Interim Results
EcoSecurities Group plc
20 September 2006
EcoSecurities Group plc
Interim Results For The Six Months Ended 30 June 2006
Dublin, Ireland - EcoSecurities Group plc (the "Group" or "EcoSecurities"), one
of the world's leading originators of projects which generate carbon credits,
today announces its interim results for the half year ended 30 June 2006.
Highlights
• 40 million CERs* added to the Group's portfolio in H1 2006 representing an
increase of 44%, which brings the total gross contract volume to 130
million CERs, exceeding the Group's expectations.
• Broad base of origination success, with 61 new projects added to the
portfolio in the first half bringing the total to 213, up 40%, spanning
26 countries and using 17 technologies.
• Implementation had 17 projects registered or submitted for registration
with the CDM Executive Board at 30 June 2006, and 52 projects had
either been validated or had been submitted for validation.
• Demand for CERs was healthy, with forward contracts for the sale of €220
million of CERs in place at 30 June 2006. The Net Trading Margin locked
in from the future delivery of the 21 million tonnes of CERs related to
these transactions is €100 million.
• Expansion of the international network continued with new offices and
representatives added in 6 countries, expanding the Group's presence to 20
countries. The Group is expanding rapidly in order to take advantage of
market opportunities, but strict cost control measures have accomplished
this within the original budget.
• Revenues for the first half were €841,000, including the first principal
sale of CERs on the spot market.
• Loss before tax of €8,399,000 reflects expansion of headcount and
geographic network and is within budget.
• Net cash of €60.4 million at 30 June 2006.
• Current trading and outlook is encouraging:
- Gross carbon credit portfolio volume increased to 146 million CERs
currently, an increase of more than 100% since the IPO in 2005.
- Adjusting for the relative proportions of Agency, Principal and
Project Development contracts in the portfolio, the Group's net
ownership position totals 112 million CERs which is up over 175% since
the IPO.
- Currently the Group has had validated or has submitted to validation
120 projects up from 44 at the IPO; the number of projects which have
received Host Country Letters of Approval has grown to 66 up from 18
since the IPO; and the number of projects which have been either
registered or submitted to registration has grown to 61 up from 12
since the IPO.
- Net Trading Margin on forward CER sales at present total €123m which
is up by €109m since the IPO.
* Certified Emission Reduction, a CER being equal to one metric tonne of CO2e
emission reductions.
Mark Nicholls, Chairman of EcoSecurities, commented: "The Group continued to
make significant progress in growing and developing its carbon credit portfolio
during the first half, carrying on from a strong 2005. Both demand for CERs and
market prices have remained robust, despite the well documented carbon market
volatility. As the Group's CER portfolio has grown it is enjoying increasing
success in selling forward significant volumes of emission reductions to Kyoto
compliance buyers in industrialised markets, with over €100 million of Net
Trading Margin locked in at period end. The Group contracted to sell €188
million of carbon credits during the first half of the year alone.
A major highlight of the first half was the Group's first CER revenues and,
although slowness in the regulatory approval process continues to limit the
speed of project registration and therefore revenue recognition, the Group is
confident of further progress in the second half and into 2007.
Looking further ahead, the latest positive developments in the emission
reduction market, such as the recent legislation to reduce carbon emissions in
California, Verified Emission Reduction trading and activity in the Japanese
market bode well for the Group's continued commercialisation success.
Furthermore, continued development of industrial gas projects, other internal
project development and principal origination efforts gives the Board confidence
for further portfolio growth."
Analyst Conference Call
The Group is holding a conference call for analysts today at 13.00 BST.
Analysts wishing to participate should contact Kevin Smith at Citigate Dewe
Rogerson on 020 7638 9571 for further details.
For further information please contact:
EcoSecurities Group plc
Bruce Usher, CEO +1 212 356 0160
Pedro Moura Costa, COO +44 (0) 1865 202 635
Citigate Dewe Rogerson +44 (0) 20 7638 9571
Kevin Smith / Ged Brumby
About EcoSecurities:
EcoSecurities is one of the world's leading companies in the business of
originating, developing and trading carbon credits. EcoSecurities structures and
guides greenhouse gas emission reduction projects through the Kyoto Protocol,
acting as principal intermediary between the projects and the buyers of carbon
credits.
EcoSecurities works with companies in developing and industrialising countries
to create carbon credits from projects that reduce emissions of greenhouse
gases. EcoSecurities has experience with projects in the areas of renewable
energy, agriculture and urban waste management, industrial efficiency, and
forestry. With a network of offices and representatives in 20 countries on five
continents, EcoSecurities has amassed one of the industry's largest and most
diversified portfolios of carbon projects. Today, the Group is working on 213
projects in 26 countries using 17 different technologies, with the potential to
generate more than 130 million carbon credits.
EcoSecurities also works with companies in the developed world to assist them in
meeting their greenhouse gas emission compliance targets. Utilising its highly
diversified carbon credit portfolio, EcoSecurities is able to structure carbon
credit transactions to fit compliance buyer's needs, and has executed
transactions with both private and public sector buyers in Europe, North America
and Japan.
Working at the forefront of carbon market development, EcoSecurities has been
involved in the development of many of the global carbon market's most important
milestones, including developing the world's first CDM project to be registered
under the Kyoto Protocol. EcoSecurities' consultancy division has been at the
forefront of all the significant policy and scientific developments in this
field. EcoSecurities Consult has been recognised as the world's leading
greenhouse gas advisory firm over the last five years by reader surveys
conducted by Environmental Finance Magazine.
EcoSecurities Group plc is listed on the London Stock Exchange AIM (ticker ECO).
Additional information is available at www.ecosecurities.com.
EcoSecurities Group plc
Interim Results For The Six Months Ended 30 June 2006
Chairman's Statement
The Group continued to make significant progress in growing and developing its
carbon credit portfolio during the first half of 2006, carrying on from a strong
2005. Both demand for CERs and market prices have remained robust, despite the
well documented carbon market volatility. As the Group's CER portfolio has
grown it is enjoying increasing success in selling forward significant volumes
of emission reductions to Kyoto compliance buyers in industrialised markets,
with over €100 million of Net Trading Margin locked in at period end. The Group
contracted to sell €188 million of carbon credits during the first half of the
year alone.
A major highlight of the first half was the Group's first CER revenues and,
although slowness in the regulatory approval process continues to limit the
speed of project registration and therefore revenue recognition, the Group is
confident of further progress in the second half and into 2007.
Looking further ahead, the latest positive developments in the emission
reduction market such as the recent legislation to reduce carbon emissions in
California, Verified Emission Reduction trading and activity in the Japanese
market bode well for the Group's continued commercialisation success.
Furthermore, continued development of industrial gas projects, other internal
project development and principal origination efforts give the Board confidence
for further portfolio growth.
Executive Directors' Review
We are pleased with the progress we have made over the first half of 2006. The
project portfolio has now begun to produce CERs and generate revenues for the
Group which is a milestone achievement.
Our key strengths lie in (i) origination of a large and diversified portfolio of
projects, (ii) implementation, where our technical experts excel, and (iii)
commercialisation, via the successful structuring of forward sales to meet the
specific needs of Kyoto related compliance buyers. The Group's geographic reach
and depth of expertise enable it to add value to the entire spectrum of the
carbon credit development process and this is demonstrated by the attractive
margins the Group continues to achieve. The larger our portfolio, the more
attractive the Group's value proposition becomes to both project developers and
Kyoto compliance buyers.
Origination
Origination performance has continued to be strong with the gross contract
volume of the Group's carbon credit portfolio growing to 130 million CERs at 30
June 2006. Since the IPO in late 2005 which referenced the portfolio as at 31
October 2005, the Group has added 59 million tonnes of CERs to its portfolio
which has exceeded the Board's expectations. The highlight of the growth in the
portfolio during this period was the increase in principal contracts, with over
95% of the additions relating to principal agreements, which significantly
exceeded our expectations. Adjusting for the impact of contract type on a
project by project basis gives EcoSecurities a net interest of 96 million tonnes
in the 130 million tonne gross portfolio, which has grown on a net basis by 58
million tonnes since the IPO in 2005.
(Note: Gross and net contract volume measures expected CER production from
projects through to the end of 2012 and does not adjust for operating or
regulatory risk. Gross and net contract volume excludes projects where the
probability of either the development of a relevant methodology or the
underlying development of the project is still highly uncertain.)
Other highlights of the Group's origination activities include the contracting
of several development projects which reduce emissions of nitrous oxide, a major
greenhouse gas, 310 times more potent than CO2.
The Group continued to make progress related to its joint development agreement
with Cargill. MOU's for seven projects were signed in June alone relating to
projects in Latin America, South Africa and Eastern Europe.
Implementation
Underlying project development and Clean Development Mechanism ('CDM')
accreditation continues to progress. Of the 213 projects in the portfolio, over
150 were financed, while 108 were either under construction or already in
operation at 30 June 2006. 17 projects were fully registered with the CDM
Executive Board at 30 June 2006. Once full registration is completed and the
projects become operational, they will begin to accumulate emissions reductions
that will be subsequently verified and sold as CERs by the Group.
Commercialisation
The highlight of the first half was the recognition of the Group's first
principal trading revenues which resulted from the sale of CERs produced by a
landfill gas project in China, where carbon credits are created through the
capture of methane gas. The CERs, the first ever to be produced from a project
in China, were sold to a major market participant in Europe and the transaction
sets the precedent for sale of the Group's future non-committed production into
the spot market.
Furthermore, the Group made particularly strong progress during the first half
of the year with a total €220 million of CERs having been sold forward at 30
June 2006. The Net Trading Margin locked in from the future delivery of 21
million tonnes of CERs related to these transactions is €100 million. The Net
Trading Margin is calculated as total revenue less costs based on the contract
terms that EcoSecurities has with each project (i.e. agency fees, price paid for
CERs, etc.). The Group's margins have grown during the year due to a number of
factors including a stronger balance sheet, continued strong market prices,
larger proportions of principal contracts and the growth of the Group's
portfolio.
Operations Review
The Group's expansion continued with headcount growing from 85 employees to 160
at the end of June, an increase of 88%. Though headcount growth exceeded
expectations, overall costs remained within expectations. Geographic expansion
during the period was also rapid, with new offices or representatives added in 6
countries giving the Group a presence in 20 countries at period end. During the
period the Group also converted a number of existing representative offices to
subsidiary companies.
Financial Review
As expected, income in the period came primarily from the consulting business
with the remainder arising from CER transactions where EcoSecurities acted as
the principal. Consulting income was below the same period last year reflecting
an increased focus on internal projects such as implementation and monitoring.
The growth in administrative expenses to €9.4 million related to the significant
growth of the Group's employee base and geographic reach over the last year.
IPO expenses were estimated at year end 2005 and the final outcome in 2006
resulted in a reduction of €0.28 million from the original cost estimates.
Financing costs in the year to date included interest on a $10 million loan and
the effect of holding non Euro cash balances which depreciated. The loss after
tax for the first half of 2006 was €8.7 million, reflecting the significant
expansion of the business to capitalise on market opportunities.
The period end balance sheet reflects the balance of funds raised in the IPO and
investments made during the period in projects and office infrastructure.
Operating cash out flows of €6.8 million reflect the loss on operations year to
date and capital expenditures on project related investments which totalled
€1.2million. The Group had a net cash balance of €60.4 million at period end.
Current Trading
The highlight in origination activities since 30 June 2006 has been the
continued focus on industrial gas projects. The Group has added another 6
projects bringing the total of industrial gas projects under contract to 21,
with the potential to generate 19 million tonnes of CERs in aggregate.
Origination performance overall has also continued to be strong with the gross
contract volume of the Group's carbon credit portfolio growing to 146 million
CERs at present. Since the IPO last autumn which referenced the portfolio as at
31 October 2005, the Group has added 75 million tonnes of CERs to its portfolio.
This is comprised of Agency, Principal and Project Development contracts where
the net principal equivalent totals 112 million CERs.
Good progress has also been made on Project Development. Several nitrous oxide
projects have begun construction in Asia.
Projects contracted with Cargill now have reached over 5 million tonnes which
represents a significant milestone in that Cargill has now fully vested warrants
on the Group's shares which were granted in 2005. Projects contracted with
Cargill are from the animal waste, industrial gas, and cogeneration sectors.
Implementation has experienced delays in obtaining host country approvals and
CDM registration for projects. However, significant progress continues to be
made. One of the Group's Brazilian biomass projects was recently issued 179,397
CERs which were sold under a pre-existing contract. In addition, the Group
continues to increase the number of projects progressing through the
registration process. Currently the Group has had validated or has submitted to
validation 120 projects up from 44 at the IPO; the number of projects which have
received Host Country Letters of Approval has grown to 66 up from 18 since the
IPO; and the number of projects which have been either registered or submitted
to registration has grown to 61 up from 12 since the IPO.
On the Commercialisation front the Group recently completed a forward sale
agreement, with a major European customer which included an upfront premium of
€3 million received by the Group in August. Furthermore, Net Trading Margin on
forward CER sales at present totals €123 million which is up from €100 million
at 30 June 2006.
Outlook
The pace of internal project development is expected to accelerate in the second
half of 2006 with a focus on agricultural projects, industrial gases and coal
mine methane.
The Implementation team will focus on processing validations and registrations
for prompt start projects for which there is a 31 December 2006 deadline. There
will also be a strong focus on monitoring of producing projects to ensure a
streamlined CER verification and issuance process.
Commercialisation of the Group's portfolio has progressed rapidly this year and
as the process of finalising EU Emissions Trading Scheme Phase II National
Allocation Plans nears completion, the Group expects demand to continue to be
strong. The Group also expects further growth in Verified Emission Reduction
sales which represents a previously untapped market opportunity.
The Group has made a good start to the second half of the year and has continued
to progress a growing number of projects through the implementation and
operation phases. A major highlight of the first half was the Group's first CER
revenues and, although slowness in the regulatory approval process continues to
limit the speed of project registration and therefore revenue recognition, the
Group is confident of further progress in the second half and into 2007.
New legislation for the reduction of carbon emissions in California bodes well
for future market opportunities beyond the first Kyoto commitment period.
EcoSecurities will continue to expand its global footprint to capitalise fully
on the volume of available project opportunities that the Group uncovers. The
Group anticipates that the expansion in the number of EcoSecurities' local
offices and personnel will continue to provide it with a competitive advantage
in the origination of project opportunities. Headcount is expected to increase
to 220 with a network of offices and representatives in 22 countries by year
end.
The Group's portfolio will remain highly diversified by technology, CDM
methodology and geographic location, thereby minimizing overall risk.
EcoSecurities' strategy for the balance of the year is to continue to maintain
its core focus on originating, implementing and commercialising a highly
diversified portfolio of emissions reductions projects.
EcoSecurities Group plc
Interim Results For The Six Months Ended 30 June 2006
CONSOLIDATED INCOME STATEMENT
6 months to 30 6 months to 30 Year to
June 2006 June 2005 31 Dec
2005
(Unaudited) (Audited) (Audited)
€000 €000 €000
Revenue 841 1,031 2,268
Cost of sales (542) (495) (2,166)
Gross profit 299 536 102
Other operating income - 9 47
Administrative expenses
General (9,359) (472) (3,350)
IPO preparation expenses 277 - (1,286)
Total (9,082) (472) (4,636)
Net profit on disposal of joint ventures - - 498
(Loss)/profit for the period before financing (8,783) 73 (3,989)
costs
Financing costs (853) (26) (339)
Finance income 1,237 - 125
(Loss)/profit for the period before tax (8,399) 47 (4,203)
Income tax expense (259) - (115)
(Loss)/profit for the period (8,658) 47 (4,318)
Attributable to:
Equity holders of the Company (8,658) 53 (4,344)
Minority interests - (6) 26
(8,658) 47 (4,318)
Earnings per share
(expressed in cents per share)
Basic and fully diluted earnings per share (9.40) 0.51 (26.97)
EcoSecurities Group plc
Interim Results For The Six Months Ended 30 June 2006
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND
EXPENSE
6 months to 30 6 months to 30 Year to
June 2006 June 31 Dec
2005 2005
(Unaudited) (Audited) (Audited)
€'000 €'000 €'000
(Loss)/profit for the period (8,658) 47 (4,318)
Currency translation reserve movement 47 (149) (172)
Total recognised income and expense for the (8,611) (102) (4,490)
period
Attributable to:
Equity holders of the Company (8,611) (71) (4,521)
Minority interests - (31) 31
(8,611) (102) (4,490)
EcoSecurities Group plc
Interim Results For The Six Months Ended 30 June 2006
CONSOLIDATED BALANCE SHEET 30 June 2006 30 June 31 Dec
2005 2005
(Unaudited) (Audited) (Audited)
Assets €'000 €'000 €'000
Non-current assets
Intangible fixed assets 450 - 101
Property, plant and equipment 890 34 135
Trade and other receivables 1,072 - -
Total non-current assets 2,412 34 236
Current assets
Stock and work in progress 48 - -
Trade and other receivables 2,300 823 1,320
Current tax debtors - 31 -
Cash and cash equivalents 70,933 232 83,148
Total current assets 73,281 1,086 84,468
Total assets 75,693 1,120 84,704
Shareholders' equity
Issued capital 231 1 229
Share premium 76,410 - 75,853
Share based payment reserve 426 77 337
Currency translation reserve (5) (4) (52)
Other reserves (573) - (573)
Retained earnings (13,631) (625) (5,022)
Total shareholders' equity attributable to 62,858 (551) 70,772
shareholders of the parent
Minority interests in equity - (123) -
Total equity 62,858 (674) 70,772
Liabilities
Non-current liabilities
Interest bearing loans and borrowings 8,166 478 8,752
Deferred tax liabilities 4 1 4
Total non-current liabilities 8,170 479 8,756
Current liabilities
Interest bearing loans and borrowings - 501 35
Trade and other payables 4,420 814 5,028
Current tax creditors 245 - 113
Total current liabilities 4,665 1,315 5,176
Total liabilities 12,835 1,794 13,932
Total equity and liabilities 75,693 1,120 84,704
EcoSecurities Group plc
Interim Results For The Six Months Ended 30 June 2006
CONSOLIDATED CASH FLOW STATEMENT
6 months to 30 6 months to 30 Year to 31 Dec
June 2006 June 2005 2005
(Unaudited) (Audited) (Audited)
€'000 €'000 €'000
(Loss)/profit for the period (8,658) 47 (4,318)
Income tax expense 259 - 115
Finance income (1,237) - (125)
Finance costs 853 26 339
Depreciation and amortisation 71 6 27
Increase in stock and work in progress (48) - -
Increase in trade and other receivables (1,157) (238) (682)
Increase/(decrease) in trade and other payables 2,045 (173) 2,036
Net profit on disposal of joint ventures - - (498)
Share based payment 138 16 276
Foreign exchange differences 59 (126) (100)
Interest paid (209) (26) (270)
Interest received 1,231 - 65
Tax (paid)/refunded (128) (10) 23
Net cash outflow from operating activities (6,781) (478) (3,112)
Cash flows from investing activities
Cash paid to acquire minority interests - - (478)
Project advances and development expenditure (895) - -
Purchase of property, plant and equipment (809) (11) (131)
Purchase of intangible fixed assets (370) - (103)
Net cash proceeds from disposal of interest in - - 477
joint ventures
Net cash outflow from investing activities (2,074) (11) (235)
Cash flows from financing activities
Gross proceeds from the issue of ordinary share 48 - 83,668
capital
Net proceeds from issue of new loans - 765 8,745
Admission costs paid (2,200) - (5,558)
Repayment of borrowings - (160) (449)
Net restricted cash deposits (6,916) (86) (583)
Net cash (used)/generated from financing (9,068) 519 85,823
activities
Net (decrease)/increase in cash and cash (17,923) 30 82,476
equivalents
Cash and cash equivalents at start of period 82,565 77 77
Foreign exchange on cash and cash equivalents (1,208) 39 12
Cash and cash equivalents at end of period 63,434 146 82,565
NOTES TO THE FINANCIAL INFORMATION
1. General information
EcoSecurities Group plc and its subsidiaries (together the Group) originate,
trade, develop and invest in emission reduction projects. The Group also offers
consulting and advisory services and operates through a global network of
subsidiaries, branch offices and representatives.
2. Basis of preparation
The information in this document does not include all of the disclosures
required by International Financial Reporting Standards in full annual statutory
accounts and it should be read in conjunction with the Group's annual financial
statements for the year ended 31 December 2005.
The accounting policies adopted are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2005.
3. Share capital
In the period to 30 June 2006 the number of shares in issue increased by 771,004
to 92,397,680, reflecting the exercise of employee share options.
4. Reserves
Currency Share based Other Retained
translation payment reserves earnings
reserve reserve
€'000 €'000 €'000 €'000
At 1 January 2006 (52) 337 (573) (5,022)
Loss for the period - - - (8,658)
Foreign exchange translation differences 47 - - -
Employee share option scheme - value of services
provided - 138 - -
Other - (49) - 49
At 30 June 2006 (5) 426 (573) (13,631)
5. Cash and cash equivalents
6 months to 30 6 months to 30 Year to
June 2006 June 2005 31 Dec 2005
(Unaudited) (Audited) (Audited)
€'000 €'000 €'000
Cash at bank and in hand 2,210 146 421
Short-term deposits 61,224 - 82,144
Cash and cash equivalents for the 63,434 146 82,565
purposes of the cash flow statement
Restricted cash 7,499 86 583
Cash and cash equivalents 70,933 232 83,148
--------------------------
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