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Final Results

23rd Mar 2005 07:01

Alkane Energy PLC23 March 2005 For immediate release 23 March 2005 Alkane Energy plc ("Alkane", "the Group" or "the Company") Unaudited preliminary results for the twelve months ended 31 December 2004 Alkane Energy is an international renewable energy company specialising in thedesign, build, operation and servicing of methane treatment plants andelectricity generation facilities that use biogas, landfill gas, coal minemethane and sewage gas. Financial Highlights • Turnover, including full-year contribution from Pro2, increased by 172% to £19,785,000 (2003: £7,270,000) • Substantial reduction in operating loss to £753,000 (2003: £1,415,000) • Operating profit of £199,000 achieved during second half of 2004 (2003: loss £335,000) Operational Highlights Germany • Pro2 Strong growth in sales of plant and service contracts maintained throughout 2004 Further growth expected in 2005 supported by introduction of the new renewable energy law (EEG) in August 2004 Entered new markets of Hungary and Russia • CMM (Coal Mine Methane) Joarin on-stream in March 2005 Three sites in pre-development phase United Kingdom • CMM Markham and Bevercotes projects to come on-stream shortly Market supported by sustained high UK energy prices • Pro2 Services Acquisition today of Farley (Energy) Engineering Limited for £70,000 establishes Pro2 service operation in UK • Biogas Project in Northern Ireland in pre-development phase Commenting on the preliminary results, Chief Executive, Dr Cameron Davies, said: "We continue to make excellent progress towards achieving our goal ofprofitability during 2005. The second half of 2004 saw a move into profit at anoperating level and we are confident of further progress during 2005. "This strong performance has been underpinned by another excellent outcome atPro2 which augurs well for an exciting 2005. The revised renewable energylegislation in Germany is expected to support the already strong 2005 orderbook. We have also expanded into some exciting new international markets. Ourfirst German renewable energy plant using CMM as fuel is generating income andwe hope to have at least one additional project complete by the end of the year. "In the UK, we have made rapid progress towards the completion of four new CMMplants ,comprising a total of 8 MW of generating capacity. The first two,Markham and Bevercotes, are expected to commence electricity generation in thenear future. Energy prices in the UK remain favourable, significantly improvingthe commercial viability of our CMM business". Enquiries:Alkane Energy plcDr Cameron Davies (Chief Executive) Tel: 020 7466 5000 (Today)Steve Goalby (Finance Director) Tel: 01623 827927 (Thereafter) Buchanan Communications Tel: 020 7466 5000 (Today)Eric Burns Tel: 01943 883990 (Thereafter)Ben Willey Tel: 020 7466 5000 Chairman's Statement Introduction During the past twelve months, Alkane has made substantial progress intransforming itself into a profitable, international renewable energy company.Sales of our high tech methane utilisation systems have been made to specialistmarkets as far apart as Iran and Iceland. In addition, the economic climate fordeveloping new CMM projects has changed for the better in the UK with thesignificant recovery in wholesale electricity prices. As climate change is now near the top of the political agenda, our globalwarming reduction technology has moved into the mainstream of industry andGovernment thinking. The plants and systems we have sold to customers in thebiogas, landfill gas, CMM and sewage gas sectors prevent millions of tonnes ofcarbon dioxide per year from contributing to climate change. Our decentralisedrenewable energy plants generate electricity for the local consumer,significantly reducing grid losses from transporting it long distances fromlarge remote fossil fuelled power stations. Financial Overview Alkane continues to move confidently towards its stated target to achieveprofitability in 2005. A strong sales push in all markets, and the inclusion of a full year'scontribution from Pro2, have resulted in Group turnover increasing from £7.3m to£19.8m and our operating loss being reduced from £1.4m to £753,000. At a pre-taxlevel, adjusted to remove the effect of the exceptional item in 2003, lossesreduced substantially from £1,033,000 in 2003 to £284,000. On the same basis,the loss per share (basic and diluted) was reduced from 1.51p to 0.8p. A further cut in senior executive level management contributed to a reduction inUK salary costs of £236,000. On a full-year basis, overall Group overheads havebeen reduced by 20% since 2003, to an estimated run rate of £900,000 per annum. Net funds as at 31 December 2004 were £2.6m compared with £6.1m at the end of2003. This reflects the investment of £2.9m in new projects, both in the UK andin Germany. Operating Review Germany Pro2 The first sale to Russia and a rapid start-up in the newly developing Portuguesebiogas market have pushed turnover, including inter-company sales, forward from€24.0m in 2003 (full-year including period prior to acquisition) to €28.5m in2004 with profit before tax on the same basis rising from €563,000 to €865,000.A large number of plants were built in 2004 to generate electricity from biogas,coal mine methane, sewage gas and landfill gas and the company now has plantsoperating in 14 countries. During the period, Pro2 participated in important international tradeexhibitions for renewable energy and pollution control technologies in Germany,Spain, France, Poland, the Netherlands, Hungary and the UK. These have led toincreased market penetration and the winning of new customers for our greenhousegas reduction systems. The wait, by customers, for the revised EEG to be implemented from 1 August2004, led to greater demand for power generation systems using biogas producedfrom fast growing biomass such as maize and willow in the second half of theyear. Orders for 2005 are running well ahead of 2004 in all sectors. In the UK, Pro2 Services Limited has been established following today'sacquisition of Farley (Energy) Engineering Limited for £70,000. The company is along established engineering specialist servicing the important landfill andwastewater markets. The acquisition will provide the means to introduce Pro2'sleading edge expertise to the specialist methane market in the UK. CMM We are now producing the company's first renewable electricity at Joarin usingPro2's modular containerised gas extraction and power generation modules. Ourplant is built on part of an abandoned mine site owned by A-Tec Anlagentechnikand leased to Alkane under a long-term contract. The Joarin mine gas projectstarted with the successful drilling of the coal mine methane borehole. Ourlong-term gas test using a modular Pro2 system, confirmed that the gas flow wassufficient for a 2.7MW modular containerised electricity generation system. Thisplant should ultimately supply electricity sufficient for more than 5,500 homesand save the equivalent of about 100,000 tonnnes per year of carbon dioxideemissions. In order to meet local noise regulations, a basic sound-deadening frame buildingwas constructed around the containers. The plant is now complete and fullytested with renewable electricity being generated 24 hours a day. Theelectricity is sold under the EEG feed-in tariff on a fixed 20 year contract at€65 per megawatt hour. In addition to this, the Federal Environment Ministry hasauthorised the sale of emissions credits gained by capturing and using methanein the international emissions trading markets. Three other similar coal mine methane generation projects are being planned withA-Tec, our CMM development partner, at disused mine sites in North RhineWestphalia. Borehole drilling operations are expected to start in the nearfuture at the next site. United Kingdom In the UK, the benefits of the Climate Change Levy exemption in the Finance Act2002, valued at £4.30 per megawatt hour, finally began to feed through as energycontracts were renewed, and will contribute to us directly as we generateelectricity from more of our own plants. Our engineers are supervising the construction of four new CMM power generationplants in the UK using containerised systems and our own gas extractiontechnology. At Bevercotes, construction is on schedule and three containerised generatingsets and transformers are now installed awaiting connection by Central Networksto the 11,000 volt grid. Full-scale commissioning will commence when theconnection is made. At Markham, the engine has been tested and is ready for commissioning andelectricity generation when the connection to the grid is completed. We are seeking early delivery of containerised generation systems andconnections to the grid at Whitwell and Old Mill Lane, Mansfield where civilengineering works are well under way. Mine Methane Safety Systems Human tragedies caused by recent methane explosions in several coal mining areasworldwide have reinforced the message that mine atmosphere management iscritical to the safety of working coal mines. Our first containerised minemethane extraction system was sold and shipped to Iran during the year. In thefirst quarter of 2005, we have had a number of encouraging visits to Markham tosee our containerised gas extraction and generation systems. The potentialcustomers were mine managers and energy ministers from several countries wherecoal mining is undergoing a very rapid expansion to keep up with the hugeinternational demand. We are currently targeting Russia, India and China alongwith Iran as markets for our mine safety systems that will in future bemanufactured by Pro2. Biogas In April 2004, we acquired, for £150,000, Farmatic Biotech Energy UK Ltd, nowrenamed Alkane Biogas Limited. This forms the basis for our anaerobic digestionbusiness which plans to build its first biogas plant at Fivemiletown in NorthernIreland. This environmentally friendly plant will derive income from thegeneration of renewable electricity and from "gate fees" for disposal ofbio-waste supplied by farms and food processors. This biogas project has moved on to the detailed planning stage with the searchfor a suitable site being pursued with strong support from the Department ofAgriculture and Rural Development. Other biogas projects are under discussion inEngland, Scotland and Wales in association with waste companies, landowners andlocal authorities. Prospects 2004 has been a year in which we have transformed Alkane into a trulyinternational renewable energy company with sales of our leading edge technologyand services in an increasing number of premium markets. We look forward tocontinuing this growth and moving into profit in 2005 as we benefit fromsustained high energy prices and the expansion of our sales and servicingactivities worldwide. Finally, I would like to pay tribute to our teams in the UK and Germany who areoverseeing this continuing transformation and thank them for all their hard workand dedication in moving Alkane towards a strongly growth orientated andprofitable future. John Lander Chairman GROUP PROFIT AND LOSS ACCOUNT for the twelve months ended 31 December 2004 2004 2003 (unaudited) £ '000 £ '000 TURNOVER 19,785 7,270 Cost of sales (14,910) (4,921) GROSS PROFIT 4,875 2,349 Administrative expenses (6,041) (3,840) Other operating income 413 76 OPERATING LOSS (753) (1,415) Profit on sale of fixed assets 371 - Fundamental restructuring (Note 2) - (19,670) LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST (382) (21,085) Interest receivable and similar income 430 429 Interest payable and similar charges (332) (47) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (284) (20,703) Taxation (267) (117) LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (551) (20,820) Minority interests (163) (207) LOSS FOR THE FINANCIAL YEAR (714) (21,027) Loss per ordinary share - basic and diluted (0.80p) (23.45p) STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2004 2003 (unaudited) £ '000 £ '000 Loss for the period (714) (21,027) Exchange rate differences (2) 9 TOTAL RECOGNISED GAINS AND LOSSES (716) (21,018) GROUP BALANCE SHEET at 31 December 2004 2004 2003 (unaudited) £'000 £'000 FIXED ASSETS Intangible assets 873 729 Tangible fixed assets - gas properties 431 487 Tangible fixed assets - generation 2,243 - Tangible fixed assets - other 4,293 3,514 Investments - 157 7,840 4,887 CURRENT ASSETS Stock 1,505 2,486 Debtors: amounts falling due within one year 6,349 4,589 Debtors: amounts falling due after more than one year 258 517 Investments 30 29 Cash at bank and in hand 5,716 8,757 13,858 16,378 CREDITORS: amounts falling due within one year (6,645) (6,088) NET CURRENT ASSETS 7,213 10,290 TOTAL ASSETS LESS CURRENT LIABILITIES 15,053 15,177 CREDITORS: amounts falling due after more than one year (2,665) (2,105) PROVISIONS FOR LIABILITIES AND CHARGES (1,998) (2,000) MINORITY INTERESTS (1,104) (1,079) NET ASSETS 9,286 9,993 CAPITAL AND RESERVES Called up share capital 449 448 Share premium account 32,956 32,948 Profit and loss account (24,119) (23,403) TOTAL EQUITY SHAREHOLDERS' FUNDS 9,286 9,993 GROUP STATEMENT OF CASH FLOWS For the twelve months ended 31 December 2004 2004 2003 (unaudited) £ '000 £ '000 NET CASH OUTFLOW FROM OPERATING ACTIVITIES (261) (3,736) Cash flows from the fundamental restructuring - (744) TOTAL OPERATING CASH FLOWS (261) (4,480) RETURNS ON INVESTMENT AND SERVICING OF FINANCE Interest received 405 434 Interest paid (121) (13) Interest element of finance lease payments (93) (33) 191 388 TAXATION Overseas tax paid (84) (116) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire intangible fixed assets (8) (108) Payments to acquire tangible fixed assets (2,946) (1,046) Receipts from the sale of tangible fixed assets 695 48 (2,259) (1,106) ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertaking (162) (1,645) Net cash acquired with subsidiary undertaking 149 1,744 (13) 99 NET CASH OUTFLOW BEFORE (2,426) (5,215) FINANCING FINANCING Repayment of long term loans (48) (18) Capital element of finance lease rental payments (573) (137) Issue of ordinary share capital 8 2 DECREASE IN CASH (3,039) (5,368) NOTES TO THE ACCOUNTS 1. The preliminary unaudited financial statements for the year ended 31 December 2004 were approved by the board of directors on 22 March 2005. 2. FUNDAMENTAL RESTRUCTURING 2004 2003 (unaudited) £ '000 £ '000 a. Impairment of tangible fixed assets - gas properties - (17,045) b. Deferred grant income written back - 278 c. Provision for the restoration of sites - (2,000) d. Impairment of tangible fixed assets - other - (159) e. Other head office reorganisation costs - (744) - (19,670) During the year ended 31 December 2003 a fundamental restructuring of thebusiness was implemented following the decision taken by the Group to suspendthe development of new coal mine methane projects in the UK and to pursue a newstrategy. The net costs incurred as a result of this fundamental reorganisationwere: a. UK development sites were written down to nil. Operating sites were written down to reflect their value in use. This was determined using a discounted cash flow model applying a discount rate of 10% which reflects the expected return on capital of such projects; b. Deferred grant income received in relation to a development site was released in line with the write off; c. Provision was made for the restoration of all sites as required under the terms of planning permissions or under lease conditions; d. Other tangible assets which were no longer used were written off; and e. Other head office costs including redundancy payments and professional fees relating to the restructuring were written off. 3. ACQUISITION OF ALKANE BIOGAS LIMITED On 8 April 2004 the Company acquired 83% of the issued share capital of Farmatic Biotech Energy UK Limited (FBE) for a consideration of £150,000 and professional fees incurred of £12,000. This amount was paid to FBE as consideration for the allocation of shares, and not to its shareholder. A loan of £100,000 was made to FBE on the same date. FBE had net liabilities of £56,000 at the date of acquisition. No fair value adjustments have been made to the net assets acquired therefore goodwill arising on the acquisition is £84,000, which after amortisation has a net book value of £78,000 at 31 December 2004. This figure has been included within the Balance Sheet within intangible fixed assets. FBE has been renamed Alkane Biogas Limited. 4. LOSS PER SHARE The basic and diluted loss per ordinary share is based on a loss of £714,000 (2003: loss of £21,027,000) on a weighted average of 89,732,717 ordinary shares (2003: 89,663,151). 5. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2004 2003 (unaudited) £ '000 £ '000 Decrease in cash (3,039) (5,368) Repayment of long term loans 48 18 Capital element of finance lease rental payments 573 137 CHANGE IN NET FUNDS ARISING FROM CASH FLOWS (2,418) (5,213) Acquisition of long term loan - (383) Acquisition of finance leases - (2,084) Finance leases entered into (1,046) (401) Exchange rate differences (7) 18 CHANGE IN NET FUNDS (3,471) (8,063) NET FUNDS AT START OF YEAR 6,062 14,125 NET FUNDS AT END OF YEAR 2,591 6,062 6. RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATING ACTIVITIES 2004 2003 (unaudited) £ '000 £ '000 Operating loss (752) (1,415) Depreciation 920 380 Amortisation 109 20 Decrease in stock 987 2,861 Increase in debtors (1,628) (2,850) Increase/(decrease) in creditors 105 (2,732) Decrease in provisions (2) - NET CASH OUTFLOW FROM OPERATING ACTIVITIES (261) (3,736) 7. ANALYSIS OF NET FUNDS As at Other non- Exchange As at 1st January Cash cash rate 31 December 2004 flow movements differences 2004 (unaudited) £ '000 £ '000 £ '000 £ '000 £ '000 Cash at bank and in hand 8,757 (3,039) - (2) 5,716 Long term loans (369) 48 - (1) (322) Finance leases (2,326) 573 (1,046) (4) (2,803) 6,062 (2,418) (1,046) (7) 2,591 8. GENERAL NOTE a. The preliminary unaudited financial information set out above does not constitute full accounts within the meaning of Section 254 of the Companies act 1985. b. Audited statutory accounts in respect of the year ended 31 December 2003 have been delivered to the Registrar of Companies and those accounts were subject to an unqualified report by the auditors. c. Copies of the audited annual report and accounts for the year ended 31 December 2004 will be sent to shareholders during April 2005 and will be available from the Company's registered office - Edwinstowe House, High Street, Edwinstowe, Nottinghamshire NG21 9PR. This information is provided by RNS The company news service from the London Stock Exchange

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