REH.L Regulatory News (REH)

9 Mar 2009 07:00



09.03.09

9 March 2009

Renewable Energy Holdings plc

("REH" or "the Company")

Preliminary results for the twelve months ended 31 December 2008

Renewable Energy Holdings plc (AIM: REH), the AIM quoted developer and operator of proven and innovative renewable energy technologies, is pleased to announce its preliminary results for the twelve months ended 31 December 2008.

Financial Highlights

Revenue increased by 38% to £5.31 million (2007 restated: £3.83 million)

Loss before tax reduced by 7% to £1.99 million (2007 restated: loss £2.13 million), (Following new accounting policy)

CETO development payments of £2.79 million (2007: £0.75 million) made by Carnegie Corporation

Group ended the year with cash balances of £6.5 million (2007: £7.1 million), following German project debt repayment of £2.6m during the year

New accounting treatment of CETO development payments from Carnegie Corporation, as announced on 27 February 2009, mean reported revenues in 2008 will be lower by the amount of the CETO license payments from Carnegie during the period of £2.79 million. This technical change in treatment advised does not however impact the funds invested in CETO's development under the CETO licensing arrangements with Carnegie and therefore the progress of CETO towards commercial realisation.

Operational Highlights

40.5MW installed wind power capacity in Germany at two sites

Full year production from the 8MW project at Kirf, Germany 

Landfill gas in Wales business increased turnover by 83% to £0.51 million (2007: £0.28 million) from an increase in volume of electricity and a power purchase agreement

A pipeline of commercial sites for CETO in the Northern Hemisphere have been identified by REH and its partner EDF Energies Nouvelles SA 

100 MW of new projects in Poland and Wales making encouraging progress 

Management team strengthened with appointment of Paris Mouratoglou, Chairman of EDF Energies Nouvelles SA as a NED and  recruitment of a Business Development Director, Senior Project Engineer and a Science & Intellectual Property Manager

Commenting on the results, Mike Proffitt, Chief Executive of REH, said:

"2008 has been another year of strong growth and development, utilising REH's solid asset portfolio, in terms of project base and financial and human resources. We have enjoyed a full year of production from the 8MW Kirf extension to our German Wind operations, increased production at our Welsh landfill gas facility, and our Polish projects are making good progress.

"Our proprietary CETO wave energy technology is making excellent progress in the Northern and Southern Hemispheres, with the help of our partners Carnegie Corporation and EDF Energies Nouvelles SA.

"The Group starts the year in robust shape with generating assets covering our central cost base by some margin and continued sustained growth across our portfolio. We look forward to the coming year as a further period of growth for the business."

For further information please contact:

Renewable Energy Holdings plc

("REH" or "the Company")

Unaudited preliminary results for the year ended 31 December 2008

Chairman's Statement

Once again I am happy to be reporting positive results to the Group's members. The year ended 31 December 2008 is the fifth financial statement I have reported on and each report has seen the Group growing in size and capability. This year I am pleased to report a growth in the Group's revenues of £1.5 million and net assets of £5.2 million (£3.5 million and £8.6 million before the change in accounting policy explained in the Chief Executive Officer's report, and more fully in Note 2). We have maintained the ability to cover our corporate costs with income generated by operating assets, and we have cash in the bank.

Renewable energy has continued to be the focus of Governments around the world and much emphasis has been placed on this sector in the UK and Europe. Whilst there can be no guarantee that Government policies will not change in the future, it is clear that to accomplish the various targets that have been set across the Kyoto member countries for carbon emission reductions, it will be necessary, especially in the UK, to see further support for the renewable energy sector. Recent announcements supporting this view are a two Renewable Obligation Certificate (ROC) incentive for marine technologies in UK waters followed by a six ROC incentive for marine technologies in Scotland.

Further legislative support across Europe for wind and solar power and recent news of subsidies for renewable energy in Poland, all bode well for us.

As reported by the CEO, the Group's CETO wave energy technology appears to be now just months away from commercial demonstration. As with all new technologies some development risk remains at this stage, however, the Board consider that the CETO technology is robust and believes that, if successful, it represents an enormous opportunity for growth globally.

Many islands held hostage to imported heavy fuel oil, will see CETO as one of the few clean technologies available to them, and countries with extensive coast lines, such as the USA, will look to marine technologies to harness that vast natural resource.

We are all aware of the current challenges we are facing in terms of the global economy, and the knock on effect that downturns of this size and nature have on companies of all shapes and sizes. At REH, I believe we are well positioned to face these challenges. We have a Group with cash in the bank, no corporate debt, project facilities in place with Standard Chartered Bank, and operating assets producing positive cash flow. We believe it is companies like ours that are best placed to weather the storm such as this current economic crisis, and indeed to be able to act decisively as opportunities are created.

Sir John Baker

Chairman

9 March 2009

Chief Executive Officers Report 

Operating Assets

I am pleased to report that in its fourth operating year, the Group has again grown its operating revenues by £1.5 million in aggregate.

In Germany, the increase of electricity sales by £1.1 million to a total of £4.6 million came mainly from having a full year of production from the 8MW expansion at Kirf and from the resolution of the technical issues that had reduced production in earlier years. The revenue increase would have been ever greater but for the Group's wind assets in Germany suffering during the latter part of the year, as a result of unseasonably light winds caused by a slow moving high pressure weather system across Northern Europe. Against this sales increase of £1.1 million our operating costs increased only by £268,000. The group currently has 40.5MW of installed capacity in Germany at its two sites and expects that the net contribution from Habscheid's 4.7MW will commence in H1 2009.

In Wales, our landfill gas business produced sales of £510,000, up £232,000 on 2007, while operating costs increased by only £16,000 year on year. This resulted from both an increase in the volume of electricity produced and from a new power purchase agreement which took effect from the beginning of the year.

In summary, cash generated by the operational side of the business exceeded corporate expenses by £290,000, resulting in a loss before tax of £2.0 million after charging depreciation and amortisation of £2.3 million (2007: Loss before tax £2.1 million after charging depreciation and amortisation of £1.8 million).

The Group ended the year with cash balances of £6.5 million (£7.1 million the previous year end), after paying off project debt in Germany of £2.6 million during the year.

Development

During the year, we have entered into agreements to develop 100MW of wind power capacity; 30MW in Poland and 70MW in Wales, UK. Both projects offer excellent returns as they are in windy areas with estimated load factors of 32% and 36% respectively.

We expect Poland to be fully permitted during 2009 with Wales some eighteen months later. These projects have two important impacts on the Group and its growth strategy. First, they offer geographic diversity, presenting a natural hedge against weather risk and, second, they represent a combined energy output estimated at around 300,000MWh (mega watt hours) per year, some five times the Group's current output.

CETO Wave Energy Technology

CETO, the Group's unique wave energy technology, moved successfully through critical development milestones during 2008.

Some internal design features in the pump itself were modified to improve performance and these modifications were fabricated and the pumps put to test in real sub-sea conditions off Perth, Western Australia. Their performance was up to expectation and specification. Additionally, a means of shedding load from the Buoyant Actuator (the energy capture device) has been designed and tested as a means of safeguarding the equipment from excessive wave or storm conditions.

A realistic programme for the continued development and roll out of the technology is now in place which should see the first commercial demonstration unit operational by the end of 2009. 

A pipeline of commercial sites for CETO in the Northern Hemisphere has been developed by CETO Development Company Limited, our joint venture development vehicle with EDF Energies Nouvelles SA. These sites include Bermuda, West Coast Vancouver Island, Canada and others under review, all of which offer excellent wave regimes and exposure to high economic returns.

REH investors have been de-risked during the development cycle of the CETO technology through commercial arrangements put in place with EDF Energies Nouvelles SA in the Northern Hemisphere and Carnegie Corporation in the Southern Hemisphere.

This year REH expects to deploy the first commercial wave energy technology capable of swift and economic global deployment.

Accounting Policy

During the development cycle of CETO, the directors adopted an accounting policy considered at the time to be most appropriate. In 2005 and 2006 we wrote off research and development costs to the Group's Income Statement. During 2007, the Board reached the conclusion that the CETO project had satisfied the International Accounting Standards, such that future development costs should be capitalised. In 2007 the commercial agreement with Carnegie Corporation began. Under this Agreement, Carnegie paid for REH's CETO development costs in return for receiving the right to use the technology in the Southern Hemisphere. The Directors of REH took the view that non refundable payments received under this agreement should be recognised as income over the period of the development work. At the time of the 2007 financial statements, the Group's auditor, BDO Stoy Hayward, agreed with this accounting policy.

 BDO have now advised, following a review of the revenue recognition policy that, whilst the Carnegie payments are still recognised as income, they should be recognised not in the year of payment, but over the life of the licence agreement.

This change of accounting policy does not affect the Group's cash position, future cash flows, timing of the commercial launch of CETO, or its relationship with Carnegie Corporation Limited. The change does, however, require a restatement of the audited accounts for the year ended 31 December 2007 and the unaudited accounts for the six months ended 30 June 2008. 

Staff

During 2008, the Company grew its management staff by the inclusion of senior level personnel in the field of new business development, engineering and science. These positions enable the Group to look enthusiastically into 2009, at the build up of its operational asset portfolio and the timely deployment of CETO. 

Current year

The Group starts the year in robust shape with generating assets covering our central cost base by some margin and with an experienced team in place to continue the development of business in 2009 and beyond. 

We have also strengthened the Board following the period end, with the appointment of Paris Mouratoglou, Chairman of EDF Energies Nouvelles SA, as a Non Executive Director effective 1st February 2009.

At a time when a number of developers without sufficient capital and development resources are struggling to continue with their projects, we are seeing a number of projects that the Group may look to progress. As such, we look forward to the coming year as a further year of growth for the Group.

Michael J Proffitt

Chief Executive Officer

9 March 2009

Renewable Energy Holdings plc

Unaudited consolidated income statement for the year ended 31 December 2008

  Renewable Energy Holdings plc

Unaudited consolidated statement of changes in equity for the year ended 31 December 2008

  Renewable Energy Holdings plc

Unaudited consolidated statement of changes in equity for the year ended 31 December 2007

Renewable Energy Holdings plc

Unaudited consolidated balance sheet at 31 December 2008

 Renewable Energy Holdings plc

Unaudited consolidated balance sheet at 31 December 2008 (Continued)

  Renewable Energy Holdings plc

Unaudited consolidated cash flow statement for the year ended 31 December 2008

 Renewable Energy Holdings plc

Unaudited consolidated cash flow statement for year ended 31 December 2008

  Renewable Energy Holdings plc

Notes forming part of the unaudited preliminary results for the year ended 31 December 2008

1 Basis of preparation

The unaudited financial information set out in this preliminary announcement does not constitute the company's statutory accounts for the years ended 31 December 2008 and 31 December 2007. The financial information for the year ended 31 December 2007 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies as restated for the change in accounting policy. The auditors have reported on those accounts; their report was unqualified and did not contain a statement under section 15 (4) or 15 (6) of the Isle of Man Companies Act 1982. The statutory accounts for the year ended 31 December 2008 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.

2 Change in accounting policy

In July 2007 the company agreed to enter into a licence agreement conveying rights to Carnegie Corporation for the use of CETO technology in the Southern Hemisphere excluding Ile De la Reunion. In order to obtain those rights, Carnegie, under the terms of the licence agreement must pay to REH up to £4.75M during the technology development period.

If Carnegie use their rights to the Intellectual Property (IP) they must also pay a licence fee of 2% of the total capital cost of each commercial project and 2.5% of the annual earnings from each project.

During 2007, Carnegie paid £750,000 and this, with the agreement of the Auditors, was treated as income in the 2007 financial statements.

During 2008, Carnegie paid a further £2,800,000, and in keeping with the prior years accounting treatment, this was initially accounted for as revenue.

The auditors have now taken the view that this accounting treatment is inappropriate and accordingly, the directors have recorded the payments as deferred income, to be recognised over the life of the licence, a treatment which has the concurrence of the auditors. The deferred income is now shown in the non-current liabilities section of the balance sheet and accordingly, last year's payment of £750,000 has been restated.

However, under no conditions are these payments refundable to Carnegie.

The full effect of the above changes has been summarised below:

  Renewable Energy Holdings plc

Notes forming part of the unaudited preliminary results for the year ended 31 December 2008 (Continued)

3  Segment information 

The Group's primary reporting format for reporting segment information is business segments, and the segments are defined as Head Office, CETO development, Windfarm and Landfill gas. This split coincides with a geographical split of activities; Head Office being on the Isle of Man, CETO development taking place in Australia, Windfarms being in Germany and Landfill gas being in Wales.

  Renewable Energy Holdings plc

Notes forming part of the preliminary results for the year ended 31 December 2008 (Continued)

Segment information (Continued)

All intercompany balances and transactions are excluded from the above analysis.

  Renewable Energy Holdings plc

Notes forming part of the unaudited preliminary results for the year ended 31 December 2008 (Continued)

4 Tax expense

The reasons for the difference between the actual tax charge for the period and the standard rate of income tax in the Isle of Man applied to losses for the year are as follows:

  Renewable Energy Holdings plc

Notes forming part of the unaudited preliminary results for the year ended 31 December 2008 (Continued)

5 Loss per share

The loss figure used in this calculation is the loss for the year.

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group's dilutive potential ordinary shares are in respect of the share options and convertible loan notes issued during the year. The effect of these potential dilutive instruments is anti-dilutive, and as such they have been omitted from the calculation of dilutive loss per share.

  Renewable Energy Holdings plc

Notes forming part of the unaudited preliminary results for the year ended 31 December 2008 (Continued)

6 Property, plant and equipment

  Renewable Energy Holdings plc

Notes forming part of the unaudited preliminary results for the year ended 31 December 2008 (Continued)

7 Intangible assets

The cost of landfill gas rights are being amortised over the period to 30 April 2026.

Development costs are assessed for impairment on the basis of an estimate of the assets value in use.

  Renewable Energy Holdings plc

Notes forming part of the unaudited preliminary results for the year ended 31 December 2008 (Continued)

8 Financial assets and liabilities-numerical information 

Maturity of borrowings

The carrying amounts of borrowings, all of which are exposed to cash flow or fair value interest rate risk, are repayable as follows:

There is an undrawn loan facility of £116,744,652 at 31 December 2008 (2007: £63,903,754).

Renewable Energy Holdings plc

Notes forming part of the financial statements for the year ended 31 December 2008 (Continued)

9  Notes supporting cash flow statement

£2,995,511 (2007: £2,744,256) of cash and cash equivalents held in Germany are restricted under the terms of the loan agreement covering borrowings.