MPC books nil income in two quarters after reclassification
MPC Caribbean Clean Energy Limited, an investor in renewable projects, recently released financials with an unusual profit and loss statement that contained no income despite generating nearly four times more cash from its energy holdings.
The lack of income did not arise from inactivity at the management company, but rather the new accounting treatment of its partially owned investment fund, called MPC Caribbean Clean Energy Fund, which generates the revenue.
The company earns all its income from the fund, so new accounting treatment resulted in no income passing through the profit and loss. The financials will mute the share of profit earned in the fund in the quarters until revaluation of assets at year end, MPC stated.
“Therefore, no revenue is recognised in the second quarter as it should be based on the valuation of the investment,” said the company, which explained that it switched from the equity method to valuation method of accounting for its investment in the fund. That means that it will get an annual appraisal by an independent valuation firm, as was done in December 2019.
“The investment company (fund) will have this appraisal performed annually in order to validate the investments for future assessments,” MPC said.
Managing Director David Delaire is yet to respond to requests for comment.
The company listed on the Jamaica Stock Exchange and the Trinidad & Tobago Stock Exchange earned no revenue for January to June 2020. It recorded a three-month loss of US$37,000 and a six-month loss of US$76,200. Nothing changed in terms of the ownership of the underlying energy assets that have long-term power purchase contracts with utility companies.
The layout of MPC Clean Energy’s financials now includes a table of key performance indicators. The metrics include EBITDA, which reflects its share of profit from the energy assets in its portfolio, energy output and energy availability.
The share of profit from the investment company totalled US$697,000 over six months to June compared to US$149,000 at half-year 2019.
“Key performance indicators reflect the pro-rated share of the company in the financial performance of the underlying investee’s of the investment company as well as the average technical performance on an aggregated basis (meaning not on an asset-by-asset basis),” the company explained.
MPC first reflected the changes in its accounting for its year-end results in December 2019, but still reported revenue at the time. The independent auditor BDO Barbados did not mention the matter in its statement accompanying the results, but MPC Clean Energy Chairman Fernando Zuniga told the Financial Gleaner at the time that the reclassification had resulted from questions raised with the company by BDO.
Zuniga said that during the review of the financial statements the auditors were not able to obtain sufficient information to support the previously reported valuation gains, which were removed as a line item in the accounts, along with dividend income. As a result of the adjustments, total audited revenue stood at US$272,400, substantially lower than the unaudited figure of US$1.9 million.
The company, controlled by German firm MPC Capital, raised capital amounting to US$11.4 million in Jamaica and Trinidad in 2019 via an initial public offering of shares; and in 2020 raised another round of capital, US$10.2 million, via a rights issue on both exchanges. Its capital now stands at some US$21.6 million.
MPC Caribbean’s major assets include holdings in a wind plant in Tilawind, Costa Rica, and a solar plant at Paradise Park in Jamaica.