Interim Results
Alkane Energy PLC
22 September 2004
For Immediate Release 22 September 2004
Alkane Energy plc ('Alkane' or 'the Group')
Unaudited interim results for the six months ended 30 June 2004
Alkane Energy plc is a pan-European company which designs, manufactures and
operates renewable energy technology for the safe and environmentally friendly
use of methane.
Financial Highlights
• Turnover, including full contribution from Pro2, increased to
£6,604,000 (2003: £387,000)
• Operating loss £952,000 (2003 adjusted*: £1,080,000)
• Net cash balance of £4,864,000 as at 30 June 2004 (2003: £12,493,000)
* adjusted for restructuring costs
Operational Highlights
Germany
• Pro2
Strong first half performance with small operating profit
Sales historically weighted to second half
Benefiting from revised renewable energy laws
Good sales visibility for 2004 and 2005
• Coal Mine Methane ('CMM')
Three further projects now under development
Joarin delayed but on track to be operational in Q1 2005
UK
• Expansion into the renewable energy market through the acquisition of
Farmatic Biotech Energy UK Limited with first biogas project under
development in Northern Ireland
• Four previously suspended CMM projects approved and underway following
significant rise in energy prices
• Containerised methane capture plant shipped to Iran in July under
£700,000 contract with scope for further contracts
Commenting on the interim results, Chief Executive, Dr Cameron Davies, said:
'I am pleased that the revised strategy of the Group to broaden its base in the
renewable energy sector, both in the UK and Continental Europe, has been proven
by the rapid growth of our operations in these areas.
The substantial rise in UK electricity prices has improved prospects for our
original coal mine methane business and augurs well for the developing biogas
market.
As established experts in containerised methane capture plants we are in an
excellent position to evaluate further opportunities for acquisitions on a
pan-European basis as we move towards Group profitability from our current
activities.'
Enquiries:
Alkane Energy plc
Dr Cameron Davies Tel: 01623 827927
Buchanan Communications
Judith Parry/Eric Burns Tel: 020 7466 5000 (Today)
Tel: 01943 883990 (Thereafter)
Ben Willey Tel: 020 7466 5000
Alkane Energy plc
Introduction
Since joining the Board as Chairman in June, I have worked with the Group's
management team on forward strategy, met Alkane's employees and major investors,
visited the company's green energy parks in the UK and spent time at Pro2 in
Germany. I have been most impressed by the commitment, expertise and dedication
of the Alkane team. Following the past set-backs to the viability of the
Company's CMM operations, significant progress has now been made towards our
goal of being a pan-European renewable energy company with profitable operations
in both the UK and Continental Europe.
The Board continues to broaden the base of the business by diversifying into
other methane markets and renewable technologies whilst streamlining its
interests in the UK CMM industry. This has resulted in strategic investments in
other green energy technologies where premium prices are paid for renewable
energy and a reduction in operating costs in the UK.. The first of these
acquisitions, Pro2, a methane mitigation technology company based near
Dusseldorf, Germany, exemplifies this approach. Pro2 has already made a
significant contribution to turnover whilst placing us at the leading edge of
the rapidly expanding European biogas and other premium priced energy markets.
In addition, the acquisition of Farmatic Biotech Energy UK Ltd, in April 2004,
brought us the opportunity to participate in a major biogas project located in
Northern Ireland.
In the UK, higher prices for both electricity and gas are now beginning to
reflect the real cost of energy and this has improved the economics of power
generation from CMM and biogas, encouraging the company to capitalise on some
CMM projects which were previously suspended.
Board Changes
I joined the Board as Non-executive Chairman in June, having taken over from
Cameron Davies who has become Chief Executive. Cameron was a founding director
of Alkane and was Managing Director until 1999. David Cross, the former Chief
Executive, left the Board in June.
The new Board and the Alkane team, which consists of 10 full-time staff in the
UK (2003: 26) and 69 in Germany, are focused on driving the company forward to
profitability based on the new strategy.
Financial Overview
During the first half of the year, we have made further progress towards
achieving our aim of Group profitability in 2005. The Group reported a
reduction in operating loss on ordinary activities before interest to £952,000
(2003: £1,080,000 operating loss before exceptional restructuring costs of
£19,321,000) and a loss before tax of £864,000 (2003: £831,000 loss, before
exceptional restructuring costs). The loss per share was 1.00p (2003: 0.93p
loss, before exceptional restructuring costs).
Group turnover was £6,604,000 compared with £387,000 in the first half of 2003,
which was before the acquisition of Pro2.
UK sales fell 12% from £387,000 to £341,000 largely due to the Markham CMM site
suspending production in December 2003.
Pro2 continued to expand rapidly during the period and turnover of £6,263,000
was consolidated into the Group accounts. It is pleasing to note that Pro2 made
a small operating profit for the first half of the year, despite historically
the majority of its turnover and profit being generated in the second half of
the year. Pro2 is on target to exceed last year's turnover of £17.4m.
The net cash balance at the half year was £4,864,000 compared with £6,062,000 at
the year end. Net cash at 30 June 2003 was £12,493,000, before the acquisition
of Pro2.
Operational Review
Germany
Pro2 Anlagentechnik GmbH
Pro2, in which we have a 51% equity holding, has continued its drive to become a
leading pan-European renewable energy technology sales and service company.
Our colleagues in Germany continue to develop Pro2 into a vertically integrated
company focused on renewable energy and climate change mitigation technology.
The management's strategy is to build on the solid base of plant sales and move
into operations, maintenance and contracting. This is bolstering profitability
and the Pro2 directors are working hard to increase the proportion of these
higher margin service contracts. We continue to give our full support to our
German colleagues for the development of the business towards this goal.
The recent revision of the German Renewable Energy Law reinforces the
Government's support for renewable energy. This has been demonstrated by the
increase in the guaranteed premium price paid for electricity generated from
renewable sources, particularly biogas. As a result, the demand for
containerised renewable energy systems has accelerated and Pro2 is already
capitalising upon this development. It has established an excellent reputation
in the biogas market and is working closely with the leading German biogas plant
turnkey contractor. We expect to see the full benefits in 2005.
Pro2 also continues to develop markets outside Germany. It has established a
strong position in Portugal where it is the leading supplier of containerised
equipment to landfill and biogas operators. It has also recently secured its
first sale in Russia.
CMM
The company's first German CMM project at Joarin, being developed with a local
partner A-TEC Anlagentechnik GmbH, is expected to become operational during the
first quarter of 2005, following a delay related to planning permission. This
project will both generate and sell electricity. During the period, a borehole
was drilled and a successful gas production test was completed. Under the
revised German Renewable Energy Law, electricity generated at the site will now
have a guaranteed premium price of approximately £43/MWh and the local network
operator is obliged to connect the plant to the grid and purchase the
electricity.
A further three CMM projects are at the planning stage and preparations for the
development of these are underway.
United Kingdom
Alkane Biogas Limited
In June 2004, we acquired Farmatic Biotech Energy UK Ltd, now renamed Alkane
Biogas Ltd. This forms the basis for our new anaerobic digestion business,
which will produce methane and derive income from both the environmentally
friendly treatment of bio-waste from farms and food processors and from the
generation of renewable electricity.
Through this acquisition, we are developing a biogas plant at Fivemiletown in
Northern Ireland. Heads of Agreement were signed earlier this month with local
partners. The project is expected to cost £6.8m, of which £3.1m will be funded
by a grant from the Department of Agriculture and Rural Development (DARD). The
balance will be funded by bank debt (£2.6m) and equity (£1.1m), of which Alkane
will contribute around 51%. We currently anticipate that the plant will be
operational during 2006.
Opportunities for further biogas projects should begin to grow rapidly as EU
waste directives are implemented from January 2005. These regulations are
expected to prevent animal waste, food waste and compostable plant materials
from being dumped into landfill sites. Anaerobic digestion plants producing
biogas for electricity generation and saleable fertiliser are an ideal method
for dealing with waste.
CMM
The DTI report on the control of CMM emissions from abandoned coalmines was
published in March 2004. It concluded that the best economic option was not to
use this potential domestic energy resource for electricity generation but to
flare it. The DTI therefore proposed to facilitate this option through a
system of grants to the CMM industry administered by the Coal Authority.
Through our membership of ACMMO and of the Renewable Power Association, we
continue to lobby the Government for the CMM capture industry to be given
revenue support measures which reflect the serious climate change impact of the
Government's methane emissions policy.
We have four operational CMM sites in the UK, although the period under review
has been adversely affected by the temporary suspension of production at Markham
following the appointment of a receiver at Coalite, our customer. However,
increased electricity prices will be reflected in higher contract prices for our
gas in the second half of the year and have significantly improved the economics
for CMM production.
In the latter context, we have reviewed those CMM sites where significant
investment has already been made. Three of these have been identified as
economically attractive given current electricity prices and the acquisition of
four containerised generation plants at significantly discounted prices. The
three sites are located at Bevercotes, Mansfield and Whitwell where we already
have planning permission, good gas flow and development can be completed at low
cost. The fourth plant will be at Markham, utilising the gas no longer supplied
to Coalite. Sales of electricity will commence when the connection to the local
network is completed in early 2005.
Container Sales
During the period, we received our first export order for a containerised mine
gas extraction system to a customer in Tabas, Iran. The sale value of this
contract is £0.7m; the initial deposit has been paid and the balance will be
received by the year end. We have received many enquiries from other working
coal mines for the purchase of containerised CMM capture plant, particularly
from Iran and companies in India and China following recent DTI sponsored visits
to Alkane's UK plants.
Prospects
We have achieved significant progress in the six months to 30 June 2004 as we
create real value for our shareholders. With the upturn in electricity prices
and increasing opportunities in renewable energy schemes, we are confident that
this progress can be sustained.
The acquisitions of Pro2 and Farmatic have opened up new revenue opportunities
and moved us firmly into the UK and pan-European premium price renewable energy
market. Our focus is to build on the Group's greenhouse gas control technology
and extend it to the rapidly growing renewable energy sector which are driven
both by EU legislation and the robust state of the energy markets.
We are confident that the Group will meet market expectations for the full year.
John Lander
Chairman
GROUP PROFIT AND LOSS ACCOUNT
for the six months ended 30 June 2004
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
(Unaudited) (Unaudited)
£ '000 £ '000 £ '000
TURNOVER 6,604 387 7,270
Cost of sales (4,026) (422) (4,921)
GROSS PROFIT/(LOSS) 2,578 (35) 2,349
Administrative expenses (3,687) (1,081) (3,840)
Other operating income 157 36 76
OPERATING LOSS (952) (1,080) (1,415)
EXCEPTIONAL ITEM - Fundamental restructuring (Note - (19,321) (19,670)
3)
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST (952) (20,401) (21,085)
Interest receivable and similar income 186 249 429
Interest payable and similar charges (98) - (47)
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (864) (20,152) (20,703)
Taxation (23) - (117)
LOSS ATTRIBUTABLE TO SHAREHOLDERS (887) (20,152) (20,820)
Minority interests (9) - (207)
LOSS FOR THE PERIOD (896) (20,152) (21,027)
Loss per ordinary share - basic and diluted (1.00p) (22.48p) (23.45p)
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
(Unaudited) (Unaudited)
£ '000 £ '000 £ '000
Loss for the period (896) (20,152) (21,027)
Exchange rate differences (113) - 9
TOTAL RECOGNISED GAINS AND LOSSES (1,009) (20,152) (21,018)
GROUP BALANCE SHEET
at 30 June 2004
as at as at as at
30 June 2004 30 June 2003 31 December
(Unaudited) (Unaudited) 2003
£'000 £'000 £'000
FIXED ASSETS
Intangible assets 776 - 729
Tangible fixed assets - gas properties 787 515 487
Tangible fixed assets - other 3,079 72 3,514
Investments 144 - 157
4,786 587 4,887
CURRENT ASSETS
Stock 3,928 14 2,486
Debtors: amounts falling due within one year 4,090 518 4,589
Debtors: amounts falling due after more than one 295 - 517
year
Investments 29 - 29
Cash at bank and in hand 7,235 12,493 8,757
15,577 13,025 16,378
CREDITORS: amounts falling due within one year (6,415) (755) (6,088)
NET CURRENT ASSETS 9,162 12,270 10,290
TOTAL ASSETS LESS CURRENT LIABILITIES 13,948 12,857 15,177
CREDITORS: amounts falling due after more than (1,897) - (2,105)
one year
PROVISIONS FOR LIABILITIES AND CHARGES (2,000) (2,000) (2,000)
MINORITY INTERESTS (1,059) - (1,079)
NET ASSETS 8,992 10,857 9,993
CAPITAL AND RESERVES
Called up share capital 449 448 448
Share premium account 32,955 32,946 32,948
Profit and loss account (24,412) (22,537) (23,403)
TOTAL EQUITY SHAREHOLDERS' FUNDS 8,992 10,857 9,993
GROUP STATEMENT OF CASH FLOWS
for the six months ended 30 June 2004
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 003 2003
(Unaudited) (Unaudited)
£ '000 £ '000 £ '000
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (1,114) (792) (3,736)
Cash flows from the fundamental restructuring - (307) (744)
TOTAL OPERATING CASH FLOWS (1,114) (1,099) (4,480)
RETURNS ON INVESTMENT AND SERVICING OF
FINANCE
Interest received 152 229 434
Interest paid (42) - (13)
Interest element of finance lease payments (12) - (33)
98 229 388
TAXATION
Overseas tax paid (19) - (116)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT
Payments to acquire intangible fixed assets (7) - (108)
Payments to acquire tangible fixed assets - gas (129) (748) (866)
properties
Payments to acquire tangible fixed assets - other (133) (14) (180)
Receipts from the sale of tangible fixed assets - 5 - 48
other
(264) (762) (1,106)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertaking (163) - (1,645)
Net cash acquired with subsidiary undertaking 149 - 1,744
(14) - 99
NET CASH OUTFLOW BEFORE FINANCING (1,313) (1,632) (5,215)
FINANCING
Repayment of long term loans (23) - (18)
Capital element of finance lease rental payments (173) - (137)
Issue of ordinary share capital 8 - 2
DECREASE IN CASH (1,501) (1,632) (5,368)
NOTES TO THE ACCOUNTS
1. BASIS OF PREPARATION
These unaudited interim financial statements, which are for the six months ended
30 June 2004, do not constitute Statutory Accounts within the meaning of Section
240 of the Companies Act 1985. They have been prepared using the accounting
policies set out in the Group's 2003 statutory accounts. The financial
information for the year ended 31 December 2003 is derived from the Group's
statutory accounts for that year which have been delivered to the Registrar of
Companies and on which the Group's auditors gave an unqualified report. The
auditors have carried out a review of the financial information for the six
months ended 30 June 2004.
2. TURNOVER
Turnover is attributable to two continuing activities:
a) the extraction and sale of gas from coal measures for power generation
and burner tip use; and
b) the manufacturing, supplying and operating of gas handling and power
generation equipment across a range of gases.
Turnover is derived from two geographical segments, the United Kingdom and
Continental Europe.
3. EXCEPTIONAL ITEM - FUNDAMENTAL RESTRUCTURING
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
(Unaudited) (Unaudited)
£ '000 £ '000 £ '000
a. Impairment of tangible fixed assets - gas - (17,046) (17,045)
properties
b. Deferred grant income written back - 278 278
c. Provision for the restoration of sites - (2,000) (2,000)
d. Impairment of tangible fixed assets - other - (158) (159)
e. Other head office reorganisation costs - (395) (744)
- (19,321) (19,670)
During the year ended 31 December 2003 a fundamental restructuring of the
business was implemented following the decision taken by the Group to suspend
the development of new coal mine methane projects in the UK and to pursue a new
strategy. The net costs incurred as a result of this fundamental reorganisation
were:
a. UK development sites were written down to nil. Operating sites were
written down to reflect their value in use. This was determined using a
discounted cash flow model applying a discount rate of 10% which reflects the
expected return on capital of such projects;
b. Deferred grant income received in relation to a development site was
released in line with the write off;
c. Provision was made for the restoration of all sites as required under the
terms of planning permissions or under lease conditions;
d. Other tangible assets which were no longer used were written off; and
e. Other head office costs including redundancy payments and professional fees
relating to the restructuring were written off.
4. ACQUISITION OF ALKANE BIOGAS LIMITED
On 8 April 2004 the Company acquired 83% of the issued share capital of Farmatic
Biotech Energy UK Limited (FBE) for a consideration of £150,000. This amount
was transferred to FBE, not to its shareholder. A shareholder loan of £100,000
was made to FBE on the same date. FBE had net liabilities of £56,000 at the
date of acquisition, and provisional goodwill arising on the acquisition is
£84,000. FBE has been renamed Alkane Biogas Limited.
5. LOSS PER SHARE
The basic and diluted loss per ordinary share is based on a loss of £896,000
(six months ended 30 June 2003: loss of £20,152,000; year ended 31 December
2003: loss of £21,027,000) on a weighted average of 89,690,633 ordinary shares
(six months ended 30 June 2003: 89,659,399; year ended 31 December 2003:
89,663,151).
6. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
(Unaudited) (Unaudited)
£ '000 £ '000 £ '000
Decrease in cash (1,501) (1,632) (5,368)
Repayment of long term loans 23 - 18
Capital element of finance lease rental 173 - 137
payments
CHANGE IN NET funds ARISING FROM CASH FLOWS (1,305) (1,632) (5,213)
Acquisition of long term loan - - (383)
Acquisition of finance leases - - (2,084)
Finance leases entered into - - (401)
Exchange rate differences 107 - 18
CHANGE IN NET FUNDS (1,198) (1,632) (8,063)
NET funds AT START OF PERIOD 6,062 14,125 14,125
NET funds AT END OF PERIOD 4,864 12,493 6,062
7. RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATING ACTIVITIES
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
(Unaudited) (Unaudited)
£ '000 £ '000 £ '000
Operating loss (952) (1,080) (1,415)
Depreciation 450 95 380
Amortisation 43 - 20
(Increase)/decrease in stock (1,560) 1 2,861
Decrease/(increase) in debtors 553 107 (2,850)
Increase/(decrease) in creditors 352 85 (2,732)
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (1,114) (792) (3,736)
8. ANALYSIS OF NET FUNDS
As at Cash flow Exchange rate As at
1st differences 30 June2004
January
2004
(unaudited)
£ '000 £ '000 £ '000 £ '000
Cash at bank and in hand 8,757 (1,501) (21) 7,235
Long term loans (369) 23 18 (328)
Finance leases (2,326) 173 110 (2,043)
6,062 (1,305) 107 4,864
9. GENERAL NOTE
Copies of this interim report will be sent to registered shareholders and
further copies are available from the Company's registered office.
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