21st Sep 2006 11:01
Renewable Energy Generation Ltd21 September 2006 Renewable Energy Generation Limited Final results for the period from 25 April 2005 to 30 June 2006 Highlights • Group sales of £743,830 • Group profit before taxation £583,992 • Diluted earnings per share 1.18p • Full year dividend of 4p per share, proposed second interim dividend of 3p per share • Acquisition of the Goonhilly Downs Wind Farm in Cornwall • Non-equity investment in Poland's largest wind farm at Tymien, which commenced commercial operation in March, two months ahead of schedule • Acquisition of 24 wind projects across the UK from NPower Renewables, part of RWE • Planning consents for 10.4 MW of wind projects fully discharged and construction started Chairman's Statement Dear Shareholder, Our Operating Environment Since its creation in April 2005, your Company has benefited from a fundamentalshift in the global economics and politics of energy supply and use. Governmentsworldwide have prioritised energy security in their development of economicpolicy and industrialised nations have united against climate change, throughbinding obligations to reduce atmospheric emissions of carbon - principallythrough regulatory and fiscal measures which incentivise the progressivedisplacement of fossil fuels with renewable energy. World oil and gas priceshave quadrupled in the past four years and renewable energy has entered themainstream energy sector with wind in particular, benefiting from a combinationof very substantial premiums for traded renewable energy, paid over and abovehistorically high market prices which are widely expected to remain. Thissituation, together with the falling cost per MW of capacity being achieved aswind technology matures, has significantly increased the returns above thosegenerally available from low risk investments. Notwithstanding the well established and favourable conditions for investors inproven renewable energy applications, growing evidence of rapid climate changecombined with the heightened desire for energy independence have strengthenedthe global policy imperatives for renewable energy expansion. This imperativehas been demonstrated particularly well within Europe, in the UK and in NorthAmerica. We have good insights into both these markets, having built throughacquisitions and alliances, strong teams of energy professionals. We acquiredCornwall Light & Power in the UK last year and Canada's AIM PowerGen (AIM) inAugust 2006. Our alliance with Probyn & Co. in Canada has also provided valuableexpertise to support our overseas activities. Our Strategy Renewable energy is a fast developing sector and our competitive advantage comesfrom a timely combination of supportive global energy policy, strength ofsupport from institutional investors and the passion and seasonedprofessionalism which binds our network of renewables experts in the UK andNorth America. These resources provide us with the capacity to act quickly inidentifying and closing opportunities in a market where otherwise well-endowedutilities often struggle with the interface between corporate process and theentrepreneurial world of land owners and wind energy developers. Although our expertise embraces a wide range of renewable technologies,including land-fill and biomass, the sustained, favourable conditions for windenergy have focused our early investments in this sector. The UK has become oneof Europe's most attractive territories for the development of wind energy,offering good wind resources, strong policy support and reliable trading marketsfor carbon-free power, driven by regulatory obligations placed on electricitysuppliers. Whereas some European markets such as Germany's are becomingsaturated, the UK's offers continued high growth opportunities. The UKgovernment's recently published report of its Energy Review commits to furtherstrengthening of the market for carbon credits, simplifying planning proceduresand extending the existing regulatory obligation on suppliers, to source 20% ofelectricity from renewable sources by 2020. This target is projected to remainunsatisfied and will therefore support income from trading in RenewableObligation Certificates. We have acted quickly to secure an attractive pipeline of projects in the UK atvarious stages of development. We have exploited the pressure on utilities tobuild scale ahead of inevitable consolidation in on-shore wind markets, byacquiring smaller projects which they had secured as early movers in some of theUK's most favourable wind locations. Our strong balance sheet and in-depthknowledge of the UK energy sector has provided the advantage needed tosuccessfully compete with other developers, independent power producers andventure capitalists entering this market. Our main strategy is to "develop and hold" wind projects. This offers morereliable, recurring revenues from our assets and exploits our team's provenexpertise in evaluating, consenting, building, connecting, operating andmaintaining wind projects, It is we believe a strategy particularly suited tohigh growth markets where saturation will eventually limit opportunities for"pure-play" developers. We will however use the "develop and sell" model when itoptimises development funding for our overall portfolio of power generationassets. Although we aim to strengthen our position as a wind-based IndependentPower Producer our growth strategy embraces prudent diversification ofgeography, whilst focusing principally on wind technology, on-shore. Our riskmanagement strategies favour territorial expansion only where we can replicateour model in the UK, of local expertise positioned to understand regulatoryenvironments, wind potential, site availability, consents procedures andcompetitor activity. We seek to establish such local presence in high growthterritories by partnership and where appropriate, acquisition. Strategy Implementation - Our First Year In June 2005, following our Initial Public Offering, we purchased the GoonhillyDowns wind farm in Cornwall for £5.2m. This is one of the oldest wind farms inthe UK having been erected in 1992. It comprises 14 turbines and generatessufficient electricity to power in excess of 2,400 homes. Soon after the windfarm was acquired a two and a half year power purchase agreement ("PPA") was putin place under which power from the project (but not the renewable obligationcertificates ("ROCs") which the project generates) is sold to Smartest Energy, asubsidiary of Marubeni Corporation of Japan. The ROCs are sold on the spotmarket where values are likely, at least in the short term, to be better. ThePPA lifted EBITDA from the project by over 50% from the point at which it waspurchased. The duration of the PPA is designed to enhance income whilst theopportunity is explored for re-powering the site. This involves the removal ofthe existing turbines and their replacement with larger, more efficientmachines. This process is proceeding satisfactorily but is subject to rigorousplanning and environmental approvals. During the period REG invested £8.1m into the 50MW Tymien Project in Poland.This is the largest operating wind project in Eastern Europe and REG is theproject's largest investor. The project utilises 25 Vestas V80 machines andconstruction of the project was completed in March 2006 within budget and someeight weeks ahead of schedule. In October REG, via it's subsidiary CLP, purchased 24 potential wind projectsfor £4m from NPower Renewables of the UK. These projects were part of NPower's"WindWorks" portfolio, on sites spread across England and Wales. These windfarms are all under 5MW and benefit from their status as dispersed generation,enjoying simplified planning procedures and easier connection to local, ratherthan national, electricity networks. All of REG's UK wind projects are managed by its UK operating subsidiary, theCornwall Light and Power Co. (CLP) based not far from several of our projects insouth-west England. Its high profile activities in getting key projects quicklyconsented within the portfolio acquired from NPower have elicited significantinterest from neighbouring landowners interested in CLP developing wind projectsfor them. Our potential portfolio in the UK comprises more than 100MW. In May 2006 weannounced that construction would commence on the first three projects in theCLP Wind Projects portfolio - Braich Ddu in Gwynedd with an installed capacityof 3.9MW; High Pow in Cumbria with a capacity of 3.9MW and High Sharpley inCounty Durham, 2.6MW. The projects will use Nordex 1.3MW machines and deliveryof these turbines is contracted to commence in late November 2006. Planning onthe other projects is progressing satisfactorily under the management of ourexperienced team at CLP. Following the acquisition of the wind projects from NPower a further £30m ofequity was raised from investors, many of whom were the original backers of thebusiness. Since REG's inception the shares have appreciated from 100p to 127p asat the time of writing. Since the end of its first year your Company has announced the purchase of AIMPowerGen Corporation, one of Canada's largest independent wind developers. Thepurchase price of £13.6m has secured not only a development pipeline of over2600MW in Canada and a further 100MW in the Dominican Republic but also a highlyexperienced team which has since its creation in 2001 secured some of the mostattractive wind sites in the country and developed Canada's largest project,Erie Shores. This acquisition further strengthens our human resource in Canada,hitherto represented by our partners Probyn & Co. - one of Canada's leadingrenewables companies. Financial Overview The results for the period show income slightly ahead of expectation mainly as aresult of higher revenues from Goonhilly Downs and also due to higher thanexpected interest income. Next year the commissioning of Braich Ddu, High Powand High Sharpley will help to offset the running costs of AIM. Once 40MW ofprojects have been constructed in Canada which we anticipate will be during2007, this cash outflow should cease and AIM will start making a positivecontribution to REG's earnings. Our Human Assets Since its launch in April 2005, REG has brought together some of the industry'smost respected professionals who, although remunerated under periodic retainers,have demonstrated impressive commitment and loyalty. Our corporate governance,risk management and control processes have been effectively applied by theManager, Premier Asset Management, but the scope and pace of the Company'sdevelopment is now such that your Board proposes to reinforce the executivefunction. I am pleased to announce the recent recruitment of Nigel McManus toREG's Power Management team, as its Chief Operating Officer. Joining from NPowerRenewables, Nigel has many years experience in wind development with particularskills in contract negotiation and project team management. He will haveoperational responsibility for co-ordinating the work of our internationalteams. Outlook Our main objective over the next few years is to develop and operate the mostattractive projects within the wind project portfolio secured during our firstyear. By early 2007 we should have 16MW of fully operational plant in the UK,with build-out of a further 15-20MW later in the year and the 50MW Tymienproject in Poland will be generating the anticipated income. AIM plans to build 40-60MW next year, comprising projects of 10MW or less, totake immediate advantage of those of the "Standard Offer Contracts" schemedesigned by government to promote such projects. Simultaneously we will bepreparing to develop some of the much larger projects in our newly acquiredCanadian portfolio, in response to the "Request For Proposals" expected to beannounced in late 2007 or early 2008 by the Ontario Government. Our Thanks Whilst bringing our project pipeline into operation will remain our mainpriority, we will continue to respond to opportunities to acquire new projectswhich meet the investment criteria necessary to achieve sustainable shareholdervalue. The confidence demonstrated by shareholders has been fundamental to thecommitment your Company enjoys from its team of professionals, its suppliers andits partners in the industries and communities it engages with. Your Board isconfident it can reward that confidence with solid performance and responsiblebehaviour, consistent with society's expectations from the environmental sector. MIKE LISTONCHAIRMAN Consolidated Income Statementfor the period ended 30 June 2006 25 April 2005 toContinuing operations 30 June 2006 £ Sales 743,830 Cost of sales (804,118) -------------Gross loss (60,288) Other income 708,153 Administrative expenses (1,118,568) Other operating expenses (5,183) Finance income 1,059,878 -------------Profit before tax 583,992 Tax (60,755) -------------Profit for the period 523,237 ------------- Attributable to: -------------Equity holders of the Company 523,237 ------------- Earnings per share for profit attributable to theequity holders of the Company during the period - basic 1.26p ------------- - diluted 1.18p ------------- Consolidated Balance Sheet as at 30 June 2006 30 June 2006 £ASSETSNon-current assetsProperty, plant and equipment 3,607,118Goodwill 2,749,566Development costs 4,156,424Investments at fair value through profit or loss 8,358,253 ------------- 18,871,361 -------------Current assetsInventories 16,831Trade and other receivables 5,841,337Available-for-sale investments 4,913,062Cash and cash equivalents 28,611,764 ------------- 39,382,994 -------------Total assets 58,254,355 ------------- EQUITYCapital and reserves attributable to the Company'sequity holdersShare capital 5,500,000Share premium 36,850,250Special reserve 10,000,000Fair value reserve (66,308)Share-based payment reserve 191,368Retained earnings (26,763) -------------Total equity 52,448,547 ------------- LIABILITIESNon-current liabilitiesDeferred tax liabilities 357,574 ------------- 357,574 -------------Current liabilitiesTrade and other payables 5,351,075Tax payable 97,159 ------------- 5,448,234 -------------Total liabilities 5,805,808 -------------Total equity and liabilities 58,254,355 ------------- Net asset value (NAV) per share - basic 95.36p ------------- - diluted 95.58p ------------- Consolidated Cash Flow Statementfor the period ended 30 June 2006 25 April 2005 to 30 June 2006 £Cash flows from operating activitiesCash used in operations (476,931) -------------Net cash used in operating activities (476,931) ------------- Cash flows from investing activitiesAcquisition of subsidiaries, net of cashacquired (5,155,221)Purchases of development costs (4,156,424)Purchases of property, plant andequipment (1,562,583)Purchases of investments at fair valuethrough profit and loss (8,060,492)Purchases of available-for-saleinvestments (16,830,767)Proceeds from sale of available-for-saleinvestments 11,994,054Interest received 1,059,878 -------------Net cash used in investing activities (22,711,555) ------------- Cash flows from financing activitiesProceeds from issue of shares 55,000,000Transaction costs from issue of shares (2,649,750)Dividends paid to Company's shareholders (550,000) -------------Net cash generated from financingactivities 51,800,250 ------------- Net increase in cash and cash equivalents 28,611,764Cash at beginning of period - -------------Cash at end of period 28,611,764 ------------- Consolidated statement of changes in equity for the period end 30 June 2006 Attributable to equity holders of the Company ---------------------------------- Share Share premium Fair value Special Retained Total equity capital account and other reserve earnings £ reserves £ £ £ £ £ Balance at 25 April 2005 - - - - - - Issue of sharecapital 5,500,000 39,500,000 - 10,000,000 - 55,000,000Transaction costs from issue ofshares - (2,649,750) - - - (2,649,750) Fair value losses, net of tax: - available-for- sale investments - - (66,308) - - (66,308) Warrants: - fair value of warrants - - 191,368 - - 191,368 -------- --------- -------- --------- -------- ---------Net income/(expenses) recogniseddirectly inequity 5,500,000 36,850,250 125,060 10,000,000 - 52,475,310 Profit for theperiod - - - - 523,237 523,237 Dividend - - - - (550,000) (550,000) -------- --------- -------- --------- -------- ---------Balance at 30June 2006 5,500,000 36,850,250 125,060 10,000,000 (26,763) 52,448,547 -------- --------- -------- --------- -------- --------- Basis of preparation This preliminary statement was approved by the Board on 19 September 2006. It isnot the Company's statutory accounts. The statutory accounts for the periodended 30 June 2006 will be delivered to the Registrar of Companies. Dividends 2006 £Declared and paid during the periodEquity dividends on ordinary shares: --------First interim dividend declared and paid - 1 p 550,000 -------- Proposed (not recognised as a liability at 30 June 2006)Equity dividends on ordinary shares: --------Second interim dividend declared - 3 p 1,759,372 -------- A second interim dividend in respect of 3p per share, amounting to a totaldividend of £1,759,372 was proposed by the directors at their meeting on 19September 2006. The proposed dividend has not been recognised as a liability asat 30 June 2006. For further information please contact: REG Power Management: Andrew Whalley CEO - 01483 400425 / 07717 508562 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
WIND.L