Interim Results

RNS Number : 7476N

Alkane Energy PLC

07 September 2011

 



7 September 2011

Alkane Energy plc

Unaudited interim results for the half year to 30 June 2011

Alkane Energy plc ("Alkane", "the Group" or "the Company") (AIM: ALK) the profitable alternative energy company, today announces its unaudited interim results for the six months to 30 June 2011.

Financial Highlights

§ Revenue increased 63% to £5.0m (2010: £3.1m)

§ EBITDA up 34% to £1.95m (2010: £1.45m)

§ Adjusted profit before tax up 36% to £0.89m (2010: £0.65m)

§ Basic earnings per share increased to 0.97p (2010: 0.70p)

§ Strong balance sheet - net debt modest at £3.4m with 17% gearing (2010: £2.4m)

§ Net assets increased to £19.9m (2010: £16.6m)

Operational Highlights

§ Generating output up 34% to 70GWh (2010: 52GWh)

§ Average pricing up 14% - positive momentum expected to continue into 2012

§ 96% of 2011 expected output contracted at an average selling price of £51/MWh and 54% of 2012 at £57/MWh

§ First biogas plant installed

§ Integration of Seven Star acquisition (completed May 2011) on track

§ Awarded preferred bidder for NE Wales AD plant

§ One new site added to coal mine methane portfolio in July post period end

 Commenting on the interim results, Chief Executive Officer, Neil O'Brien, said:

"Our coal mine methane core business continues to grow both in scale and profit. In addition, our core gas to power skills are helping the business successfully develop in related areas. In the UK power generation market where 25% of industry capacity will be retired in the next decade, we are well placed to make further progress."

For more information please contact:

Alkane Energy plc Neil O'Brien, Chief Executive Officer Steve Goalby, Finance Director	020 7796 4133 (today), then 01623 827927 020 7796 4133 (today), then 01623 827927
Altium Capital Limited Adrian Reed, Financial Advisory Chloe Ponsonby, Corporate Broking	0161 831 9133 020 7484 4040
Hudson Sandler Nick Lyon	020 7796 4133
Alex Brennan	020 7796 4133

www.alkane.co.uk

Background Information

Alkane is a profitable, cash generative and growing 'clean tech' business operating from 12 power plants around the UK with a capacity of over 40MW and with a growing presence in renewable biogas and power response.

The Company has the UK's leading portfolio of coal mine methane ("CMM") licences, enabling it to extract gas from abandoned coal mines.  Alkane started extracting CMM in 1999 with sites at Shirebrook, Steetley and Markham.  Shirebrook and Markham are still operational today, a decade after they were opened.  Shirebrook is still producing CMM and surplus generating capacity has been deployed to power response along with capacity at Markham.  

The Group now generates power from 12 mid size (up to 10MW) plants across the UK and sells this power through the electricity distribution network.  The electricity is generated using standard modular reciprocating engines, and these units and other ancillary plant are designed to be flexible and transportable.  This allows additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency. 

The Alkane operating model has already been transferred to power response, and currently operates 8MW across two sites on conventional gas with our trading partner (GDF SUEZ Energy UK). Power response incorporates peak running (normally 16.00 to 19.00 each weekday) and Short Term Operating Reserve ("STOR") under which National Grid contract standby facilities with generators.

The Biogas market also provides a potential new business stream which will require the same power assets and core gas and electricity skills as CMM.  Alkane has a collaboration agreement with the TEG Group PLC ("TEG") to build and operate anaerobic digestion ("AD") facilities using municipal waste.

Alkane's onshore licence position, which extends to over 600km², includes coal bed methane ("CBM") and shale gas potential.  These are longer term opportunities, with a different risk profile, and therefore the Company is seeking a partner who can bring CBM experience and financing through the exploration stage. 

Introduction

The strong momentum we have created over recent years has continued into the start of 2011 with output rising 34% to 70GWh (2010: 52GWh).  This is a further important step in the delivery of our stated strategy to exploit the coal mine methane ("CMM") reserves in our licence portfolio by increasing the number of sites we operate.  CMM revenues have increased 40% on the same period last year to £4.0m (2010: £2.8m).

We continue to look to broaden our product offering by leveraging our core gas to power skills.  The Board is determined to seek out sensible business expansion as a way to enhance shareholder value whilst retaining CMM as our priority investment area.  Each investment in new business areas is designed to give us an improved quality of earnings with more predictable and longer term cash flows.  The acquisition of Seven Star Natural Gas Ltd ("Seven Star") in May 2011 has provided two conventional onshore gas licences where we intend to deploy the same operating model and equipment that we have on CMM sites through the construction of mid-sized gas to power plants.  

In addition Alkane has already started moving into biogas and power response which together contributed 20% of turnover in the first half.

Half Year Results

Revenue increased by 63% to £5.0m (2010: £3.1m), driven by higher CMM output and rising selling prices compared with the same period last year.  In addition, we are reporting the first revenue from our biogas business, which has delivered its first power plant with income in the period of £0.7m.

Profit before tax, after adjusting for the one-off advisory and professional fees incurred in completing the acquisition of Seven Star, increased by 36% to £0.89m (2010: £0.65m), reflecting the benefit of higher prices and additional output.  The published profit before tax is £0.72m (2010: £0.65m).

The pricing environment has been positive with an average electricity selling price for the period of £49/MWh (2010: £43/MWh) an increase of 14% on the same period last year. 

Gross profit was £2.2m in the period, up 22% (2010: £1.8m).  Gross margin was 44%, down from 59% in the same period last year, however no margin has been taken to date on the sale of the biogas power plant and if this element is excluded gross margin was 52%.  The decline in the gross margin was due to several factors.  Cost of sales, excluding depreciation, have increased, partly reflecting the increase in sales volume, but also reflecting higher pumping costs as we increase vacuum at our sites in order to maximise the volume of CMM recovered.  Also included in cost of sales is the gas purchased for the power response business, which rose due to increased production.  Depreciation increased by 51% to £1,075k (2010: £710k) as we continued to invest in new sites and major overhauls.

We continue to manage our cost base prudently.  While administrative expenses rose by 8% to £1.2m (2010: £1.1m), these now represent 24% of revenue compared to 37% last year.  The average interest rate paid was reduced to 5.9% (2010: 7.3%).

EBITDA was up 34% to £1.95m (2010: £1.45m) in the period which represents an EBITDA margin of 39% (2010: 47%).  Excluding the biogas business, EBITDA margins were flat at 48% (2010: 49%).

Our balance sheet remains strong with net assets rising to £19.9m (2010: £16.6m), with modest gearing of 17% (2010: 14%) and net debt of £3.4m (2010: £2.4m).  The Board is comfortable with the current level of debt and will look to take advantage of debt funding as facilities are made available and there is clear visibility of future cash flows.

Cash flow from operations has increased to £2.1m (2010: £1.5m).  In addition, we raised £1.0m of new equity on the acquisition of Seven Star in May.  Cash outflows include the on-going roll out programme of new CMM sites with capital expenditure running at £1.9m (2010: £2.2m) and payments of £0.3m for the acquisition of Seven Star and associated due diligence fees.

Operations

The following table shows our continued progress:

	2009 installed capacity	Projects commissioned in 2010	2010 installed capacity	Projects under development in 2011	Total
	MW	MW	MW	MW	MW
CMM generation	17	7	24	4	28
Power response	7	1	8	-	8
Gas supply (equivalent MW)	6	-	6	-	6
Total	30	8	38	4	42

Coal Mine Methane

We traded from 12 sites throughout the period.  CMM accounts for the majority of our output, and has seen a 32% increase in electricity generation to 68GWh (2010: 51GWh), as we benefit from the full year impact of sites opened last year.  We have now commissioned our first new site in 2011, Calverton, which started to export to the grid in July.  A second site, at Gedling, has been drilled and we are on track to open a site at Pontycymmer early in 2012.  We remain on track to deliver around 4MW of new CMM capacity by the year end.

Pricing (base load 12 month ahead contracts) has firmed over the last 15 months having started from a low point of below £40/MWh to touch £60/MWh during the spring of this year.  Over that period the market tightened due to colder than normal winter conditions, political disruption in the Middle East and additional LNG demand from Japan post the earthquake and tsunami.  We operate a prudent forward contracting policy, and currently have 96% of 2011 expected output contracted at £51/MWh.  Looking forward into 2012 we have an average contract price of £57/MWh for 54% of our expected output.

Other Business Streams

We moved into power response facilities towards the end of 2009 with our surplus engine capacity being used as a peak load or short term operating reserve ("STOR") stand by facilities for the national grid.  Our Shirebrook site continued to run peak load (16.00 - 19.00 during the working week).  Overall this power response generated circa 6% of the Group's total revenue.

Our first Biogas plant has now been installed at Glenfarg, Perthshire at an anaerobic digestion ("AD") site owned and operated by the TEG Group PLC ("TEG"), and we expect this plant to be commissioned during the second half of this year.  This plant was delivered on time and on budget.

Business Development

Alkane will remain close to its heritage in exploiting new business streams.  Our skills encompass site selection, planning, permitting, building, owning and operating midsized "gas to power" sites.  These skills, like our plant, are transferable and this has led us into power response and biogas.  These new business streams are aimed at securing predictable and long term income flows.

We believe that our CMM licence portfolio has a number of attractive projects still to be developed and we have the proven skills and track record to exploit these opportunities.   Alkane is the sector leader in CMM in the UK and our on-going self financing roll out has made us one of the most active onshore gas companies.  We continue to await the Department of Energy and Climate Change's announcement of the 14^th Licensing Round and the Group will apply for a number of additional licences.  However, the results of this round will now not occur until next year.

Alkane uses a series of criteria in appraising CMM sites which includes the size of the mine workings, gas content of the coals and flooding patterns.  Flooding of the underground workings may occur at some point in the future which would deny the opportunity to use the gas resource.  There is also drill risk and we have been unsuccessful in drilling at Clipstone this year which, although disappointing, is in-line with our average drilling success rate.  CMM gas, as with any natural resource, is finite and we need to ensure we continue to refresh our reserve base.

The acquisition of Seven Star gave us our first conventional onshore gas licences.  The acquisition provides two gas reserves in the Midlands.  These sites are now being worked on as part of our project pipeline and considerable progress has already been made since acquiring the assets.  A potential site has been identified for Calow in Chesterfield and negotiations have commenced with the land owner.  A 12 month extension of the licence has been secured for the Nooks Farm, Staffordshire site so that we can review drilling and planning options.  We also intend to make licence applications in the 14^th Licensing Round in respect of conventional onshore gas.

Alkane also has UK onshore gas licences covering over 600km², which have coal bed methane ("CBM") and shale gas potential.  The CBM gas in place is estimated at 385bcf (mid-case).  As CBM remains to be proven commercially in the UK we continue to monitor progress in the wider industry and search for a partner who can bring CBM experience and financing through the exploration stage.

In biogas, we are delighted that the Alkane/TEG consortium has been selected as preferred bidder for the North East Wales area hub.  This is expected to reach financial close before year end and we will then create a joint venture between Alkane and TEG to run the 15 year municipal waste contract with the intention of building a 20,000 tonne, 1.2MW, AD biogas plant near Rhyl in North Wales.  We continue to work with TEG on municipal contracts with the aim of being a joint venture equity investor or supply chain partner in future projects.  There is a strong government commitment to support renewable energy and AD is one of the preferred solutions.  Alkane is also in talks with other parties regarding AD projects outside the municipal sector.

Outlook

Alkane has a clear strategy in place to exploit the opportunities in a power generation market where 25% of industry capacity will be retired in the next decade.  Our main CMM business continues to perform well and has made further progress both in terms of output and profitability. We remain fully committed to delivering on our CMM growth strategy. Selling prices have increased and we expect these to continue to strengthen and our CMM capacity to grow by a further 4MW by the year end.

Our core skills are enabling us to grow the business successfully in related areas where there are solid returns and the acquisition of Seven Star gives us new opportunities to exploit the onshore gas market.

Our first biogas project was installed on schedule and we foresee long term earnings from our power response facilities offering peak load or STOR stand by facilities for the national grid.

We look forward to delivering another successful year in line with market expectations.

John Lander

Chairman

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the 6 months ended 30 June 2011

		For the six	For the six	For the year
		months ended	months ended	ended
		30 June	30 June	31 December
		2011	2010	2010
		Unaudited	Unaudited	Audited
	Notes	£'000	£'000	£'000
Revenue		4,995	3,057	6,616
Cost of sales		(2,781)	(1,243)	(3,132)
Gross profit		2,214	1,814	3,484
Administrative expenses		(1,205)	(1,117)	(1,994)
Non-recurring costs	10	(173)	-	(70)
Return on Group operations		836	697	1,420
Other operating income		3	25	62
Profit on activities before finance costs		839	722	1,482
Finance income		36	38	71
Exchange (loss)/gain arising from financing		(11)	1	(5)
Finance costs		(146)	(108)	(247)
Net finance (costs)/income		(121)	(69)	(181)
Profit before tax		718	653	1,301
Taxation	4	200	-	500
Profit for the period from continuing operations		918	653	1,801
Discontinued operations:
Impairment reversal	5	21	130	151
Profit from discontinued operations		21	130	151
Other comprehensive income		-	-	-
Total comprehensive income for the period attributable to equity holders of the parent		939	783	1,952
Earnings per share
From continuing operations:
Basic, for profit for the period attributable to equity holders of the parent	6	0.97p	0.70p	1.93p
Diluted, for profit for the period attributable to equity holders of the parent	6	0.95p	0.70p	1.92p
From continuing and discontinued operations:
Basic, for profit for the period attributable to equity holders of the parent	6	0.99p	0.84p	2.09p
Diluted, for profit for the period attributable to equity holders of the parent	6	0.98p	0.83p	2.08p

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 June 2011

		30 June	30 June	31 December
		2011	2010	2010
		Unaudited	Unaudited	Audited
	Notes	£'000	£'000	£'000
NON-CURRENT ASSETS
Property, plant and equipment	7	11,594	9,806	10,576
Gas assets	8	13,260	10,202	11,687
Intangible assets	10	1,207	-	-
Deferred tax asset		700	-	500
		26,761	20,008	22,763
CURRENT ASSETS
Inventories		285	249	424
Trade and other receivables		1,741	1,491	1,692
Cash and cash equivalents		1,471	881	427
		3,497	2,621	2,543
TOTAL ASSETS		30,258	22,629	25,306
CURRENT LIABILITIES
Trade and other payables		(2,920)	(1,272)	(1,127)
Finance lease obligations		(904)	(856)	(892)
Provisions		(20)	(7)	(19)
		(3,844)	(2,135)	(2,038)
NON-CURRENT LIABILITIES
Finance lease obligations		(1,526)	(2,411)	(1,965)
Long-term borrowings		(2,460)	-	(1,751)
Deferred payments		(900)	-	-
Provisions		(1,647)	(1,482)	(1,649)
		(6,533)	(3,893)	(5,365)
TOTAL LIABILITIES		(10,377)	(6,028)	(7,403)
NET ASSETS		19,881	16,601	17,903
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
Share capital	11	498	465	470
Share premium		1,203	96	208
Other reserves		8,603	8,571	8,587
Retained earnings		9,577	7,469	8,638
TOTAL EQUITY		19,881	16,601	17,903

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2011

	Attributable to equity holders of the parent
	Issued	Share	Other	Retained	Total
	Capital	Premium(1)	reserves(2)	earnings	equity
	£'000	£'000	£'000	£'000	£'000
At 1 January 2011	470	208	8,587	8,638	17,903
Total comprehensive income	-	-	-	939	939
Share-based payment	-	-	16	-	16
Issue of share capital	28	995	-	-	1,023
At 30 June 2011 (Unaudited)	498	1,203	8,603	9,577	19,881
At 1 January 2010	464	72	8,557	6,686	15,779
Total comprehensive income	-	-	-	783	783
Share-based payment	-	-	14	-	14
Issue of share capital	1	24	-	-	25
At 30 June 2010 (Unaudited)	465	96	8,571	7,469	16,601
At 1 January 2010	464	72	8,557	6,686	15,779
Total comprehensive income	-	-	-	1,952	1,952
Share-based payment	-	-	30	-	30
Issue of share capital	6	136	-	-	142
At 31 December 2010 (Audited)	470	208	8,587	8,638	17,903

 

⁽¹⁾ During the period £98,000 was written off against the share premium account in respect of costs relating to the issue of shares.

 ⁽²⁾ Other reserves comprise share-based payments of £184,000 (30 June 2010: £152,000; 31 December 2010: £168,000) and a distributable reserve of £8,419,000 (30 June and 31 December 2010: £8,419,000) created following cancellation of the share premium account.

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2011

		For the six	For the six	For the year
		months ended	months ended	ended
		30 June	30 June	31 December
		2011	2010	2010
		Unaudited	Unaudited	Audited
	Notes	£'000	£'000	£'000
Operating activities
Profit before tax from continuing operations		718	653	1,301
Adjustments to reconcile operating profit to net cash flows:
Depreciation and impairment of property, plant and equipment and gas assets		1,107	730	1,798
Share-based payments expense		16	14	30
Finance income		(36)	(38)	(71)
Finance expense		146	108	247
Movements in provisions		(1)	128	307
Increase in trade and other receivables		(49)	(40)	(243)
Decrease/(increase) in inventories		139	(26)	(201)
Increase/(decrease) in trade and other payables		22	(29)	297
Income tax paid		-	(1)	(1)
Net cash flows from operating activities		2,062	1,499	3,464
Cash flows from investing activities
Proceeds from sale of investment in associate		-	130	130
Payments received		21	-	21
Interest received		37	39	72
Purchase of property, plant and equipment		(838)	(761)	(2,678)
Purchase of gas assets		(1,086)	(1,404)	(3,299)
Purchase of investments	10	(309)	-	-
Net cash flows used in investing activities		(2,175)	(1,996)	(5,754)
Cash flows from financing activities
Issue of share capital		1,023	25	142
Proceeds from sale and finance leaseback		-	1,074	1,074
Sale and finance leaseback rentals		(427)	(517)	(927)
Proceeds from long-term borrowing		709	-	1,751
Interest paid		(148)	(108)	(227)
Net cash flows from financing activities		1,157	474	1,813
Net increase/(decrease) in cash and cash equivalents		1,044	(23)	(477)
Cash and cash equivalents at beginning of period		427	904	904
Cash and cash equivalents at close of period	12	1,471	881	427

NOTES TO THE ACCOUNTS

1.             CORPORATE INFORMATION

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2011 were authorised for issue in accordance with a resolution of the directors on 6 September 2011.

Alkane Energy plc is a public limited company incorporated and domiciled in England whose shares are publicly traded.  The Company's registered number is 2966946.

The principal activities of the Group are described in Note 3.

2.             BASIS OF PREPARATION AND ACCOUNTING POLICIES

Basis of preparation

The interim condensed financial statements are unaudited and do not constitute statutory financial statements within the meaning of section 435 of the Companies Act 2006.

The comparative figures for the year ended 31 December 2010 were derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. Those accounts received an unqualified audit report which did not contain statements under section 498(2) or (3) (accounting records or returns inadequate, accounts not agreeing with records and returns or failure to obtain necessary information and explanations) of the Companies Act 2006.

The interim condensed financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. This report should be read in conjunction with the Group's Annual Report and Accounts 2009, which have been prepared in accordance with IFRSs as adopted by the European Union.

Accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those presented in the Group's Annual Report and Accounts for the year ended 31 December 2010.

The preparation of interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. There have been no significant changes in the bases upon which estimates have been determined compared to those applied at 31 December 2010, and no change in estimate has had a material effect on the current period.  All significant estimates and judgments have been disclosed in the Group's Annual Report and Accounts for the year ended 31 December 2010.  Actual results may differ from these estimates.

These condensed consolidated interim financial statements have been prepared on the basis of IFRSs in issue that are effective at the Group's annual reporting date as at 31 December 2011.

3.      SEGMENT INFORMATION

Operating segments

The directors consider that there are two operating segments:

·              The extraction of gas for power generation and for direct sale;

·              The development and operation of biogas projects.  

Seasonality of operations

There is no significant seasonal nature to the Group's business of the extraction and use of gas.

	Six months	Six months	Year ended
	ended	ended	31 December
	30 June 2011	30 June 2010	2010
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Extraction of gas
Total segment revenue	4,297	3,057	6,616
Depreciation	(1,117)	(741)	(1,818)
Segment profit before tax	1,168	957	1,877
Development and operation of biogas projects
Total segment revenue	698	-	-
Depreciation	-	-	-
Segment loss before tax	(97)	(50)	(101)
Total
Total revenue	4,995	3,057	6,616
Total depreciation	(1,117)	(741)	(1,818)
Profit before tax from operating segments	1,071	907	1,776
Corporate centre	(363)	(264)	(495)
Consolidation adjustment	10	10	20
Profit before tax from continuing operations	718	653	1,301
Discontinued operations	21	130	151
Profit before tax	739	783	1,452

The following table compares total segment assets, total segment liabilities and segment additions to non-current assets as at 30 June 2011 and as at the date of the last annual financial statements (31 December 2010).

	30 June	30 June	31 December
	2011	2010	2010
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Extraction of gas	28,082	22,445	24,963
Development and operation of Biogas projects	447	201	398
Total segment assets	28,529	22,646	25,361
Corporate centre	954	221	202
Intangible assets	1,207	-	-
Consolidation adjustments	(432)	(238)	(257)
Total consolidated assets	30,258	22,629	25,306
Extraction of gas	(17,340)	(14,499)	(15,595)
Development and operation of Biogas projects	(716)	(322)	(570)
Total segment liabilities	(18,056)	(14,821)	(16,165)
Corporate centre	(1,288)	(127)	(156)
Consolidation adjustments	8,967	8,920	8,918
Total consolidated liabilities	(10,377)	(6,028)	(7,403)
Extraction of gas	3,654	6,103	5,603
Development and operation of Biogas projects	36	166	166
Total segment additions to non-current assets	3,690	6,269	5,769
Deferred tax asset	200	-	500
Corporate centre	8	-	-
Consolidation adjustment: Intangible assets	1,207	-	-
Total consolidated additions to non-current assets	5,105	6,269	6,269

4.      TAXATION

There is no tax charge for the current period (six months ended 30 June 2010: nil, year ended 31 December 2010: nil). A deferred tax asset of £200,000 has been recognised in the period in accordance with a prudent estimate of the extent to which future taxable profits will be available to be utilised against unused tax losses and other temporary differences (six months ended 30 June 2010: nil, year ended 31 December 2010: £500,000).

5.      DISCONTINUED OPERATIONS

On 2 March 2009 the Group completed the sale of its 38% equity interest in Pro2 Anlagentechnik GmbH.  The settlement of certain outstanding loans was included in the transaction, with the repayment of a proportion of the loans being deferred.  Following a review at 31 December 2009 the full outstanding balance was impaired. 

There is an agreed repayment schedule running to 2013, and a repayment of €25,000 (£21,000) was received in the six months to 30 June 2011 and credited to the Statement of Comprehensive Income (six months to 30 June 2010: €150,000 (£130,000); year to 31 December 2010: €175,000 (£151,000)).  The balance outstanding at 30 June 2011 is €1,005,000 (£908,000) (30 June 2010: €1,055,000 (£864,000), 31 December 2010: €1,030,000 (£883,000)).  This balance represents loans made to Deutsche KWK GmbH, the parent company of Pro2.  Having reviewed the position at 30 June 2011, there remains a fundamental uncertainty in respect of the recovery of the outstanding balance in respect of the transaction and consequently there has been no reversal of the impairment charge.

6.      EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

	Six months		Six months		Year ended
	ended 30 June		ended 30 June		31 December
	2011		2010		2010
	Unaudited		Unaudited		Audited
	£'000		£'000		£'000
Profit for the period from continuing operations	918		653		1,801
Profit for the period from discontinued operations	21		130		151
Profit attributable to equity holders of the parent	939		783		1,952
	No.		No.		No.
Basic weighted average number of ordinary shares	95,079,389		93,024,209		93,267,179
Dilutive effect of share options	1,119,371		790,701		752,526
Diluted weighted average number of ordinary shares	96,198,760		93,814,910		94,019,705

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements that would have changed significantly the number of ordinary shares or potential ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the period.

7.      PROPERTY, PLANT AND EQUIPMENT

Acquisitions and disposals

During the six months ended 30 June 2011, the Group acquired assets with a cost of £1,781,000 (six months ended 30 June 2010: £1,008,000; year ended 31 December 2010 £2,524,000). There were no disposals during the period (30 June and 31 December 2010: nil).

Sale and finance leaseback

No new leases have been entered into during the six months ended 30 June 2011 (six months to 30 June 2010 and year ended 31 December 2010, two new lease agreements for two items of plant with a total cost of £1,030,000).

8.      GAS ASSETS

Acquisitions and disposals

During the six months ended 30 June 2011, the Group acquired assets with a cost of £1,916,000 (six months ended 30 June 2010: £1,439,000; year ended 31 December 2010: £3,245,000). There were no disposals during the period (30 June and 31 December 2010: nil).

9.      CAPITAL COMMITMENTS

At 30 June 2011, the Group had the following capital commitments contracted for but not provided in the financial statements:

Acquisition of property, plant and equipment £277,000 (30 June 2010: £539,000; 31 December 2010 £657,000);

Acquisition of gas assets £564,000 (30 June 2010: £210,000; 31 December 2010: £51,000).

10.    ACQUISITION OF SEVEN STAR NATURAL GAS LIMITED

On 26 May 2010 the Group completed the purchase of the entire issued share capital of Seven Star Natural Gas Limited ("Seven Star"), a company with two petroleum extraction and development licences covering previously identified onshore gas extraction prospects. 

The total consideration for the shares is as follows:

	£'000
Cash	309
Contingent consideration - see note (i)	900
Total consideration	1,209

(i)   The agreement requires the Group to pay the vendors an additional amount of £900,000 split as follows:-

· £250,000 within 15 business days of the satisfaction of certain conditions with respect to the site at Calow (PL213);

·  £250,000 within 15 business days of the satisfaction of certain conditions with respect to the site                 at Nooks Farm (PEDL141);

·  £400,000 once Seven Star has produced in aggregate 1 bcf of natural gas from either or both of   the Seven Star sites under the Licences

Net assets of £2,000 were acquired at the date of acquisition, together with the two licences which were not recognised in the accounts of Seven Star.  The directors have carried out a fair value assessment of the identifiable assets, liabilities and contingent liabilities of Seven Star and concluded that the net fair value is £1,207,000, and this amount has been included in the statement of financial position as an intangible asset.  No goodwill arises on the acquisition.

The acquisition was funded by the proceeds of a share placing.  5,605,370 new ordinary shares were issued at a placing price of 20p per share, raising £1,121,000.  Expenses of £166,000 were incurred in respect of the placing.  These costs have been written off against the share premium arising on the issue of the shares.

Costs of £173,000 were incurred in advisory, professional and other fees in order to effect the acquisition, and these costs have been expensed in the statement of comprehensive income.

Seven Star has not traded in the six months to 30 June 2011, but has incurred costs of £14,000.

11.    AUTHORISED AND ISSUED SHARE CAPITAL

	30 June	30 June	31 December
	2011	2010	2010
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Authorised
1,000,000,000 ordinary shares of 0.5p each	5,000	5,000	5,000

Allotted, called up and fully paid	thousands	£'000
Ordinary Shares of 0.5p each
At 1 January 2011	93,995	470
Share placing	5,606	28
At 30 June 2011 (Unaudited)	99,601	498
At 1 January 2010	92,884	464
Issued on exercise of share options	200	1
At 30 June 2010 (Unaudited)	93,084	465
At 1 January 2010	92,884	464
Issued on exercise of share options	1,111	6
At 31 December 2010 (Audited)	93,995	470

12.    ADDITIONAL CASH FLOW INFORMATION

Analysis of net funds

		1 January 2011		Cash flow		Exchange rate differences		30 June 2011
		Audited						Unaudited
		£'000		£'000		£'000		£'000
Cash at bank and in hand		427		1,044		-		1,471
Sale and finance leaseback		(2,857)		437		(10)		(2,430)
Long-term loan		(1,751)		(709)		-		(2,460)
Net debt		(4,181)		772		(10)		(3,419)
Securities		256		-		-		256
Adjusted net debt*		(3,925)		772		(10)		(3,163)
	1 January 2010		Cash flow		Exchange rate differences		30 June 2010
	Audited						Unaudited
	£'000		£'000		£'000		£'000
Cash at bank and in hand	904		(23)		-		881
Sale and finance leaseback	(2,710)		(579)		22		(3,267)
Net debt	(1,806)		(602)		22		(2,386)
Securities	188		40		-		228
Adjusted net debt*	(1,618)		(562)		22		(2,158)

	1 January 2010	Cash flow	Exchange rate differences	31 December 2010
	Audited			Audited
	£'000	£'000	£'000	£'000
Cash at bank and in hand	904	(477)	-	427
Sale and finance leaseback	(2,710)	(159)	12	(2,857)
Long-term loan	-	(1,751)	-	(1,751)
Net debt	(1,806)	(2,387)	12	(4,181)
Securities	188	68	-	256
Adjusted net debt*	(1,618)	(2,319)	12	(3,925)

*This includes the effect of securities paid on finance lease transactions that are closely related to those items.

13.    RELATED PARTY TRANSACTIONS

Transactions entered into and trading balances outstanding with related parties are as follows:

	Six months	Six months	Year ended
	ended 30 June	ended 30 June	31 December
	2011	2010	2010
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Key management compensation
Salaries and other short-term employee benefits	233	307	542
Long-term benefits	15	24	37
Share-based payments	14	13	27
	262	344	606

14.  GENERAL NOTE

Copies of this interim report will be sent to registered shareholders and further copies will be available from the Company's registered office.

 

END

 

 

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