30/ /31/2016 Deferred tax assets - 4,281 Minimum presumed income tax 5,537 - Value added tax credit 14,749,571 5,678 Total non current 14,755,108 9,959 Current Advances to suppliers 8,074, ,269 Value added tax credit 5,199,307 - sales tax credit balance 89,027 - Tax credit balance 232,374 - Customs credit balances 737,997 - Insurance to be accrued 111,711 - Miscellaneous receivables 251,655 - Total current 14,696, ,269 (b) Cash and cash equivalents Cash on hands 12,026 12,739 Cash in banks 9,776,402 - Total 9,788,428 12,739 (c) Trade payables Current Ordinary 711,678 2,515 Turbine supplier 4,853,709 Accrued expenses 28,719 - Deferred values checks 292,247 - Expense provision - 5,095 Total 5,886,353 7,610 (d) Loans Non current Bank Loans (Note 11) 105,746,260 (*) - Parent company (Notes 10 and 11) 40,257,012 - Total non current 146,003,272 - Current Bank Loans (Note 11) 9,633, Parent company (Notes 10 and 11) 4,098,675 - Total current 13,731, (*) It includes expenses to be deferred due to financing net of $ 2,079,166. (e) Other liabilities Current Accounts with other related parties (Note 10) 310, ,194 Accounts with shareholders (Note 10) - 250,000 Other payables 585, ,755 Total 895,364 1,722,949 16

21 NOTE 8 - BREAKDOWN OF THE MAIN ACCOUNT BALANCES OF THE INTERIM STATEMENT OF FINANCIAL POSITION (cont.) (f) Property, plant and equipment Main account At beginning of year Original values Additions (disposals) At period/ year-end Accumulated at beginning of period/year Depreciation For the period/year Tax rate % Amount (Note9 b) Net as of Accumulated at period/year end 09/30/ /31/2016 Land 850,000 ( 50,000) 800, , ,000 Computers - 23,299 23,299-33% 3,843 3,843 19,456 - Furniture and fixtures - 7,425 7,425-20% ,363 - Work in progress 720, ,556, ,276, ,276, ,795 Total as of 09/30/2017 1,570, ,536, ,107,564-3,905 3, ,103,659 Total as of 12/31/2016-1,570,795 1,570, ,570,795 17

22 NOTE 9 - BREAKDOWN OF THE MAIN ACCOUNT BALANCES OF THE INTERIM STATEMENT PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (a) Financial income and expenses -net 09/30/ /30/ months 3 months Financial Income Interest income 14,556 5,073 Total financial income 14,556 5,073 Financial expenses Interest expense ( 11,289) ( 17) Foreign exchange loss (1,311,727) (693,868) Total financial expenses (1,323,016) (693,885) Total financial income and expenses -net (1,308,460) (688,812) (b) Expense by nature Administrative Total 9 months Total 3 months Items expenses 09/30/ /30/2017 Payroll and social security contributions 5,651 5,651 - Professional fees 12,738 12,738 - Depreciation (Note 8 f) 3,905 3,905 1,545 Taxes, rates and contributions 1,643 1, Travel and per diem expenses 32,312 32,312 3,179 Telephone and communications 3,198 3, Institutional expenses 7,740 7,740 - Bank expenses 3,974 3,974 - Office supplies 4,373 4,373 3,146 Insurance Total as of 09/30/ ,600 75,600 9,031 18

23 NOTE 10 - BALANCES AND TRANSACTIONS WITH PARENT COMPANY, SHAREHOLDERS AND OTHER RELATED COMPANIES 1. Balances and transactions with parent company and shareholders 09/30/ /31/2016 Balances Long term loans MSU Energy Holding Ltd. 40,257,012 - Short term loans MSU Energy Holding Ltd. 4,098,675 - Other current liabilities: Manuel Santos Uribelarrea - 250,000 Transactions 09/30/ /31/2016 Loans received MSU Energy Holding Ltd. 43,112,597 - Capitalized loans MSU Energy Holding Ltd. 4,200,000 - Interest capitalized to Property, plant and equipment MSU Energy Holding Ltd. 1,144, Balances and transactions with other related parties Other current liabilities: RIO ENERGY S.A. 310,422 - UCSA S.A , , ,194 Transactions 09/30/ /31/2016 Re-invoicing of expenses RIO ENERGY S.A. 310, Transactions with senior management and directors In the nine-month period ended September 30, 2017, there are no balances and/or loans to directors and/or top management. During the referred period, compensations were granted to directors and key management in the total amount of $ being them short-term benefits and the only benefits granted to directors and key management. The Company has no long-term employees benefits, nor share-based payment. Additionally, there were no pending transactions and/or balances to be disclosed as of December 31, 2016 and to the transition date. NOTE 11 - LOANS BECOMING DUE The Company has been granted a loan by its parent company, MSU Energy Holding Ltd., in the amount of $ 12,100,000 as of September 30, 2017, out of which the amount of $ 11,900,039 has been disbursed on January 9, On June 30, 2017, the amount of $ 4,200,000 was capitalized in relation to this loan. Furthermore, on June 20, 2017, the Company signed an additional financing agreement with its parent company, MSU Energy Holding Ltd, in the total amount of $ 34,700,000, whereby the amount of $ 34,442,240 was disbursed as of September 30, In connection with these loans, as of September 30, 2017 the principal and interest payable by the Company amount to $ 44,355,687. On the other hand, the Company signed loan agreements in the total amount of $ 9,500,000, with BAF Latam Credit Fund B.V, which were disbursed in May, July and September 2017 in the amounts of $ 2,500,000; $ 3,000,000 and $ 4,000,000, respectively. As of September 30, 2017, principal and interest payable by the Company amount to $ 9,633,150. The referred loans include certain financial commitments (i.e. not to reduce the capital, provide the creditor with audited annual financial statements within 120 calendar days as from year-end, among others), which are being complied with as of September 30, To ensure that the Plant related works are duly and timely performed, on April 26, 2017 the Company took out a syndicated loan with some of the main banks of the country in the amount of $ 115,000,

24 NOTE 11 - LOANS BECOMING DUE (cont.) On June 28, 2017, the Company decided to include an addendum to that agreement in order to receive a first disbursement in the amount of $ 107,500,000. This amount was allocated to the early payment of the supply agreement with GE International Inc. referred to in Note 13. In connection with this loan, as of September 30, 2017, principal and interest payable by the Company amount to $ 105,746,259. The company GE International Inc. secured the syndicated bank loan up to 4 months after the plant receives the authorization to operate, in line with the original loan agreement. For these purposes, on June 28, 2017 the Company granted an irrevocable power of attorney to GE Company and GE International Inc. in order that the attorneys may create a registered pledge on equipment, a mortgage on the piece of real property, and execute a fiduciary transfer of title for security purposes. On the other hand, the loan agreement sets forth commitments and obligations assumed by the Company, which are being complied with as of September 30, In addition, there are other commitments and obligations related to financial ratios which would become effective as from the continuous operation of the Company or 4 months after the plant is granted an authorization to operate. During the period between the partial disbursement and the full disbursement or up to 4 months after the plant is granted an authorization to operate, these commitments and obligations are not effective as the Company has no cash flows or results associated with its electricity generation purpose. During this period, the guarantee of GE International Inc. referred to above is fully effective. Once the plant is granted an authorization to operate and after the works completion date, the Company shall offer guarantees to the banks granting the loan. For these purposes, it shall grant rights on the project assets, such as a mortgage on the real property where the plant has been built, a registered pledge on equipment and a fiduciary transfer of title for security purposes. The breakdown of loans per class with their related rate and maturity, comparative with the prior period is as follows: Class Currency Nominal interest rate Maturity 09/30/ /31/2016 Financial US dollars ,678,605 - Financial US dollars 13 ( 1) 35,677,083 - Financial US dollars ,633,150 - Financial US dollars ( 2) ( 2) 105,746,259 - Total loans 159,735,097 - (1) (a) Tranche A in the amount of $ 1,735,000 maturing on March 30, 2019, (b) Tranche B in the amount of $ 5,205,000 maturing on March 30, 2020, (c) Tranche C in the amount of $ 10,410,000 maturing on March 30, 2021, (d) Tranche D in the amount of $ 17,350,000 maturing on March 30, 2022, (2) (a) Tranche A in the amount of $ 3,773,250 maturing on September 28, 2018, (b) Tranche B in the amount of $ 5,643,750 maturing on December 28, 2018, (c) Tranche C in the amount of $ 3,773,250 maturing on March 28, 2019, (d) Tranche D in the amount of $ 4,095,750 maturing on June 28, 2019, (e) Tranche E in the amount of $ 4,095,750 maturing on September 28, 2019, (f) Tranche F in the amount of $ 8,772,000 maturing on December 28, 2019, (g) Tranche G in the amount of $ 4,095,750 maturing on March 28, 2020, (h) Tranche H in the amount of $ 4,095,750 maturing on June 28, 2020, (i) Tranche I in the amount of $ 4,095,750 maturing on September 28, 2020, (j) Tranche J in the amount of $ 4,095,750 maturing on December 28, 2020, (k) Tranche K in the amount of $ 4,095,750 maturing on March 28, 2021, (l) Tranche L in the amount of $ 4,095,750 maturing on June 28, 2021, (m) Tranche M in the amount of $ 4,095,750 maturing on September 28, 2021, (n) Tranche N in the amount of $ 4,095,750 maturing on December 28, 2021, (o) Tranche O in the amount of $ 4,095,750 maturing on March 28, 2022, (p) Tranche P in the amount of $ 40,484,500 maturing on June 28, 2022, The loan was agreed in US dollars, at an annual nominal rate of 6.5% up to the effective date of the guarantee of GE International Inc. and then at an annual nominal rate of 7.5%, being interest paid on a quarterly basis. 20