Preliminary results

RNS Number : 8569Z
Alkane Energy PLC
13 March 2013
 



 

13 March 2013

 

 

Alkane Energy plc

 

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

 

Unaudited preliminary results for the year ended 31 December 2012

 

Alkane Energy plc (AIM: ALK), the independent gas to power producer, today announces its unaudited preliminary results for the year ended 31 December 2012.

 

Operational Highlights

·     Eighth successive year of growth in output - up 19% at 167GWh (2011: 140GWh)

·     Alkane now the largest coal mine methane operator in UK

·     Successful integration of Greenpark acquisition - ahead of plan

·     New site at Gedling and re-commissioned site at Askern adding 5MW to capacity

·     Intake of third party contracts to design, build and operate totalling £9.8m

·     Installed capacity of 70MW as at 31 December 2012 (2011: 41MW)

 

Financial Highlights

·     Revenue increased by 54% to £14.7m (2011: £9.5m) 

·     Group profit before tax pre-exceptionals increased 44% to £2.9m (2011: £2.0m)

·     EBITDA up 37% to £5.8m(2011:£4.2m)

·     Operating cash flow of £6.5m (2011: £4.4m)

·     EPS up 45% to 2.87 pence (2011: 1.98 pence)

·     Average power prices of £53/MWh achieved in the year (2011: £51/MWh)

·     Proposed maiden dividend of 0.1 pence per share

 

 

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

"The successful acquisition of Greenpark has provided Alkane with the scale to significantly benefit from the well publicised looming energy gap requiring additional and responsive generators.

 

We will continue to invest in building our portfolio of mid-sized power plants and look forward to another year of progress in 2013."



 

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 (NOMAD)

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 both predictable and fast response capacity to the grid.   Alkane now has a total of 70MW of installed generating capacity and an electricity grid capacity of 89MW.

 

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 we can 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 now operates 25MW of power response on mains gas.

 

The Group operates from 20 mid-size (up to 10MW) power plants across the UK, 13 CMM only, 4 mains gas only, and 3 using both fuel sources.  We use standard modular reciprocating engines to generate the electricity, and sell 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 is enabling us 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 full 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") and shale gas.

 

 

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



Introduction

 

Alkane today announces its preliminary results for the year ended 31 December 2012, reporting on an important year in the Group's growth, with an increasing portfolio of sites now totalling 70MW in capacity, continued investment, and excellent financial results with revenue, profit before tax and EBITDA all strongly up. Following this strong performance the Board has proposed a maiden dividend of 0.1 pence per share.

 

Chairman's Statement

 

"Energy is the essence of life.  Every day you decide how you're going to use it, by having a clear strategy and what it takes to reach that goal, and by maintaining focus."  Although Oprah Winfrey (with apologies) was referring to personal endeavour I believe this quotation captures the ethos of Alkane.

 

The team has a clear vision and whilst others in the energy industry have been procrastinating, the Company has been investing in and working hard to deliver increased capacity to help capitalise on opportunities in this fast-changing industry.

 

I am delighted in my first Chairman's Statement to report continued growth and another record year for Alkane.  For the eighth consecutive year we have increased output and EBITDA.  Trading has been very encouraging with Group revenue up by 54% to £14.7m (2011: £9.5m), adjusted EBITDA up by 37% to £6.3m (2011: £4.6m), and adjusted profit before tax up by 44% at £2.9m (2011: £2.0m).  The Board is recommending that a dividend of 0.1 pence per share be paid. 

 

Alkane is now the UK's largest coal mine methane ("CMM") operator, providing predictable base load capacity and a power response business able to supplement the system when demand peaks or intermittent power supply from wind or solar projects is not available.  We are continuing to build a presence in power response, utilising our existing asset base, and the team is also taking on new challenges in drilling our first onshore natural gas well.  We have a growing reputation in design, build and operate ("DBO"), supplying power facilities to the biogas industry.  Also under the DBO banner we have secured a one-off contract to carry out restoration work on two abandoned natural gas wells on one of our licence areas.  Looking further out, we have started an appraisal of our licence position to review opportunities that may exist in CMM, coal bed methane ("CBM"), conventional and shale gas.

 

Alkane has continued its strategy of building power plants to provide solid financial returns over the life cycle of the asset, and we have pressed on with our investment programme whilst many in the industry have paused due to economic, "green policy" and regulatory uncertainty.  The Board believes that Alkane is well placed to deliver further growth for our shareholders. 

 

In addition, the acquisition of our major competitor Greenpark Energy Limited ("Greenpark") in April 2012 has provided us with a step change in scale in both sides of our generating business.  The assets have now been integrated into Alkane's operating regime and output has increased from the portfolio of acquired sites.  Consequently we are now expecting the returns to be ahead of those set when we acquired the business.

 

The UK electricity market is facing a period of fundamental change as the Government grapples with its aims of securing low cost, cleaner power sources.  Older reliable coal and nuclear power plants are being decommissioned and will need replacing, requiring a significant industry re-investment programme. The Government is seeking to ensure a diversified energy mix but this means they are trying to design multifaceted programmes in nuclear, the renewable sector and a gas strategy with a developing shale interest.  Many of these initiatives and conflicts are being dealt with in the Energy Bill currently before parliament but are only being addressed after a period of underinvestment by the industry.

 

The Ofgem/National Grid supply report published in November 2012 highlighted the developing "energy gap" with limited new plant being built.  This gives an increased likelihood of power cuts with this risk potentially materialising as early as 2015.  As a small and nimble power generator Alkane is well positioned to maximise its output and provide additional power when needed.

 

This extended period of growth in Alkane's output coincided with John Lander's appointment to the Group as Chairman in 2004.  John retired from the Board in November 2012 and I am keen to continue and build upon the platform that he has established at Alkane.  I would like to take this opportunity to express our thanks to John for his efforts in leading the Company.  He has nurtured and expanded the skills within the team and the Group now has an unrivalled knowledge base in our core operations.  This expertise is matched by the enthusiasm and dedication of the team in delivering on-going growth and major projects such as the acquisition of Greenpark.

 

Chief Executive Officer's Report

 

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. 

 

We have a clear strategy in place to exploit the opportunities in a power generation market where 25% of industry capacity is scheduled to be retired in the next decade. The Department of Energy and Climate Change ("DECC") published its Energy Bill in November 2012, setting out its key aims to ensure security of supply, to decarbonise power generation, and to provide customers with cost effective electricity supply. 

 

Our production sites incorporate base load (running 24 hours per day) coal mine methane ("CMM") generation together with our mains gas fuelled power response operations which run at peak times in winter and provide short term operating reserve ("STOR") to National Grid as standby operations during the balance of the year. 

 

Following the acquisition of Greenpark and Alkane's own organic growth we now operate from 16 CMM sites, which is the UK's largest CMM portfolio.  Once a project is established we would expect high EBITDA margins and payback periods of circa three to four years for a typical site.  Like any natural resource, the CMM gas will decline over time, and consequently we tailor generating capacity on site to run for around a decade.  To maintain and grow output Alkane needs to have a development pipeline of future projects and we have a strong development programme with more than ten projects currently being progressed. 

 

National Grid, Ofgem and DECC are forecasting the need for an expansion of electricity standby facilities, and they have highlighted the increased risk of energy shortages over the coming years. We believe that Alkane is ideally placed to take advantage of these trends with its strong operational focus and power response capability.  We have ready-made power response sites available by re-using surplus capacity from the CMM operations.  We can use the existing generators and grid connections and simply change the fuel source to mains gas.

 

Alkane's strengths in deploying power assets allow us to design, build and operate ("DBO") facilities for other users of containerised power plant.  This includes supply to the biogas market, where our order intake in 2012 was £4m, and to other oil and gas onshore operators, where we secured a one-off contract to restore two gas wells for a previous operator on one of our licences.  Our DBO offering to third party clients is a route to expanding the scale and range of our project management, maintenance and operational resources.  This helps to cover our cost base and boost Group profitability.

 

DECC and HM Treasury have set out proposals for a wide reaching Gas Strategy and they are establishing operational regulations for the exploration for shale.  Alkane owns the rights to 823km2 of UK Onshore PEDLs since being awarded its first licence in 1996.  With the successful exploitation of CMM resources the Company has been able to fulfil the initial development requirements from DECC and has secured the licences over much of the acreage for up to 31 years.  We control exploitation rights over all hydrocarbons (CMM, CBM, conventional gas, shale gas and shale oil) in our 21 licences, with the exception of five where resources other than CMM are excluded.  We have commenced an early stage exercise to evaluate our licences and the development options open to us in relation to shale reserves.

 

Operations

 

Production

 

Alkane is the market leader in the UK for CMM assets and is one of the largest independent power response providers.  At the year-end Alkane had 20 sites and 70MW installed capacity, as set out in the following table: 

 

Number of production sites

2008

2009

2010

2011

2012

CMM

7

8

10

11

16

Power response

-

1

2

2

7

Gas supply (equivalent MW)

2

2

2

2

1

Total

8

9

12

13

20

(note: total does not sum as some sites operate in more than one category)

 

 




Installed capacity

2008

2009

2010

2011

2012


MW

MW

MW

MW

MW

CMM

14

17

23

27

37

Power response

-

7

8

8

31

Gas supply (equivalent MW)

6

6

6

6

2

Total

20

30

37

41

70

 

In April 2012 Alkane completed the acquisition of Greenpark for a consideration of £4.9m.  We acquired 29MW of installed engine capacity, which with associated plant and equipment had a fair value of £5.5m, and gained access to seven CMM gas exploitation licences.   The acquisition has boosted our CMM output, the CMM project pipeline and our power response operations. 

 

Production in 2012 was up 19% at 167GWh (2011: 140GWh) which is the eighth successive year of growth in output for Alkane.  Since acquiring Greenpark we have grown production output in each and every month.  This is highlighted by the fact that output in the second half was up 45% on the same period last year.  The significant growth in output is a reflection of equipment overhauls and the redeployment of engine capacity, utilising our core skills and expertise.  We are also re-commencing generation at Askern which is a site that had been abandoned by Greenpark.

Power Response

 

Our power response business earns its revenue from a combination of supplying electricity at peak times when the margin between gas and electricity prices is at its highest, standby fees from the National Grid's STOR programme, and triads, which are winter premium payments.  During 2012 Alkane has built up installed capacity assigned to this activity to 31MW.  Although these operations, which are fuelled by purchased mains gas, are at a lower margin than CMM, they bring the benefit of stable and predictable revenues.  We have been successful in winning a 21MW STOR contract running until 31 March 2014.

 

We are planning to build additional power response sites, and we are making a modest investment in the preliminary stages of identifying land and securing planning permissions so that we are ready for expansion when DECC clarify the STOR and capacity mechanism regime as part of the Energy Bill currently before parliament.

 

Pricing 

 

Over the last twelve months prices have been more stable and predictable and over the last six months have been settled in a tighter trading range.  We continue to forward contract on a rolling basis for the coming year, selling our CMM output into the UK wholesale electricity market.

 

Base load electricity prices for the next twelve months are currently around £53/MWh.  We have 81% of our expected 2013 output contracted at an average price of £53/MWh.  Market prices are currently higher for 2014 and 2015 (£54/MWh and £58/MWh respectively).

 

STOR contract margins have been under pressure as the recession has reduced demand for electricity and power plants coming off base load generation have been seeking to compete in the STOR market.  Our low cost base has allowed us to successfully tender for contracts and we have secured 21MW of STOR contracts at good margins running up until March 2014.  Market prices for stand by generation are in a range from £5.60 to £8.00 per MW per hour, with utilisation rates in a range from £139/MWh to £190/MWh.

 

Design, Build and Operate ("DBO")

 

Alkane's first DBO biogas power facility, at Glenfarg in Scotland, was commissioned in the year. Our 2012 order intake in biogas DBO work reached £4m and we are currently engaged in the build phase of the power facility for three biogas projects, all of which should be completed by the end of 2013.

 

In addition, under the DBO banner, in September 2012 we commenced the drilling phase at our Nooks Farm site in Staffordshire with a £5.8m contract from Shell for the remedial work on the site which they had previously drilled in 1980. We continue to work with other onshore oil and gas operators to provide services but the Shell contract is unusual in the size of the work carried out.

 

Total DBO revenue in the year was £4.1m (2011: £1.1m), of which £2.7m was in respect of biogas projects (2011: £1.1m) and £1.4m was in respect of Nooks Farm (2011: nil).  It is expected that all of these contracts will be completed in 2013.

 

A collaboration agreement was signed in December 2009 with the TEG Group PLC ("TEG") to jointly develop anaerobic digestion ("AD") biogas facilities.  Both parties have concluded that such an agreement is no longer appropriate and therefore it has been terminated.  This allows the Company greater flexibility to work with a wider range of clients in respect of AD projects in the waste sector.  Alkane will continue to work as TEG's preferred supplier on a non-exclusive basis for combined heat and power and electrical installation.

 

Financial

Results

 

For the twelve months ended 31 December 2012, revenue has grown by 54% to £14.7m (2011: £9.5m).  This increase is built on three main factors.  Firstly the increase in output to 167GWh, up 19% on 2011. This has been achieved from operations across 20 sites (2011: 13 sites) which have boosted output where we have benefited from the contribution from the sites acquired with Greenpark.  Secondly, we secured increased average electricity prices of £53/MWh for the period (2011: £51/MWh). Finally, the revenue line has the benefit of our expansion into the supply of DBO services to the biogas market and to other onshore oil and gas operators, with revenue from this source being £4.1m (2011: £1.1m). 

 

Gross profit was £6.1m in the year, up 44% (2011: £4.2m). Gross margin was 41% (2011: 44%) which reflects the increased contribution from the DBO business. The gross margin on the core production and power response business was 49% (2011: 50%) and on the DBO business the gross margin was 23% (2011: 4%).  Depreciation increased by 24% to £2.9m (2011: £2.3m) as we continued to invest in new sites and major services.

 

EBITDA excluding exceptional administrative expenses was up strongly in the year, increasing by 37% to £6.3m (2011: £4.6m).  Cash conversion was 103% (2011: 96%), giving strong support to our investment programme.  The EBITDA margin was 44% (2011: 48%).  

 

We continue to manage our cost base prudently. Administrative expenses before exceptional items have grown as the scale of the business has increased, to £2.6m (2011: £2.0m) representing 18% of revenue compared to 21% last year. 

 

Adjusted profit before tax increased by 44% to £2.9m (2011: £2.0m), reflecting the benefit of higher prices, additional output and increased contribution from the DBO business.  The adjustments made are for the £587k of exceptional administrative expenses, which comprise the expenses of £816k relating to corporate costs, resulting principally from the acquisition of Greenpark, the credit of £541k bargain purchase on the acquisition, and an impairment of £312k in respect of capitalised development costs relating to the biogas business (principally for the unsuccessful joint tender bid for the NE Wales Council Anaerobic Digestion contract).  The published profit before tax increased by 37% to £2.3m (2011: £1.7m).

 

The adjusted earnings per share (excluding exceptional administrative expenses) for continuing operations increased by 31% to 2.92p per share (2011: 2.26p per share), with published earnings per share for continuing operations being 2.38p per share (2011: 1.92p per share).

 

The Board is recommending a dividend of 0.1 pence per share.  Subject to shareholder approval, which will be sought at the Annual General Meeting to be held on 1 May 2013, payment of this maiden dividend will be made on 31May 2013 to all shareholders on the register at the close of business on 19 April 2013.

 

Balance Sheet and Cash Flow

 

Net assets at 31 December 2012 increased to £24.4m (2011: £20.9m) with strong asset backing as Alkane now has 70MW of generating capacity and the infrastructure for the 20 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 £6.1m (2011: £6.8m) which incorporates the opening of Gedling and expenditure on other projects including Pontycymmer which will open in 2013, and the continuing investment in major engine services.

 

A settlement was reached in January 2013 with the vendors of Greenpark in respect of a number of property and warranty issues. Under the settlement a reduction in consideration of £325k was agreed.  

 

The Group generated £6.5m of operating cash in the year (2011: £4.4m).  A further £0.5m of cash came from repayments of loans from our former associate company Pro2 (2011: £0.1m); these loans had been completely impaired in 2009.  Power plant is expensive to build and commission but results in strong and stable long-term cash flows.   Net debt at the year-end was £8.2m (2011: £6.1m) as we continued to invest in new sites and in the acquisition of Greenpark.  Gearing is a comfortable 34% (2011: 29%) and the Group remains well within all of its bank covenants.  

 

Prospects

 

The UK electricity market is facing a period of significant investment in generation and grid assets in order to address the challenges highlighted by DECC.  An energy gap is looming as early as the winter of 2015/2016 requiring additional and responsive generators.

 

Alkane is responding to these opportunities both with cost effective domestically sourced baseload generation and with fast response, flexible power response operations.  We have seen a step change in our scale with the successful acquisition and integration of Greenpark.

 

With no reliance on government subsidy for our business we have continued to invest and grow on a sound financial basis without the need to pause whilst DECC finalise their industry plans. 

 

We look forward to another year of progress in 2013 with a backdrop of rising market prices and a tightening of the supply side of the electricity industry.

 

Roger McDowell

Chairman

 

Neil O'Brien

Chief Executive Officer

 

Stephen Goalby

Finance Director


 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

for the year ended 31 December 2012

 



2012

2011






Notes

£'000

£'000





Revenue


14,660

9,501

Cost of sales


(8,586)

(5,278)









Gross profit


6,074

4,223





Administrative expenses


(2,641)

(2,010)

Exceptional administrative expenses

3

(587)

(334)





Return on Group operations


2,846

1,879





Other operating income


20

31





Profit on activities before finance income/(costs)


2,866

1,910





Finance income


37

71

Exchange loss arising from financing


(7)

(1)

Finance costs


(608)

(314)





Net finance costs


(578)

(244)





 




Profit before tax


2,288

1,666





Taxation

5

100

200









Profit for the period from continuing operations


2,388

1,866





Discontinued operations:




Impairment reversal

8

495

64









Profit for the year attributable to equity holders of the parent


2,883

1,930





Other comprehensive income


-

-





Total comprehensive income for the year attributable to




equity holders of the parent


2,883

1,930





Earnings per ordinary share








From continuing operations:




Basic, for profit for the year attributable to equity holders of the parent

9

2.38p

1.92p

Diluted, for profit for the year attributable to equity holders of the parent

9

2.24p

1.89p





From continuing and discontinued operations:




Basic, for profit for the year attributable to equity holders of the parent

9

2.87p

1.98p

Diluted, for profit for the year attributable to equity holders of the parent

9

2.67p

1.96p

 



CONSOLIDATED STATEMENT OF FINANCIAL POSITION (unaudited)

at 31 December 2012

 



2012

2011






Notes

£'000

£'000





NON-CURRENT ASSETS




Property, plant and equipment

10

20,007

12,488

Gas assets

11

17,376

14,909

Intangible assets

7 / 11

1,395

1,209

Deferred tax asset

5

800

700











39,578

29,306





CURRENT ASSETS




Inventories


472

505

Trade and other receivables


4,729

1,685

Cash and cash equivalents


1,569

745











6,770

2,935









TOTAL ASSETS


46,348

32,241





CURRENT LIABILITIES




Trade and other payables


(5,963)

(1,989)

Finance lease obligations


(705)

(838)

Long-term borrowing due within one year


(1,500)

-

Provisions


(328)

(15)











(8,496)

(2,842)









NON-CURRENT LIABILITIES




Finance lease obligations


(417)

(1,123)

Long-term borrowings


(7,145)

(4,852)

7.5% Convertible loan stock

13

(1,970)

-

Deferred payments


(900)

(900)

Provisions


(3,018)

(1,612)











(13,450)

(8,487)





TOTAL LIABILITIES


(21,946)

(11,329)









NET ASSETS


24,402

20,912





EQUITY




Share capital


507

499

Share premium


1,248

1,216

Other reserves


9,196

8,629

Retained earnings


13,451

10,568









TOTAL EQUITY


24,402

20,912

 




 



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

for the year ended 31 December 2012

 


Attributable to the 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 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

507

1,248

9,196

13,451

24,402

 







 







 

At 1 January 2011

470

208

8,587

8,638

17,903

 







 

Profit and total comprehensive income 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

 







 







 

 

(1)      During 2011 £98,000 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 (2011: nil), a share-based payments reserve of £301,000 (2011: £210,000), a merger relief reserve of £244,000, and a distributable reserve of £8,419,000 (2011: £8,419,000) created following cancellation of the share premium.

 

 



 

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

for the year ended 31 December 2012



2012

2011






Notes

£'000

£'000





Operating activities




Profit before tax from continuing operations


2,288

1,666

Adjustments to reconcile operating profit to net cash flows:




Depreciation and impairment of property, plant and equipment and gas assets




gas assets


3,209

2,312

Bargain purchase written off


(541)

-

Convertible loan stock facility fee


60

-

Share-based payments expense


91

42

Finance income


(37)

(71)

Finance expense


608

314

Movements in provisions


(15)

(41)

Increase in trade and other receivables


(2,442)

(9)

Decrease/(Increase) in inventories


33

(81)

Increase in trade and other payables


3,280

242





Net cash flows from operating activities


6,534

4,374





Cash flows from investing activities




Payments received


495

64

Interest received


37

89

Purchase of property, plant and equipment


(3,801)

(3,308)

Purchase of gas assets


(2,315)

(3,541)

Purchase of subsidiaries

6/7

(4,661)

(311)





Net cash flows used in investing activities


(10,245)

(7,007)





Cash flows from financing activities




Issue of share capital


34

1,037

Issue of 7.5% convertible loan stock

13

2,000

-

Sale and finance leaseback rentals


(839)

(895)

Proceeds from long-term borrowings


3,793

3,101

Interest paid


(453)

(292)





Net cash flows from financing activities


4,535

2,951

 




Net increase in cash and cash equivalents


824

318





Cash and cash equivalents at 1 January


745

427

 




Cash and cash equivalents at 31 December

14

1,569

745

 

 

 

NOTES TO THE ACCOUNTS

 

1.     CORPORATE INFORMATION

The condensed consolidated financial statements of the Group for the year ended 31 December 2012 were authorised for issue in accordance with a resolution of the directors on 12 March 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 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 2012 included in this report do not constitute the Group's statutory accounts for the year ended 31 December 2012, 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


2012 unaudited

2011


£'000

£'000

(747)

(156)

541

-

(312)

-

(14)

(178)

(55)

-



(587)

(334)

4.     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 either of the Group's business segments.



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

 


2012

unaudited

2011


£'000

£'000

Extraction of gas



Total segment revenue

10,583

8,417

Depreciation

(2,887)

(2,333)

Interest expense

(499)

(437)




Segment profit before tax

2,865

2,288




Design, build and operate projects for external customers



Total segment revenue

4,077

1,084

Impairment

(312)

-




Segment profit/(loss) before tax

374

(99)




Total



Total revenue

14,660

9,501

Total depreciation and impairment

(3,199)

(2,333)

Total interest expense

(499)

(437)

Profit before tax from operating segments

3,239

2,189

Corporate centre

(1,512)

(544)

Consolidation adjustment

561

21




Profit before tax from continuing operations

2,288

1,666

Discontinued operations

495

64




Profit before tax

2,783

1,730

 

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

 


2012

2011


unaudited



£'000

£'000




Extraction of gas

42,460

30,413

Design, build and operate projects for external customers

3,579

780

Total segment assets

46,039

31,193

Corporate centre

686

243

Intangible asset arising on consolidation

1,209

1,209

Consolidation adjustments

(1,586)

(404)

Total consolidated assets

46,348

32,241




Extraction of gas

(21,959)

(18,550)

Design, build and operate projects for external customers

(3,693)

(1,051)

Total segment liabilities

(25,652)

(19,601)

Corporate centre

(5,555)

(1,202)

Consolidation adjustments

9,261

9,474

Total consolidated liabilities

(21,946)

(11,329)




Extraction of gas

6,234

7,135

Design, build and operate projects for external customers

96

168

Total segment additions to non-current assets

6,330

7,303

Deferred tax asset

100

200

Corporate centre

-

143

Consolidation adjustment: Intangible assets

-

 

1,209

Total consolidated additions to non-current assets

6,430

8,855

 

Majorcustomers

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


2012

unaudited

 

2012

unaudited

2011

2011


£'000

% of revenue

£'000

% of revenue






Customer A

9,620

66%

6,862

72%

Customer B

1,766

12%

1,084

11%

 

Customer A is from the extraction of gas sector, and Customer B is from the design, build and operate projects for external customers segment.

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 2012 (2011: nil) as brought forward tax losses have been utilised to offset the taxable profits. 

A deferred tax asset of £800,000 (2011: £700,000) 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 £100,000 has been credited to the Consolidated Statement of Comprehensive Income.  The balance of deferred tax assets of £4,923,000 (2011: £2,625,000) has not been recognised due to uncertainty over the timing of its use in future periods.

6.     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 13) and an increase in borrowing facilities.  The Group has extended its 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.  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 £5,452,000.  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, bargain purchase of £541,000 arises 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 were incurred in the year (2011: £156,000).  The net amount of £362,000 (£206,000 in the year (2011: £156,000)) has been expensed in the Consolidated Statement of Comprehensive Income under the heading of exceptional administrative expenses.

 

The revenue of the acquired company during the period from the date of acquisition to 31 December 2012 was £2,321,000, and the profit before tax was £918,000. 

 

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

 

7.   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.  Deferred tax liabilities arising as a result of the fair value adjustment and an equal and opposite goodwill intangible adjustment have not been recognised on the grounds of materiality.

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 £192,000 were incurred in advisory, professional and other fees in order to effect the acquisition, of which £14,000 was incurred in the year (2011: £178,000).  These costs have been expensed in the Consolidated Statement of Comprehensive Income.

8.   DISCONTINUED OPERATIONS

During the year 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 the year has therefore been 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 £3,000 the balance at 31 December 2012 is €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 31 December 2012 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. 

9.     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 and that would have been issued on the conversion at the period end of the convertible loan notes (see note 13) into ordinary shares.

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


2012

2011


unaudited






£'000

£'000

Profit for the year from continuing operations

2,388

1,866

Profit for the year from discontinued operations

495

64




Profit attributable to equity holders of the parent

2,883

1,930





No.

No.




Basic weighted average number of ordinary shares

100,542,097

97,405,275

Dilutive effect of share options

2,806,103

1,252,221

Dilutive effect of convertible loan notes1

12,342,857

-




Diluted weighted average number of ordinary shares

115,691,057

98,657,496

 

1 For the purposes of calculating the dilutive earnings per share, the profit for the year from continuing operations and the profit attributable to equity holders of the parent have been adjusted by the transaction costs and interest charges of £201,000 (2011: nil) that would have been avoided if conversion was to have occurred. The revised profit for the year from continuing operations on this basis is £2,589,000 and the revised profit attributable to equity holders of the parent is £3,084,000 (2011: no revisions).

Earnings per share from discontinued operations for the year ended 31 December 2012 is 0.49p (2011: 0.06p). 

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.

10.  PROPERTY, PLANT AND EQUIPMENT

Acquisitions and disposals

During the year ended 31 December 2012, the Group acquired assets with a cost of £9,792,000 (2011: £3,543,000), of which assets with a cost of £5,674,000 (2011: nil) arose from the acquisition of Greenpark Energy Limited. There were no disposals during the period (2011: nil) but fully depreciated assets of £1,125,000 (2011: £480,000) were derecognised.

11.  GAS ASSETS

Acquisitions and disposals

During the year ended 31 December 2012, the Group acquired assets with a cost of £3,751,000 (2011: £3,903,000), of which assets with a cost of £1,539,000 (2011: nil) arose from the acquisition of Greenpark Energy Limited. There were no disposals during the period (2011: nil) but fully depreciated assets of £162,000 (2011: nil) were derecognised and assets of £312,000 were impaired.  Development assets of £186,000 were transferred to intangibles.

12.  CAPITAL COMMITMENTS

At 31 December 2012, the Group had capital commitments contracted for but not provided in the financial statements of £523,000 for the acquisition of property, plant and equipment (2011: £325,000) and of £1,000 for the acquisition of gas assets (2011: £378,000).

13.  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 6).  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 is £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.

14.  ADDITIONAL CASH FLOW INFORMATION

Analysis of net debt


1

January

2012

Cash

flow

Other

 non-cash movements

Exchange

rate

differences

31

December

2012






unaudited


£'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*

(5,846)

(2,160)

61

3

(7,942)


1

January

2011

Cash

flow

Other

 non-cash movements

Exchange

rate

differences

31

December

2011








£'000

£'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)

 

*This includes the effect of securities paid on sale and leaseback transactions that are closely related to those items.

15.  RELATED PARTY TRANSACTIONS

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


2012

2011


unaudited



£'000

£'000

Key management compensation



Salaries (including social security) and other short term employee benefits

692

544

Long term benefits

30

30

Share-based payments

80

39





802

613

 

16.  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 2011 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 2012 will be sent to shareholders during April 2013 and will be available from the Company's registered office - Edwinstowe House, High Street, Edwinstowe, Nottinghamshire NG21 9PR.

 

 

 

 

 


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