Interim Results

RNS Number : 6793N

Alkane Energy PLC

11 September 2013

 



11 September 2013

Alkane Energy plc

Unaudited interim results for the half year to 30 June 2013

Alkane Energy plc ("Alkane" "the Group" or "the Company") (AIM: ALK) the independent gas to power producer, today announces its unaudited interim results for the six months ended 30 June 2013.

Operational Highlights

·      44% increase in output

·      Installed capacity of 81MW

·      Acquired assets performing ahead of plan

·      Increased demand for standby power response generation

Financial Highlights

·      Revenue increased by 109% to £11.1m (H1 2012: £5.3m)

·      Group profit before tax pre-exceptionals increased 48% to £1.4m (H1 2012: £1.0m)

·      EBITDA up 54% to £3.3m (H1 2012: £2.1m)

·      Operating cashflow of £2.6m (H1 2012: £1.9m)

·      EPS pre-exceptionals for continuing operations up 35% to 1.43p (H1 2012: 1.06p)

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

"I am delighted to report another strong set of results for the Group with a significant increase in installed capacity as well as a 109% increase in revenue and a 54% increase in EBITDA.

"With the very real prospect of a shortfall in energy supply in the UK we will continue with our strategy of growing output and installed capacity.  Furthermore our successful acquisition of the Maltby Colliery CMM assets and the £6.0m fundraising leave us well placed to support the Group's investment plans in its core gas to power activities."

For more information please contact:

Alkane Energy plc Neil O'Brien, Chief Executive Officer Steve Goalby, Finance Director	01623 827927
Altium Capital Limited (NOMAD) Adrian Reed Liam May	0845 505 4343
VSA Capital Limited Andrew Raca	020 3005 5004
Liberum Capital Limited Clayton Bush Tim Graham	020 3100 2000
Hudson Sandler Nick Lyon Alex Brennan	020 7796 4133

Background information

Alkane Energy is one of the UK's fastest growing independent power generators. The Company operates mid-sized "gas to power" electricity plants providing both predictable and fast response capacity to the grid. Following the completion of the acquisition of the Maltby CMM Asset, Alkane now has a total of 81MW of installed generating capacity and an electricity grid capacity of 100MW.

Alkane's main operations are based on a portfolio of coal mine methane ("CMM") sites. Alkane has the UK's leading portfolio of CMM licences, enabling the Company to extract gas from abandoned coal mines.

As CMM declines at any one site Alkane retains valuable generating capacity and a grid connection which can be redeployed to power response. Power response sites are connected to mains gas and produce electricity at times of high electrical demand or in order to balance the electricity grid. Alkane now operates 30MW of power response on mains gas.

The Group operates from 22 mid-size (up to 10MW) power plants across the UK, 15 CMM only, 5 mains gas only, and 2 using both fuel sources. Alkane uses standard modular reciprocating engines to generate the electricity and sells this power through the electricity network. The engine units and other plant are designed to be flexible and transportable allowing additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency.

Alkane has a range of core skills encompassing the entire project development cycle including planning and permitting, sourcing plant and managing the build and commissioning stage. This has enabled Alkane to establish a design, build & operate ("DBO") business for third party clients in the biogas and oil & gas industries.

The Group has more than 800km² of acreage under various onshore Petroleum Exploration and Development Licences ("PEDLs"). Alkane retains a 100% interest in the majority of these PEDLs, which extend to all of the hydrocarbons recoverable from these licence areas. This includes any CMM, natural gas, coal bed methane ("CBM") or shale gas.

More information is available on our website www.alkane.co.uk 

Summary 

The Board of Alkane Energy is delighted to announce record interim results for the six months ended 30 June 2013.  The Group has made significant progress in delivering its strategy of becoming one of the UK's largest independent power producers.  Since setting out our growth strategy in 2009 we have delivered increased output every financial year and we are now the UK's largest generator of electricity from coal mine methane ("CMM") with a growing portfolio of sites providing fast response standby generation.  Alkane now generates enough power annually from our 22 operational power plants for the needs of around 70,000 homes.

Revenues have more than doubled compared with the same period last year at £11.1m (H1 2012: £5.3m), with EBITDA for the period at £3.3m (H1 2012: £2.1m).  Group adjusted profit before tax has increased to £1.4m (H1 2012: £1.0m) giving an adjusted earnings per share of 1.43 pence (H1 2012: 1.06 pence).  Both the acquisition of the Maltby CMM assets and the associated fundraising exceeded expectations. The placing was well supported by existing and new institutional investors and the acquired assets are performing ahead of plan.  Gearing has reduced to 27% (H1 2012: 46%).

Production

Overall our installed capacity has reached 81MW (H1 2012: 70MW) spread across 22 sites (H1 2012: 19 sites). In the first half of the year these sites have delivered a 44% increase in output to 94GWh (H1 2012: 65GWh).  This increase has come from growth in the existing CMM baseload operations, higher demand for our standby power response engines and a first time contribution from the acquisition of the CMM site at Maltby Colliery.

The acquisition of the 11MW CMM facility at Maltby Colliery was completed at the end of May 2013 and has moved into production earlier than plan.  We are encouraged by early performance at Maltby and would expect output to be maximised following the full colliery closure which is expected during the summer of 2014. 

We have been increasing our presence in the power response market over the last three years where excess CMM capacity is re-deployed to mains gas fuelled generation.  The engines are used as peak load supply in the winter period and as standby capacity for National Grid.  We have seen increased levels of calls from National Grid with an especially busy period since March 2013.

Design Build and Operate ("DBO")

We have been working on the delivery of seven DBO projects during the first half of this year, the largest of which is the re-drill and abandonment of the existing wells at Three Nooks Farm, Staffordshire.  Consequently we have seen an unusually large rise in revenue this half year which is not expected to recur in 2014.

Our strategy is to use the DBO element of our business to increase the scale of the Group's project team and to gain increased knowledge in the biogas and oil & gas sectors with the aim of finding profitable investment opportunities for us to take ownership of long term production assets. 

Finance

Revenue in the period reached £11.1m (H1 2012: £5.3m) representing a 109% increase.  The increase is due to a 44% increase in output, up to 94GWh (H1 2012: 65GWh), together with growth in the DBO business where revenue has grown to £4.7m (H1 2012: £0.8m) which includes £2.9m of revenue from the one off contract for refurbishment work at Three Nooks Farm, Staffordshire.

Average baseload power prices achieved in the period were £53/MWh (H1 2012: £52/MWh).  We expect to see a full year average price for 2013 of approximately £53/MWh, with 95% of our expected 2013 output already contracted at an average price of £53/MWh.  Power prices in the market have been stable over the last year and forward prices for 2014 are currently circa £54/MWh.  We have 17% of expected output in 2014 contracted at an average price of £54/MWh.

Operating profit pre-exceptionals has grown to £1.7m (H1 2012: £1.2m).  The unusually large growth in the lower margin DBO business, which is particularly due to the one-off contract at Three Nooks Farm, has temporarily reduced overall Group margins. Pre-exceptional operating margin is 16%, compared to 22% in the first half of 2012, and EBITDA is £3.3m (H1 2012: £2.1m) representing a 30% margin (H1 2012: 40%). Excluding exceptionals, profit before tax has risen 48% to £1.4m (H1 2012: £1.0m). Earnings per share pre-exceptionals is 1.43p (H1 2012: 1.06p).

Our cost base remains tightly controlled. Administrative expenses before exceptional items have grown as the scale of the business has increased to £1.9m (H1 2012: £1.3m) representing 17% of revenue compared to 24% last year. 

The exceptional items in the published figures are an impairment of £233k in respect of capitalised development costs relating to the biogas business, the non-capital costs relating to the acquisition of Maltby CMM assets (£148k); and other acquisition expenses (£23k).  The published figures with all of pre-exceptional items included show profit before tax from continuing and discontinued operations of £1,017k (H1 2012: £1,012k) and earnings per share of 1.05p (H1 2012: 1.11p).

Group cashflow generated an operating inflow of £2.6m (H1 2012: £1.9m) with capital expenditure increasing to £8.5m (H1 2012: £3.5m), £5.8m of which was in respect of the Maltby CMM assets purchase.

The Maltby CMM assets acquisition was completed on 24 May 2013, with the initial consideration of £5.5m being partly funded by an extension of the Group's borrowing facilities with Lloyds TSB Bank.  A term loan of £3.0m was provided, together with an increase in the existing revolving credit facility from £6.5m to £7.0m.  The balance of the initial consideration was financed by a proportion of the funds raised by a share placing.  A total of £6.0m gross was raised by the issue of 22m new ordinary shares at a placing price of 27 pence per share.  The balance of the funds raised in the placing will provide additional working capital to support the continued investment by the Group in its core gas to power activities.

Net assets at 30 June 2013 stood at £31.2m (H1 2012: £22.5m) with a strong asset base in engine capacity, site infrastructure, 100MW of grid capacity, and capitalised gas extraction costs (planning and drilling costs). Overall the Group's net debt at 30 June 2013 was £8.6m (H1 2012: £10.3m) with gearing reduced to 27% (H1 2012: 46%).  We have met all the bank covenant tests and in the period we have repaid a total of £1.1m in loan and lease repayments.

Following the maiden dividend paid in May 2013, the Board will not be paying an interim dividend but the intention is to have a progressive dividend policy over the coming years.

Operations

Our base load generation is fuelled by CMM from 17 sites.  These sites are run 24/7 and are remotely managed by the central control based at Markham in Derbyshire.  Overall our installed capacity has reached 81MW (H1 2012: 70MW). 

Number of operational sites	2008	2009	2010	2011	2012	H1 2013
CMM	7	8	10	11	16	17
Power response	-	1	2	2	7	7
Gas supply (equivalent MW)	2	2	2	2	1	1
Total	8	9	12	13	20	22
(note - total does not sum as some sites operate in more than one category)
Installed capacity	2008	2009	2010	2011	2012	H1 2013
	MW	MW	MW	MW	MW	MW
CMM	14	17	23	27	37	43
Power response	-	7	8	8	31	36
Gas supply (equivalent MW)	6	6	6	6	2	2
Total	20	30	37	41	70	81

With the Maltby acquisition we acquired 11MW engine capacity, half of which may be re-deployed to power response during the summer of next year as the colliery is finally closed and abandoned, and the table above includes the capacity on this basis.  Until then all the capacity will remain at Maltby as we are expecting a period of variable production dependent on barometric pressure prior to the sealing of the coal shafts.  We are delighted to report that first production was achieved five weeks ahead of plan.

We continue to work on the drill and build phase of new sites with one further site expected in Yorkshire by the end of 2013 and two new sites expected in 2014.  Overall we are working on anything up to 10 potential sites at any one time to bring them through the permitting, planning, drill and build phases.

The STOR market has seen ongoing price pressure with standby payments continuing to fall but we are seeing an increased number of hours run to offset the lower margins.  Our low cost base has allowed us to successfully tender for contracts up to March 2014 and we continue to operate in the winter peak load market. 

Market

The UK electricity market has seen a shift to coal fired power stations over the last 18 months as USA coal demand has fallen and excess stocks have lowered global coal prices.  The UK's fleet of gas fired power stations has suffered margin erosion and reduced capacity as a number have been closed, mothballed or taken offline.  However with recent large scale closure of coal fired capacity to meet EU carbon directives, the UK electricity generating industry is likely to move from over capacity to a much tighter supply position within two years.  Ofgem has appraised the excess capacity to fall as low as just 2% under certain scenarios by the winter of 2015/2016.

As the supply side tightens we would expect to see a greater number of calls and improved earnings in our power response business, and the forward electricity market is showing price increases in 2015 which should benefit the CMM baseload operations. 

Overall the Group has 823km² of onshore licences.  In February 2012 we announced a potential Coal Bed Methane ("CBM") joint venture with Aberdeen Drilling Management.  After a comprehensive appraisal of the geological constraints, resource potential and commercial viability of CBM in the area under consideration it has been decided not to progress with the joint venture and as such we have no plans to develop CBM at the current time.  We are continuing our early stage evaluation of our licences and the development options open to us in relation to shale resources.  The Board notes the recent BGS Shale Gas Study and UK government's proposals around the regulation of the shale industry and continues to monitor progress in this area.

The Group is preparing for a number of DECC initiatives including the Capacity Mechanism and the launch of the 14^th Onshore Licensing Round.  Whilst final notification of policies in these areas would be beneficial we continue to grow the Group through organic roll out of new sites and through acquisitions.

Outlook

Trading since the period end has been in line with our expectations.  Ofgem's "Electricity Capacity Assessment" published in June indicated that supply margins in the UK electricity market could fall as low as 2% by the winter 2015/16.  Alkane's strategy is to continue to grow output and installed capacity as the market tightens.  These interim results are a pleasing step in the delivery of this strategy and we remain confident that 2013 will be another year of progress for the Group.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the 6 months ended 30 June 2013

		For the six	For the six	For the year
		months ended	months ended	ended
		30 June	30 June	31 December
		2013	2012	2012
		Unaudited	Unaudited	Audited
	Notes	£'000	£'000	£'000
Revenue		11,076	5,287	14,660
Cost of sales		(7,478)	(2,862)	(8,586)
Gross profit		3,598	2,425	6,074
Administrative expenses		(1,854)	(1,255)	(2,641)
Exceptional administrative expenses	13	(404)	(274)	(587)
Total administrative expenses		(2,258)	(1,529)	(3,228)
Return on Group operations		1,340	896	2,846
Other operating income		3	15	20
Profit on activities before finance costs		1,343	911	2,866
Finance income		8	27	37
Exchange loss arising from financing		-	(3)	(7)
Finance costs		(334)	(251)	(608)
Net finance costs		(326)	(227)	(578)
Profit before tax		1,017	684	2,288
Taxation	4	100	100	100
Profit for the period from continuing operations		1,117	784	2,388
Discontinued operations:
Impairment reversal	5	-	328	495
Profit for the period attributable to equity holders of the parent		1,117	1,112	2,883
Other comprehensive income		-	-	-
Total comprehensive income for the period attributable to equity
holders of the parent		1,117	1,112	2,883
Earnings per share
From continuing operations:
Basic, for profit for the period attributable to equity holders of the parent	6	1.05p	0.78p	2.38p
Diluted, for profit for the period attributable to equity holders of the parent	6	1.00p	0.76p	2.24p
From continuing and discontinued operations:
Basic, for profit for the period attributable to equity holders of the parent	6	1.05p	1.11p	2.87p
Diluted, for profit for the period attributable to equity holders of the parent	6	1.00p	1.08p	2.67p

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 June 2013

		30 June	30 June	31 December
		2013	2012	2012
		Unaudited	Unaudited	Audited
	Notes	£'000	£'000	£'000
NON-CURRENT ASSETS
Property, plant and equipment	8	23,302	19,415	20,007
Gas assets	9	20,597	17,178	17,376
Intangible assets		1,209	1,209	1,395
Deferred tax asset		900	800	800
		46,008	38,602	39,578
CURRENT ASSETS
Inventories		469	543	472
Trade and other receivables		3,338	2,788	4,729
Cash and cash equivalents		3,053	560	1,569
		6,860	3,891	6,770
TOTAL ASSETS		52,868	42,493	46,348
CURRENT LIABILITIES
Trade and other payables		(3,625)	(2,918)	(5,963)
Finance lease obligations		(524)	(787)	(705)
Long-term borrowings		(1,500)	(1,500)	(1,500)
Provisions		(368)	(21)	(328)
		(6,017)	(5,226)	(8,496)
NON-CURRENT LIABILITIES
Finance lease obligations		(210)	(736)	(417)
Long-term borrowings		(9,396)	(7,864)	(7,145)
7.5% Convertible loan stock	14	(2,081)	(1,853)	(1,970)
Deferred payments		(900)	(1,125)	(900)
Provisions		(3,018)	(3,140)	(3,018)
		(15,605)	(14,718)	(13,450)
TOTAL LIABILITIES		(21,622)	(19,944)	(21,946)
NET ASSETS		31,246	22,549	24,402
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
Share capital	15	618	504	507
Share premium		6,905	1,217	1,248
Other reserves		9,256	9,148	9,196
Retained earnings		14,467	11,680	13,451
TOTAL EQUITY		31,246	22,549	24,402

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2013

	Attributable to equity holders of the parent
	Issued capital	Share premium(1)	Other reserves(2)	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000
At 1 January 2013	507	1,248	9,196	13,451	24,402
Profit and total comprehensive income for the period	-	-	-	1,117	1,117
Dividend	-	-	-	(101)	(101)
Share-based payment	-	-	60	-	60
Issue of share capital	111	5,657	-	-	5,768
At 30 June 2013 (Unaudited)	618	6,905	9,256	14,467	31,246
At 1 January 2012	499	1,216	8,629	10,568	20,912
Profit and total comprehensive income for the period	-	-	-	1,112	1,112
Equity component of convertible loan notes	-	-	232	-	232
Merger relief	-	-	244	-	244
Share-based payment	-	-	43	-	43
Issue of share capital	5	1	-	-	6
At 30 June 2012 (Unaudited)	504	1,217	9,148	11,680	22,549
At 1 January 2012	499	1,216	8,629	10,568	20,912
Profit and total comprehensive income for the year	-	-	-	2,883	2,883
Equity component of convertible loan notes	-	-	232	-	232
Merger relief	-	-	244	-	244
Share-based payment	-	-	91	-	91 -
Issue of share capital	8	32	-	-	40
At 31 December 2012 (Audited)	507	1,248	9,196	13,451	24,402

 

⁽¹⁾    During the six months ended 30 June 2013 £274,000 was written off against the share premium account in respect of costs relating to the issue of shares.

 

⁽²⁾    Other reserves comprise the equity component of convertible loan notes of £232,000 (30 June and 31 December 2012: £232,000), a share-based payments reserve of £361,000 (30 June 2012: £253,000; 31 December 2012: £301,000), a merger relief reserve of £244,000 (30 June 2012: nil; 31 December 2012: £244,000), and a distributable reserve of £8,419,000 (30 June and 31 December 2012: £8,419,000) created following cancellation of the share premium account.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2013

		For the six	For the six	For the year
		months ended	months ended	ended
		30 June	30 June	31 December
		2013	2012	2012
		Unaudited	Unaudited	Audited
	Notes	£'000	£'000	£'000
Operating activities
Profit before tax from continuing operations		1,017	684	2,288
Adjustments to reconcile operating profit to net cash flows:
Depreciation and impairment of property, plant and equipment and gas assets		1,939	812	3,209
Bargain purchase written off		-	-	(541)
Convertible loan note facility fee		-	60	60
Share-based payments expense		60	43	91
Finance income		(8)	(27)	(37)
Finance expense		334	251	608
Movements in provisions		40	123	(15)
Decrease/(increase) in trade and other receivables		1,391	(490)	(2,442)
Decrease/(increase) in inventories		3	(38)	33
(Decrease)/increase in trade and other payables		(2,150)	456	3,280
Net cash flows from operating activities		2,626	1,874	6,534
Cash flows from investing activities
Payments received		-	328	495
Interest received		8	16	37
Purchase of property, plant and equipment		(4,863)	(2,019)	(3,801)
Purchase of gas assets		(3,604)	(1,503)	(2,315)
Purchase of subsidiaries	12	-	(4,761)	(4,661)
Net cash flows used in investing activities		(8,459)	(7,939)	(10,245)
Cash flows from financing activities
Issue of share capital		5,768	-	34
Issue of 7.5% convertible loan notes		-	2,000	2,000
Sale and finance leaseback rentals		(388)	(435)	(839)
Proceeds from long-term borrowing		3,001	4,512	4,543
Repayment of long-term borrowing		(750)	-	(750)
Dividend paid to equity holders of the parent		(101)	-	-
Interest paid		(213)	(197)	(453)
Net cash flows from financing activities		7,317	5,880	4,535
Net increase/(decrease) in cash and cash equivalents		1,484	(185)	824
Cash and cash equivalents at beginning of period		1,569	745	745
Cash and cash equivalents at close of period	17	3,053	560	1,569

NOTES TO THE ACCOUNTS

1.      CORPORATE INFORMATION

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2013 were authorised for issue in accordance with a resolution of the directors on 10 September 2013.

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 2012 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 and the AIM rules of the London Stock Exchange. This report should be read in conjunction with the Group's Annual Report and Accounts 2012, which have been prepared in accordance with IFRSs as adopted by the European Union.

Going concern

The Board is required to assess whether the Group has adequate resources to continue operations for the foreseeable future. After making enquiries, the directors have a reasonable expectation that the Company and the Group will continue in operational existence for the foreseeable future (being a period of at least 12 months from the date of this report). For this reason they continue to adopt the going concern basis for preparing the financial statements.

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 2012.

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 2012, and no other change in estimate has had a material effect on the current period.  All other significant estimates and judgments have been disclosed in the Group's Annual Report and Accounts for the year ended 31 December 2012.  Actual results may differ from these estimates.

In March 2013 Pro2 Anlagentechnik GmbH invested in Alkane Services Limited, a Group company, and from that date holds a non-controlling interest of 25% of the share capital.  The minority interest arising in the six months to 30 June 2013 was not material and has not been reflected in the interim financial statements.  Alkane Services Limited has been renamed Alkane Pro2 Services Limited.

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 2013.

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 design, build and operation of projects for external customers.

The operating segment reporting format reflects the Group's management and reporting structure.         

Seasonality of operations

There is no significant seasonal nature to the Group's business segments.

	Six months	Six months	Year ended
	ended	ended	31 December
	30 June 2013	30 June 2012	2012
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Extraction of gas
Total segment revenue	6,390	4,486	10,583
Depreciation	(1,699)	(1,220)	(2,887)
Interest expense	(239)	(260)	(499)
Segment profit before tax	1,417	1,171	2,865
Design, build and operate projects for external customers
Total segment revenue	4,686	801	4,077
Impairment	(233)	(312)	(312)
Segment profit/(loss) before tax	361	(287)	374
Total
Total revenue	11,076	5,287	14,660
Total depreciation/impairment	(1,932)	(1,532)	(3,199)
Total interest expense	(239)	(260)	(499)
Profit before tax from operating segments	1,778	884	3,239
Corporate centre	(771)	(748)	(1,512)
Consolidation adjustment	10	548	561
Profit before tax from continuing operations	1,017	684	2,288
Discontinued operations	-	328	495
Profit before tax	1,017	1,012	2,783

The following table reconciles total segment assets, total segment liabilities and segment additions to non-current assets.

	30 June	30 June	31 December
	2013	2012	2012
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Extraction of gas	48,841	40,940	42,460
Design, build and operate projects for external customers	2,625	435	3,579
Total segment assets	51,466	41,375	46,039
Corporate centre	2,387	359	686
Intangible assets arising on consolidation	1,209	1,209	1,209
Consolidation adjustments	(2,194)	(450)	(1,586)
Total consolidated assets	52,868	42,493	46,348
Extraction of gas	(26,283)	(22,032)	(21,959)
Design, build and operate projects for external customers	(2,655)	(993)	(3,693)
Total segment liabilities	(28,938)	(23,025)	(25,652)
Corporate centre	(8,816)	(6,152)	(5,555)
Consolidation adjustments	16,132	9,233	9,261
Total consolidated liabilities	(21,622)	(19,944)	(21,946)
Extraction of gas	8,221	10,642	6,234
Design, build and operate projects for external customers	47	111	96
Total segment additions to non-current assets	8,268	10,753	6,330
Deferred tax asset	100	100	100
Corporate centre	1	3	-
Total consolidated additions to non-current assets	8,369	10,856	6,430

4.      TAXATION

There is no tax charge for the current period (six months ended 30 June 2012: nil, year ended 31 December 2012: nil). A deferred tax asset of £100,000 has been recognised in the period to the extent that future taxable profits will be available to be utilised against unused tax losses and other temporary differences (six months ended 30 June 2012: £100,000, year ended 31 December 2012: £100,000).

5.      DISCONTINUED OPERATIONS

In 2012 the Company received payments totalling €610,000 (£495,000) being instalments due in respect of an outstanding loan to Deutsche KWK GmbH, an operation discontinued in 2009 at which time the outstanding balance was fully impaired and included as loss on discontinued operations. The reversal of this impairment in that year was therefore included in discontinued operations. No further repayments are due in respect of this loan.

A further loan to Deutsche KWK GmbH is outstanding; after exchange rate differences of £6,000 the balance at 30 June 2013 is €145,000 (£124,000) (30 June 2012: €145,000 (£117,000); 31 December 2012 €145,000 (£118,000)). This balance is due to be repaid on 31 December 2013. The loan was fully impaired in 2009, and having reviewed the position at 30 June 2013 there remains a fundamental uncertainty in respect of the recovery of the outstanding balance of the loan and consequently there has been no reversal of the balance of the impairment charge. 

6.      EARNINGS PER ORDINARY 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
	2013	2012	2012
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Profit for the period from continuing operations	1,117	784	2,388
Profit for the period from discontinued operations	-	328	495
Profit attributable to equity holders of the parent	1,117	1,112	2,883
	No.	No.	No.
Basic weighted average number of ordinary shares	106,130,525	100,115,933	100,542,097
Dilutive effect of share options	4,112,645	2,380,782	2,806,103
Dilutive effect of convertible loan notes(1)	12,782,857	-	12,342,857
Diluted weighted average number of ordinary shares	123,026,027	102,496,715	115,691,057

⁽¹⁾ For the purposes of calculating the dilutive earnings per share, the profit for the period from continuing operations and the profit attributable to equity holders of the parent have been adjusted by the transaction costs and interest charges of £110,000 (six months ended 30 June 2012: nil; year ended 31 December 2012: £201,000) that would have been avoided if conversion was to have occurred. The revised profit for the period from continuing operations on this basis is £1,227,000 (six months ended 30 June 2012: no revisions; year ended 31 December 2012: £2,589,000) and the revised profit attributable to equity holders of the parent is £1,227,000 (six months ended 30 June 2012: no revisions; year ended 31 December 2012: £3,084,000).

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.      DIVIDEND

During the six months ended 30 June 2013 the Company paid a dividend of 0.1 pence per share totalling £101,000 (six months ended 30 June 2012 and year ended 31 December 2012: nil).

8.      PROPERTY, PLANT AND EQUIPMENT

Acquisitions and disposals

During the six months ended 30 June 2013, the Group acquired assets with a cost of £4,661,000 (six months ended 30 June 2012: £7,800,000; year ended 31 December 2012: £9,792,000).  Included within additions for the period ended 30 June 2013 is £3,000,000 relating to the acquisition of Maltby coal mine methane assets (see note 11).  The figures in 2012 included £5,674,000 (after fair value adjustments) acquired as part of the acquisition of Greenpark Energy Limited. There were no disposals during the period (30 June and 31 December 2012: nil).

9.      GAS ASSETS

Acquisitions and disposals

During the six months ended 30 June 2013, the Group acquired assets with a cost of £3,561,000 (six months ended 30 June 2012: £3,000,000; year ended 31 December 2012: £3,751,000).  Included within additions for the period ended 30 June 2013 is £2,754,000 relating to the acquisition of Maltby coal mine methane assets (see note 11).  The figures in 2012 included £1,539,000 (after fair value adjustments) acquired as part of the acquisition of Greenpark Energy Limited.  There were no disposals during the period (30 June and 31 December 2012: nil).

10.    CAPITAL COMMITMENTS

At 30 June 2013, the Group had the following capital commitments contracted for but not provided in the financial statements:

·     Acquisition of property, plant and equipment £794,000 (30 June 2012: £319,000; 31 December 2012 £523,000);

·     Acquisition of gas assets £248,000 (30 June 2012: £104,000; 31 December 2012: £1,000);

·     Acquisition of Maltby coal mine methane assets £2,000,000 (30 June and 31 December 2012: nil).  See note 11.

11.    ACQUISITION OF MALTBY COAL MINE METHANE ASSETS

On 24 May 2013, Regent Park Energy Limited, a wholly owned subsidiary, completed the purchase of coal mine methane assets located at Maltby Colliery for a consideration of £5,500,000. 

The purchase was partly funded by an extension of the Group's borrowing facilities with Lloyds TSB Bank plc.  A term loan of £3,000,000, secured by way of legal charges over the Group's assets, has been provided to finance the acquisition, to be repaid in quarterly payments over two years commencing in April 2014.  At the same time the existing revolving credit facility was increased from £6,500,000 to £7,000,000.  The balance of the consideration was financed by a proportion of the funds raised by a share placing.  A total of £6,000,000 was raised by the issue of 22,222,223 new ordinary shares at a placing price of 27 pence per share.

The assets acquired comprise plant and machinery of £3,000,000 and site infrastructure (including grid connection) of £2,754,000.  The Directors have carried out an assessment of the assets acquired and have concluded that no fair value adjustments are required.

A further payment of £2,000,000 will be made to acquire additional site infrastructure assets six months after the Maltby Colliery mine shafts are satisfactorily sealed as part of the planned closure of Maltby Colliery.  The closure is not within the control of the Company, but is expected to occur by October 2014.

12.    ACQUISITION OF GREENPARK ENERGY LIMITED

On 26 April 2012 the Group completed the purchase of the entire issued share capital of Greenpark Energy Limited, a company with seven coal mine methane (CMM) extraction licences and six operational sites generating from both CMM and natural gas. 

The total consideration for the shares is as follows:

	£'000
Cash(1)(2)	4,661
Issue of shares(3)	250
Total consideration	4,911

⁽¹⁾ Financed by way of the issue of £2,000,000 convertible loan notes (see note 14) and an increase in borrowing facilities.  The Group extended its borrowing facilities with Lloyds TSB Bank.  A term loan of £3,000,000, secured by way of legal charges over the Group's assets, was provided to finance the acquisition, to be repaid in quarterly payments over two years.  At the same time the existing revolving credit facility was reduced from £7,500,000 to £6,500,000.

⁽²⁾ The cash consideration included £500,000 paid into escrow in respect of certain property issues and in order to allow for any claims under the warranties included in the Share Purchase Agreement.  A settlement in respect of the property issues and a number of warranty issues was reached with the vendors on 23 January 2013.  Under the settlement £400,000 of the funds held in escrow was released to the vendors and £100,000 was returned to the Company as a reduction in consideration.  In addition a deferred consideration of £225,000 that had been due to be paid on 30 September 2013 was cancelled.  The total reduction in consideration as a result of the settlement was £325,000.  The Company has no further recourse under the warranty provisions of the Share Purchase Agreement.

⁽³⁾ Part of the consideration was the issue of 1,162,237 new Ordinary Shares at a price of 21.51 pence per share.

Net assets with a book value of £11,911,000 were acquired at the date of acquisition. The Directors have carried out a fair value assessment of the identifiable assets, liabilities and contingent liabilities of Greenpark Energy Limited and concluded that the net fair value at the date of acquisition is £5,775,000.  The following table shows the identifiable material assets and liabilities acquired, the fair value adjustments, the fair value and the resulting bargain purchase. 

	Acquired on 26 April 2012	Fair value adjustments	Fair Value
	£'000	£'000	£'000
Buildings	1,166	(391)	775
Plant	8,061	(3,162)	4,899
Gas assets	3,135	(1,596)	1,539
Receivables	602	-	602
Payables	(444)	(185)	(629)
Other provisions	-	(323)	(323)
Site restoration provision(1)	(609)	(802)	(1,411)
	11,911	(6,459)	5,452
			£'000
Fair value as above			5,452
less Consideration			4,911
Bargain purchase			541

⁽¹⁾ The site restoration provision is recognised for the expected costs of the restoration of operating sites.  The fair value adjustment represents a reassessment of the amount required to meet the expected costs.  A discount factor is applied to the expected costs in order to arrive at the present value reflected in the provision.

As a result of the fair value assessment, a bargain purchase of £541,000 arose in respect of the transaction.  Costs of £903,000 were incurred in advisory, professional and other fees in order to effect the acquisition, of which £747,000 was incurred in the year ended 31 December 2012 (year ended 31 December 2011: £156,000). The net amount of £362,000 was expensed in the Consolidated Statement of Comprehensive Income under the heading of exceptional administrative expenses.

On 10 May 2012 the name of Greenpark Energy Limited was changed to Regent Park Energy Limited.

13.    EXCEPTIONAL ADMINISTRATIVE EXPENSES

	Six months ended 30 June	Six months ended 30 June	Year ended 31 December
	2013	2012	2012
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Costs related to the acquisition of Greenpark Energy Limited (see note 12)	(13)	(500)	(747)
Bargain purchase arising from the acquisition of Greenpark Energy Limited (see note 12)	-	539	541
Impairment of biogas development costs	(233)	(313)	(312)
Costs relating to the acquisition of Seven Star Natural Gas Limited	-	-	(14)
Non-capital costs relating to the acquisition of Maltby coal mine methane assets (see note 11)	(148)	-	-
Costs relating to the acquisition of licence	(10)	-	-
Costs of aborted corporate transactions	-	-	(55)
	(404)	(274)	(587)

14.    CONVERTIBLE LOAN NOTES

On 26 April 2012 the Company issued £2,000,000 convertible loan notes, with the proceeds being utilised to partly fund the acquisition of Greenpark Energy Limited (see note 12).  Interest is at a fixed rate of 7.5% per annum, which is rolled up quarterly in arrears and included as principal to be repaid or converted. The convertible loan is unsecured. The convertible loan notes are convertible at any time prior to repayment or automatic conversion at the holder's option, at a conversion price, fixed at 17.5 pence. If any element of the convertible loan is not converted, it is otherwise repayable on the date which is 3 years and 1 day after the issue date.

The liability component of the convertible loan notes was £1,768,000.  This has been calculated by discounting the total sum payable over the full term of the loan notes by an effective interest rate of 12%.  The equity component of £232,000 has been taken to other reserves.

15.    AUTHORISED AND ISSUED SHARE CAPITAL

	30 June	30 June	31 December
	2013	2012	2012
	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 2013	101,113	507
Issued on exercise of share options	250	1
Issued as a result of share placings	22,222	110
At 30 June 2013 (Unaudited)	123,585	618
At 1 January 2012	99,701	499
Issued as part of consideration for acquisition	1,162	5
At 30 June 2012 (Unaudited)	100,863	504
At 1 January 2012	99,701	499
Issued on exercise of share options	250	2
Issued as part of consideration for acquisition	1,162	6
At 31 December 2012 (Audited)	101,113	507

16.    SUBSEQUENT EVENTS

On 5 August 2013 the Group completed the acquisition of a part licence interest in United Kingdom Onshore Licence AL010 for coal mine methane exploitation for a consideration of £275,000, and the buyout of a royalty which related to revenue from the Group's operating site at Florence, Staffordshire for a consideration of £150,000.

17.    ADDITIONAL CASH FLOW INFORMATION

Analysis of net funds

			1 January 2013	Cash flow	30 June 2013
			Audited		Unaudited
			£'000	£'000	£'000
Cash at bank and in hand			1,569	1,484	3,053
Sale and finance leaseback			(1,122)	388	(734)
Long-term loan			(8,645)	(2,251)	(10,896)
Net debt			(8,198)	(379)	(8,577)
Securities			256	-	256
Adjusted net debt*			(7,942)	(379)	(8,321)

	1 January 2012	Cash flow	Other non-cash movements	Exchange rate differences	30 June 2012
	Audited				Unaudited
	£'000	£'000	£'000	£'000	£'000
Cash at bank and in hand	745	(185)	-	-	560
Sale and finance leaseback	(1,961)	435	-	3	(1,523)
Long-term loan	(4,852)	(4,512)	-	-	(9,364)
Net debt	(6,068)	(4,262)	-	3	(10,327)
Securities	222	12	61	-	295
Adjusted net debt*	(5,846)	(4,250)	61	3	(10,032)

	1 January 2012	Cash flow	Other non-cash movements	Exchange rate differences	31 December 2012
	Audited				Audited
	£'000	£'000	£'000	£'000	£'000
Cash at bank and in hand	745	824	-	-	1,569
Sale and finance leaseback	(1,961)	836	-	3	(1,122)
Long-term loan	(4,852)	(3,793)	-	-	(8,645)
Net debt	(6,068)	(2,133)	-	3	(8,198)
Securities	222	(27)	61	-	256
Adjusted net debt(1)	(5,846)	(2,160)	61	3	(7,942)

⁽¹⁾This includes the effect of securities paid on finance lease transactions that are closely related to those items.

18.    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.  It will also be available on the Company's website, www.alkane.co.uk.

 

END

 

 

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