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
Costs related to the acquisition of Greenpark Energy Limited (see note 6)	(747)	(156)
Bargain purchase arising from the acquisition of Greenpark Energy Limited (see note 6)	541	-
Impairment of biogas development costs	(312)	-
Acquisition of Seven Star Natural Gas Limited (see note 7)	(14)	(178)
Costs of aborted corporate transactions	(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.

 

 

END

 

 

IR BIGDXDSBBGXD