Alkemy Capital. Regulatory News (ALK)

21 Mar 2007 07:03

Alkane Energy PLC21 March 2007 For immediate release 21 March 2007 Alkane Energy plc ("Alkane", "the Group" or "the Company") Unaudited preliminary results for the year ended 31 December 2006 Alkane is an international renewable energy company specialising in the design,build, operation and servicing of climate change reduction and electricitygeneration systems that use biogas, landfill gas, coal mine methane and sewagegas as fuel. Financial Highlights • Pre-tax profit of £1,148,000 achieved in line with expectations • Turnover increased by 39% to £27,319,000 (2005: £19,585,000) • Operating profit of £1,117,000 (2005: loss £1,046,000, loss before exceptionals £273,000) • Profit before interest and taxation of £1,464,000 (2005: profit £324,000, loss before exceptionals £248,000) • Basic earnings per share 1.11p (2005: loss 0.25p) • Net debt in 2006 £2,565,000, adjusted net debt reduced to £2,010,000 (2005: £2,130,000) Operational Highlights • Substantial growth in electricity sales to 59 million kWh (2005: 35 million kWh) • Eight mine gas plants operational with capacity equivalent to 17MW • Increasing political support for climate change reduction sector Commenting on the preliminary results, Chief Executive, Dr Cameron Davies, said: "I am pleased to report that Alkane has achieved a pre-tax profit of £1,148,000,predominantly as a result of greater electricity generation capacity, favourableenergy prices, and tight control over costs. Our plants generated more than 59million kilowatt hours of electricity in total during the year and reducedcarbon dioxide emissions equivalent to around 1,000 return flights from Londonto New York. This achievement was made possible by the total commitment ofAlkane's team to complete projects on time and on budget. In the UK, 2.7MW of decentralised generating capacity and the equivalent of 1MWof direct gas supply was added in 2006 with three new plants having been opened.Already, in 2007, an additional 1.35MW of generating capacity has beeninstalled on an existing site in order to maximise the use of our strategiconshore gas reserves. In Germany, Pro2 made good progress in 2006 and we expect to continue this in2007 as the substantial firm order book is completed and the full benefit of newfinancial management and controls is felt. For further information please contact: Alkane Energy plc Tel: 020 7466 5000 (Today)Dr Cameron Davies Tel: 01623 827927 Buchanan CommunicationsEric Burns Tel: 020 7466 5000 (Today)Alastair Watson Tel: 01943 883990 Chairman's Statement Introduction I am pleased to announce a 39% increase in turnover to £27,319,000 and anoperating profit of £1,117,000 predominantly as a result of expanding ourinstalled electricity generation capacity and the backdrop of favourable energyprices in the UK. During the year we brought on stream 2.7MW of newdecentralised generation capacity at Warsop and Mansfield 1, and at Mansfield 2began direct gas sales via a pipeline to a new customer. During the period, we took the opportunity to transfer one of our non-corelicences in exchange for £350,000 in cash plus access to two mine gas sites inour core area of operation. The transfer represents a significant uplift invalue for Alkane and highlights the potential embedded value in the Group'slicence portfolio. Another licence, covering a flooded coal mine, wastransferred to a coal bed methane operator for £185,000 in the first quarter of2007. Improved financial management and control systems at Pro2, our German subsidiarycompany, are already beginning to show benefit and, although profits at thisbusiness were lower than expected, partly due to sales with a value of£2,290,000 being pushed into 2007, the order book remains strong and we areconfident of a good out-turn for the current year. Financial Overview Alkane's turnover was 39% higher in 2006 at £27,319,000 compared to £19,585,000in 2005. The Group made an operating profit of £1,117,000 (2005: loss£1,046,000, loss before exceptionals £273,000). The earnings per share of 1.11pis a substantial improvement over the loss per share of 0.25p in 2005. Turnover in the UK business (including the Joarin mine gas project in Germany),mainly achieved by the Group's eight mine gas plants, was £3,724,000 (2005:£2,131,000) with an operating profit of £538,000 (2005: loss £1,463,000, lossbefore exceptionals of £690,000). Profit before taxation was £822,000 comparedto a profit of £16,000 in 2005. (Before exceptionals there was a loss beforetaxation of £456,000 in 2005). In Germany, Pro2's sales in 2006 increased by 35% to £23,595,000 (2005:£17,454,000). Sales with a value of £2,290,000 were deferred to 2007 due to thebankruptcy of the original intended customer. The projects to which the salesrelate continue to be developed and we expect to make the sales in 2007.Operating profit increased to £579,000 (2005: £417,000), and overall Pro2contributed £144,000 to the Group profit compared to a loss of £70,000 in 2004. Continued growth at Pro2 has meant that the £2,023,000 working capital loanprovided by Alkane in 2005 has been left in place to support the growing orderbook. In parallel, negotiations are continuing with banks and finance providersin Germany to refinance Pro2 with the injection of new equity and loan finance.As a result of this, two planned new UK mine gas developments have been deferreduntil later in the year and attention is currently focussed on expanding theoutput from existing sites where the infrastructure is already in place. In the UK, operating cash flows were positive, £674,000 inflow compared to£85,000 in 2005. There was an operating cash outflow of £381,000 in Pro2 (2005:inflow of £287,000) mainly due to the deferral of sales mentioned above. Overall there was a net cash outflow of £594,000 (2004: £4,347,000) and theGroup finished the year with a slightly lower adjusted net debt (adjusted forthe effect of securities paid on finance lease transactions) of £2,010,000compared with £2,130,000 at 31 December 2005. In the UK, there was a cashoutflow of £1,377,000, the majority of which was invested in the acquisition oftangible fixed assets for projects developed during the year. At Pro2, overallcash inflow was £783,000, with £2,388,000 coming from the sale and leaseback ofcertain tangible fixed assets that were capitalised at the end of 2005. Other operating income fell to £343,000, compared with £594,000 in 2005. Thiswas due to a reduction of £147,000 in consultancy income (one-off consultancyfees of £150,000 were charged in 2005 in respect of the Fivemiletown biogasproject in Northern Ireland) and a reduction of £151,000 in payments receivedfrom insurers in respect of the settlement of claims. The related costs areincluded in administrative expenses. The results for 2005 have been restated to reflect the implementation this yearof FRS20, 'Share-based payments'. The effect of the implementation was toincrease the reported loss in 2005 by £27,000. Operating Review UK Mine Gas Plants Three new mine gas projects were completed during the year; Mansfield 1(1.35MW), Mansfield 2 (gas sales), and Warsop (1.35MW). Mansfield 1 and Warsopare decentralised power generation plants and Mansfield 2 supplies gas,equivalent to approximately 1MW, direct to a customer for heating. Ourgenerating capacity has now increased to 10MW and total capacity is equivalentto 16MW including direct gas sales to customers for heating and their own powergeneration. Recently, in order to maximise the cash flow from exploitation ofour already developed gas reserves, we have transferred a 1.35MW generationplant from Sherwood to the Mansfield site where capacity increased to 2.7MW.This site is now operating at optimum production efficiency. We are currentlyinstalling a smaller 0.7MW generator at Sherwood to resume generation at thatsite. The output from our portfolio of UK generation plants was 51 million kWhcompared with 23 million kWh in 2005, an increase of 123%. The quality of minegas from our boreholes and mine shafts remains good. Direct gas sales reducedto 3.4 million therms (2005: 6.7 million therms) due to a pipe blockage at onesite. Electricity sale prices from our sites averaged £45/MWh during 2006 (2005: £39/MWh) and contributed strongly to our cash flow and profits. The recent fall inwholesale electricity prices has led us to sign six month rather than longerterm supply contracts as and when these come up for renewal. Taking intoaccount contract renewals we expect the average price that we receive in 2007 tobe around £35/MWh. In addition to the wholesale price, UK mine gas projectsproduce Climate Change Levy-exempt electricity and this adds around £3.50/MWh torevenue from those projects. We anticipate that the lower average priceachieved for our output will be offset by increased production of electricity. The economics of new sites are kept under constant review and as a result morecapacity is being installed on existing sites whilst the forward investmentprogramme has been confined to planning applications and land leases until aclear view on the forward electricity curve becomes clearer later in the year. Our mine gas plants in the UK and Germany continued to reduce methane emissionsfrom abandoned coal mines and in 2006 we captured the equivalent of 460,000tonnes of carbon dioxide. This corresponds to saving the emissions fromapproximately 1,000 return flights from London to New York and approximately 1.5billion vehicle miles. Pro2 Services Limited, our service and maintenance subsidiary, has now takenover the majority of routine service and maintenance operations at Alkane's UKgenerating and gas supply plants, replacing more expensive outsourced serviceproviders. It continues to provide gas flare and pumping system installationand services for its other customers in the landfill gas and waste watermarkets. Although this activity made a small loss of £25,000 in 2006, we expectthe company to be operating profitably in 2007. Pro2 Anlagentechnik GmbH Our German subsidiary Pro2 continued to expand its operations in its home marketand internationally. The German biogas market remained buoyant during the yearand saw rapid growth, whilst in France a new renewable energy law hassubstantially improved the economics of power generation from biogas andlandfill gas. As a consequence of the favourable renewable energy market,contracted orders are already in place for more than £15m of sales for deliveryin 2007. Pro2 has now been reorganised into a series of profit centres with seniormanagers taking responsibility for their own unit. A new finance manager withan experienced support team has reorganised the financial control system,installed new stock control software and implemented a full review of costinputs and profit margins. The improved financial management and controlsystems at Pro2 are already beginning to show results with quicker and betterreporting of key performance indicators and management accounts. Negotiations onthe provision of new equity and loan finance for Pro2's continued expansion arecontinuing with a consortium of investors and banks in Germany. The biomass crops to biogas sector is expanding rapidly and Pro2's sales in thismarket continue to grow rapidly. This expansion is expected to continue in linewith the German Government's target of 8,000 biogas plants installed by 2010compared with around 3,000 at present. In addition, there has been asignificant rise in orders for renewable electricity generation plants that usebiodiesel derived from sustainable crops as fuel. In the climate change sector, Pro2 has become the preferred technology partnerfor a clean development mechanism (CDM) project finance fund in China andcontinues to have strong interest from customers for the supply of itsgreenhouse gas reduction systems to the carbon credits sector. German CMM Alkane has decided not to pursue its options over mine gas sites in Germany asthe results from exploratory boreholes drilled at no cost to Alkane weredisappointing. Joarin is generating steadily at around 1MW and in response tothe lower than expected gas flow, one of the 1.35MW containerised generators wastransferred to Warsop in the UK where it is operating profitably. Prospects In 2006, we built on the foundations laid in previous years and have succeededin bringing the Group into profit. The prospects for 2007 are encouraging, inspite of lower electricity prices, as our own strategic gas reserves help tokeep input costs down. We intend to increase our involvement in the climatechange and renewable energy sectors that have risen to the top of the politicalagenda. We are actively seeking to grow the Group in this market segmentthrough an acquisition or a merger with a similar business. In closing, I would like to thank my colleagues in the UK and Germany for theirhard work and dedication in turning Alkane into a profitable business with goodgrowth prospects. John Lander Chairman GROUP PROFIT AND LOSS ACCOUNT for the year ended 31 December 2006 2006 2005 (unaudited) Restated* £ '000 £ '000 TURNOVER 27,319 19,585 Cost of sales (18,981) (13,948) GROSS PROFIT 8,338 5,637 Administrative expenses - operating (7,564) (6,504)Administrative expenses - exceptional (Note 2) - (773) (7,564) (7,277) Other operating income 343 594 OPERATING PROFIT/(LOSS) 1,117 (1,046) (Loss)/profit on sale of fixed assets (2) 25 Profit on sale of licence 350 -Adjustments in respect of costs of fundamental restructuring (Note 2) - 1,345 PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 1,464 324Interest receivable and similar income 124 214Interest payable and similar charges (440) (397) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 1,148 141 Taxation (66) (225) PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION 1,082 (84) Minority interests (67) (138) PROFIT/(LOSS) FOR THE FINANCIAL YEAR 1,015 (222) Earnings/(loss) per ordinary share - basic 1.11p (0.25p)Earnings/(loss) per ordinary share - diluted 1.09p (0.25p) All turnover and results relate to continuing activities. The earnings/(loss) per ordinary share calculation represents total andcontinuing results *Restated for FRS20 'Share-based payments'. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2006 2005 (unaudited) Restated £ '000 £ '000 Profit/(loss) for the financial year 1,015 (222) Exchange rate differences (86) (73) 929 (295) Prior year adjustment - share based payments (56) TOTAL RECOGNISED GAINS AND LOSSES 873 There was no change in net assets as at 1 January 2006 as a result of theimplementation of FRS20 'Share-based payments'. GROUP BALANCE SHEET at 31 December 2006 2006 2005 (unaudited) Restated £'000 £'000 FIXED ASSETSIntangible assets 685 793 Tangible fixed assets - gas properties 6,241 4,997Tangible fixed assets - other 3,576 5,706 9,817 10,703 Investments 3 - 10,505 11,496 CURRENT ASSETS Stock 6,631 3,427 Debtors: amounts falling due within one year 7,036 6,268Debtors: amounts falling due after more than 732 393one year 7,768 6,661 Investments 512 164Cash at bank and in hand 946 2,090 15,857 12,342 CREDITORS: amounts falling due within one year (10,256) (8,743) NET CURRENT ASSETS 5,601 3,599 TOTAL ASSETS LESS CURRENT LIABILITIES 16,106 15,095 CREDITORS: amounts falling due after more than (2,982) (2,976)one year PROVISIONS FOR LIABILITIES (1,603) (1,644) MINORITY INTERESTS (1,261) (1,217) NET ASSETS 10,260 9,258 CAPITAL AND RESERVES Called up share capital 459 456Share premium account 33,234 33,189Fair value of share options 81 56Profit and loss account (23,514) (24,443) TOTAL EQUITY SHAREHOLDERS' FUNDS 10,260 9,258 GROUP STATEMENT OF CASH FLOWS for the twelve months ended 31 December 2006 2006 2005 (unaudited) Restated £ '000 £ '000 NET CASH INFLOW FROM OPERATING ACTIVITIES 293 372 RETURNS ON INVESTMENT AND SERVICING OF FINANCEInterest received 122 249Interest paid (65) (71)Interest element of sale and finance leaseback rentals (137) (88)Interest element of finance lease rental payments (207) (269) (287) (179) TAXATION Overseas tax paid (151) (248) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTPayments to acquire intangible fixed assets (5) (27)Payments to acquire tangible fixed assets (1,852) (5,126)Receipts from the sale of tangible fixed assets 2,388 213Receipts from the sale of licences 350 -Payments in respect of securities* (555) - 326 (4,940) ACQUISITIONS AND DISPOSALSPurchase of subsidiary undertaking (20) (80)Net cash acquired with subsidiary undertaking - 3 (20) (77) MANAGEMENT OF LIQUID RESOURCESIncrease in current asset investment (351) (134) NET CASH OUTFLOW BEFORE FINANCING (190) (5,206) FINANCINGProceeds from sale and finance leaseback 550 1,644Increase in long term loans - 30Sale and finance leaseback rental payments (243) (419)Repayment of long term loans (60) (50)Capital element of finance lease rental payments (699) (586)Issue of ordinary share capital 48 240 DECREASE IN CASH (594) (4,347) * This relates to securities given under sale and leaseback transactions NOTES TO THE ACCOUNTS 1. The preliminary unaudited financial statements for the year ended 31December 2006 were approved by the board of directors on 20 March 2007. Theywere prepared on the same basis and with the same accounting policies as set outin the accounts for the year ended 31 December 2005, except for theimplementation of FRS20 'Share-based payments'. 2. EXCEPTIONAL ITEMS 2006 2005 (unaudited) Restated £ '000 £ '000Operating:Impairment of tangible fixed assets - gas properties (note a) - (524)Write-down of advances made (note b) - (249) - (773) Non-Operating:Reversal of impairment of tangible fixed assets - gas - 967properties (note a)Reassessment of provision for the restoration of sites (note c) - 378 - 1,345 a. During 2003 a fundamental restructuring of the business was implementedfollowing the decision taken by the Group to suspend the development of new minegas projects in the UK and to pursue a new strategy. UK development sites werewritten down to nil. Operating sites were written down to reflect their valuein use. This was determined using a discounted cash flow model applying adiscount rate of 10% reflecting the expected return on capital of such projects. As a result of sustained increases in wholesale electricity prices thedevelopment of new mine gas projects in the UK recommenced in 2005. Accordinglya review was made in 2005 of sites in operation at 31 December 2005 and afurther calculation made of their value in use over their expected useful lifeof up to 10 years, applying a discount rate of 10%. This resulted in a £967,000reversal of the previous impairment and a further impairment of £524,000 withinfixed assets - gas properties. b. in 2005 the development of a potential biogas project in Fivemiletown inNorthern Ireland was halted after a failure to secure land and planningpermission, and the Group withdrew from the development of large-scale biogasprojects. The costs written off in 2005 were £249,000 representing the amountadvanced by Alkane Biogas Limited, a subsidiary undertaking, to Biogas IrelandLimited, together with other costs associated with the withdrawal. c. As part of the fundamental reorganisation referred to in note a, a provisionof £2,000,000 for the restoration of all sites as required under the terms ofplanning permissions or under lease conditions was established. It wasanticipated that most of the provision would be utilised within the next twofinancial years, therefore the amount of the provision was not discounted. As stated in note a, the development of new mine gas projects in the UKrecommenced in 2005. Accordingly the timing of the utilisation of the provisionhas been extended to be over the period up to 2015. It then became appropriatethat discounting was applied. The provision was reassessed taking account ofutilisation to date and new sites added, and a discount rate of 10% was applied.The amount of the provision on this basis was £1,588,000. 3. EARNINGS PER ORDINARY SHARE The earnings per ordinary share are based on a profit of £1,015,000 (2005restated: loss of £222,000) on a weighted average of 91,540,638 ordinary shares(2005 restated: 90,424,387). Diluted earnings per ordinary share are based on a weighted average of93,214,959 ordinary shares - this represents a dilution by 1,674,321 ordinaryshares in respect of share options held by directors and employees. The lossattributable to ordinary shareholders and the number of shares for the purposeof calculating the diluted loss per ordinary share for 2005 are identical tothose used for the basic loss per share. This is because the exercise of shareoptions would have the result of reducing the loss per ordinary share in thatyear, and is therefore not dilutive under the terms of FRS22 'Earnings pershare'. 4. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2006 2005 (unaudited) Restated £ '000 £ '000 Decrease in cash (594) (4,347)Proceeds from sale and finance leaseback (550) (1,644)Increase in long term loans - (30)Repayment of sale and finance leaseback rentals 243 419Repayment of long term loans 60 50Capital element of finance lease rental payments 699 586Purchase of liquid resources 351 134 CHANGE IN NET DEBT ARISING FROM CASH FLOWS 209 (4,832) Finance leases entered into (698) -Exchange rate differences 54 84 CHANGE IN NET DEBT (435) (4,748) NET (DEBT)/FUNDS AT 1 JANUARY - RESTATED (2,130) 2,618 NET DEBT AT 31 DECEMBER (2,565) (2,130) 5. RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATING ACTIVITIES 2006 2005 (unaudited) Restated £ '000 £ '000Operating profit/(loss) 1,117 (1,046)Exceptional items - operating - 773Depreciation 1,373 1,442Amortisation 112 186Fair value of share options 28 29Increase in stock (3,270) (1,965)Increase in debtors (640) (388)Increase/(decrease) in creditors 1,611 1,373Decrease in provisions (38) (32) NET CASH INFLOW FROM OPERATING ACTIVITIES 293 372 6. ANALYSIS OF NET DEBT As at Cash flow Exchange As at 1st January Other rate 31 December 2006 non-cash differences 2006 Restated movements (unaudited) £ '000 £ '000 £ '000 £ '000 £ '000 Cash at bank and in hand 2,090 (1,141) - (3) 946Overdraft (729) 547 - 14 (168) 1,361 (594) - 11 778Liquid resources 164 351 - (3) 512Sale and finance leaseback (1,225) (307) - - (1,532)Long term loans (292) 60 - 5 (227)Finance leases (2,138) 699 (698) 41 (2,096)NET DEBT (2,130) 209 (698) 54 (2,565)Security on sale and leaseback - 555 - - 555ADJUSTED NET DEBT* (2,130) 764 (698) 54 (2,010) * This includes the effect of securities paid on finance lease transactionswhich is closely related to those items. 7. GENERAL NOTE a. The preliminary unaudited financial information set outabove does not constitute full accounts within the meaning of Section 240 of theCompanies Act 1985. b. Audited statutory accounts in respect of the year ended 31December 2005 have been delivered to the Registrar of Companies and thoseaccounts were subject to an unqualified report by the auditors and did notcontain an emphasis of matter reference or a statement under Section 237 (2) or(3) of the Companies Act 1985. c. Copies of the audited annual report and accounts for theyear ended 31 December 2006 will be sent to shareholders during April 2007 andwill be available from the Company's registered office - Edwinstowe House, HighStreet, Edwinstowe, Nottinghamshire NG21 9PR. This information is provided by RNS The company news service from the London Stock Exchange