22nd Mar 2007 09:13
Renewable Energy Generation Ltd22 March 2007 Renewable Energy Generation Ltd ("REG" or "the Group") Un-audited interim results for the six months ending 31 December 2006 Renewable Energy Generation (AIM: RWE), the developer of renewable energyproducts, announces interim results for the six months to 31 December 2006. Financial Highlights • Raised £46m in December 2006 • Balance sheet strong with £44m in cash • Sales and other operating income over period of £0.5m • Capital expenditure of £19.5m Operational Highlights • Construction started on first three UK wind projects • Land purchase for expansion at High Sharpley • Development of small scale biomass project • Turbines ordered for first four projects in Canada • Intention to expand Standard Offer Programme construction programme into 2008 • Changes to the Board Introduction Renewable Energy Generation has made significant progress in the six monthsended 31 December 2006. Wind turbines have been ordered for the company's firstfour projects in Ontario whilst in the UK, High Sharpley entered commercialoperation in January and construction is well underway on the next two projectsin our wind power development pipeline. The pipeline increased during the periodto 150MW. Financial results The Group's balance sheet remains strong with £44m in cash allowing the Group tofund its immediate growth plans and take advantage of emerging opportunities.The Group raised a further £46m from investors in December. Sales and otheroperating income for the 6 months totalled £0.5m and interest on cash balancesis £0.5m. Income from the Group's only operating wind farm in the UK atGoonhilly Downs is up 91% compared with the same period last year, at £0.5m, dueto better wind conditions, higher power prices and an increase in the valuationof Renewable Obligation Certificates (ROCs). Cost of sales increased by 61% over the comparable period last year, due to achange in the basis of calculation of the annual management charge ("AMC")payable to REG Power Management Ltd ("RPM"). In June 2006, under the terms ofthe management agreement between REG and RPM, REG became fully invested andtherefore the AMC of 1.25% became based on REG's net asset value. Prior to REGbecoming fully invested the annual management charge of 1.25% was chargeable onREG's invested cash only and the uninvested cash was subject to an annualmanagement charge of 0.5%. The additional capital raised in December has alsodriven up the AMC. "Other income" decreased by 109%, principally because whereas in the comparableperiod last year the fair value of the Tymien wind farm investment was writtenup by £0.5m, the Board considers that no adjustment is required in the sixmonths ending December 2006. Other income has also reduced due to therealisation of losses on the sale of short term investments in bonds which weredisposed of in August 2006. Administrative expenses increased by 168%, due mostly to professional servicescosts associated with REG's acquisition of the AIM PowerGen Corporation inAugust 2006. Capital expenditure during the period totalled £19.5m, compared with £4.2m inthe same period last year. Capital expenditure in the UK amounted to £5.4m, ofwhich £4.9m was spent on the three projects under construction and £0.5m onprojects in development. Capital expenditure in Canada amounted to £14.1m,almost entirely on part payment for turbines for its first four projects. Operational activities Cornwall Light and Power ("CLP") - Wholly-owned Subsidiary in the UK Our wholly-owned subsidiary CLP made good progress against its remit to developour pipeline of projects in the UK, whilst contributing to the development andexecution of our strategy in Canada. Electrical output from the Goonhilly Downs Wind Farm was 21% above budget due toexcellent wind conditions and the income - up 91% at £0.5m - comprised almostequally of electricity sales, under a two and a half year Power PurchaseAgreement (PPA) with Smartest Energy, and ROCs sold separately on the spotmarket. Construction at High Sharpley in County Durham was completed according toprogramme and the 2.6MW site entered commercial service in January 2007. Weinitiated the purchase of a tract of land adjacent to High Sharpley where webelieve a larger wind project may be approved. Roskrow Barton (1.7MW) in Cornwall recently discharged all of its planningconditions. Turbines are currently being procured for the project. We have redesigned several of the former Npower projects to enable highercapacity per site and our activities continue to attract development proposalsfrom within the sector. Among these is an approach from a biomass developmentcompany for REG to act as principal in a 1MWe biomass combined heat and powerproject in the UK. We have secured a Government grant to investigate thefeasibility of this project which, although small, is consistent with our beliefthat small-scale biomass represents a potentially rewarding opportunity forprofitable long-term growth. Exceptionally wet weather caused several weeks delay to progress at our othertwo construction sites but it is expected that High Pow (3.9MW) in Cumbria willenter service in late March followed by Braich Ddu (3.9MW) in Wales one monthlater. REG has entered into three separate, 18-month fixed price PPAs withSmartest Energy for exported power from these projects, including climate changelevy exemption certificates and peak period premiums. ROCs generated by theprojects will be sold on the spot market as REG believes that this is likely tomaximise value to shareholders. AIM PowerGen Corporation ("APG") - Wholly-owned Subsidiary in Canada Acquired in Summer 2006, APG's most immediate opportunity lies in the StandardOffer Programme ("SOP") introduced recently by the Ontario Provincial governmentas part of a policy to stimulate the construction of small embedded wind farmsof 10MW or less. APG owns one of Canada's largest portfolios of SOP projects,which are located at sites with generally good wind resource and ready access togrid interconnection. This makes the economics of the projects attractive. In December we announced agreements with Vestas Canadian Wind Technology Inc forthe supply, warranty and servicing of twenty four V82, 1.65MW turbines. Thesewill be deployed on the first four SOP projects totalling 39.6MW. Delivery ofthese turbines is expected to commence in Autumn 2007. The total cost of thefirst four projects is expected to be around £40m. We believe that the SOP enables REG to invest shareholders' capital and deliverpredictable equity returns at levels above our threshold return criteria. TheOntario Power Authority, which is backing the 20-year PPAs for the SOPs, is ahighly creditworthy counterparty. As a result it is our intention tosubstantially increase investment in the programme over the next eighteenmonths. In addition to the SOP programme, several provinces including Ontario andManitoba, are likely over the next two years to initiate Requests For Proposals("RFPs") for substantial amounts of wind power. We will be bidding our sitesinto these RFP programmes which, like the SOPs, offer long-term PPAs backed byhighly creditworthy counterparties. The highly supportive policy framework inCanada and the sympathetic approach to planning, has attracted significantinterests from wind developers, among whom REG has secured first mover advantagein its acquisition of APG and its 2,600MW of prospective projects. Whilstbidding our sites into the various programmes in Canada we will seek to exploitother opportunities which these market conditions may present. Tymien The 50MW Tymien project in Poland has been operating for almost a year and isperforming well. The first income from REG's investment in Tymien is expected inApril 2007. People The current organisational structure has served investors well in bringingtogether some of the renewables industry's most experienced professionals, tocreate a strategic framework and manage the early acquisition of projects andoperating companies in the UK, Poland and Canada. We are now in a position totransfer the responsibility for strategy, management and control to ouroperating companies, within a more conventional group structure, with anexecutive establishment through which accountability can be effected. The paceof this transaction will be influenced by our determination not to be distractedfrom the imperative to sustain, during the next 12 months, the early progress wehave made in developing and building our project pipeline. Late in 2006 we recruited Nigel McManus from Npower Renewables to join the teamat REG. As Chief Operating Officer Nigel is responsible for co-ordinating theexecution of Group strategy across both our APG and CLP subsidiaries and for theoperation of our projects to specified performance criteria. Subsequent to the year end, Neil Harris took up appointment early in 2007 asChief Executive Officer of CLP in the UK, together with Bruce Woodman as Projectand Strategy Director. Neil is responsible for the construction of our projectsto time and to budget. Furthermore the recruitment of additional UK projectdevelopers is underway. In Canada we have strengthened the finance function at APG with the recruitmentof a senior accountant. Recruitment to reinforce the construction team has alsobeen initiated. On 13 February 2007 non-executive director Tod Kersten resigned from the Boardof REG due to increasing work commitments. It is our intention to replace Todwith an experienced non-executive director from within the power industry. Dividend The Company is investing heavily in its businesses both in the UK and Canada.The first phase of its investment programme is likely to be completed by June2007 and is expected to produce consistent long-term cash flows forshareholders. The Board believes that it is prudent to wait until this capitalprogramme has been completed before considering any improvement in currentdividend arrangements. Accordingly, the Board will maintain its interim dividendat 1p per share and remains committed to paying a dividend of 4p per Ordinaryshare. Outlook It is widely expected that national policy support for renewable energy willcontinue to strengthen around the world, given the growing evidence of rapidacceleration of climate change. Located mainly in Canada and the UK, REG'sportfolio of projects lie in two of the world's most attractive renewablesjurisdictions. We are confident that our resources are sufficient to establishpositive cash flows from the development of the first phase of these projectsduring the next 12 months. We anticipate the need to leverage our solid equity base and we propose to raisedebt as necessary, both to expand our build programme and to lower our cost ofcapital, thus strengthening our competitive advantage. This is particularlyrelevant in Canada where long term, low cost debt is available and where REG hasunrivalled experience gained over many years in the market place. We are continuing to build a world-class renewable energy company and in thisregard we impose substantial burdens on our people. They have unstintinglysupported us in our endeavours and we remain grateful to them for theircommitment and professionalism. Mike Liston, OBE Chairman Un-audited interim consolidated income statement for the six months to 31 December 2006 Continuing Acquisitions Six months to 25 April 2005 25 April 2005 operations £ 31 December to 31 December to 30 June £ 2006 2005 2006 £ £ £ (un-audited) (un-audited) (audited)Sales and other 502,222 - 502,222 263,014 743,830operating incomeCost of sales (599,976) - (599,976) (400,125) (804,118)Gross loss (97,754) - (97,754) (137,111) (60,288)Other income (70,692) 23,207 (47,485) 511,259 390,626Administrative (718,377) (801,392) (1,519,769) (566,912) (1,118,568)expensesOther operating (4,820) - (4,820) (2,616) (5,183)expensesFinance income 488,854 3,164 492,018 661,278 1,377,405Profit / (loss) before (402,789) (775,021) (1,177,810) 465,898 583,992taxTax 45,439 - 45,439 30,379 (60,755)Profit / (loss) for (357,350) (775,021) (1,132,371) 496,277 523,237the period Attributable to:Equity holders of the (357,350) (775,021) (1,132,371) 496,277 523,237Company Earnings per share for profit attributable to the equityholders of the Company during the period- basic (1.79p) 1.55p 1.26p- diluted (1.78p) 1.54p 1.25p Un-audited interim consolidated balance sheetas at 31 December 2006 31 December 31 December 30 June 2006 2005 2006 £ £ £ (un-audited) (un-audited) (audited)ASSETSNon-current assetsProperty, plant and equipment 22,584,707 2,196,128 3,607,118Goodwill 16,796,815 2,807,888 3,009,914Development costs 4,697,414 4,156,424 4,156,424Investments at fair value through profit 8,358,253 6,389,079 8,358,253or loss 52,437,189 15,549,519 19,131,709Current assetsInventories 11,782 - 16,831Trade and other receivables 7,789,070 7,273,942 900,074Available-for-sale investments - 5,652,773 4,913,062Cash and cash equivalents 43,819,359 32,001,784 28,611,764 51,620,211 44,928,499 34,441,731Total assets 104,057,400 60,478,018 53,573,440EQUITYCapital and reserves attributable to the Company'sequity holdersShare capital 10,310,101 5,500,000 5,500,000Share premium 79,479,412 46,850,250 36,850,250Special reserve 10,000,000 - 10,000,000Fair value and other reserves (104,829) (63,234) (66,308)Share-based payment reserve 328,529 114,821 191,368Retained earnings (2,918,526) 496,277 (26,763)Total equity 97,094,687 52,898,114 52,448,547LIABILITIESNon-current liabilitiesDeferred tax liabilities 542,369 381,686 617,922 542,369 381,686 617,922Current liabilitiesTrade and other payables 6,293,371 7,089,243 409,812Tax payable 126,973 108,975 97,159 6,420,344 7,198,218 506,971Total liabilities 6,962,713 7,579,904 1,124,893Total equity and liabilities 104,057,400 60,478,018 53,573,440 Net asset value (NAV) per share- basic 94.17p 96.18p 95.36p- diluted 92.23p 96.36p 95.58p The financial statements were approved on behalf of the Board of Directors on 20March 2007 and signed on it's behalf by Mike Liston, OBE Andrew WhalleyChairman Director Un-audited interim consolidated cash flow statementfor the six months ended 31 December 2006 Six months to 25 April 2005 25 April 2005 31 December to 31 December to 30 June 2006 2005 2006 £ £ £ (un-audited) (un-audited) (audited)Cash flows from operating activitiesCash used in operations (2,295,112) (141,117) (794,458)Net cash used in operating activities (2,295,112) (141,117) (794,458) Cash flows from investing activitiesAcquisitions of subsidiaries, net of cash acquired (9,545,790) (5,155,221) (5,155,221)Purchases of property, plant and (18,989,196) - (1,562,583)equipmentDevelopment costs (540,990) (4,156,424) (4,156,424)Purchases of investments at fair value through profit or - (5,905,981) (8,060,492)lossPurchases of available-for-sale - (16,830,767) (16,830,767)investmentsProceeds from sale of available-for-sale investments 4,858,886 11,534,330 11,994,054Interest received 492,018 306,714 1,377,405Net cash used in investing activities (23,725,072) (20,207,349) (22,394,028) Cash flows from financing activitiesProceeds from issue of shares 45,788,952 55,000,000 55,000,000Transaction costs from issue of shares (2,705,596) (2,649,750) (2,649,750)Dividends paid to Company's shareholders (1,759,392) - (550,000)Net cash generated from financing 41,323,964 52,350,250 51,800,250activities Net increase in cash and cash equivalents 15,303,780 32,001,784 28,611,764Cash at beginning of period 28,611,764 - -Exchange gains/(losses) (96,185) - -Cash at end of period 43,819,359 32,001,784 28,611,764 Un-audited interim consolidated statement of changes in equity for the six months ended 31 December 2006 Attributable to equity holders of the Company Share Share Fair value and Special Retained Total equity capital premium other reserves reserve earnings £ account £ £ £ £ £ Balance at 30 June 2006 5,500,000 36,850,250 125,060 10,000,000 (26,763) 52,448,547Issue of share capital 4,810,101 45,334,758 - - - 50,144,859Transaction costs from issue - (2,705,596) - - - (2,705,596)of share capitalFair value losses, net of - - 66,308 - - 66,308tax: - available-for-saleinvestmentsWarrants: - - 137,161 - - 137,161 - fair value of warrantsForeign currency translation - - (104,829) - - (104,829)Net income/(expenses) 10,310,101 79,479,412 223,700 10,000,000 (26,763) 99,986,450recognised directly in equityLoss for the period - - - - (1,132,371) (1,132,371)Dividend - - - - (1,759,392) (1,759,392)Balance at 31 December 2006 10,310,101 79,479,412 223,700 10,000,000 (2,918,526) 97,094,687 Notes to the un-audited interim consolidated financial statements 1. Statement of compliance These un-audited interim consolidated financial statements of the Group are forthe six months ended 31 December 2006. They are prepared in accordance withInternational Accounting Standard 34, Interim Financial Reporting and applicableGuernsey law. These un-audited interim consolidated financial statements should be read inconjunction with the Annual Report and Accounts for the period ended 30 June2006 which contain an unqualified audit report. The accounting policies havebeen applied on a consistent basis with those applied in 2006. 2. Segment information a) Primary reporting format - business segments At 31 December 2006, the Group is organised on a worldwide basis into two mainbusiness segments: energy generation and financial investment management. The segment results for the period ended 31 December 2006 are as follows: inancial Energy Investment Generation Management Group £ £ £ Total gross segment and other Operating income 502,222 - 502,222 Sales and operating income 502,222 - 502,222 Operating loss (801,362) (820,981) (1,622,343) Other income 23,207 (535,692) (512,485) Finance income 13,400 478,618 492,018 (Loss) / profit before income tax (764,755) (878,055) (1,642,810) Income tax expense (6,885) (300) (7,185) (Loss) / profit for the period (771,640) (878,355) (1,649,995) Energy generation income is broken down as follows: Electricity sales 408,186ROC sales 286,519LEC sales 33,737TRIAD sales 15,388 743,830 Other segment items included in the income statement are as follows: Energy Investment Generation Management Group £ £ £ Depreciation 170,891 - 170,891 The segment assets and liabilities at 30th June 2006 and capital expenditure forthe period then ended as follows: Financial Energy Investment Generation Management Group £ £ £ Assets 50,997,962 51,947,241 102,945,203 Liabilities (9,020,815) 884,322 (8,136,493) Capital expenditure 29,075,976 - 29,075,976 Segment assets consist primarily of property, plant and equipment, intangibleassets, receivables and operating cash. Segment liabilities comprise operating liabilities. Capital expenditure comprises additions to property, plant and equipment andintangible assets, including additions resulting from acquisitions throughbusiness combinations. b) Secondary reporting format - geographical segments The company is domiciled in Guernsey. Period ended 31 December 2006 £ Sales UK 502,222 Sales are allocated based on the country in which the customer is located. At 31 December 2006Total Assets £ UK 95,699,148Poland 8,358,253 104,057,401 Total assets are allocated based on where the assets are located. Period ended 31 December 2006Capital expenditure £ UK 29,075,976Poland - 29,075,976 Capital expenditure is allocated based on where the assets are located. Period ended 31 December 2006Analysis of sales by category £ Sales of energy 502,222Investment income -Dividend income - 502,222 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
WIND.L