12th Mar 2009 07:00
Renewable Energy Generation Limited ("REG" or the "Company")
Trading Update - Forecast full year trading in line with expectations
12 March 2009
Renewable Energy Generation Limited, the international renewable energy group, today announces a trading update ahead of the publication of the Company's interim results.
The business has made good progress with almost nine months of the current financial year having passed. REG now has 11 operating wind farms totalling 61MW as well as a 6MW plant which runs on vegetable oil. In addition, it also has a further 50MW of wind projects that will move into construction later in 2009. Following agreement of the £20 million general revolving credit facility with HBOS, announced on 7 January 2009, the Company's UK and Canadian operations remain well funded while long-term project finance is being finalised.
The interim results show revenue slightly ahead of management expectations - despite experiencing slightly lower than expected wind levels in the UK.
The Board notes the announcements made by the Ontario Minister of Energy about a new Green Energy Act that will replace the existing RFP process and the Company believes that this should lead to higher tariffs for the Company's Canadian projects and accelerated implementation.
In light of the potential which this offers, to develop its larger projects at a faster rate than originally envisaged, the Company has brought forward development expenditure on them.
Consequently, the budgeted expenditure for the full year of £1 million on these projects has been incurred in the first half, which has impacted the operating results of the first half by approximately £1 million. These costs will not be repeated in the second half of the year and are within the Company's annual budget. Underlying trading remains in line with management's expectations for the year.
Underlying trading excludes the effect of exceptional items. The exceptional items include a gain of approximately £2.0 million from favourable currency movements between Pounds Sterling and the Canadian Dollar. Exceptional items also include a loss of approximately £2.9 million from turbine deposits where the Company prudently cancelled some orders as a result of the sudden and rapid deterioration in credit markets. These turbine orders will be replaced potentially at lower prices and better availability as a result of recent improvements in turbine market conditions.
The other exceptional item relates to the Company's interest rate swap in Canada. This fixes the interest rate on our 20 year loan. Accounting standards require the swap to be marked to market with the result that the Company shows an unrealised gain or loss depending on underlying Canadian base rates. The movements in interest rates over the period have resulted in a non-cash accounting charge of approximately £ 4.5 million. The value of this swap will move up and down with prevailing Canadian interest rates and has no economic impact on REG. Over the life of the loan the swap will amortise so that this accounting adjustment will unwind as the underlying loan is repaid.
The Company expects to report its interim results on 24 March 2009.
Commenting on developments, Andrew Whalley, Chief Executive Officer of REG, said:
"The environment for REG has improved markedly over the last three months. We have relatively little debt compared with other companies in the sector and this affords us the flexibility to selectively use long term project finance to fund the growth of our wind portfolio. Although the margins for project finance are higher than last year the underlying rates have fallen so that the overall cost of credit to us is not significantly worse than during 2008. The consenting process in the UK is progressing to plan whilst the Green Energy Act in Ontario is expected to improve tariffs for our smaller projects. Additionally, a new feed-in tariff which is expected to replace the bidding process in RFP projects should bring forward the build of our larger Canadian projects following our acceleration of development expenditure in the first half of the year."
"In addition to our wind projects, REG Bio-Power in the UK has gained significant momentum over recent months and is now well placed to exploit the significant opportunity to use vegetable oil in Combined Heat and Power plants. In this regard, the adoption of ROC banding in the UK next month will add significant revenues over the next twelve months."
"REG now has 61MW of wind plant in full production and is moving into a new power purchase agreement in the UK from April 1 which will increase power pricing by 37% for the next two years. Having been prudent with its Balance Sheet over the last two years, REG has no requirement to raise equity to fund future growth. Underlying trading for the full year remains in line with management's expectations and overall, and despite a recently very weak share price, the Board feels comfortable with current market expectations for performance and growth going forward."
Enquiries:
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Renewable Energy Generation Limited Andrew Whalley, Chief Executive Officer David Crockford, Finance Director |
+44 (0)14 8340 0444 |
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Numis Securities Limited Nominated Advisor: Simon Blank Corporate Broking: David Poutney / Charles Farquhar |
+44 (0)20 7260 1000 |
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Hogarth Partnership Julian Walker, Vicky Watkins |
+44 (0)20 7357 9477 |
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