Preliminary Results

RNS Number : 8258Y

Alkane Energy PLC

07 March 2012

 



7 March 2012

Alkane Energy plc

("Alkane", "the Group" or "the Company")

Unaudited preliminary results for the year ended 31 December 2011

Alkane Energy plc (AIM: ALK), the independent gas to power producer, today announces its unaudited preliminary results for the year ended 31 December 2011.

Operational Highlights

·     Transformational period for Alkane

·     Acquisition of Seven Star Natural Gas Limited in May 2011

·     Entering build phase of two new coal mine methane ('CMM') projects expected to add 4MW of capacity by end H1 2012

·     Successful sale of first biogas energy plant

·     Generating output up by 17% to record 140GWh

·     Average selling price up 16% to £51/MWh (2010 £44/MWh)

·     Installed capacity of  27MW for CMM and 8MW for power response as at 31 December 2011

Financial Highlights

·     Revenue increased 44% to £9.5m (2010: £6.6m)

·     Adjusted EBITDA up 39% to £4.6m (2010: £3.3m)

·     Adjusted profit before tax up 45% to £2.0m (2010: £1.4m)

·     Operating cash of £4.4m (2010: £3.5m)

·     Net assets increased 17% to £20.9m

Post Year End

·     Acquisition of Greenpark Energy for consideration up to £5.725m will, when complete, increase capacity and secure long-term project pipeline

·     First coal bed methane partnership agreement signed with Aberdeen Drilling Management

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

"I am delighted to report on what has been a transformational period for the Group. By executing our stated strategy of remaining focused on our core coal mine methane business whilst leveraging our skills into new, related business streams, Alkane has become the leader in the UK CMM market and one of the largest independent power response providers.

Our strong organic performance, combined with our recent acquisitions, has given Alkane a scale where it is ideally positioned to exploit growth opportunities in the UK power industry where 25% of capacity will be decommissioned in the next decade."

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
VSA Capital Group Limited Andrew Monk Andrew Raca	020 3005 5000
Altium Capital Limited Adrian Reed	0845 505 4343
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 predictable and fast response capacity to the grid.  On a pro forma basis, post the acquisition of Greenpark Energy Limited ("Greenpark"), Alkane will have a total of 70MW of installed generating capacity and an electrical grid capacity of 92MW. 

Our 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.  Alkane started extracting CMM for direct sales of gas in 1999 with sites at Shirebrook, Steetley and Markham. 

As CMM declines at any one site Alkane retains valuable generating capacity and a grid connection which we move 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 currently operates 8MW across two sites on conventional gas and this is expected to treble to 24MW post the Greenpark acquisition.

The Group currently operates from 13 mid-size (up to 10MW) power plants across the UK, 12 CMM and one conventional gas, and sells this power through the electricity network, using standard modular reciprocating engines to generate the electricity.  The engine units and other plant are designed to be flexible and transportable and this allows additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency. 

The biogas market also provides a potential new business stream.  Running on gas generated from the processing of organic waste will require exactly the same power assets and core gas and electricity skills as CMM.

Coal bed methane ("CBM") is a longer term opportunity where Alkane has 500km² under licence and contingent resource estimates of circa 350 billion cubic feet.  In February 2012 the Company signed a partnership agreement with Aberdeen Drilling Management Limited to explore two of our licences with CBM potential.

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

Introduction

2011 and the start of 2012 has been a transformational period for Alkane.  The acquisitions of Seven Star Natural Gas Limited ("Seven Star") in May 2011 and Greenpark Energy Limited ("Greenpark"), expected to be completed by the end of April 2012, will fundamentally enhance the Group's prospects.  The acquisitions will bring operating scale, bringing proforma installed engine capacity up to 70MW.  They will provide growth opportunities, particularly in increases in the project pipeline and an increase of electrical grid capacity to 92MW.  The benefits of these acquisitions will be seen in the results for 2012 and beyond. 

Since the period end we also signed a partnership agreement with Aberdeen Drilling Management Limited ("ADM") to explore two of Alkane's licences with coal bed methane ("CBM") potential in the North West of England and in the East Midlands.  

From our existing assets the Company generated 140GWh of electricity in 2011 (2010: 120GWh), an increase of 17% as we saw the benefit of new capacity coming on line.  The investment programme has continued into 2012 with new sites in Pontycwmmer, South Wales, and Gedling, Nottinghamshire, which are well into the build phase.

In 2011 Alkane opened a new coal mine methane ("CMM") site at Calverton in July and gained, through the acquisition of Seven Star, onshore gas licences in Staffordshire and Derbyshire.  In addition, we have successfully sold our first biogas energy plant to a project in Glenfarg, Scotland.

Financial

Results

For the twelve months ended 31 December 2011, revenue has grown by 44% to £9.5m (2010: £6.6m).  This increase is built on three main features.  First the rise in output to 140GWh, up 17% on 2010.  This has been achieved from operations across 13 sites (2010: 12 sites) which have boosted output, and we have benefited from the full year impact of sites commissioned in 2010.  Secondly, we secured increased average electricity prices of £51/MWh for the period (2010: £44/MWh).  Finally, the revenue line has the benefit of our first biogas energy plant sale to a project in Scotland which has resulted in revenue of £1.1m.

Gross profit was £4.2m in the year, up 21% (2010: £3.5m).  Gross margin was 44%, down from 53% last year, which reflects a lower level of margin achieved on plant sales. Excluding the impact of the biogas power plant sale gross margin was 50%.  The small underlying decline in the core 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 28% to £2.3m (2010: £1.8m) as we continued to invest in new sites and major overhauls.

EBITDA excluding exceptional administrative expenses was up strongly in the year, increasing by 39% to £4.6m (2010: £3.3m), representing an EBITDA margin of 48% (2010: 50%). 

We continue to manage our cost base prudently.  Administrative expenses before exceptional items were held at £2.0m (2010: £2.0m), and these now represent 21% of revenue compared to 30% last year.  The average interest rate paid was reduced to 5.5% (2010: 6.8%).

Profit before tax, after adjusting for the one-off advisory and professional fees incurred in respect of the acquisitions of Seven Star and Greenpark in the year, increased by 43% to £2.0m (2010: £1.4m), reflecting the benefit of higher prices and additional output.  The published profit before tax is £1.7m (2010: £1.3m).

The adjusted earnings per share (excluding one-off costs) for continuing operations increased to 2.26p per share (2010: 2.01p per share), with the increased earnings being partially offset by a higher weighted average number of share post the acquisition of Seven Star.  Published earnings per share for continuing operations is 1.92p per share (2010: 1.93p per share).

Balance Sheet and Cash flow

Net assets at 31 December 2011 have increased to £20.9m (2010: £17.9m) with strong asset backing as Alkane now has 41MW of generating capacity and the infrastructure for the 13 operating sites.  Working capital requirements remain tightly controlled with the majority of income received within four weeks of month end and we have a policy to pay creditors on fair terms. Our capital expenditure programme amounted to £7.4m (2010: £5.8m) which incorporates the opening of Calverton, expenditure at Gedling and other projects that will open in 2012, and continuing investment in major engine services.

The Group generated £4.4m of operating cash in the year (2010: £3.5m).  Power plant is expensive to build and commission but results in long-term strong cash flows.   The acquisition of Seven Star was funded through a £1.0m equity raise which increased the number of shares in issue by 5.6m.  

Adjusted net debt at the year end had reached £5.8m (2010: £3.9m) as we continue to invest in sites.  Gearing is a comfortable 29% (2010: 23%) and the Group remains well within all of our bank covenants.

Operations

Number of operational sites	2007	2008	2009	2010	2011	Pro forma*
CMM	7	7	8	10	11	14
Power response	-	-	1	2	2	7
Gas supply (equivalent MW)	2	2	2	2	2	2
Total	8	8	9	12	13	19
(note - total does not sum as some sites operate in more than one category)
Installed capacity	2007	2008	2009	2010	2011	Pro forma*
	MW	MW	MW	MW	MW	MW
CMM	12.5	14.0	17.0	23.5	27.0	35.0
Power response	-	-	7.0	8.0	8.0	29.0
Gas supply (equivalent MW)	6.0	6.0	6.0	6.0	6.0	6.0
Total	18.5	20.0	30.0	37.5	41.0	70.0

* Pro forma including Greenpark's sites (subject to completion of acquisition)

Alkane ended 2011 with 13 sites and 41MW installed capacity.  Post the new organic site openings and the acquisition of Greenpark we will have a pro forma total of 19 sites with capacity rising to 70MW. This will make the Group the market leader in UK CMM and one of the largest independent power response providers.

Output in 2011 was up 17% at 140GWh which is the seventh year of growth in output for Alkane.  Our largest site at Shirebrook is nearing the completion of a planned major overhaul which has held back first quarter output in 2012 but the site is expected to return to full production in the second quarter.

Market electricity prices for the next twelve months are currently around £49/MWh.  However by using our forward contracting policy we have 77% of our expected 2012 output contracted at an average price of £56/MWh.  This does not include Greenpark, which has not placed longer term contracts.  Following completion of the acquisition we will put longer term contracts in place for the Greenpark output, and at current market prices this would result in an average price in 2012 for the enlarged Group of circa £53/MWh.  Market prices are currently higher for 2013 and 2014 (£53/MWh and £55/MWh respectively).

Coal Mine Methane

CMM output was up 15% as a result of new site openings.  As we have always explained, existing sites will see a decline in output as the methane resource decays over a period of time.  Consequently we continue to invest in new sites and research potential new locations and licence opportunities.  The acquisitions will considerably enhance our project pipeline with a number of attractive sites now being researched.

A new CMM site was opened in July 2011 at Calverton in Nottinghamshire.  There was one drill which did not lead to a new site, but also a successful drill programme at Gedling which will be operational in 2012.  The acquisition of Greenpark will provide immediate output from its existing sites.

Power Response

Our power response business earns its revenue from a combination of supplying electricity at peak times, standby fees from the National Grid's Short Term Operating Reserve ("STOR") programme and winter premium payments.  During 2011, Alkane had 8MW assigned to this activity and this figure will rise to 20MW following the acquisition of Greenpark.  As these operations are fuelled by bought-in natural gas, they will be at a lower margin than CMM, but bring the benefit of more stable and predictable earnings.

Other Business Streams

Alkane has also sold its first power facility for a biogas plant, at Glenfarg in Scotland, generating revenue of £1.1m in 2011.  The Company continues to evaluate a number of biogas investment and supply opportunities.

In February 2012, the Company signed a partnership agreement with Aberdeen Drilling Management ("ADM") to explore two of our licences with CBM potential in the North West of England and in the East Midlands.  ADM will initially complete a geological research programme on the licences before finalising drilling commitments.  ADM will farm-in to Alkane's licences and gain up to a 50% share in Alkane's interest in each licence following the completion of a CBM well in the respective licence area. 

Strategy

Alkane's core skills are the development, design and build of mid-sized gas to power plants.  We use modular, remotely managed engines and plant to ensure our sites remain cost effective and flexible.  Our main CMM business continues to perform well and has made further progress both in terms of output and profitability.

We have 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. As part of the Company's growth strategy we are continuing to develop self-funded organic growth.  However, we are aware of the need to increase the overall scale of the Group and reach critical mass from a financial and operating perspective.  Accordingly, over the last year we have looked at a number of potential consolidation and expansion opportunities in CMM, stranded on-shore gas and biogas.  We will continue to look for appropriate opportunities in these sectors, and others including CBM, where we have the in-house expertise to increase scale and add value for our shareholders.

We acquired Seven Star in May 2011 which has brought in two on-shore conventional gas licences with the potential to build our standard model power plants.  We will also look at adding to our licence acreage in the 14th Onshore Licensing Round.

On 1 February 2012, Alkane announced the acquisition of Greenpark for a maximum consideration of £5.725m.  When completed the acquisition will bring 29MW of installed engine capacity, which with associated plant and equipment has an estimated book value of approximately £9m, and access to seven CMM gas exploitation licences.  It will boost our CMM output, the CMM project pipeline and our power response operations.  We have consistently grown over recent years and on the current run rate the enlarged Group sites are generating an annualised output of 180GWh which is enough to power around 60,000 homes.

Post the acquisition of Greenpark we will operate from 14 CMM sites which will be by far the largest UK CMM portfolio.  Once a site is established we would expect high EBITDA margins and payback periods of circa 3-4 years for a typical site.  Like any resource the CMM gas will decline over time, and consequently we match generating capacity on site to run for around a decade.  Therefore to maintain and grow output Alkane needs to have a development pipeline of future projects. 

As more renewable energy sources come on stream, the grid is finding that decentralised and variable generators such as wind power are raising new challenges to provide security of supply.  As such National Grid and Department of Energy and Climate Change ("DECC") see the need for an expansion in standby facilities with estimates that for every 8MW installed of intermittent wind power the grid will need 1MW of standby capacity.  As CMM sites decline in output we have a ready-made power plant with planning, generators and grid capacity.  We are therefore increasing our presence in power response which is aimed at running our fast response engines at peak winter pricing and acting as standby generators for National Grid.  Immediately post the acquisition of Greenpark we expect to have 20MW across seven sites allocated to power response and we intend to increase this to 24MW by the end of 2012.

In terms of the broader renewable energy market we will remain focussed on our core gas to power skills and our operational heritage. 

People

The Board would like to take this opportunity to thank our staff and suppliers who are an essential part of the success of Alkane. 

Prospects

It is pleasing to see how Alkane has built on the momentum of the last few years. Our core CMM business has made significant progress both in terms of profitability and output.

In addition, we have seen good progress in the related areas of power response and biogas with new opportunities following the acquisition of Seven Star in the onshore gas market.

Perhaps the most exciting development was the acquisition of Greenpark announced in February 2012 and due to complete before the end of April 2012. This will fundamentally enhance the Group's prospects, boosting our installed engine capacity by 29MW, and now with 14 coal mine methane sites Alkane has the UK's largest CMM portfolio.

Not only are National Grid and DECC forecasting the need for an expansion of electricity standby facilities, but also the UK power market will see 25% of industry capacity being retired in the next decade. We believe that Alkane is ideally placed to take advantage of these trends with its increasing scale, strong balance sheet, asset base and cash flow.

We look forward with confidence to another year of progress in 2012.

John Lander

Chairman

 

Neil O'Brien

Chief Executive Officer

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

for the year ended 31 December 2011

 

		2011	2010
	Notes	£'000	£'000
Revenue		9,501	6,616
Cost of sales		(5,278)	(3,132)
Gross profit		4,223	3,484
Administrative expenses		(2,010)	(1,994)
Exceptional administrative expenses	3	(334)	(70)
Return on Group operations		1,879	1,420
Other operating income		31	62
Profit on activities before finance income/(costs)		1,910	1,482
Finance income		71	71
Exchange loss arising from financing		(1)	(5)
Finance costs		(314)	(247)
Net finance costs		(244)	(181)
Profit before tax		1,666	1,301
Taxation	5	200	500
Profit for the period from continuing operations		1,866	1,801
Discontinued operations:
Impairment reversal	7	64	151
Profit for the year attributable to equity holders of the parent		1,930	1,952
Other comprehensive income		-	-
Total comprehensive income for the year attributable to
equity holders of the parent		1,930	1,952
Earnings per ordinary share
From continuing operations:
Basic, for profit for the year attributable to equity holders of the parent	8	1.92p	1.93p
Diluted, for profit for the year attributable to equity holders of the parent	8	1.89p	1.92p
From continuing and discontinued operations:
Basic, for profit for the year attributable to equity holders of the parent	8	1.98p	2.09p
Diluted, for profit for the year attributable to equity holders of the parent	8	1.96p	2.08p

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (unaudited)

at 31 December 2011

		2011	2010
	Notes	£'000	£'000
NON-CURRENT ASSETS
Property, plant and equipment	9	12,488	10,576
Gas assets	10	14,909	11,687
Intangible assets	6	1,209	-
Deferred tax asset	5	700	500
		29,306	22,763
CURRENT ASSETS
Inventories		505	424
Trade and other receivables		1,685	1,692
Cash and cash equivalents		745	427
		2,935	2,543
TOTAL ASSETS		32,241	25,306
CURRENT LIABILITIES
Trade and other payables		(1,989)	(1,127)
Finance lease obligations		(838)	(892)
Provisions		(15)	(19)
		(2,842)	(2,038)
NON-CURRENT LIABILITIES
Finance lease obligations		(1,123)	(1,965)
Long-term borrowings		(4,852)	(1,751)
Deferred payments		(900)	-
Provisions		(1,612)	(1,649)
		(8,487)	(5,365)
TOTAL LIABILITIES		(11,329)	(7,403)
NET ASSETS		20,912	17,903
EQUITY
Share capital		499	470
Share premium		1,216	208
Other reserves		8,629	8,587
Retained earnings		10,568	8,638
TOTAL EQUITY		20,912	17,903

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

for the year ended 31 December 2011

	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 and expense for the year	-		-	-	1,930	1,930
Share based payment	-		-	42	-	42
Issue of share capital	29		1,008	-	-	1,037
At 31 December 2011	499		1,216	8,629	10,568	20,912
At 1 January 2010	464		72	8,557	6,686	15,779
Total comprehensive income and expense for the year	-		-	-	1,952	1,952
Share based payment	-		-	30	-	30
Issue of share capital	6		136	-	-	142
At 31 December 2010	470		208	8,587	8,638	17,903

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

(2)   Other reserves comprise a reserve for share-based payments of £210,000 (2010: £168,000), and a distributable reserve of £8,419,000 (2010: £8,419,000) created following cancellation of the share premium.

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

for the year ended 31 December 2011

		2011	2010
	Notes	£'000	£'000
Operating activities
Profit before tax from continuing operations		1,666	1,301
Adjustments to reconcile operating profit to net cash flows:
Depreciation and impairment of property, plant and equipment and
gas assets		2,312	1,798
Share-based payments expense		42	30
Finance income		(71)	(71)
Finance expense		314	247
Movements in provisions		(41)	307
Increase in trade and other receivables		(9)	(243)
Increase in inventories		(81)	(201)
Increase in trade and other payables		242	297
Income tax paid		-	(1)
Net cash flows from operating activities		4,374	3,464
Cash flows from investing activities
Proceeds from sale of investment in associate		-	130
Deferred payments received		64	21
Interest received		89	72
Purchase of property, plant and equipment		(3,308)	(2,678)
Purchase of gas assets		(3,541)	(3,299)
Purchase of investments		(311)	-
Net cash flows used in investing activities		(7,007)	(5,754)
Cash flows from financing activities
Issue of share capital		1,037	142
Proceeds from sale and finance leaseback		-	1,074
Sale and finance leaseback rentals		(895)	(927)
Proceeds from long-term borrowings		3,101	1,751
Interest paid		(292)	(227)
Net cash flows from financing activities		2,951	1,813
Net increase/(decrease) in cash and cash equivalents		318	(477)
Cash and cash equivalents at 1 January		427	904
Cash and cash equivalents at 31 December	12	745	427

 

NOTES TO THE ACCOUNTS

1.     CORPORATE INFORMATION

The condensed consolidated financial statements of the Group for the year ended 31 December 2011 were authorised for issue in accordance with a resolution of the directors on 6 March 2012.

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 activity of the Group is described in Note 4.

2.     BASIS OF PREPARATION AND ACCOUNTING POLICIES

The condensed consolidated financial statements for the year ended 31 December 2011 included in this report do not constitute the Group's statutory accounts for the year ended 31 December 2011, but are derived from those accounts.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. 

The condensed consolidated financial statements have been prepared on a basis consistent with that adopted in the previous year's published statutory accounts. 

The Group expects to publish full financial statements that comply both with IFRSs as adopted for use in the European Union and with the Companies Act 2006.

3.     EXCEPTIONAL ADMINIsTRATIVE EXPENSES

		2011 unaudited	2010
		£'000	£'000
Acquisition Costs		334	-
Costs of aborted corporate transactions		-	70
		334	70

4.     SEGMENT INFORMATION

Operating segments

The directors consider that there are two operating segments on the basis of organisation by difference in methods of energy generation:

The extraction of gas from coal measures for power generation and for direct sale;

The development and operation of biogas projects.

The operating segment reporting format reflects the Group's business segments

Seasonality of operations

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

The following table sets out total revenue, depreciation and profit before tax for each segment.

	2011 unaudited	2010
	£'000	£'000
Extraction of gas
Total segment revenue	8,417	6,616
Depreciation	(2,333)	(1,818)
Segment profit before tax	2,288	1,877
Development and operation of biogas projects
Total segment revenue	1,084	-
Depreciation	-	-
Segment loss before tax	(99)	(101)
Total
Total revenue	9,501	6,616
Total depreciation	(2,333)	(1,818)
Profit before tax from operating segments	2,189	1,776
Corporate centre	(544)	(495)
Consolidation adjustment	21	20
Profit before tax from continuing operations	1,666	1,301
Discontinued operations	64	151
Profit before tax	1,730	1,452

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

	2011	2010
	unaudited
	£'000	£'000
Extraction of gas	30,413	24,963
Development and operation of Biogas projects	780	398
Total segment assets	31,193	25,361
Corporate centre	243	202
Intangible assets	1,209	-
Consolidation adjustments	(404)	(257)
Total consolidated assets	32,241	25,306
Extraction of gas	(18,550)	(15,595)
Development and operation of Biogas projects	(1,051)	(570)
Total segment liabilities	(19,601)	(16,165)
Corporate centre	(1,202)	(156)
Consolidation adjustments	9,474	8,918
Total consolidated liabilities	(11,329)	(7,403)
Extraction of gas	7,135	5,603
Development and operation of Biogas projects	168	166
Total segment additions to non-current assets	7,303	5,769
Deferred tax asset	200	500
Corporate centre	143	-
Consolidation adjustment: Intangible assets	1,209	-
Total consolidated additions to non-current assets	8,855	6,269

Major customers

In the periods set out below, certain customers accounted for greater than 10% of the Group's total revenues:

	2011 unaudited	2011 unaudited	2010	2010
	£'000	% of revenue	£'000	% of revenue
Customer A	6,862	72%	5,101	77%
Customer B	1,084	11%	699	11%

Revenue and non-current assets analysed by geographical information

All revenue generated and net assets are within the UK.

5.     TAXATION

There is no current tax charge in 2011 (2010: nil) as brought forward tax losses have been utilised to offset the taxable profits. 

A deferred tax asset of £700,000 (2010: £500,000) has been recognised 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. The net of the prior year deferred tax asset utilised and the asset created in the year of £200,000 has been credited to the Consolidated Statement of Comprehensive Income.  The balance of deferred tax assets of £2,625,000 (2010: £3,628,000) has not been recognised due to uncertainty over the availability of future taxable income against which these assets can be utilised.

6.     ACQUISITION OF SEVEN STAR NATURAL GAS LIMITED

On 26 May 2011 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	311
Contingent consideration	900
Total consideration	1,211

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.

The effect of discounting the contingent consideration has not been reflected in the assessment of the fair value of the consideration as the directors do not consider it to be material given the anticipated payment dates.

Net assets with a book value 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 £1,209,000, 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 £98,000 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 £178,000 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.

7.     DISCONTINUED OPERATIONS

During the year the Company received payments totalling €75,000 (£64,000) being instalments due in respect of an outstanding loan to Deutsche KWK GmbH. This loan was fully impaired in 2009.

After exchange rate differences of £20,000, the balance outstanding at 31 December 2011 is €955,000 (£799,000) with an agreed repayment schedule running to 2013. Having reviewed the position at 31 December 2011, there still 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 balance of the impairment charge.

8.     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 year.

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 year 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:

	2011	2010
	unaudited
	£'000	£'000
Profit for the year from continuing operations	1,866	1,801
Profit/(loss) for the year from discontinued operations	64	151
Profit attributable to equity holders of the parent	1,930	1,952
	No.	No.
Basic weighted average number of ordinary shares	97,405,275	93,267,179
Dilutive effect of share options	1,252,221	752,526
Diluted weighted average number of ordinary shares	98,657,496	94,019,705

Earnings per share from discontinued operations for the year ended 31 December 2011 is 0.06p (2010: 0.16p). 

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 year if those transactions had occurred before the end of the year (2010: nil).

9.     PROPERTY, PLANT AND EQUIPMENT

Acquisitions and disposals

During the year ended 31 December 2011, the Group acquired assets with a cost of £3,543,000 (2010: £2,524,000). There were no disposals during the period (2010: nil) but fully depreciated assets of £480,000 (2010: £525,000) were derecognised.

Sale and finance leaseback

No lease agreements were entered during the year 31 December 2011 (2010: two agreements for two items of plant with a total cost of £932,000).

10.  GAS ASSETS

Acquisitions and disposals

During the year ended 31 December 2011, the Group acquired assets with a cost of £3,903,000 (2010: £3,245,000). There were no disposals during the year (2010: nil).

11.  CAPITAL COMMITMENTS

At 31 December 2011, the Group had capital commitments contracted for but not provided in the financial statements of £325,000 for the acquisition of property, plant and equipment (2010: £657,000) and of £378,000 for the acquisition of gas assets (2010: £51,000).

12.  ADDITIONAL CASH FLOW INFORMATION

Analysis of net debt

	1 January 2011	Cash flow	Exchange rate differences	31 December 2011
				unaudited
	£'000	£'000	£'000	£'000
Cash at bank and in hand	427	318	-	745
Sale and finance leaseback	(2,857)	895	1	(1,961)
Long-term loan	(1,751)	(3,101)	-	(4,852)
Net debt	(4,181)	(1,888)	1	(6,068)
Securities	256	(34)	-	222
Adjusted net debt*	(3,925)	(1,922)	1	(5,846)

		1 January 2010	Cash flow	Exchange rate differences	31 December 2010
		£'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 funds/(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 sale and leaseback transactions that are closely related to those items.

13.  RELATED PARTY TRANSACTIONS

Transactions entered into and trading balances outstanding at 31 December with related parties are as follows:

	2011	2010
	unaudited
	£'000	£'000
Key management compensation
Salaries (including social security) and other short term employee benefits	544	542
Long term benefits	30	37
Share-based payments	39	27
	613	606

14.  GENERAL NOTE

a.   The preliminary unaudited financial information set out above does not constitute full accounts within the meaning of Section 435 of the Companies Act 2006.

b.   Audited statutory accounts in respect of the year ended 31 December 2010 have been delivered to the Registrar of Companies and those accounts were subject to an unqualified report by the auditors.

c.   Copies of the audited annual report and accounts for the year ended 31 December 2011 will be sent to shareholders during April 2012 and will be available from the Company's registered office - Edwinstowe House, High Street, Edwinstowe, Nottinghamshire NG21 9PR.

 

END

 

 

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