22nd Mar 2006 07:02
Alkane Energy PLC22 March 2006 For immediate release 22 March 2006 Alkane Energy plc ("Alkane", "the Group" or "the Company") Unaudited preliminary results for the year ended 31 December 2005 Alkane is an international renewable energy company specialising in the design,build, operation and servicing of methane treatment plants and electricitygeneration facilities that use biogas, landfill gas, coal mine methane andsewage gas as fuel. Highlights • Turnover marginally lower at £19,585,000 (2004: £19,785,000) • Substantial reduction in operating losses before exceptional items to £244,000 (2004: loss of £753,000) • Loss before taxation, exceptional items and sale of fixed assets of £427,000 (2004: loss of £655,000) • Cash inflow from operating activities of £369,000 (2004: outflow of £261,000) • Net debt of £2,133,000 (2004: net funds of £2,617,000) • Three new CMM projects commenced electricity supply in 2005 • Electricity supply contracted at over £50/MWh • Strong macro-economic and political support for Group strategy • Loss per share 0.22p (2004: loss of 0.80p) Commenting on the preliminary results, Chief Executive, Dr Cameron Davies, said: "Whilst we are disappointed that our move into profitability has been deferred,significant progress is expected to be made on a number of fronts in 2006. Highenergy prices prevail across all our markets, underpinning Alkane's businessmodel, both as a power generator and equipment supplier. "With Pro2's order book standing at record levels and the expected roll-out ofat least two further mine gas sites in the UK by the year end, we are confidentthat 2006 is the year we finally achieve our move into profitability and we aretaking concrete steps to ensure that this is achieved for the benefit of allshareholders". Enquiries: Alkane Energy plc Tel: 020 7466 5000 (Today)Dr Cameron Davies Tel: 01623 827927 (Thereafter) Buchanan Communications Tel: 020 7466 5000 (Today)Eric Burns Tel: 01943 883990 (Thereafter)Ben Willey Chairman's Statement Introduction As reported in our trading update of 6 March 2006, a combination of factorsencountered in the final quarter means that results for the year ended 31December 2005 are lower than expectations. As a result, our target date ofoperating profitability has been pushed back from 2005 to 2006. Whilst this is disappointing, the Company continued to make good progress at anoperational level with three new borehole-based mine gas generation projectsbrought on stream in the UK and a number of new contracts secured at Pro2 inGermany. The medium term future for Alkane remains positive, underpinned by highenergy prices in the UK and growing markets for our generation and methanecontrol equipment worldwide, particularly in the biogas and carbon creditssectors. Financial Overview Turnover was marginally down at £19,585,000 compared to £19,785,000 in 2004. TheGroup made an operating loss before exceptionals of £244,000 (2004: £753,000);after exceptional items and sales of fixed assets the profit was £353,000 (2004:loss of £382,000). Turnover in the UK, mainly from the Group's seven mine gas plants, was£2,131,000 (2004: £699,000) with an operating loss of £661,000 beforeexceptionals (2004: loss of £1,598,000). Pro2's sales in 2005 were below budgetat £17,454,000 (2004: £19,086,000); although at the year end Pro2 hadcapitalised plant manufactured in the year with a value of £2.4m and hadincreased work in progress by £1.6m both in relation to sales contractssubstantially but not legally completed in the year. Pro2's operating profitsbefore exceptionals were £417,000 for 2005 (2004: £845,000) after warranty costsand provisions against trade debtors of £303,000. There are two operating exceptional items. The first relates to those siteswhere there have been operating difficulties during the year which were reviewedfor their carrying value and an impairment charge of £524,000 has been made toreflect their future revenue earning capacity. The second operating exceptionalitem relates to the UK biogas business. The land acquisition difficultiesencountered at the proposed biogas facility in Northern Ireland, reported in theinterim results announcement last September, have led to the Company taking thedecision to withdraw from this sector. Accordingly, £249,000 has been writtenoff reflecting our investment in the Fivemiletown project and associatedredundancy costs. There are two non-operating exceptional items which relate to the significantimprovement in UK energy prices over the past year. In 2003, the Company wroteoff a significant proportion of its partially developed UK gas properties, andmade a provision of £2.0m for the full costs of restoring the sites over thenext two years. We are now moving ahead with the development of projects and, asa result, a conservative write back of £967,000 has been made against theprojects opened in 2005. The restoration provision has been reduced by £378,000by applying a discount factor to recognise the longer period, up to 2015, overwhich the provision will be utilised. Loss before taxation, exceptional items and sale of fixed assets was £427,000compared with a loss of £655,000 in 2004. The loss per share was reduced to0.22p, from 0.80p in 2004. The Pro2 business is strongly biased towards the end of the year. Group funds of€3,000,000 (£2,057,000) were applied in December 2005 to support the workingcapital requirements arising from this seasonality and to support the productionof plant for use in the contracting business. This working capital flow isexpected to reverse in the first half of 2006 as Pro2's working capital demandreturns to normal following the trading peak at the end of 2005. As previouslyreported, this demand on Group funds has meant investment in new UK mine gasdevelopments have been delayed and management have reduced their budgets for2006. The Group's underlying operations have been cash generative both in the UK andat Pro2. However, overall, there has been a net cash outflow of £4,347,000 andwe finished the year with net debt of £2,133,000, compared with net cash of£2,617,000 as at 31 December 2004. The majority of this outflow has stemmed fromthe acquisition of tangible fixed assets. In the UK, there has been a cashoutflow of £2,407,000, mainly in relation to the new mine gas plants developedduring the year. At Pro2, cash outflow to acquire tangible fixed assets was£2,668,000, the majority of which relates to the costs of certain plantmanufactured in the year and which has been capitalised. Operating Review Mine Gas Plants We started the year with four mine gas extraction sites, of which three wereoperational. Whilst some of the sites encountered operational issues, theoverall level of output was in line with expectations of a portfolio of thisnature. Three new mine gas power generation plants were completed and commencedproduction during the year, drawing methane from boreholes. The gas quality fromboreholes is considerably higher than from mine shafts. Electricity prices atthese sites are contracted for 12 to 20 months at above £50/MWh, includingincome from climate change levy exemption certificates. The overall portfolio of UK sites is performing satisfactorily in the currentyear. The borehole based sites are a more reliable source of high quality minegas and we intend to adopt this approach in future developments. Two more borehole-based plants are expected to come on stream in the second halfof 2006 and planning permissions and land leases are being negotiated to allowan increase in the project build rate. The generating plant portfolio is beingexpanded to benefit from capturing the full value chain from mine to grid and sothat any fall in gas production at one site can be offset at other sites.Alkane's licence areas are being thoroughly reviewed to determine theavailability of mine gas reserves that are economic and have short paybackperiods at forecast electricity prices. Research into planning permissions, land ownership and grid connectionavailability has commenced at sites within our licences. These future boreholebased power generation plants have the potential to significantly add to our UKelectricity generation portfolio. German CMM Rising mine water at the Joarin mine has reduced the flow of good quality minegas and a decision has been taken to move one of the 1.35MW containerisedgenerators to the UK for use on a new mine gas site. The plant is now generatingat around 1.35MW with an electricity price of €65/MWh (approximately £45).Alkane has options over seven other mine gas sites in Germany, however, wellsdrilled at two of them to date (at no cost to Alkane) were disappointing. Thedevelopment programme is being reviewed in the light of higher electricityprices and tax losses available in the UK. Pro2 As announced on 6 March 2006, Pro2 finished the financial year below budget.Also, as previously reported, sales and profits from Pro2 are historicallyweighted to the second half of the year and revenue is not recognised until thecompany receives a final sign off from the customer. During the latter part of2005, certain large orders did not receive final sign off by the end of thefinancial year - thus leading to the shortfall in reported revenue and profitsagainst expectations. As illustrated by the increase in stock, work in progressat Pro2 was £2.2 million at the year end compared to £0.6 million in 2004. Thesespecific orders will be recognised in the first half of the current year. In addition, the results in the second half were adversely affected by one-offwarranty claims and provisions against trade debtors. Pro2 is actively pursuingcounter claims against the original manufacturer of equipment relating to thewarranty claims and payment of the unpaid debtors. Orders for 2006 are already at record levels, driven by the renewable energysector with new emphasis on the use of farmed biomass to produce biogas forrenewable electricity generation at high premium prices up to €210/MWh. Pro2 has targeted this new sector in partnership with biogas equipmentmanufacturers and offers a one-stop-shop for biomass to renewable energy. Inview of the premium price tariff paid for the electricity, farmers andagribusinesses are expanding the crops planted specifically for bio-energyproduction. Pro2's sales in this market grew rapidly in 2005 and this trend isexpected to continue. Under German renewable energy legislation, the 20 year fixed contract price forrenewable electricity falls by 1.5% on January 1 of every year. As a result,customers order large numbers of these plants in the last quarter of the year.To react to this demand for new biogas plants to generate electricity before thedeadline, Pro2 expanded its production to two shifts in December. Pro2 sold its first containerised power generation plants in Hungary during theyear and began to market its climate change reduction systems in the burgeoningcarbon credits sector. In the second half it succeeded in selling its firstflare systems to mine gas mitigation projects under the Joint Implementationprogramme of the Kyoto Protocol. Alkane Biogas Local opposition encountered in Northern Ireland by the partners in the proposedgrant-supported centralised biogas plant at Fivemiletown has led to thecancellation of the project. As a result, the Company has decided to withdrawfrom the biogas sector in the UK, and has written off £249,000 reflecting ourinvestment in the Fivemiletown project and redundancy costs. Pro2 Services Limited Pro2 Services, the engineering services company acquired in March 2005, hassecured its first contracts for methane mitigation equipment and services. It isdeveloping its engineering capability in order to take over currently outsourcedservicing operations at Alkane's own gas extraction and power generation plants. Management We recognise the importance of having strong processes in place to match theanticipated future growth of the business. To this end, we have appointed anexperienced interim manager who is responsible for a review of the businessmodel and processes within Pro2, including financial reporting. As the Groupdevelops, we are taking measures to bolster the management team and implementsuccession planning. Prospects We made considerable operational progress in 2005 despite the issues thatdeferred our anticipated move into profit until 2006. Global markets for climate change reduction technology and services continue togrow and high energy prices in the UK support the expansion of our mine gasportfolio. In addition, the global carbon credits market is accelerating rapidlyand is expected to become an attractive market for Alkane in the future. We areactively pursuing opportunities to exploit our skills and technology in thisarea under the Clean Development Mechanism and Joint Implementation programmes. In closing, I would like to thank my colleagues in the UK and Germany for alltheir hard work and dedication in moving the Company towards a profitablefuture. John Lander Chairman GROUP PROFIT AND LOSS ACCOUNTfor the year ended 31 December 2005 2005 2004 (unaudited) £ '000 £ '000 TURNOVER 19,585 19,785 Cost of sales (14,028) (14,910) -------- -------- GROSS PROFIT 5,557 4,875 Administrative expenses - operating (6,395) (6,041)Administrative expenses - exceptional (Note 2) (773) - -------- -------- (7,168) (6,041) Other operating income 594 413 -------- -------- OPERATING LOSS (1,017) (753) Profit on sale of fixed assets 25 371 Exceptional items (Note 2) 1,345 - -------- -------- PROFIT/ (LOSS) ON ORDINARY ACTIVITIES BEFORE INTEREST 353 (382)Interest receivable and similar income 214 430Interest payable and similar charges (397) (332) -------- -------- PROFIT/ (LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION 170 (284) Taxation (225) (267) -------- -------- LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (55) (551) Minority interests (140) (163) -------- -------- LOSS FOR THE FINANCIAL YEAR (195) (714) ======== ======== Loss per ordinary share - basic and diluted (0.22p) (0.80p) STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2005 2004 (unaudited) £ '000 £ '000 Loss for the period (195) (714) Exchange rate differences (73) (2) -------- -------- TOTAL RECOGNISED GAINS AND LOSSES (268) (716) ======== ======== GROUP BALANCE SHEET at 31 December 2005 2005 2004 (unaudited) £'000 £'000 FIXED ASSETSIntangible assets 793 873Tangible fixed assets - gas properties 4,997 2,674Tangible fixed assets - other 5,706 4,293 --------- -------- 11,496 7,840 --------- -------- CURRENT ASSETS Stock 3,427 1,505Debtors: amounts falling due within one year 6,268 6,349Debtors: amounts falling due after more than one year 393 258Investments 164 30Cash at bank and in hand 2,090 5,716 --------- -------- 12,342 13,858 CREDITORS: amounts falling due within one year (8,785) (6,645) --------- --------NET CURRENT ASSETS 3,557 7,213 --------- -------- TOTAL ASSETS LESS CURRENT LIABILITIES 15,053 15,053 CREDITORS: amounts falling due after more than one year (2,976) (2,665) PROVISIONS FOR LIABILITIES AND CHARGES (1,602) (1,998) MINORITY INTERESTS (1,217) (1,104) --------- -------- NET ASSETS 9,258 9,286 ========= ======== CAPITAL AND RESERVES Called up share capital 456 449Share premium account 33,189 32,956Profit and loss account (24,387) (24,119) --------- -------- TOTAL EQUITY SHAREHOLDERS' FUNDS 9,258 9,286 ========= ======== GROUP STATEMENT OF CASH FLOWS for the twelve months ended 31 December 2005 2005 2004 (unaudited) £ '000 £ '000 NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 369 (261) RETURNS ON INVESTMENT AND SERVICING OFFINANCEInterest received 249 405Interest paid (71) (121)Interest element of sale and finance leaseback rentals (88) -Interest element of finance lease payments (269) (93) -------- -------- (179) 191 TAXATION Overseas tax paid (248) (84) CAPITAL EXPENDITURE AND FINANCIALINVESTMENTPayments to acquire intangible fixed assets (27) (8)Payments to acquire tangible fixed assets (5,126) (2,946)Receipts from the sale of tangible fixed assets 213 695 -------- -------- (4,940) (2,259) MANAGEMENT OF LIQUID RESOURCESIncrease in current asset investment (135) - ACQUISITIONS AND DISPOSALSPurchase of subsidiary undertaking (80) (162)Net cash acquired with subsidiary undertaking 3 149 -------- -------- (77) (13) -------- --------NET CASH OUTFLOW BEFORE FINANCING (5,210) (2,426) FINANCINGProceeds from sale and finance leaseback 1,644 -Increase in long term loans 30 -Sale and leaseback rental payments (418)Repayment of long term loans (50) (48)Capital element of finance lease rental payments (584) (573)Issue of ordinary share capital 241 8 -------- -------- DECREASE IN CASH (4,347) (3,039) ======== ======== NOTES TO THE ACCOUNTS 1. The preliminary unaudited financial statements for the year ended 31 December2005 were approved by the board of directors on 21 March 2006. 2. EXCEPTIONAL ITEMS 2005 2004 (unaudited) £ '000 £ '000Operating:Impairment of tangible fixed assets - gas properties(note a) (524) - Write-down of advances made (note b) (249) - --------- -------- (773) - ========= ======== Non-Operating:Reversal of impairment of tangible fixed assets - gasproperties (note a) 967 -Reassessment of provision for the restoration of sites(note c) 378 - --------- -------- 1,345 - ========= ======== a. During 2003 a fundamental restructuring of the business was implementedfollowing the decision taken by the Group to suspend the development of new minegas projects in the UK and to pursue a new strategy. UK development sites werewritten down to nil. Operating sites were written down to reflect their value inuse. This was determined using a discounted cash flow model applying a discountrate of 10% reflecting the expected return on capital of such projects. As a result of sustained increases in wholesale electricity prices thedevelopment of new mine gas projects in the UK recommenced in 2005. Accordinglya review has been taken of sites in operation at 31 December 2005 and a furthercalculation made of their value in use over their expected useful life of up to10 years, applying a discount rate of 10%. This has resulted in a £967,000reversal of the previous impairment and a further impairment of £524,000 withinfixed assets - gas properties. b. During the year the development of a potential biogas project in Fivemiletownin Northern Ireland was halted after a failure to secure land and planningpermission, and the Group withdrew from the development of large-scale biogasprojects. The costs written off during the year were £249,000 representing theamount adcanced by Alkane Biogas Limited, a subsidiary undertaking, to BiogasIreland Limited, together with other costs associated with the withdrawal. c. As part of the fundamental reorganisation referred to in note a. a provisionof £2,000,000 for the restoration of all sites as required under the terms ofplanning permissions or under lease conditions was established. It wasanticipated that most of the provision would be utilised within the next twofinancial years, therefore the amount of the provision was not discounted. As stated in note a. the development of new mine gas projects in the UKrecommenced in 2005. Accordingly the timing of the utilisation of the provisionhas been extended to be over the period up to 2015. It is now appropriate thatdiscounting is applied. The provision has been reassessed taking account ofutilisation to date and new sites added, and a discount rate of 10% has beenapplied. The amount of the provision on this basis is £1,588,000. 3. ACQUISITION OF PRO2 SERVICES LIMITED On 18 March 2005 Alkane Energy UK Limited, a wholly owned subsidiary, acquired100% of the issued share capital of Farley (Energy) Services Limited (Farley)for a cash consideration of £90,000 and professional fees incurred of £10,000.£20,000 of the consideration was paid after the year-end and is included withincreditors at 31 December 2005. Farley had net assets of £20,000 at the date ofacquisition. No fair value adjustments have been made to the net assetsacquired, therefore goodwill arising on the acquisition is £80,000, which afteramortisation has a net book value of £74,000 at 31 December 2005. Farley hasbeen renamed Pro2 Services Limited. 4. LOSS PER SHARE The basic and diluted loss per ordinary share is based on a loss of £195,000(2004: loss of £714,000) on a weighted average of 90,424,387 ordinary shares(2004: 89,732,717). 5. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2005 2004 (unaudited) £ '000 £ '000 Decrease in cash (4,347) (3,039)Proceeds from sale and finance leaseback (1,644) -Increase in long term loan (30) -Repayment of sale and finance leaseback rentals 418 -Repayment of long term loans 50 48Capital element of finance lease rental payments 584 573Purchase of liquid resources 135 - ---------- -------- CHANGE IN NET DEBT ARISING FROM CASH FLOWS (4,834) (2,418) Finance leases entered into - (1,046)Exchange rate differences 84 (7) ---------- -------- CHANGE IN NET DEBT (4,750) (3,471) NET FUNDS AT START OF YEAR 2,617 6,088 ---------- -------- NET (DEBT)/FUNDS AT END OF YEAR (2,133) 2,617 ========== ======== 6. RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATINGACTIVITIES 2005 2004 (unaudited) £ '000 £ '000Operating loss (1,017) (753)Exceptional items - operating 773 -Depreciation 1,442 920Amortisation 186 109(Increase)/decrease in stock (1,965) 987Increase in debtors (388) (1,627)Increase/(decrease) in creditors 1,370 105Decrease in provisions (32) (2) -------- -------- NET CASH OUTFLOW FROM OPERATING ACTIVITIES 369 (261) ======== ======== 7. ANALYSIS OF NET DEBT As at Exchange As at 1st Cash rate 31 January flow differences December 2005 2005 (unaudited) £ '000 £ '000 £ '000 £ '000 Cash at bank and in hand 5,716 (3,621) (5) 2,090Overdraft (3) (726) - (729) -------- --------- -------- -------- 5,713 (4,347) (5) 1,361Liquid resources 29 135 - 164Sale and finance leaseback - (1,226) - (1,226)Long term loans (322) 20 10 (292)Finance leases (2,803) 584 79 (2,140) -------- --------- -------- -------- 2,617 (4,834) 84 (2,133) ======== ========= ======== ======== 8. GENERAL NOTE a. The preliminary unaudited financial information set outabove does not constitute full accounts within the meaning of Section 254 of theCompanies Act 1985. b. Audited statutory accounts in respect of the year ended 31December 2004 have been delivered to the Registrar of Companies and thoseaccounts were subject to an unqualified report by the auditors. c. Copies of the audited annual report and accounts for theyear ended 31 December 2005 will be sent to shareholders during April 2006 andwill be available from the Company's registered office - Edwinstowe House, HighStreet, Edwinstowe, Nottinghamshire NG21 9PR. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Alkemy Capital.