13th Sep 2007 15:07
Renewable Energy Generation Ltd13 September 2007 13 September 2007 Renewable Energy Generation Ltd ("REG", "the Company" or "the Group") Preliminary Results for the year ended 30 June 2007 Renewable Energy Generation (AIM: RWE), the developer owner & operator ofrenewable energy projects, announces its preliminary results for the twelvemonths to 30 June 2007. Financial Summary • Balance sheet strong with £20.7m in cash (2006: £28.6m) • Sales and other operating income over period of £2.3m (2006: £1.1m) • Capital expenditure of £28.5m (2006: £18.9m) • Loss per share of 1.60p (2006: profit per share of 1.26p) • Final dividend of 3 pence per share proposed payable in October 2007making dividends payable in respect of the year 4 pence per share (2006: 4p) Operational Highlights • Project pipeline now more than 3,000MW developable capacity in Canadaand the UK • Value crystallised by self-building, owning and operating projectsfrom within a diversified pipeline. Construction completed or underway on over80MW in the UK and Poland during the year. • Significant expansion of Canadian Standard Offer Programme ("SOP")construction programme into 2008 • Management team of experienced renewables professionals reinforced,and company restructuring well under way REG Chief Executive Officer Andrew Whalley said: "I am delighted with the progress we have made in the last year. Raising afurther £45m in late 2006 has enabled REG to execute further our strategy ofdeveloping, building and owning our own wind projects rather than purchasingfrom others and paying a premium. With built projects now emerging from oursubstantial wind power pipeline and a much strengthened team acceleratingdevelopment in the UK and Canada, next year will bear the fruit of ourinvestments to date. The next twelve months will see accelerated project delivery, with commissioningof the first four SOP projects in Canada pushing the Group into operational freecash flow after dividend payments, and providing a stable base of income formany years to come. I look forward to the year 2007-2008 with confidence.Continued high energy prices and strengthening policy support provide increasedconfidence in sustained value from the pipeline assets we are now building." Enquiries Renewable Energy Generation LtdAndrew Whalley +44 (0) 1483 400 425 Bell Pottinger Corporate & FinancialNick Lambert / Amy Rajendran / Antonia Coad +44 (0) 20 7861 3232 Chairman's Statement In this our second year, we have made substantial progress in the execution ofour stated strategy. Global trends in sustainable energy development continueto demonstrate further that renewables are shifting rapidly into mainstreamenergy infrastructure. Investments globally in this sector rose by nearly 50%to $100 billion in 2006 and the growth trajectory so far in 2007 is similar1. Investor appetite, facilitated by strong policy support mechanisms, illustratesthat existing renewable energy technology is ready for scale-up without furthertechnology development, with on-shore wind now a commodity industry. Criticalmass has been reached to the extent that even if oil prices drop to $40 fromtheir established levels above $70, analysts expect investment would sufferlittle other than a slowing pace of growth. The sector's rapid progress tomaturity is evidenced further by high levels of asset financing. This is mostparticularly pronounced in the wind sector, in which REG has most of its assets. By contrast to the conventional energy industry, a significant proportion oftotal sector investment was dedicated to increasing manufacturing capacity Thisreflects confidence by manufacturers that the lower capital equipment pricesassociated with the evident commoditisation of the on-shore wind sector inparticular, are acceptable in such a high growth environment. 1 United Nations Environment Programme report "Global Trends in SustainableEnergy Investment 2007 Our Strategy We remain clear in our view that we can extract most value from the boomingrenewable energy sector by focusing on smaller projects, employing maturetechnologies, in countries which offer strong opportunities for growth. Thesegment of the market concerned with small wind power projects is typicallyfragmented and our competitive advantage has been demonstrated as being theability to acquire projects early, at low cost and get them consented, built andoperated, using our own resources. Now fully resourced as a "whole-chain"developer and operator of renewable energy assets, we are able to extract valuefrom parts of the investment chain which would otherwise be lost tointermediaries. This strategy inevitably incurs lead-time lags associated withcomplex planning processes but avoids the premiums involved in acquiringprojects already consented. We have achieved significant progress in the past 12 months since acquiring ourearly-stage wind project pipelines, now totalling more than 3000MW in Canada, UKand Poland. In addition to the three projects constructed this year, more thana dozen others were progressed towards planning determination We now have 16MWof operating wind projects in the UK with a further three projects inprocurement or under construction. Although providing lower margins than in the UK, Canada's renewable energysector enjoys easier planning conditions - a crucial advantage. Havingcompleted our acquisition of Canada's AIM Powergen (APG) in August 2006 we movedquickly to secure turbines and other plant, despite a relatively tight supplymarket and this has enabled us to commence development of the first seven, of12 of the 10MW projects we expect to develop under the Federal "Standard OfferProgramme" (SOP) within the next two years. We anticipated Ontario as aprincipal player in Canada's emergence as a leading jurisdiction for wind powerand in August 2007 its importance was further demonstrated by the Province'sannouncement of a doubling of its requirement for renewable energy, through anew directive to the Ontario Power Authority which increases required capacityto 4000MW. REG has the bulk of its nearly 3000MW pipeline of Canadian projects in Ontarioand in addition to the SOP projects now under construction, it submitted inSummer 2007 two of its 99MW projects in response to Manitoba's Request ForProposals (RFP) programme. This bid has been made in partnership with a largefinancial institution . As part of our aim to maximise efficiency in deploying shareholders funds, wehave recently secured flexible debt facilities to help us orchestrate thefunding mechanisms most suited to each stage of project development and we seekpartnerships where our portfolio of projects and development expertise isattractive to providers of low cost capital and/or plant manufacturers seekingvertical integration. We are in the final stages of a review of the merits ofrecycling some of our earlier investments such as in the 50MW Tymien project inPoland, where opportunities exist to release both added value and cash. Having established a strong pipeline of developable projects in the wind sector,we aim to diversify our technology base where appropriate. In Summer 2007 weacquired a majority shareholding in an operating business in the UK, using wastecooking oil as fuel. It offers growth opportunities and relatively fast cashflow. At year-end, we were evaluating other UK biomass investment opportunitiesusing waste wood as fuel. Our strategy to embrace the whole value chain available in the renewables sectoris better served by an operating company structure, than by a fund. During thepast year we have continued to recruit seasoned professionals to join alreadywell-established teams within our subsidiaries in the UK and Canada. At UKGroup level we have recently appointed Andrew Whalley as Chief Executive, whohad previously led the fund management team at Premier Asset Management, underwhich the Company was initially established. More recently, we have appointedDavid Crockford as Group Finance Director. He comes with wide internationalexperience of financial management, control, investment appraisal and capitalstructures. Now that we have in-house the expertise required to manage the full range of ouractivities as an operating company, we are moving to streamline the legacymanagement arrangements attached to the original structure. We also propose tore-domicile the Company in Jersey to better reflect the locus of governance andcontrol by the Directors. In summary, we consider ourselves now well endowed not only with investors whohave demonstrated confidence during the inevitable dwell-time associated withdeveloping early projects in our pipeline, but also with the professionalscapable of rewarding that confidence. Mike Liston, OBE Chief Executive's Statement In the last year the Group has achieved a number of important successes againstthe key strands of our strategy: • Maintaining a sizeable portfolio of early stage, low costprojects employing mature technologies in countries which offer strongopportunities for growth - The Group acquired Canada's largest wind developer AIM PowerGenInc ("APG") in August 2006 for a total of £14.2m paid in cash and new REGshares. APG has almost 3000MW of wind projects at various stages of developmentacross six provinces of Canada - Several Canadian Provincial Governments have introducedinitiatives to increase the uptake of wind power. At National level, a newscheme has been introduced to provide further support to augment Provincialinitiatives - During the year our UK development portfolio increased substantially tonearly 200MW and our strategy opportunistically to increase the average projectsize began to materialise, with three of our largest seven projects potentiallyoffering more than 20MW each. - We are actively engaged in the preparation of more than a dozenprojects for planning determination. Several of these have arisen because ofgood publicity surrounding the successful completion of REG constructionprojects, such as at High Sharpley. In this regard we believe that ourwholly-owned subsidiary Cornwall Light & Power Co. Ltd. (CLP) has establisheditself as one of the most respected developers of small wind projects in the UK - Our UK team has also acquired development rights to Biomassprojects which provide an opening into a newly emerging industry that enjoyssimplified planning procedures. - The UK Energy White Paper, published in March 2007, providessignificant new encouragement for renewable energy, particularly Biomass, whichis to be further supported by the doubling of its entitlement to RenewableEnergy Certificates ("ROCs") through which substantial power price premiums areprovided. • Crystallising value by self-building, owning and operatingprojects from within a diversified pipeline which now exceeds 3,000MWdevelopable capacity in Canada, the UK and Poland Canada In December 2006, the Group's Canadian subsidiary, APG, reached agreement withVestas, the world's largest wind turbine manufacturer, to procure 24 Vestas V82machines for the first four projects that APG is constructing under the OntarioStandard Offer Programme ("SOP") which is designed to promote the build ofsub-10MW wind projects across the province. Under this programme the OntarioPower Authority will enter into 20 year power purchase agreements with APG.These projects have started construction and will be completed during the nextyear. Once commissioned, REG will refinance the projects with long term debt.The equity will then be recycled into new projects in Canada. REG currently hasover 2,000MW of potential projects in Ontario. APG has ordered a further 18turbines for three more SOP projects which are anticipated to commence operationin late 2008. In total, APG currently has 70MW in construction. APG announced recently a collaboration with GE Energy of the USA in bidding fortwo large wind projects under a Request for Proposals ("RFP") in Manitoba. TheDominion City and Oakland wind projects are each of 99MW capacity and ifselected for construction will make an important contribution to Manitoba'srenewable energy programme. A decision by the authorities on the RFP is likelyearly in 2008 APG has surpassed our best expectations since acquisition. The Canadian windmarket appears on the verge of substantial growth and APG should be at theforefront of this process. The Canadian government is a Kyoto signatory andseveral of the provinces have put in place aggressive renewables targets. ThusAPG is well placed to demonstrate substantial growth over the next few years. UK In March 2007 the REG Group, through its UK subsidiary, CLP, completed theinstallation of three new wind farms in the UK totalling 10.4MW. These wind farms are: High Sharpley County Durham 2.6MWHigh Pow Cumbria 3.9MWBraich Ddu Gwynedd 3.9MW CLP's new projects, together with the well established operation at Goonhilly,sell their power to Smartest Energy, part of Marubeni Corporation of Japan, withwhom REG has established a good commercial relationship. ROCs associated withthe production of the wind farms are accumulated by CLP on balance sheet andthen sold. Anticipated prices for ROCs are higher than last year. CLP's 1.7MW project at Roskrow Barton in Cornwall discharged all of its planningconditions earlier this year and turbines were ordered from Vestas. It isanticipated that this project will be generating power in early 2008. In addition two more consented wind projects, Whittlesey and Ramsay inCambridgeshire were prepared for construction. Both wind farms are singleturbine sites of around 2MW and are expected to be completed next year. Due diligence is being finalised on two small Biomass projects in the UK. Theseare expected to enter construction during 2007. They utilise wood fuel togenerate electricity and heat. The sale of the heat may provide an additionalrevenue stream. This type of project is generally not contentious within theplanning process, and is being encouraged under the Energy White Paper.Significant opportunities exist across the UK to roll out further installations.Equipment supply is within 12 months from order, so implementation can be swift. Since the end of the period, REG announced an investment in a new businessutilising used cooking oil to fuel diesel generators. Local authorities andindustrial and commercial businesses present ready demand for this method ofpower generation, which benefits from a diversified fuel supply chain, supportedby demanding waste disposal policies, and a benign planning environment..Equipment supply is swift, in this case approximately six months and our firstsuch project owned by CLP is now generating power. We anticipate significantexpansion of our activities in this sector. Poland The 50MW Tymien project in Poland was commissioned last March and REG receivedits first dividend from the project in May totalling £700,000. The project isperforming slightly ahead of our expectations and although we are very pleasedwith its performance we are examining the merits of Tymien in the context ofopportunities to redeploy the capital into the next phase of development of ourUK and Canadian pipelines. • Building on our early foundations of sound finances andexperiences renewables professionals to exploit every link of the value chain The transition of the Group from an investment to an operating Company structurecontinues. At UK Group level David Crockford has been appointed as Group FinanceDirector. He is a seasoned chartered accountant with extensive experience gainedin Audit with a global accountancy firm, and in commercial organisationsinternationally. Both the UK and Canada now have traditional organisational structures, with fulltime staff. Whilst these structures are still augmented by an establishednetwork of advisers, we now have a significant core group of employees able tocontinue the delivery of profitable operating renewable energy projects. Neil Harris has joined as full time Chief Executive Officer of CLP. Neil hasover 15 years of experience in the wind industry. He has built projects in manycountries, and brings a wealth of engineering and development experience. JohnMills joined us as Head of UK Construction, with a remit also to support theCanadian activities. Again, John has built a large number of wind projects inseveral countries. He joins us from the Falck Group where he headed up theirconstruction team, based in Italy. Previously he had responsibility forconstruction within GE Wind Europe. Steve Allen has also joined CLP as ProjectDeveloper. He has chosen to come to CLP from Gamesa, one of the world's largestwind turbine manufacturers. This new structure is helping to accelerate thepreparation of projects for planning submission and to generate newopportunities. Deyong Cha has joined APG as VP for construction. He has extensive experienceacross many construction projects in North America and bolsters the Canadianteam further. These industry professionals add still more weight to the founding teams of REGbased in the UK and Canada. It is worth noting that turbine supply in less than12 months has been achieved in both countries, despite tight market conditions.Furthermore, the Biomass and cooking-oil-to-power projects have been broughtinto REG through our extensive industry network. REG has demonstrated again thisyear its ability to spot investments, qualify them and turn them into generatingfacilities quickly and efficiently. A new executive options scheme has been put in place. This will incentivise bothexisting and new members of staff. The scheme is capped at 10% of REG's issuedshare capital and will result initially in a further 1% of REG's issued sharecapital being placed under option. The Board, in consultation with REG'sadvisors, will regularly review the option scheme to ensure it meets market bestpractice. This process of change will continue with the aim of ensuring that the Groupstructure delivers returns through aligning further the interests ofshareholders and staff. To this extent the continuing involvement of REG PowerManagement in the activities of the Group is under review. Outlook The strategy of REG is to develop, build, own and operate its own wind projects. In this way, shareholder funds are used to add value rather than purchase fromothers whilst paying a premium. In respect of the Group's small wind projects,the strategy is to build a number of these projects using our own equityresources. Once built and operating satisfactorily, projects can be bundledtogether and refinanced using long term, fixed rate debt. In this wayconstruction risk is removed for the banks before long term loans are put inplace. This will result in lower rate and arrangement costs thus increasingreturns to REG's shareholders. In late 2006, REG raised £45m through a placing of new Ordinary shares tofinance the build of its wind farms in the UK and Canada. This takes the totalraised by REG to over £100m and provides the group with a strong balance sheetenabling it to execute its business plan for the next few years. The Group is in advanced stages of negotiation on a substantial, revolvingcredit facility with a leading lender. This facility will provide REG withample liquidity whilst it builds out its UK and Canadian portfolios. Inparticular it will allow the first 40MW of SOP projects to be constructed andthen refinanced early next year. It is a general corporate facility and affordsthe Group significant flexibility, particularly entering a period when marketconditions may make access to low cost credit more difficult. When the first four SOP projects are commissioned the Group should be generatingoperational free cash flow after dividend payments. The SOP projects in thisregard are very important as they provide the Group with a stable base of incomefor many years to come. This will allow us to develop new and exciting projectsboth in the UK and Canada and build the Group's profitability and return oncapital employed. People The REG Group is proud to have working for it a team of talented and highlymotivated individuals. REG's recent recruitments reflect the Board's commitmentto a new structure, and should provide the Company with the resource it needs todevelop the opportunities it has created in its first two years. I would like tothank all of REG's employees for their commitment to the Company over the lasttwelve months. I believe strongly that the organisational changes we have made, allied to thereinforcement of experienced management at operational level will support aprolonged period of project delivery. There is no doubt that we have securedexceptional pipelines of projects in both Canada and the UK; two of the primemarkets for renewable energy worldwide. Our crystallisation of these low costdevelopment assets into valuable operating plant has started and will gatherpace. Andrew Whalley Consolidated Income Statement for the year ended 30 June 2007 Continuing Year to 25 April 2005 to operations Acquisitions 30 June 2007 30 June 2006 £ £ £ £ Revenue 1,443,003 - 1,443,003 743,830 Cost of sales (1,669,967) - (1,669,967) (880,280) Gross loss (226,964) - (226,964) (136,450) Administrative expenses (1,422,487) (743,004) (2,165,491) (1,047,589) Development costs (850,005) (988,255) (1,838,260) - Group trading loss (2,499,456) (1,731,259) (4,230,715) (1,184,039) Other income 836,059 45,451 881,510 390,626 Group operating loss (1,663,397) (1,685,808) (3,349,205) (793,413) Finance revenue 1,329,549 299,680 1,629,229 1,377,405 (Loss) / profit before tax (333,848) (1,386,128) (1,719,976) 583,992 Tax (85,148) 479,376 394,228 (60,755) (Loss) / profit for the period (418,996) (906,752) (1,325,748) 523,237 Attributable to:Equity holders of the Company (418,996) (906,752) (1,325,748) 523,237 Earnings per share for the (loss) / profit attributable to theequity holders of the Company during the period - basic (1.60p) 1.26p- diluted (1.58p) 1.25p Consolidated Balance Sheet as at 30 June 2007 30 June 2007 30 June 2006 £ £ASSETSNon-current assetsProperty, plant and equipment 31,752,469 3,607,118Goodwill 3,009,914 3,009,914Intangibles 20,703,800 -Development costs 3,963,434 4,156,424Investments at fair value through profit or loss 8,555,681 8,358,253 67,985,298 19,131,709Current assetsInventories - 16,831Trade and other receivables 17,660,293 445,617Intangibles 760,053 454,457Available-for-sale investments - 4,913,062Cash and cash equivalents 20,751,234 28,611,764 39,171,580 34,441,731Total assets 107,156,878 53,573,440 EQUITYCapital and reserves attributable to the Company'sequity holdersShare capital 10,310,101 5,500,000Share premium 79,645,688 36,850,250Special reserve 10,000,000 10,000,000Fair value and other reserves 1,479,662 (66,308)Share-based payment reserve 546,648 191,368Retained earnings (4,142,914) (26,763)Total equity 97,839,185 52,448,547 LIABILITIESNon-current liabilitiesDeferred tax liabilities 6,774,483 617,922 6,774,483 617,922Current liabilitiesTrade and other payables 2,543,210 409,812Tax payable - 97,159 2,543,210 506,971Total liabilities 9,317,693 1,124,893Total equity and liabilities 107,156,878 53,573,440 Net asset value (NAV) per share- basic 94.90p 95.36p- diluted 95.14p 95.58p Consolidated Cash Flow Statementfor the year ended 30 June 2007 Year to 25 April 2005 to 30 June 2007 30 June 2006 £ £Cash flows from operating activitiesCash used in operations (17,835,565) (794,458)Net cash used in operating activities (17,835,565) (794,458) Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired (9,557,237) (5,155,221)Purchases of property, plant and equipment (PPE) (28,547,782) (1,562,583)Development costs - (4,156,424)Purchases of investments at fair value through profit or - (8,060,492)lossPurchases of available-for-sale investments - (16,830,767)Proceeds from sale of available-for-sale investments 4,794,858 11,994,054Interest received 1,629,229 1,377,405Net cash used in investing activities (31,680,932) (22,394,028) Cash flows from financing activitiesProceeds from issue of shares 45,788,952 55,000,000Transaction costs from issue of shares (2,740,564) (2,649,750)Dividends paid to Company's shareholders (2,790,403) (550,000)Net cash generated from financing activities 40,257,985 51,800,250 Net (decrease)/increase in cash and cash equivalents (9,258,512) 28,611,764Cash at beginning of period 28,611,764 -Exchange gains 1,397,982 -Cash at end of period 20,751,234 28,611,764 Consolidated statement of changes in equityfor the year ended 30 June 2007 Attributable to equity holders of the Company Share Share Special Fair value and Share-based Retained Total capital premium reserve other reserves payment earnings equity account reserve £ £ £ £ £ £ £ Balance at 1 July 2006 5,500,000 36,850,250 10,000,000 (66,308) 191,368 (26,763) 52,448,547 Issue of share capital 4,810,101 45,536,002 - - - - 50,346,103 Transaction costs from issueof shares - (2,740,564) - - - - (2,740,564) Fair value losses onavailable-for-sale - - - (4,384) - - (4,384)investments Transfer to profit and loss on - - - 70,692 - - 70,692saleof available for saleinvestments Share-based payments - - - - 355,280 - 355,280 Foreign currency translation - - - 1,479,662 - - 1,479,662 Net income/(expenses) recogniseddirectly in equity 10,310,101 79,645,688 10,000,000 1,479,662 546,648 (26,763) 101,955,336 Loss for the period - - - - - (1,325,748) (1,325,748) Dividend - - - - - (2,790,403) (2,790,403) Balance at 30 June 2007 10,310,101 79,645,688 10,000,000 1,479,662 546,648 (4,142,914) 97,839,185 Basis of preparation This preliminary statement which is prepared on the same basis as set out in theprevious years accounts was approved by the Board on 13 September 2007. It isnot the Company's statutory accounts. The statutory accounts for the year ended30 June 2007 will be delivered to the Registrar of Companies. Dividends 2007 2006 £ £Declared and paid during the periodEquity dividends on ordinary shares:Second interim dividend declared and paid - 3 p 1,759,372 -First interim dividend declared and paid - 1 p 1,031,031 550,000 2,790,403 550,000 Proposed (not recognised as a liability at 30 June 2007)Equity dividends on ordinary shares: Second interim dividend declared - 3 p - 1,759,372 A dividend of 3p per share, amounting to a total dividend of £3,093,030 wasproposed by the directors at their meeting on 11 September 2007. The proposeddividend has not been recognised as a liability as at 30 June 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
WIND.L