TIDMALK
RNS Number : 0965H
Alkane Energy PLC
11 March 2015
11 March 2015
Alkane Energy plc
("Alkane", "the Company" or "the Group")
Unaudited preliminary results for the year ended 31 December
2014
Alkane Energy plc (AIM: ALK), the independent gas to power
producer, today announces its unaudited preliminary results for the
year ended 31 December 2014.
Operational Highlights
-- The UK's market leader in cash generative base load coal mine methane
-- Significant increase in output from 95GWh to 195GWh since 2009
-- Power response capacity increased to 98MW (2013: 36MW)
-- Acquired sites now in full operation
-- Secured 82% of expected 2015 base load output at an average price of GBP52/MWh
-- Awarded Capacity Mechanisms Agreements providing over GBP14m revenue from 2018 to 2033
Financial Highlights
-- Revenue fell 22% to GBP16.0m (2013: GBP20.6) due to lower
design build and operate ("DBO") business as anticipated
-- Core generation revenue has grown 10% to GBP14.8m (2013: GBP13.4m)
-- Group PBT of GBP3.2m (2013: GBP2.7m)
-- Adjusted EBITDA was in line with last year at GBP7.6m (2013: GBP7.5m)
-- Adjusted EPS of 2.61p per share (2013: 3.01p per share)
-- Proposed dividend increase to 0.3p per share (2013: 0.2p per share)
2015 Outlook
-- Strong start to 2015 - step change in performance from H1 to
H2 continuing into current year
-- 82% of output already contracted at prices in line with 2014
-- Business benefitting from full impact of prior year acquisitions
Commenting on the preliminary results, Chief Executive Officer,
Neil O'Brien, said:
"2014 saw a major advance in Alkane's development. We
successfully transferred our shale assets to Egdon, made two
acquisitions and secured pricing for 82% of 2015 output, as well as
winning contracts in the initial Capacity Market auction. These
events, combined with record output within the existing business,
leave us well placed to grow further in 2015."
For more information please contact:
Alkane Energy plc
Neil O'Brien, Chief Executive
Officer
Steve Goalby, Finance Director 01623 827 927
Liberum Capital Limited
Clayton Bush
Joshua Hughes 020 3100 2000
VSA Capital Limited
Andrew Raca 020 3005 5000
Hudson Sandler
Nick Lyon
Alex Brennan 020 7796 4133
Background information
Alkane is one of the UK's fastest growing independent power
generators. The Company operates mid-sized "gas to power"
electricity plants providing both base load and fast response
capacity to the grid. Alkane has a total installed generating
capacity of 145MW and an electricity grid capacity of 160MW.
Alkane's base load operations, where power is generated 24/7,
are centred on a portfolio of coal mine methane ("CMM") sites.
Alkane has the UK's leading portfolio of CMM licences, enabling the
Company to extract gas from abandoned coal mines.
Power response sites are connected to mains gas and produce
electricity at times of high electrical demand through peak
running, or in order to balance the electricity grid through
participation in the National Grid's short term operating reserve
programme ("STOR"). Participants in STOR are paid premium rates
when called upon by the Grid to meet temporary supply shortages.
Alkane now operates 98MW of power response, one of the UK's largest
power response businesses, with contracted STOR revenues extending
out to 2025.
The Group operates from 27 mid-size (up to 25MW) power plants
across the UK, 13 CMM only, seven mains gas only, six using both
fuel sources and one using kerosene only. Alkane uses a combination
of standard modular reciprocating engines and gas turbines to
generate the electricity and sells this power through the
electricity network. The engine units and other plant are designed
to be flexible and transportable allowing additional capacity to be
brought onto growing sites and underutilised plant to be moved to
new sites to maximise efficiency.
In June 2014 Alkane transferred its shale gas interests to Egdon
Resources plc. It received 40 million Egdon shares making it the
largest shareholder in Egdon, the UK's third largest shale
operator.
More information is available on our website
www.alkane.co.uk
Overview
Alkane Energy is one of the UK's largest independent power
producers providing both base load generation from coal mine
methane ("CMM") and a network of peak pricing power response assets
using bought in natural gas. Output has increased to 195GWh in 2014
which is enough to supply circa 75,000 homes.
2014 was a year of continuing growth and development for Alkane
which has left the business well positioned for the future. We
transferred our shale gas rights in exchange for an 18% share in
Egdon Resources plc, the well funded UK onshore operator. This has
freed us to focus our cash resources and management time on
developing the core power generation business.
Within the generation business we made two acquisitions during
the year. In total we acquired 56MW of new power response assets
across four sites. This has more than doubled our power response
capacity to 98MW by the end of the year (2013: 36MW). All of this
additional capacity was fully commissioned by Christmas.
Output for the year was 195GWh (2013: 192GWh) which represents
over a decade of consistent growth in generation for the Group.
Revenue was GBP16.0m (2013: GBP20.6m) reflecting a record
performance in generation but as anticipated, lower design, build
and operate ("DBO") revenue. As previously reported there were a
number of operational issues in the last few months of the year
which have impacted on profit before tax. The upgraded capacity at
Wheldale and Shirebrook were commissioned two months later than
expected, and there were fewer than anticipated calls from National
Grid under the STOR programme. As a result, adjusted profit before
tax was GBP3.3m (2013: GBP3.4m) and adjusted earnings per share was
2.61 pence per share (2013: 3.01 pence per share). We are now
seeing the benefit of increased production in the current year.
The Group saw a significant improvement in performance from H1
to H2 with output, generation revenue and adjusted EBITDA all
increasing strongly in the second half.
HI 2014 H2 2014 Increase
Output 85GWh 110 GWh 29%
Generation revenue GBP5.9m 8.8m 51%
Group adjusted EBITDA GBP2.5m GBP5.1m 104%
In addition to this step change in performance we have delivered
on our strategic aim of gaining greater visibility on long term
earnings and cash flow. Our largest individual site, the 25MW
facility at Redditch, is contracted into STOR until 2025, our power
response peak running is already contracted for the 2015/2016
winter, and we have drilled and tested the new CMM base load site
at Markham Main, which is expected to be on stream during H2
2015.
Our Strategy
Alkane is focused on gas to power generation from a portfolio of
27 sites using standardised, modular generators. These assets are
able to provide cost effective base load generation from our CMM
resources; Alkane is the UK's leading CMM operator. In addition,
our power response business, which has grown from 36MW to 98MW over
the last year, uses bought-in gas to provide fast-response capacity
generation during winter evening peak periods and in response to
National Grid STOR calls. Our 27 sites are unmanned - we have a
single control centre monitoring and running the Alkane portfolio
and we use a mobile work force of field technicians to provide
routine and reactive maintenance.
Our mid-sized power plants are ideally suited to the UK energy
mix with the shift away from carbon intensive plant towards more
intermittent sources such as wind and solar. Our plants are located
close to towns and cities which reduces the strain and costs placed
on the nationwide grid network.
Our consistent growth means we are now creating a utility scale
portfolio of embedded generation assets, having increased our
installed capacity by more than 380% from 30MW to 145MW over the
last five years.
Acquisitions
In February 2014 we acquired a 7.5MW embedded gas powered
facility from SSE plc at Wheldale in Yorkshire. This site has
received further investment to an increased installed capacity of
9MW. The site is now integrated into our power response
operation.
In July 2014, we completed the purchase of 49MW of power
response assets across three sites from Carron Energy. This
acquisition gave us our first 25MW long term STOR site which has
committed revenues from National Grid until 2025 and a further 24MW
of gas powered fast response engines which are now integrated into
our operations after final commissioning was completed pre
Christmas 2014.
Capacity Mechanism
The UK Government has launched a number of initiatives to
address the growing structural challenges of the energy market.
With older capacity being removed from the market and margins
tightening for many power producers, the UK power market is
experiencing a far tighter supply position than recent years and
Ofgem forecast that the UK will only have around 5% capacity margin
over the next four winters compared to in excess of 10% in previous
years.
As previously announced, on 5 January 2015, Alkane was awarded
101MW of Capacity Mechanism Agreements in the Capacity Market
auction held in December 2014. Alkane will receive GBP19,400/MW per
annum for making capacity available, with 46MW being secured on new
plant with 15 year agreements and 55MW on existing plant with one
year agreements. Alkane will earn combined additional revenue of
GBP14.4m under the agreements over the period to September
2033.
Shale
Having evaluated Alkane's options and received a number of
proposals in May 2014, the board took the strategic decision to
transfer its shale rights in ten licence areas to Egdon Resources
plc ("Egdon") in return for 40 million shares. Alkane is now
Egdon's largest shareholder. Alkane's view on shale is that it
remains a potentially large and commercial gas resource. To
maximise the prospects of generating value from shale gas there is
the need for well resourced, long term and funded players in the
market with a sufficiently large scale of operation to progress
through the permitting and exploration phase. Egdon is a proven UK
onshore operator and has a well respected exploration team. A GBP7m
fund raising was completed as part of the transaction and as a
consequence Egdon has positive net cash and is funded to see itself
through the permitting phase over the next couple of years. Egdon
is the third largest shale operator in the UK which gives Alkane
shareholders exposure to any potential upside whilst conserving our
own management and cash resources for the expansion of our core
business.
Our Operations
Alkane has grown strongly since 2009, with the number of sites
increasing from 9 to 27; installed capacity from 30MW to 145MW and
output from 95GWh to 195GWh. Our largest site is 25MW and the
smallest is 0.8MW of installed capacity.
In addition to this headline growth, the structure of the
business has evolved considerably. Whilst we remain the UK's market
leader in profitable and cash generative base load CMM, our power
response business has grown from 36MW to 98MW over the last year,
generating during winter evening peak periods and providing an
important resource for the National Grid with fast response
capacity generation during the rest of the year.
Number of operational 2009 2010 2011 2012 2013 2014
sites
-------------------------- ------ ----- ----- ----- ----- -----
Base load 8 10 11 16 18 18
Power response 1 2 2 7 7 11
Gas supply 2 2 2 1 1 1
-------------------------- ------ ----- ----- ----- ----- -----
Total 9 12 13 20 23 27
-------------------------- ------ ----- ----- ----- ----- -----
(note - total does not sum as some sites
operate in more than one category)
------------------------------------------------ ----- ----- -----
Installed capacity 2009 2010 2011 2012 2013 2014
(MW)
-------------------------- ------ ----- ----- ----- ----- -----
Base load 17 23 27 37 45 45
Power response 7 8 8 31 36 98
Gas supply (equivalent
MW) 6 6 6 2 2 2
-------------------------- ------ ----- ----- ----- ----- -----
Total 30 37 41 70 83 145
-------------------------- ------ ----- ----- ----- ----- -----
Output (GWh) 2009 2010 2011 2012 2013 2014
-------------------------- ------ ----- ----- ----- ----- -----
Base load 95 117 135 159 173 174
-------------------------- ------ ----- ----- ----- ----- -----
Power response - 3 5 8 19 21
-------------------------- ------ ----- ----- ----- ----- -----
Total 95 120 140 167 192 195
-------------------------- ------ ----- ----- ----- ----- -----
Financial
Results
Revenue fell by 22% in 2014, to GBP16.0m (2013: GBP20.6m). This
reduction is due to lower revenue from our DBO business, as
anticipated. After an exceptionally busy 2013 for DBO, with six
projects being commissioned including a one-off oil & gas
remedial contract which alone added GBP4.5m to 2013 revenue, we
have seen a return to more normal levels of operation in 2014. More
importantly, our core generation business has seen a growth of 10%
in revenue to GBP14.8m (2013: GBP13.4m). This growth has reflected
an increase in output in the year to 195GWh, a new record for the
Group (2013: 192GWh).
Average base load power prices achieved in the year were
GBP53/MWh (2013: GBP53/MWh). We continue to forward contract on a
rolling basis, selling our base load and peak power output into the
UK wholesale electricity market. We have 82% of expected base load
output in 2015 contracted at an average price of GBP52/MWh and 36%
of 2016 contracted at an average price of GBP51/MWh. Power prices
in the market have been on a downward trend over the last few
months after a period of stability during 2014. The fall in prices
has flattened the forward curve, and as at the end of February
prices for 2015 and 2016 were circa GBP46/MWh and GBP47/MWh
respectively.
Power response prices for peak running average circa GBP220/MWh
including all of the benefits we receive for running during winter
peak periods. STOR includes an availability payment for providing
the capacity and a utilisation payment when we are called to
generate. Average prices in the market are in the ranges nil to
GBP3/MW for availability and GBP70/MWh to GBP150/MWh for
utilisation. We also receive the spot price for the power generated
under a call.
Gross profit was GBP6.5m in the year, slightly down from the
2013 figure of GBP6.9m due to the lower DBO revenue. Gross margin
was 41% (2013: 34%) as there was a smaller contribution from the
lower margin DBO business. In our generation business we earn
higher margins from base load, reflecting the development risk,
than we do in the more predictable power response business. The
gross margin on the generation business was 43% (2013: 39%). The
DBO business gross margin was 15% (2013: 22%).
Adjusted EBITDA was in line with last year at GBP7.6m (2013:
GBP7.5m), giving strong support to our investment programme. The
EBITDA margin was 48% (2013: 37%) as a result of growth in the
generation business and a return to more normal levels of activity
in the DBO business.
The exceptional items comprise the net profit of GBP10.0m on the
transfer of our shale gas interests to Egdon, with our shareholding
being valued at GBP10.5m, against which we have charged associated
costs of GBP0.5m. We have carried out a mark to market calculation
in respect of our investment in Egdon. Egdon's share price fell in
the period between our acquisition of the shares and the year end,
and this has resulted in an impairment charge of GBP5.0m being
charged to the income statement. Secondly we have reviewed the
carrying values of the assets we hold on all of our licences and
concluded that it is appropriate to make an impairment charge of
GBP4.1m. Thirdly we have written off the outstanding debt of
GBP0.3m due from TEG Environmental Limited following their entry
into administration. A further GBP0.6m of exceptional
administrative expenses relates to the costs of corporate
transactions, mainly the acquisition of the three power responses
companies from Carron Energy. The increase in other operating
income represents a reassessment of restoration provisions in
respect of those sites where the provisions have been reduced.
After adjustment for exceptional items, profit before tax was
GBP3.3m (2013: GBP3.4m), principally reflecting the lower level of
gross profit arising from the reduced contribution from the DBO
business. The published profit before tax increased by 21% to
GBP3.2m (2013: GBP2.7m). After an increase in the recognised
deferred tax asset of GBP0.2m in the year (2013: GBP0.1m) the
adjusted profit for the year after tax was GBP3.5m (2013:
GBP3.5m).
The adjusted earnings per share (excluding exceptional items)
for continuing operations is 2.61p per share (2013: 3.01p per
share), with published earnings per share for continuing operations
being 2.56p per share (2013: 2.40p per share).
As a sign of the Board's confidence in the Company's prospects
it is recommending an increased dividend of 0.3 pence per share
(2013: 0.2 pence per share). Subject to shareholder approval, which
will be sought at the Annual General Meeting to be held on 30 April
2015, payment of this dividend will be made on 30 June 2015 to all
shareholders on the register at the close of business on 29 May
2015.
Balance Sheet and Cash Flow
Net assets at 31 December 2014 increased to GBP44.1m (2013:
GBP33.0m) with strong asset backing as Alkane at the year-end had
145MW of generating capacity and the infrastructure for the 27
operating sites. Working capital requirements remain tightly
controlled with the majority of income received within four weeks
of month end and we have a policy to pay creditors on fair terms.
Our capital expenditure programme amounted to GBP18.1m (2013:
GBP12.8m) which incorporates the acquisition of the Wheldale and
Carron Energy power response operations, expenditure on pipeline
CMM projects including Markham Main, which was successfully drilled
in the year and is anticipated to be opened in 2015, and the
continuing investment in engine overhauls.
A deferred tax asset of GBP1.1m (2013: GBP0.9m) has been
recognised in accordance with a prudent estimate of the extent to
which future taxable profits will be available to be utilised
against unused tax losses and other temporary differences. A
deferred tax liability of GBP1.2m has been recognised in the year
as an element of the fair value adjustment applied on the Carron
Energy acquisition. As a result a net deferred tax liability of
GBP0.1m is shown in the statement of financial position.
Operating cash generated by the Group in the year was GBP4.6m
(2013: GBP5.6m), the reduction being due to the additional peak
seasonal working capital requirements of the acquired companies.
Net debt (excluding convertible loan stock) at the year-end was
GBP18.1m (2013: GBP10.2m) as we continued to invest in new sites
and in the acquisitions of power response assets. During the year
the Group raised new asset finance of GBP7.5m, GBP2m for the
acquisition of the Wheldale power response site and GBP5.5m for the
acquisition of the Carron Energy power response companies. We also
took over responsibility for a GBP1.2m term loan facility as part
of the Carron Energy acquisition. The balance of the consideration
for the Carron Energy acquisition was financed by a proportion of
the funds raised in a share placing. A total of GBP8m gross was
raised by the issue of 22 million new ordinary shares at a placing
price of 36 pence per share. The balance of the funds raised in the
placing provided additional working capital to support the
continued investment by the Group in its core gas to power
activities. Gearing has increased to 41% (2013: 31%)and the Group
remains within all of its bank covenants.
Our bank facilities comprise a GBP10.0m revolving credit
facility (of which GBP9.1m was drawn down at the year-end) and term
loans and asset finance totalling GBP10.1m at the year end. We are
repaying GBP3.3m per year on these term loans. We also have GBP2.3m
outstanding in respect of convertible loan stock, which was put in
place as part of the funding package for the acquisition of
Greenpark Energy Limited in 2012. The final date for conversion of
the loan note occurs in April 2015.
Outlook
2015 has started well as we are deriving the benefit from the
sites acquired during 2014 and have been experiencing record levels
of production on both base load and winter peak running. We have
already secured attractive pricing for 2015 and our power response
portfolio is fully contracted until April 2016. We will continue to
open new CMM sites with Markham Main moving into the site build
phase. In summary, we are pleased to report that the momentum of
the second half of 2014 has continued into the start of 2015.
Roger McDowell
Chairman
Neil O'Brien
Chief Executive Officer
Steve Goalby
Finance Director
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)
for the year ended 31 December 2014
2014 2013
Notes GBP'000 GBP'000
Revenue 15,961 20,571
Cost of sales (9,445) (13,664)
-------- ---------
Gross profit 6,516 6,907
Impairment of assets (4,069) -
Administrative expenses (2,873) (3,342)
Exceptional administrative expenses 3 (922) (703)
-------- ---------
Return on Group operations (1,348) 2,862
Profit on transfer of licences 9,953 -
Impairment of available for sale financial
asset (5,036)
Other operating income 663 471
-------- ---------
Profit on activities before net finance
costs 4,232 3,333
Finance income 7 18
Finance costs (1,029) (696)
-------- ---------
Net finance costs (1,022) (678)
Profit before tax 3,210 2,655
Taxation 5 228 100
Profit for the year attributable to
equity holders of the parent 3,438 2,755
-------- ---------
Other comprehensive income - -
Total comprehensive income for the
year attributable to
-------- ---------
equity holders of the parent 3,438 2,755
-------- ---------
Earnings per ordinary share
Basic, for profit for the year attributable
to equity holders of the parent 11 2.56p 2.40p
Diluted, for profit for the year attributable
to equity holders of the parent 11 2.39p 2.25p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (unaudited)
at 31 December 2014
2014 2013
Notes GBP'000 GBP'000
NON-CURRENT ASSETS
Property, plant and equipment 12 33,833 23,316
Gas assets 13 26,054 23,335
Intangible assets 1,446 1,633
Derivative financial instrument - 22
Deferred tax asset 5 - 900
Available for sale financial asset 5,464 -
66,797 49,206
CURRENT ASSETS
Inventories 872 464
Trade and other receivables 6,310 4,156
Cash and cash equivalents 1,084 838
8,266 5,458
--------- ---------
TOTAL ASSETS 75,063 54,664
--------- ---------
CURRENT LIABILITIES
Trade and other payables (7,192) (4,616)
Finance lease obligations (446) (343)
Long-term borrowing due within one
year (2,815) (1,500)
7.5% Convertible loan stock 15 (2,337) -
Provisions (81) (146)
(12,871) (6,605)
--------- ---------
NON-CURRENT LIABILITIES
Finance lease obligations (1,377) (69)
Long-term borrowings (14,497) (9,161)
7.5% Convertible loan stock 15 - (2,199)
Deferred payments 9 (480) (900)
Derivative financial instrument (10) -
Deferred tax liability (91) -
Provisions (1,666) (2,737)
(18,121) (15,066)
--------- ---------
TOTAL LIABILITIES (30,992) (21,671)
--------- ---------
NET ASSETS 44,071 32,993
--------- ---------
EQUITY
Share capital 739 618
Share premium 14,557 6,906
Hedging reserve (10) 22
Other reserves 9,198 9,230
Retained earnings 19,587 16,217
TOTAL EQUITY 44,071 32,993
--------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)
for the year ended 31 December 2014
Attributable to the equity holders of
the parent
------------------------------------------------------------------
Issued Share Hedging Other Retained Total
capital premium(1) reserve reserves(2) earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2014 618 6,906 22 9,230 16,217 32,993
Profit for the year - - - - 3,438 3,438
Dividend - - - - (249) (249)
Fair value of derivative
instrument - - (32) - - (32)
Share based payment - - - 160 - 160
Share options lapsed and
exercised during the year - - - (181) 181 -
Equity component of convertible
loan notes - 11 - (11) - -
Issue of share capital 121 7,640 - - - 7,761
At 31 December 2014 739 14,557 (10) 9,198 19,587 44,071
-------- ----------- -------- ------------ --------- --------
At 1 January 2013 507 1,248 - 9,196 13,451 24,402
Profit and total comprehensive
income for the year - - - - 2,755 2,755
Dividend - - - - (101) (101)
Fair value of derivative
instrument - - 22 - - 22
Share based payment - - - 146 - 146
Share options lapsed and
exercised during the year - - - (112) 112 -
Issue of share capital 111 5,658 - - - 5,769
At 31 December 2013 618 6,906 22 9,230 16,217 32,993
-------- ----------- -------- ------------ --------- --------
(1) During the year GBP364,000 (2013: GBP274,000) was written
off against the share premium account in respect of costs relating
to the issue of shares.
(2) Other reserves comprise the equity component of convertible
loan notes of GBP220,000 (2013: 232,000), a share-based payments
reserve of GBP315,000 (2013: GBP335,000), a merger relief reserve
of GBP244,000 (2013: GBP244,000), and a distributable reserve of
GBP8,419,000 (2013: GBP8,419,000) that was created following a
capital reduction.
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
for the year ended 31 December 2014
2014 2013
Notes GBP'000 GBP'000
Operating activities
Profit before tax from continuing operations 3,210 2,655
Adjustments to reconcile operating profit
to net cash flows:
Transfer of licences (9,953) -
Impairment of available for sale financial 5,036 -
asset
Depreciation of property, plant and equipment 2,462 2,797
Gas asset depletion 756 670
Gas asset impairment 3,832 -
Property, plant and equipment impairment 237 -
Intangible asset amortisation 65 15
Intangible asset impairment - 233
Share-based payments expense 160 146
Finance income (7) (18)
Finance expense 1,029 696
Movements in provisions (615) (463)
(Increase)/decrease in trade and other
receivables (1,666) 573
(Increase)/decrease in inventories (15) 8
Increase/(decrease) in trade and other
payables 112 (1,754)
--------- ---------
Net cash flows from operating activities 4,643 5,558
Cash flows from investing activities
Interest received 7 18
Purchase of property, plant and equipment (5,358) (6,180)
Purchase of gas assets (2,036) (6,193)
Purchase of subsidiaries 8/9 (10,991) -
Purchase of intangible assets - (439)
Cash acquired on acquisition of subsidiaries 323 -
--------- ---------
Net cash flows used in investing activities (18,055) (12,794)
Cash flows from financing activities
Issue of share capital 7,659 5,769
Proceeds from finance leaseback 1,995 -
Sale and finance leaseback rentals (584) (710)
Proceeds from long-term borrowings 9,170 3,516
Repayment of long-term borrowings (3,657) (1,500)
Dividend paid to the equity holders of
the parent (249) (101)
Interest paid (676) (469)
--------- ---------
Net cash flows from financing activities 13,658 6,505
Net increase/(decrease) in cash and cash
equivalents 246 (731)
Cash and cash equivalents at 1 January 838 1,569
--------- ---------
Cash and cash equivalents at 31 December 16 1,084 838
--------- ---------
NOTES TO THE ACCOUNTS
1. CORPORATE INFORMATION
The condensed consolidated financial statements of the Group for
the year ended 31 December 2014 were authorised for issue in
accordance with a resolution of the Directors on 10 March 2015.
Alkane Energy plc is a public limited company incorporated and
domiciled in England whose shares are publicly traded. The
Company's registered number is 2966946.
The principal activities of the Group are described in Note
4.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The condensed consolidated financial statements for the year
ended 31 December 2014 included in this report do not constitute
the Group's statutory accounts for the year ended 31 December 2014,
but are derived from those accounts.
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRSs), this announcement does not itself contain
sufficient information to comply with IFRSs.
The condensed consolidated financial statements have been
prepared on a basis consistent with that adopted in the previous
year's published statutory accounts.
The Group expects to publish full financial statements that
comply both with IFRSs as adopted for use in the European Union and
with the Companies Act 2006.
3. EXCEPTIONAL EXPENSES
2014 2013
unaudited
GBP'000 GBP'000
Bad debt written off (310) -
Costs related to the acquisition of Greenpark
Energy Limited - (31)
Non-capital costs relating to the acquisition
of Maltby CMM assets (note 10) (7) (251)
Non-capital costs relating to the acquisition
of Wheldale power response assets (note 6) - (7)
Non-capital costs relating to the acquisition (600) -
of Welsh Power power response assets (note 8)
Costs relating to the acquisition of a licence - (25)
Costs relating to other corporate transactions - (108)
Costs of aborted corporate transactions (5) (48)
Impairment of biogas development costs - (233)
----------- --------
(922) (703)
Impairment of assets (4,069) -
----------- --------
(4,991) (703)
----------- --------
4. SEGMENT INFORMATION
Operating segments
The directors consider that there are two operating
segments:
-- The extraction and utilisation of gas for power generation
and for direct sale;
-- The design, build and operation of projects for external
customers.
The operating segment reporting format reflects the Group's
management and reporting structure.
Seasonality of operations
There is no significant seasonal nature to either of the Group's
business segments.
The following table sets out total revenue, depreciation,
interest expense and profit before tax for each segment.
2014 2013
unaudited
GBP'000 GBP'000
Extraction and utilisation of gas
Total segment revenue 14,811 13,439
Depreciation and impairment (7,340) (3,469)
Interest expense (793) (492)
----------- --------
Segment profit before tax 287 3,526
Design, build and operate projects for
external customers
Total segment revenue 1,158 7,142
Impairment - (233)
----------- --------
Segment profit before tax (516) 599
Total
Total revenue 15,969 20,581
Total depreciation and impairment (7,340) (3,702)
Total interest expense (793) (492)
----------- --------
Profit before tax from operating segments (229) 4,125
Corporate centre (1,499) (1,491)
Profit on sale of licences 9,953 -
Impairment of available for sale financial (5,036) -
asset
Consolidation adjustment 21 21
Profit before tax 3,210 2,655
----------- --------
The following table reconciles total segment assets, total
segment liabilities and segment additions to non-current
assets.
2014 unaudited 2013
GBP'000 GBP'000
Extraction and utilisation of gas 68,060 52,611
Design, build and operate projects for
external customers 1,616 1,296
--------------- ---------
Total segment assets 69,676 53,907
Corporate centre 5,695 404
Intangible asset arising on consolidation 789 1,209
Consolidation adjustments (1,097) (856)
--------------- ---------
Total consolidated assets 75,063 54,664
--------------- ---------
Extraction and utilisation of gas (31,918) (26,507)
Design, build and operate projects for
external customers (2,063) (917)
--------------- ---------
Total segment liabilities (33,981) (27,424)
Corporate centre (5,362) (7,291)
Consolidation adjustments 8,351 13,044
--------------- ---------
Total consolidated liabilities (30,992) (21,671)
--------------- ---------
Extraction and utilisation of gas 21,629 13,174
Design, build and operate projects for - -
external customers
--------------- ---------
Total segment additions to non-current
assets 21,629 13,174
Available for sale financial asset 5,464 -
Deferred tax asset 228 100
Corporate centre - 22
Total consolidated additions to non-current
assets 27,321 13,296
--------------- ---------
Major customers
In the periods set out below, certain customers accounted for
greater than 10% of the Group's total revenues:
2014 2014 2013 2013
unaudited unaudited
GBP'000 % of revenue GBP'000 % of revenue
Customer A 11,525 72% 10,665 52%
Customer B 1,715 11% 905 4%
Customer C - - 4,461 22%
Customer A and Customer B are from the extraction and
utilisation of gas segment, and Customer C is from the design,
build and operation of projects for external customers segment.
Revenue and non-current assets analysed by geographical
information
All revenue generated and net assets are within the UK.
5. TAXATION
There is no current tax charge in 2014 (2013: nil) as brought
forward tax losses have been utilised to offset the taxable
profits.
A deferred tax asset of GBP1,100,000 (2013: GBP900,000) has been
recognised in accordance with a prudent estimate of the extent to
which future trade profits will be available to be utilised against
unused tax losses and other temporary differences. A deferred tax
liability of GBP1,191,000 (2013: nil) has been recognised in the
year as an element of the fair value adjustment applied on the
Carron Energy acquisition. As a result a net deferred tax liability
of GBP91,000 (2013: deferred tax asset of GBP900,000) is shown in
the consolidated statement of financial position.
6. PURCHASE OF WHELDALE POWER RESPONSE FACILITIES
On 5 February 2014 the Group acquired the Wheldale power
response facilities from SSE plc, for a total consideration of
GBP1,500,000. The initial consideration for the acquisition was
GBP1,100,000 paid in cash on completion, with a GBP400,000 deferred
cash payment which was paid on 31 October 2014. The facilities
comprise an installed engine capacity of 7.5MW and a grid
connection of 10MW. As part of the financial arrangements to fund
the acquisition the Group increased its banking facilities with
Lloyds Bank plc by GBP1,000,000
7. TRANSFER OF LICENCES
On 12 June 2014 the Group transferred its shale gas interests in
certain UK petroleum and development licences to Egdon Resources
plc in exchange for 40,000,000 new ordinary shares of 1 pence each
in Egdon Resources plc an AIM listed company whose registered
office is at The Wheat House, 98 High Street, Odiham, Hampshire
RG29 1LP. At the date of transfer the share price of Egdon
Resources plc was 26.25 pence, valuing the gross consideration at
GBP10,500,000.
A profit of GBP9,953,000 on the transfer has been recognised in
the period. Associated costs of sale attributable to the transfer
of shale gas interests are detailed below:
Year ended
31 December
2014
unaudited
GBP'000
Gross consideration 10,500
Non-capital costs relating to the transfer of licences (334)
Capital costs relating to the transfer of licences (213)
-------------
Profit on transfer of licences 9,953
-------------
The listed equity investment represents an 18% interest in Egdon
Resources plc shares and is classified as an available for sale
financial asset. The Group's interest in Egdon Resources plc has
not been treated as an associated undertaking as the Group does not
have a significant influence over the company. The shares are
revalued at fair value at the end of each period. The change in
fair value in the period of (GBP5,036,000) is shown in the income
statement. The fair value disclosed is the market value at the
statement of financial position date. The movement in the fair
value of available for sale financial assets is determined under
Level 1 Inputs, being quoted prices in active markets that the
Group has the ability to access as of the measurement date.
There is a 12 month lock-in period from the date of issue of the
consideration shares during which time the Company is precluded
from disposal of the shares. The Group does not intend to dispose
of this investment in the foreseeable future.
8. ACQUISITION OF POWER RESPONSE COMPANIES
On 21 July 2014 the Group acquired the entire issued share
capital of three power response companies from Carron Energy
Limited and Dragon Generation Limited. All three companies generate
electricity, with two (Darent Power Limited and Rhymney Power
Limited) generating from natural gas and the third (Leven Power
Limited) generating from kerosene.
Total consideration for the acquisition was GBP12,064,000; cash
consideration comprised GBP10,991,000 and in addition the Group
took on a GBP1,073,000 term loan facility with Lombard North
Central plc. The acquisition was partly funded by a term loan of
GBP5,500,000 provided by Lloyds Bank plc, repayable in monthly
instalments over 5 years commencing in August 2014. The balance was
financed by a proportion of the funds raised by a share placing. A
total of GBP8,000,000 was raised by the issue of 22,222,222 new
Ordinary Shares at a placing price of 36 pence per share.
Net assets with a book value of GBP6,162,000 were acquired at
the date of acquisition. The directors carried out a fair value
assessment of the identifiable assets, liabilities and contingent
liabilities of the three companies acquired and concluded that the
net fair value at the date of acquisition was GBP10,991,000. The
following table shows the identifiable material assets and
liabilities acquired, the fair value adjustments, and the fair
value.
Acquired Fair value Fair value
on 21 July adjustments
2014
GBP'000 GBP'000 GBP'000
Buildings 432 - 432
Plant 5,785 1,873 7,658
Gas assets 347 3,860 4,207
Contract - 298 298
Inventories 393 - 393
Receivables 597 - 597
Payables (626) - (626)
Loan repayable (1,073) - (1,073)
Other provisions (16) (1,202) (1,218)
Cash and cash equivalents 323 - 323
6,162 4,829 10,991
------------ ------------- -----------
GBP'000
Fair value as above 10,991
less Consideration 10,991
-----------
-
-----------
Costs of GBP600,000 were incurred in advisory, professional and
other fees in order to effect the acquisition. The net amount of
GBP600,000 (2013: nil) has been expensed in the Consolidated
Statement of Comprehensive Income under the heading of exceptional
administrative expenses.
The revenue of the acquired companies from the date of
acquisition to 31 December 2014 was GBP1,519,000 and the profit
before tax was GBP882,000.
If the acquired companies had been held within the Group for the
whole reporting period, Group revenue would be GBP17,602,000 and
Group profit before tax would be GBP8,459,000.
9. ACQUISITION OF SEVEN STAR NATURAL GAS LIMITED
On 26 May 2011 the Group completed the purchase of the entire
issued share capital of Seven Star Natural Gas Limited ("Seven
Star"), a company with two petroleum extraction and development
licences covering previously identified onshore gas extraction
prospects.
The consideration for the shares was GBP311,000, with a
contingent consideration of GBP900,000. Following a review by the
directors the effect of discounting the contingent consideration
has been reflected in the fair value of the consideration and as a
result the deferred consideration has been revalued at GBP480,000
payable as follows:
-- GBP207,000 (2013: GBP250,000) within 15 business days of the
satisfaction of certain conditions with respect to the site at
Calow (PL213);
-- Nil (2013: GBP250,000) within 15 business days of the
satisfaction of certain conditions with respect to the site at
Nooks Farm (PEDL141);
-- GBP273,000 (2013: GBP400,000) once Seven Star has produced in
aggregate 1 bcf of natural gas from either or both of the Seven
Star sites under the licences.
10. ACQUISITIONOF MALTBY COAL MINE METHANE ASSETS
On 24 May 2013, the Group completed the purchase of coal mine
methane assets located at Maltby Colliery for a consideration of
GBP5,500,000.
The purchase was partly funded by an extension of the Group's
borrowing facilities with Lloyds Bank plc. A term loan of
GBP3,000,000, secured by way of legal charges over the Group's
assets, has been provided to finance the acquisition, to be repaid
in quarterly payments over two years commencing in July 2014. At
the same time the existing revolving credit facility was increased
from GBP6,500,000 to GBP7,000,000. The balance of the consideration
was financed by a proportion of the funds raised by a share
placing. A total of GBP6,000,000 was raised by the issue of
22,222,223 new Ordinary Shares at a placing price of 27 pence per
share.
The assets acquired comprise plant and machinery of GBP3,000,000
and site infrastructure (including grid connection) of
GBP2,754,000. The Directors have carried out an assessment of the
assets acquired and have concluded that no fair value adjustments
are required.
A further payment of GBP2,000,000 will be made to acquire
additional site infrastructure assets six months after the Maltby
Colliery mine shafts are satisfactorily sealed as part of the
planned closure of Maltby Colliery. The mine works have been signed
off as complete and payment falls due to be made in May 2015.
11. EARNINGS PER ORDINARY SHARE
Basic earnings per share amounts are calculated by dividing net
profit for the period attributable to ordinary equity holders of
the parent by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per share amounts are calculated by dividing
net profit for the period attributable to ordinary equity holders
of the parent by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary shares that would be issued on the conversion of all the
dilutive potential ordinary shares into ordinary shares and that
would have been issued on the conversion at the period end of the
convertible loan notes (see note 15) into ordinary shares.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2014 2013
unaudited
GBP'000 GBP'000
Profit attributable to equity holders of
the parent 3,438 2,755
------------ ------------
No. No.
Basic weighted average number of ordinary
shares 134,375,182 114,930,148
Dilutive effect of share options 5,918,707 4,992,606
Dilutive effect of convertible loan notes(1) 13,520,000 13,291,428
------------ ------------
Diluted weighted average number of ordinary
shares 153,813,889 133,214,182
------------ ------------
(1) For the purposes of calculating the dilutive earnings per
share, the profit for the year from continuing operations and the
profit attributable to equity holders of the parent have been
adjusted by the transaction costs and interest charges of
GBP234,000 (2013: GBP242,000) that would have been avoided if
conversion was to have occurred. The revised profit for the year
from continuing operations on this basis is GBP3,672,000 (2013:
GBP2,997,000) and the revised profit attributable to equity holders
of the parent is GBP3,672,000 (2013: GBP2,997,000).
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of completion of these financial statements that would have
changed significantly the number of ordinary shares or potential
ordinary shares outstanding at the end of the year if those
transactions had occurred before the end of the year.
12. PROPERTY, PLANT AND EQUIPMENT
Acquisitions and disposals
During the year ended 31 December 2014, the Group acquired
assets with a cost of GBP13,216,000 (2013: GBP6,106,000). There
were no disposals during the period (2013: nil) but fully
depreciated assets of GBP320,000 were derecognised (2013:
GBP443,000). Assets of GBP237,000 were impaired (2013: nil).
13. GAS ASSETS
Acquisitions and disposals
During the year ended 31 December 2014, the Group acquired
assets with a cost of GBP8,413,000 (2013: GBP6,629,000). There were
no disposals during the period (2013: nil) But fully depreciated
assets of GBP1,106,000 were derecognised (2013: nil). Assets of
GBP3,832,000 were impaired (2013: nil).
14. CAPITAL COMMITMENTS
At 31 December 2014, the Group had capital commitments
contracted for but not provided in the financial statements of
GBP41,000 for the acquisition of property, plant and equipment
(2013: GBP28,000) and of GBP759,000 for the acquisition of gas
assets (2013: GBP16,000).
15. CONVERTIBLE LOAN NOTES
On 26 April 2012 the Company issued GBP2,000,000 convertible
loan notes, with the proceeds being utilised to partly fund the
acquisition of Greenpark Energy Limited in 2012. Interest is at a
fixed rate of 7.5% per annum, which is rolled up quarterly in
arrears and included as principal to be repaid or converted. The
convertible loan is unsecured. The convertible loan notes are
convertible at any time prior to repayment or automatic conversion
at the holder's option, at a conversion price, fixed at 17.5 pence.
If any element of the convertible loan is not converted, it is
otherwise repayable on the date which is 3 years and 1 day after
the issue date.
The liability component of the convertible loan notes is
GBP1,768,000. This has been calculated by discounting the total sum
payable over the full term of the loan notes by an effective
interest rate of 12%. The equity component of GBP232,000 has been
taken to other reserves. During the year GBP100,000 of the
convertible loan notes that had been issued was converted,
amounting to 645,352 new ordinary shares of 0.5 pence each.
At the year-end the carrying value including rolled up interest
was GBP2,337,000 (2013: GBP2,199,000). The maturity date of the
Convertible Loan Note is April 2015 and it is assumed that the loan
will be converted and hence the liability has been moved to Current
Liabilities.
16. ADDITIONAL CASH FLOW INFORMATION
Analysis of net debt
1 Other Exchange 31
January Cash non-cash rate December
2014 flow movements differences 2014
unaudited
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash at bank and in hand 838 246 - - 1,084
Sale and finance leaseback (412) (1,411) - - (1,823)
Long-term loan (10,661) (5,578) (1,073) - (17,312)
Net debt (10,235) (6,743) (1,073) - (18,051)
Securities 257 - - - 257
--------- -------- ----------- ------------- ----------
Adjusted net debt* (9,978) (6,743) (1,073) - (17,794)
========= ======== =========== ============= ==========
1 Other Exchange 31
January Cash non-cash rate December
2013 flow movements differences 2013
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash at bank and in hand 1,569 (731) - - 838
Sale and finance leaseback (1,122) 710 - - (412)
Long-term loan (8,645) (2,016) - - (10,661)
Net debt (8,198) (2,037) - - (10,235)
Securities 256 1 - - 257
--------- -------- ----------- ------------- ----------
Adjusted net debt* (7,942) (2,036) - - (9,978)
========= ======== =========== ============= ==========
The convertible debt has been excluded from the above
calculations as the current share price is above the conversion
price and the directors expect it to be converted rather than
repaid.
*Includes the effect of securities paid on sale and leaseback
transactions that are closely related to those items.
17. GENERAL NOTE
a. The preliminary unaudited financial information set out above
does not constitute full accounts within the meaning of Section 435
of the Companies Act 2006.
b. Audited statutory accounts in respect of the year ended 31
December 2013 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 2014 will be sent to shareholders during April
2015 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
END
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