Preliminary Results

RNS Number : 0637C

Alkane Energy PLC

12 March 2014

 



12 March 2013

Alkane Energy plc

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

Unaudited preliminary results for the year ended 31 December 2013

Alkane Energy plc (AIM: ALK), the independent gas to power producer, today announces its unaudited preliminary results for the year ended 31 December 2013.

Operational Highlights

·     Substantial progress across the Group

·     15% increase in output to 192GWh

·     Installed generating capacity of 83MW (2012: 70MW)

·     Power response capacity risen to 36MW (2012: 31MW)

·     On track to reach 50MW power response capacity by H1 2015

·     Acquisition of Maltby Colliery CMM operations

·     Post year-end £1.5m acquisition of Wheldale power response site

Financial Highlights

·     Revenue increased by 40% to £20.6m (2012:14.7m)

·     Adjusted profit before tax increased by 17% to £3.4m (2012: £2.9m)

·     Adjusted EBITDA up 18% to £7.5m (2012: £6.3m)

·     Adjusted EPS up 2% to 3.01p per share (2012: 2.96p per share)

·     Proposed dividend of 0.2p per share (2012: 0.1p per share)

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

"I am pleased to report another year of substantial progress for Alkane.  We have continued to execute our strategy of growing both organically and through acquisition and have delivered a 15% increase in output and a 17% increase in adjusted profit before tax. 

The UK energy market is facing a number of challenges including the decline of generating capacity with increased risks of power shortages over the coming years. Alkane is well positioned and will continue to develop its business to take advantage of the changing dynamics of the UK power industry."

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 Raca	020 3005 5000
Liberum Clayton Bush Tim Graham	020 3200 2000
Hudson Sandler Nick Lyon Alex Brennan	020 7796 4133

Background information

Alkane is one of the UK's fastest growing independent power generators. The Company operates mid-sized "gas to power" electricity plants providing both base load and fast response capacity to the grid. Following the acquisition of the Wheldale power response assets, Alkane now has a total of 90MW of installed generating capacity and an electricity grid capacity of 110MW.

Alkane's base load operations, where power is generated 24/7, are centred on a portfolio of coal mine methane ("CMM") sites. Alkane has the UK's leading portfolio of CMM licences, enabling the Company to extract gas from abandoned coal mines.

As CMM declines at any one site, Alkane retains valuable generating capacity and a grid connection which can be redeployed to power response. Power response sites are connected to mains gas and produce electricity at times of high electrical demand through peak running, or in order to balance the electricity grid through participation in the National Grid's short term operating reserve programme ("STOR"). Participants in STOR are paid premium rates when called upon by the Grid to meet temporary supply shortages.  Alkane now operates 43MW of power response on mains gas.

The Group operates from 24 mid-size (up to 10MW) power plants across the UK, 16 CMM only, 6 mains gas only, and 2 using both fuel sources. Alkane uses standard modular reciprocating engines to generate the electricity and sells this power through the electricity network. The engine units and other plant are designed to be flexible and transportable allowing additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency.

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

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

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

Chairman's Statement 

I am delighted to announce Alkane's results for 2013 which has been another successful year for the Group.  The year has seen substantial progress towards our ongoing objective to grow shareholder value.  Revenue has grown by 40% to £20.6m (2012: £14.7m), reflecting expansion in all three of our chosen sectors, base load coal mine methane ("CMM"), power response, and design, build and operate ("DBO").  Adjusted profit before tax is up 17% to £3.4m (2012: £2.9m) with adjusted earnings per share from continuing operations increasing to 3.01pps (2012: 2.96pps).

Investment in acquisitions and organic growth has continued and our installed capacity at the year-end was 83MW.  This has led to a 15% increase in output to 192GWh (2012: 167GWh) which is the ninth year in a row that Alkane has increased electrical output.  The year has seen our largest acquisition with the £7.5m purchase of the CMM operations at Maltby Colliery, of which £5.5m initial consideration was paid in the year. I am delighted to report that at this early stage output at Maltby is ahead of our plan. 

Our growth strategy has continued post year-end with the £1.5m acquisition of SSE's 7.5MW power response site at Wheldale, Yorkshire, increasing installed capacity to 90MW, and we continue to develop both base load CMM and power response facilities from our existing portfolios.

The UK energy industry has been a headline item throughout 2013 as DECC, generators and consumers grapple with issues of energy security, cost and carbon footprint.  The issues and targets have been clearly expressed over several years and Alkane is well placed to take advantage of market opportunities.  Our technology and our business model are well tested, we continue to develop "shovel ready" sites which are fully permitted and our build time is significantly shorter than our competitors. The business is profitable and cash positive with funds being re-invested in generating assets.  The Maltby acquisition was completed with increased bank facilities from Lloyds Bank plc and a successful £6m equity fund raising.

The success of Alkane is due to the skill and dedication of our staff and I would like to take this opportunity to thank all employees, on the Board's behalf, for their efforts over the last twelve months.

Chief Executive Officer's Report

The UK Electricity Market

Overall electrical demand in the UK is circa 350TWh.  This is supplied by a nationwide generating fleet of around 90GW with UK Government policy being to encourage renewable energy investment to de-carbonise power generation and to replace the aging nuclear and coal powered capacity.  The Energy Act received Royal Assent in December 2013 embodying various subsidies for renewable technologies and signalling a capacity mechanism to ensure sufficient capacity is available in times of peak demand. 

Over the last two winters coal has been the most economic generating source and its use has increased to provide around 40% of the electricity produced over the winter months.  This increase in coal-fuelled output has been at the expense of large gas powered plant which have become less economic at current market prices.  However, carbon emission regulations are leading to the closure of a number of coal power plants including Didcot, Kingsnorth, Cockenzie and Tilbury which have already announced decommissioning plans. 

The industry has forecast that £110bn will have to be spent in new generation capacity and grid improvement before the end of the decade.  Even with this intense investment period, Ofgem has signalled that the UK will face tighter capacity margins as old plant is removed from the grid.  Their June 2013 projections suggest capacity margins could be as low as just 2% by 2016.  This energy crunch increases the risk of power shortages, or in extreme cases power cuts, over the coming years.

Alkane Strategy

The Group's activities are centred on reliable, flexible, embedded electrical generation powered by standard gas reciprocating engines.  The 24 sites that we currently operate vary in size from 0.5MW up to 10MW and are spread across the central part of the UK.  Individual sites are not manned as Alkane runs a single 24/7 control room at our main operating hub, from where we manage a team of field technicians who undertake planned and reactive maintenance.

CMM sites are base load operations, where power is generated 24/7, maximising cash flow and returns from the gas resource.  Power response operations provide fast start-up power to the grid using bought in mains gas.  These operations would typically run during winter evening peak load periods and within the National Grid's short term operating reserve programme ("STOR").

None of our generation sites rely on any government or green subsidy and our current and future capital plans are not dependent on DECC renewable incentives.  Unlike many others we have accelerated our investment programme through the recession and the following table sets out our current operating sites and installed generating capacity.

Number of operational sites	2009	2010	2011	2012	2013	2014 to date
CMM	8	10	11	16	18	18
Power response	1	2	2	7	7	8
Gas supply	2	2	2	1	1	1
Total	9	12	13	20	23	24
(note - total does not sum as some sites operate in more than one category)
Installed capacity (MW)	2009	2010	2011	2012	2013	2014 to date
CMM	17	23	27	37	45	45
Power response	7	8	8	31	36	43
Gas supply (equivalent MW)	6	6	6	2	2	2
Total	30	37	41	70	83	90

Base Load Coal Mine Methane ("CMM")

Alkane is the UK's largest CMM operator.  2013 output from CMM rose by 9% on the previous year.  This increase reflects the acquisition of the Maltby facility from Hargreaves Services in May 2013.  In addition, we had a first time contribution from our newest developed site at the former Prince of Wales Colliery, Pontefract, during December 2013. 

CMM gas is extracted under onshore gas licences.  The exploitation of these reserves contains an element of drill risk, but where we find economically viable reserves the Alkane operating model, deploying standardised modular plant, would typically expect to achieve cash paybacks of under four years once we move into the power generation phase. 

We continue to work on a number of sites within the project pipeline to increase capacity in future years including beginning production at two projects in 2014 from within our existing licence portfolio.

Power Response

Power response is a relatively new part of the Alkane business and installed capacity has risen to 36MW by December 2013.  We have seen record levels of activity from this side of the business as improved quality and commercial terms have fed through during the year.  The power response side of our operations uses bought in mains gas to produce electricity.  We use identical facilities and operations to CMM thereby maximising operational efficiencies.  Over the last twelve months, revenue has more than doubled to £3.1m (2012: £1.5m) as we run a larger and more productive fleet over both the winter evening peak periods and in the National Grid STOR programme.

The UK energy mix is becoming more varied and complex with increasing numbers of intermittent renewable energy sources. Ofgem has highlighted the risks of an energy crunch in the UK in the coming winters as capacity margins shrink.  These drivers should provide us with an attractive market to which to sell greater volumes of power in the future.  We believe our operations are a competitive part of the generation mix as we offer the ability to integrate directly with National Grid's control centres, to provide cost effective power and to offer fast response generation coming on stream in under 20 minutes.

Post year-end we announced the acquisition of a 7.5MW STOR facility at Wheldale, Yorkshire from SSE and Alkane has recently won its largest ever STOR contracts for the coming winter.  This acquisition together with further investment in converting surplus grid capacity supports our objective to reach 50MW installed capacity in power response during the first half of 2015.

Design, Build and Operate ("DBO")

We have been successfully building remotely managed power plants since 2004 and in more recent times we have started to provide services to external customers in the onshore oil & gas and biogas markets.  This has been an exceptionally busy period for the Group with revenue up 75% to £7.1m (2012: £4.1m).  In total six projects have been commissioned this year including a one off oil & gas remedial contract which added £4.5m to this year's revenue figure.  We would expect activity to drop to more normal levels during 2014 and to retain our focus on building in areas which will offer us long term generation and ownership opportunities.  We will be aim to be selective in which projects we take on where they remain within our skill set and do not overstretch our resources.

Licence Portfolio

In terms of unconventional hydrocarbons, the Group has more than 800km² of acreage under various onshore Petroleum Exploration and Development Licences ("PEDLs"), retaining 100% interest in the majority of these PEDLs and a right to all the hydrocarbons recoverable from these licence areas.

In 2013, the Group commissioned an independent energy services company to undertake a shale gas prospectivity assessment on 13 of Alkane's licences across central-north England. This report is being assessed but the illustrative gas initially in place ("GIIP") estimates indicate that there is potential for prospective shale gas volumes which are consistent with other regional studies. As a result of this study, and increasing interest in shale gas in the UK, the Group has been considering a number of options in relation to its PEDLs ranging from undertaking further work on the licences, farms outs or even divesting all or part of the Group's interests in the licences. A further update on the Board's strategy for its unconventional hydrocarbons will be announced in due course.

By carrying out the development conditions required by DECC, such as CMM drilling, we have a large licence portfolio which has been secured for a number of years ahead.  The Company anticipates participating in the 14^th Onshore Licensing Round, which is expected in 2014. 

Financial

Results

For the twelve months ended 31 December 2013, revenue has grown by 40% to £20.6m (2012: £14.7m).  This increase is built on two main factors.  Firstly the increase in output to 192GWh, up 15% on 2012. This has been achieved from operations across 23 sites during the year (2012: 20 sites) which have boosted output where we have benefited from the contribution from Maltby.  Secondly, the revenue line has the benefit of an expansion in the supply of DBO services to the biogas market and to other onshore oil and gas operators, with revenue from this business unit being £7.1m (2012: £4.1m). 

Average base load power prices achieved in the year were £53/MWh (2012: £53/MWh).  We continue to forward contract on a rolling basis, selling our base load and peak power output into the UK wholesale electricity market.  We have 73% of expected base load output in 2014 contracted at an average price of £53/MWh and 40% of 2015 contracted at an average price of £54/MWh.  Power prices in the market have been falling over the last few months after a period of stability during 2013.  The fall in prices has flattened the forward curve, and as at the end of February prices for 2015 and 2016 were circa £54/MWh and £55/MWh respectively.

Gross profit was £6.9m in the year, up 14% (2012: £6.1m). Gross margin was 34% (2012: 41%) which reflects the increased contribution from the lower margin DBO business. In our generation business we earn higher margins from base load, reflecting the development risk, than we do in the more predictable power response business. The gross margin on the combined generation business was 39% (2012: 49%), as a result of the greater proportion of output from power response.  On the DBO business the gross margin was 22% (2012: 23%).  Depreciation increased by 20% to £3.5m (2012: £2.9m) as we continued to invest in new sites and major services.

EBITDA excluding exceptional administrative expenses was up strongly in the year, increasing by 18% to £7.5m (2012: £6.3m), giving strong support to our investment programme.  The EBITDA margin was lower at 37% (2012: 43%) as a result of a change of mix following the growth in the DBO and power response businesses. 

We continue to tightly manage our cost base. Administrative expenses before exceptional items have grown as the scale of the business has increased, to £3.3m (2012: £2.6m) representing 16% of revenue compared to 18% last year. The exceptional administrative expenses comprise expenses of £470k relating to corporate costs, resulting principally from costs that could not be capitalised relating to the acquisition of Maltby, and an impairment of £233k in respect of capitalised development costs relating to the biogas business.  The increase in other operating income represents a reassessment of restoration provisions in respect of those sites where the provisions have been reduced. Published profit before interest and tax increased by 16% to £3.3m (2012: £2.9m).

After adjustment for exceptional administrative expenses, profit before tax increased by 17% to £3.4m (2012: £2.9m), principally reflecting the benefit of additional output.  The published profit before tax increased by 16% to £2.7m (2012: £2.3m).

The adjusted earnings per share (excluding exceptional administrative expenses) for continuing operations increased by 2% to 3.01p per share (2012: 2.96p per share), with published earnings per share for continuing operations being 2.40p per share (2012: 2.38p per share).

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

As a sign of the Board's confidence in the Company's prospects it is recommending an increased dividend of 0.2 pence per share (2012: 0.1 pence per share).  Subject to shareholder approval, which will be sought at the Annual General Meeting to be held on 1 May 2014, payment of this dividend will be made on 30 May 2014 to all shareholders on the register at the close of business on 25 April 2014.

Balance Sheet and Cash Flow

Net assets at 31 December 2013 increased to £33.0m (2012: £24.4m) with strong asset backing as Alkane at the year-end had 83MW of generating capacity and the infrastructure for the 23 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 £12.8m (2012: £10.8m) which incorporates the acquisition of the Maltby CMM operations, the opening of the Prince of Wales Colliery site, expenditure on other projects including Nooks Farm which are anticipated to be opened in 2014, and the continuing investment in major engine services.

Power plant is expensive to build and commission but results in strong and stable long-term cash flows.   The Group generated £5.6m of operating cash in the year (2012: £6.5m).  Net debt (excluding convertible loan stock) at the year-end was £10.2m (2012: £8.2m) as we continued to invest in new sites and in the acquisition of Maltby.  Post year end the Company acquired the power response facility at Wheldale.  In order to fund this acquisition and to provide funds towards the 2014 capital programme Lloyds Bank plc have increased the revolving credit facility from £7.0m to £10.0m, with the term extended to April 2017.  Including accumulated interest the balance of the convertible loan stock at the year-end was £2.2m (2012: £2.0m).  The stock is repayable if any element of the loan stock is not converted by 27 April 2015; £0.1m loan stock plus accumulated interest was converted on 28 January 2014.   Gearing is 31% (2012: 34%) and the Group remains well within all of its bank covenants. 

Outlook

The UK energy market continues to face a number of challenges including a decline in North Sea oil and gas production and a tightening supply margin in the electricity market.  Alkane is profitable and cash positive with funds being re-invested in generating assets.  The business is continuing to develop scale through organic and acquisition expansion.  We remain confident in our growth strategy to take advantage of the changing industry fundamentals over the coming years.

Roger McDowell

Chairman

Neil O'Brien

Chief Executive Officer

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

for the year ended 31 December 2013

 

		2013	2012
	Notes	£'000	£'000
Revenue		20,571	14,660
Cost of sales		(13,664)	(8,586)
Gross profit		6,907	6,074
Administrative expenses		(3,342)	(2,641)
Exceptional administrative expenses	3	(703)	(587)
Return on Group operations		2,862	2,846
Other operating income		471	20
Profit on activities before net finance costs		3,333	2,866
Finance income		18	37
Exchange loss arising from financing		-	(7)
Finance costs		(696)	(608)
Net finance costs		(678)	(578)
Profit before tax		2,655	2,288
Taxation	5	100	100
Profit for the period from continuing operations		2,755	2,388
Discontinued operations:
Impairment reversal	9	-	495
Profit for the year attributable to equity holders of the parent		2,755	2,883
Other comprehensive income		-	-
Total comprehensive income for the year attributable to
equity holders of the parent		2,755	2,883
Earnings per ordinary share
From continuing operations:
Basic, for profit for the year attributable to equity holders of the parent	10	2.40p	2.38p
Diluted, for profit for the year attributable to equity holders of the parent	10	2.25p	2.24p
From continuing and discontinued operations:
Basic, for profit for the year attributable to equity holders of the parent	10	2.40p	2.87p
Diluted, for profit for the year attributable to equity holders of the parent	10	2.25p	2.67p

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (unaudited)

at 31 December 2013

		2013	2012
	Notes	£'000	£'000
NON-CURRENT ASSETS
Property, plant and equipment	11	23,316	20,007
Gas assets	12	23,335	17,376
Intangible assets		1,633	1,395
Derivative financial instrument		22	-
Deferred tax asset	5	900	800
		49,206	39,578
CURRENT ASSETS
Inventories		464	472
Trade and other receivables		4,156	4,729
Cash and cash equivalents		838	1,569
		5,458	6,770
TOTAL ASSETS		54,664	46,348
CURRENT LIABILITIES
Trade and other payables		(4,616)	(5,963)
Finance lease obligations		(343)	(705)
Long-term borrowing due within one year		(1,500)	(1,500)
Provisions		(146)	(328)
		(6,605)	(8,496)
NON-CURRENT LIABILITIES
Finance lease obligations		(69)	(417)
Long-term borrowings		(9,161)	(7,145)
7.5% Convertible loan stock	14	(2,199)	(1,970)
Deferred payments	7	(900)	(900)
Provisions		(2,737)	(3,018)
		(15,066)	(13,450)
TOTAL LIABILITIES		(21,671)	(21,946)
NET ASSETS		32,993	24,402
EQUITY
Share capital		618	507
Share premium		6,906	1,248
Hedging reserve		22	-
Other reserves		9,230	9,196
Retained earnings		16,217	13,451
TOTAL EQUITY		32,993	24,402

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

for the year ended 31 December 2013

	Attributable to the equity holders of the parent
	Issued	Share	Hedging	Other	Retained	Total
	capital	premium(1)	reserve	reserves(2)	earnings	equity
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2013	507	1,248	-	9,196	13,451	24,402
Profit and total comprehensive income for the year	-	-	-	-	2,755	2,755
Dividend	-	-	-	-	(101)	(101)
Fair value of derivative instrument	-	-	22	-	-	22
Share based payment	-	-	-	146	-	146
Share options lapsed and exercised during the year	-	-	-	(112)	112	-
Issue of share capital	111	5,658	-	-	-	5,769
At 31 December 2013	618	6,906	22	9,230	16,217	32,993
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 24	-	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

(1)      During the year £274,000 was written off against the share premium account in respect of costs relating to the issue of shares.

(2)      Other reserves comprise the equity component of convertible loan notes of £232,000 (2012: 232,000), a share-based payments reserve of £335,000 (2012: £301,000), a merger relief reserve of £244,000 (2012: £244,000), and a distributable reserve of £8,419,000 (2012: £8,419,000) that was created following cancellation of the share premium account.

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

for the year ended 31 December 2013

		2013	2012
	Notes	£'000	£'000
Operating activities
Profit before tax from continuing operations		2,655	2,288
Adjustments to reconcile operating profit to net cash flows:
Depreciation and impairment of property, plant and equipment and gas assets
gas assets		3,715	3,209
Bargain purchase written off		-	(541)
Convertible loan stock facility fee		-	60
Share-based payments expense		146	91
Finance income		(18)	(37)
Finance expense		696	608
Movements in provisions		(463)	(15)
Decrease/(increase) in trade and other receivables		573	(2,442)
Decrease in inventories		8	33
(Decrease)/increase in trade and other payables		(1,754)	3,280
Net cash flows from operating activities		5,558	6,534
Cash flows from investing activities
Payments received		-	495
Interest received		18	37
Purchase of property, plant and equipment		(6,180)	(3,801)
Purchase of gas assets		(6,193)	(2,315)
Purchase of subsidiaries	6/7	-	(4,661)
Purchase of intangible assets		(439)	-
Net cash flows used in investing activities		(12,794)	(10,245)
Cash flows from financing activities
Issue of share capital		5,769	34
Issue of 7.5% convertible loan stock	14	-	2,000
Sale and finance leaseback rentals		(710)	(839)
Proceeds from long-term borrowings		3,516	4,543
Repayment of long-term borrowings		(1,500)	(750)
Dividend paid to the equity holders of the parent		(101)	-
Interest paid		(469)	(453)
Net cash flows from financing activities		6,505	4,535
Net (decrease)/increase in cash and cash equivalents		(731)	824
Cash and cash equivalents at 1 January		1,569	745
Cash and cash equivalents at 31 December	15	838	1,569

 

NOTES TO THE ACCOUNTS

1.     CORPORATE INFORMATION

The condensed consolidated financial statements of the Group for the year ended 31 December 2013 were authorised for issue in accordance with a resolution of the Directors on 11 March 2014.

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

The principal activities of the Group are described in Note 4.

2.     BASIS OF PREPARATION AND ACCOUNTING POLICIES

The condensed consolidated financial statements for the year ended 31 December 2013 included in this report do not constitute the Group's statutory accounts for the year ended 31 December 2013, 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

	2013 unaudited	2012
	£'000	£'000
Costs related to the acquisition of Greenpark Energy Limited (note 6)	(31)	(747)
Bargain purchase arising from the acquisition of Greenpark Energy Limited (note 6)	-	541
Acquisition of Seven Star Natural Gas Limited (note 7)	-	(14)
Non-capital costs relating to the acquisition of Maltby CMM assets (note 8)	(251)	-
Non-capital costs relating to the acquisition of Wheldale power response assets (note 16)	(7)	-
Costs relating to the acquisition of a licence	(25)	-
Costs relating to other corporate transactions	(108)	-
Costs of aborted corporate transactions	(48)	(55)
Impairment of biogas development costs	(233)	(312)
	(703)	(587)

4.     SEGMENT INFORMATION

Operating segments

The directors consider that there are two operating segments:

·  The extraction and utilisation 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, interest expense and profit before tax for each segment.

	2013 unaudited	2012
	£'000	£'000
Extraction and utilisation of gas
Total segment revenue	13,439	10,583
Depreciation	(3,469)	(2,887)
Interest expense	(492)	(499)
Segment profit before tax	3,526	2,865
Design, build and operate projects for external customers
Total segment revenue	7,142	4,077
Impairment	(233)	(312)
Segment profit before tax	599	374
Total
Total revenue	20,581	14,660
Total depreciation and impairment	(3,702)	(3,199)
Total interest expense	(492)	(499)
Profit before tax from operating segments	4,125	3,239
Corporate centre	(1,491)	(1,512)
Consolidation adjustment	21	561
Profit before tax from continuing operations	2,655	2,288
Discontinued operations	-	495
Profit before tax	2,655	2,783

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

	2013	2012
	unaudited
	£'000	£'000
Extraction and utilisation of gas	52,611	42,460
Design, build and operate projects for external customers	1,296	3,579
Total segment assets	53,907	46,039
Corporate centre	404	686
Intangible asset arising on consolidation	1,209	1,209
Consolidation adjustments	(856)	(1,586)
Total consolidated assets	54,662	46,348
Extraction and utilisation of gas	(26,507)	(21,959)
Design, build and operate projects for external customers	(917)	(3,693)
Total segment liabilities	(27,424)	(25,652)
Corporate centre	(7,291)	(5,555)
Consolidation adjustments	13,044	9,261
Total consolidated liabilities	(21,671)	(21,946)
Extraction and utilisation of gas	13,174	6,234
Design, build and operate projects for external customers	-	96
Total segment additions to non-current assets	13,174	6,330
Deferred tax asset	100	100
Corporate centre	22	-
Total consolidated additions to non-current assets	13,296	6,430

Majorcustomers

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

	2013 unaudited	2013 unaudited	2012	2012
	£'000	% of revenue	£'000	% of revenue
Customer A	10,665	52%	9,620	66%
Customer B	4,461	22%	1,766	12%

Customer A is from the extraction of gas segment, and Customer B is from the design, build and operation of 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 2013 (2012: nil) as brought forward tax losses have been utilised to offset the taxable profits. 

A deferred tax asset of £900,000 (2012: £800,000) has been recognised in accordance with a prudent estimate of the extent to which future trade profits will be available to be utilised against unused tax losses and other temporary differences. This has been credited to the Consolidated Statement of Comprehensive Income.  The balance of deferred tax asset 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 14) and an increase in borrowing facilities.  The Group has extended its borrowing facilities with Lloyds Bank plc.  A term loan of £3,000,000, secured by way of legal charges over the Group's assets, was provided to finance the acquisition, to be repaid in quarterly payments over two years.  At the same time the existing revolving credit facility was reduced from £7,500,000 to £6,500,000.

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

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

Net assets with a book value of £11,911,000 were acquired at the date of acquisition. The Directors 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 was £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 arose in respect of the transaction.  Costs of £934,000 were incurred in advisory, professional and other fees in order to effect the acquisition, of which £31,000 were incurred in the year (2012: £747,000).  The net amount of £393,000 (£31,000 in the year) (2012: £206,000)) 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 consideration for the shares was £311,000, with a contingent consideration of £900,000 payable 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.

Costs of £192,000 were incurred in advisory, professional and other fees in order to effect the acquisition, of which nil was incurred in the year (2012: £14,000).  These costs have been expensed in the Consolidated Statement of Comprehensive Income.

8.     ACQUISITION OF MALTBY COAL MINE METHANE ASSETS

On 24 May 2013, the Group completed the purchase of coal mine methane assets located at Maltby Colliery for a consideration of £5,500,000. 

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

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

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

9.   DISCONTINUED OPERATIONS

In 2012 the Company received payments totalling €610,000 (£495,000) being instalments due in respect of an outstanding loan to Deutsche KWK GmbH, an operation discontinued in 2009 at which time the outstanding balance was fully impaired and included as loss on discontinued operations. The reversal of this impairment in 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 2013 is €145,000 (£121,000). This balance was due to be repaid on 31 December 2013, however following a request from Deutsche KWK GmbH the due date has been extended to 31 December 2014. The loan was fully impaired in 2009, and having reviewed the position at 31 December 2013 there remains a fundamental uncertainty in respect of the recovery of the outstanding balance of the loan and consequently there has been no reversal of the balance of the impairment charge.

10.  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 14) into ordinary shares.

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

	2013	2012
	unaudited
	£'000	£'000
Profit for the year from continuing operations	2,755	2,388
Profit for the year from discontinued operations	-	495
Profit attributable to equity holders of the parent	2,755	2,883
	No.	No.
Basic weighted average number of ordinary shares	114,930,148	100,542,097
Dilutive effect of share options	4,992,606	2,806,103
Dilutive effect of convertible loan notes1	13,291,428	12,342,857
Diluted weighted average number of ordinary shares	133,214,182	115,691,057

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 £242,000 (2012: £201,000) that would have been avoided if conversion was to have occurred. The revised profit for the year from continuing operations on this basis is £2,997,000 (2012: £2,589,000) and the revised profit attributable to equity holders of the parent is £2,997,000 (2012: £3,084,000).

Earnings per share from discontinued operations for the year ended 31 December 2013 is nil (2012: 0.49p). 

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.

11.  PROPERTY, PLANT AND EQUIPMENT

Acquisitions and disposals

During the year ended 31 December 2013, the Group acquired assets with a cost of £6,106,000 (2012: £9,792,000), of which assets with a cost of £3,000,000 (2012: nil) arose from the acquisition of the Maltby coal mine methane assets. There were no disposals during the period (2012: nil) but fully depreciated assets of £443,000 were derecognised (2012: £1,125,000).

12.  GAS ASSETS

Acquisitions and disposals

During the year ended 31 December 2013, the Group acquired assets with a cost of £6,629,000 (2012: £3,751,000), of which assets with a cost of £2,759,000 (2012: nil) arose from the acquisition of the Maltby coal mine methane assets. There were no disposals during the period (2012: nil).  No fully depreciated assets were derecognised (2012: £162,000).  Assets of £233,000 were impaired (2012: £312,000).  No development assets were transferred to intangibles in the year (2012: £186,000).

13.  CAPITAL COMMITMENTS

At 31 December 2013, the Group had capital commitments contracted for but not provided in the financial statements of £28,000 for the acquisition of property, plant and equipment (2012: £523,000) and of £16,000 for the acquisition of gas assets (2012: £1,000).

14.  CONVERTIBLE LOAN NOTES

On 26 April 2012 the Company issued £2,000,000 convertible loan notes, with the proceeds being utilised to partly fund the acquisition of Greenpark Energy Limited (see note 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.

15.  ADDITIONAL CASH FLOW INFORMATION

Analysis of net debt

	1 January 2013	Cash flow	Other  non-cash movements	Exchange rate differences	31 December 2013
					unaudited
	£'000	£'000	£'000	£'000	£'000
Cash at bank and in hand	1,569	(731)	-	-	838
Sale and finance leaseback	(1,122)	710	-	-	(412)
Long-term loan	(8,645)	(2,016)	-	-	(10,661)
Net debt	(8,198)	(2,037)	-	-	(10,235)
Securities	256	1	-	-	257
Adjusted net debt*	(7,942)	(2,036)	-	-	(9,978)
	1 January 2012	Cash flow	Other  non-cash movements	Exchange rate differences	31 December 2012
	£'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)

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

16.  SUBSEQUENT EVENT

On 5 February 2014 the Group acquired the Wheldale power response facilities from SSE plc, for a total consideration of £1,500,000.  The initial consideration for the acquisition was £1,100,000 paid in cash on completion, with a £400,000 deferred cash payment to be paid on 31 October 2014.  The facilities comprise an installed engine capacity of 7.5MW and a grid connection of 10MW.  As part of the financial arrangements to fund the acquisition the Group has increased its banking facilities with Lloyds Bank PLC by £1,000,000. 

17.  RELATED PARTY TRANSACTIONS

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

	2013	2012
	unaudited
	£'000	£'000
Key management compensation
Salaries (including social security) and other short term employee benefits	734	692
Long term benefits	33	30
Share-based payments	120	80
	887	802

18.  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 2012 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 2013 will be sent to shareholders during April 2014 and will be available from the Company's registered office - Edwinstowe House, High Street, Edwinstowe, Nottinghamshire NG21 9PR.

 

END

 

 

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