TIDMALK
RNS Number : 4688Y
Alkane Energy PLC
09 September 2015
09 September 2015
Alkane Energy plc
("Alkane" or the "Group")
Unaudited interim results for the half year to 30 June 2015
Alkane Energy plc (AIM: ALK), the independent gas to power
producer, today announces its unaudited interim results for the six
months ended 30 June 2015.
Operational Highlights
-- 25% increase in output to 106GWh
-- Maltby and Carron Energy sites now fully operational
-- Record volume of baseload output in the period
-- Progressive improvement in STOR utilisation during H1
-- 94% of the Group's expected 2015 baseload output contracted at an average price of GBP52/MWh
-- Awarded 101MW of Capacity Market contracts starting October 2018
Financial Highlights
-- Revenue increased by 23% to GBP8.7m (H1 2014: GBP7.1m)
-- Core generation revenue has grown 45% to GBP8.6m ( H1 2014: GBP5.9m)
-- Adjusted PBT increased by 166% to GBP1.4m (H1 2014: GBP0.5m)
-- Adjusted EBITDA increased by 50% to GBP3.8m (H1 2014: GBP2.5m)
-- Net assets increased to GBP47.7m (H1 2014: GBP40.7m)
following the acquisitions during H2 2014
-- Adjusted EPS increased by 119% to 0.94p per share (H1 2014: 0.43p per share)
-- Increased loan facility with Lloyds to develop value enhancing projects
Commenting on the interim results, Chief Executive Officer, Neil
O'Brien, said:
"These strong results reflect the success of the investments we
have made in both the coal mine methane and power response
businesses. Against a backdrop of looming energy capacity shortage,
combined with National Grid's initiatives to boost supply margins,
Alkane's flexible, low cost portfolio of assets leaves the Company
well placed to make further progress."
For more information please contact:
Alkane Energy plc
Neil O'Brien, Chief Executive
Officer
Carl Kameen, 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 midsized "gas to power"
electricity plants providing both baseload 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 baseload 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 102MW of power response, one of the UK's
largest power response businesses, with contracted STOR revenues
extending out to 2025.
Alkane has been awarded 101MW of Capacity Mechanism Agreements
starting from October 2018, with 55MW existing sites being secured
on one year agreements and 46MW new sites on 15 year agreements
over the period to September 2033.
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
Introduction
The Board of Alkane Energy announces its interim results for the
six months ended 30 June 2015. Alkane has made significant progress
in the first half of 2015, reflecting the full integration of the
Maltby coal mine methane ("CMM") acquisition and the 2014
acquisition of the three Carron Energy sites.
Output has increased 25% to 106GWh (H1 2014: 85GWh) with growth
being seen in both baseload CMM generation and in the expanded
power response portfolio. Group revenues have increased 23% to
GBP8.7m (H1 2014: GBP7.1m) and adjusted EBITDA has increased to
GBP3.8m (H1 2014: GBP2.5m). Group adjusted PBT and EPS have
improved by 166% and 119% respectively to GBP1.4m (H1 2014:
GBP0.5m) and 0.94p (H1 2014: 0.43p).
Operations
Alkane has 27 medium sized power stations operational throughout
the period and is expecting its 28(th) site to be operational
before the end of this year.
Installed capacity 2009 2010 2011 2012 2013 2014 H1 2015
(MW)
------------------------ ----- ----- ----- ----- ----- ----- --------
CMM 17 23 27 37 45 45 45
Power response 7 8 8 31 36 98 98
Gas supply (equivalent
MW) 6 6 6 2 2 2 2
------------------------ ----- ----- ----- ----- ----- ----- --------
Total 30 37 41 70 83 145 145
------------------------ ----- ----- ----- ----- ----- ----- --------
Baseload generation is fuelled by CMM from 18 sites. These sites
are run 24/7 as this maximises cash flow and paybacks on the CMM
development capital costs. Where the Group has excess grid and
engine capacity or where it can acquire assets effectively, Alkane
runs power response engines on bought-in mains gas. The use of
bought-in gas increases the cost per MWh over the operating costs
of CMM, but is still profitable when peak prices, such as during
winter evenings and within the National Grid STOR programme, can be
achieved.
Alkane has 145MW of installed engine capacity (H1 2014: 90MW)
providing both baseload generation powered by CMM and peaking power
response sites, powered by bought-in natural gas, offering both
fast response standby and winter peak running capacity. Overall
Group output has increased by 25% to 106GWh. Both sides of the
generation business have seen expanded output in H1 2015 in
comparison with the same period last year as new capacity has been
developed.
Output (GWh) H1 2013 H2 2013 2013 H1 2014 H2 2014 2014 H1 2015
---------------- -------- -------- ----- -------- -------- ----- --------
Baseload 85 88 173 76 98 174 92
---------------- -------- -------- ----- -------- -------- ----- --------
Power response 9 10 19 9 12 21 14
---------------- -------- -------- ----- -------- -------- ----- --------
Total 94 98 192 85 110 195 106
---------------- -------- -------- ----- -------- -------- ----- --------
Alkane is the UK's largest CMM operator with 18 sites spread
across Yorkshire, Nottinghamshire and Staffordshire. Baseload
output has benefitted from a full 6 months of production at the
largest facility at Maltby after the mine's successful sealing
during H1 2014.
Power response activity has increased following the acquisition
of the Carron Energy sites in July 2014 boosting output during the
peak winter running season. Alkane experienced a material increase
in STOR run hours from April onwards following a lull in our supply
to the National Grid STOR programme demand over the winter months
and is now also benefitting from lower gas commodity prices. This
improved level of activity has continued into Q3 2015.
Pricing
The overall pricing position remains beneficial to Alkane as the
fast response low cost operations take advantage of peak pricing
and of availability payments for standby power. Alkane perceives
two major forces on pricing - commodity costs and industry supply
dynamics.
On the pure commodity side of the pricing equation, the falls in
global commodity prices seen over the last 12 months have resulted
in lower baseload pricing. Alkane has a rolling programme of
forward selling its baseload power so the Group's exposure to short
term pricing volatility is very limited. Overall Alkane has sold
94% of its 2015 expected output at GBP52/MWh (2014: GBP53/MWh) and
56% of its 2016 expected output at GBP50/MWh.
The fall in baseload pricing has been counteracted by an
improved "spark spread" margin for the bought-in gas used in power
response.
The UK energy market is beginning to see greater volatility in
pricing as the supply margin deteriorates and National Grid, as the
system operator, has to take additional measures to ensure the
system is supplied 24/7. Alkane benefits in a number of ways from
these market forces. Firstly its winter running programme is
focussed on the peak price period from 4pm to 7pm each working day.
Overall winter peak prices have increased by 16% from GBP195/MWh in
the winter 2014/15 to an estimated GBP227/MWh this coming winter.
In addition, Alkane has seen significant increases of availability
and capacity payments. This is largely due to the acquisition of
the Carron Energy sites but we have also seen new contract wins
under the National Grid Demand Side Balancing Reserve ("DSBR").
Design, Build and Operate ("DB0")
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The Group's DBO activity is focussed on biogas and working with
other onshore oil and gas operators. Whilst H1 has seen lower
activity Alkane has won a supply contract and is expecting an
increase in DBO revenue in H2.
Market and Strategy
The UK energy market is seeing a number of ongoing key themes,
namely:
-- the closure of old and coal powered capacity to address the de-carbonising agenda;
-- the proportion of the UK electricity market supplied by
intermittent renewables has risen to over 20% and is expected to
carry on rising;
-- the last 12 months have seen a sharp fall in global commodity
prices and this has been passed on in lower UK power prices;
and
-- the UK energy market is experiencing a period of tight supply
margins. National Grid and Ofgem have recently re-stated that the
coming winters will witness the lowest supply /demand margin for
over a decade with spare capacity falling to just 5%.
Alkane is well placed to respond to these changes. The Company
has a low cost, fast response and flexible portfolio of assets.
Alkane's operating model is to use standardised modular plant, the
vast majority of sites are gas powered which gives it a
considerable cost advantage against diesel peaking plant. Alkane
has a central control room operating all 27 sites and uses mobile
field technicians for planned and reactive maintenance to ensure
good reliability and to ensure costs are tightly controlled.
The Capacity Market is part of the Government's reforms intended
to ensure sufficient capacity on the system to provide a reliable
electricity supply in the face of the far tighter supply position
than recent years. Alkane has been awarded 101MW of Capacity
Agreements starting from October 2018, with 55MW existing sites
being secured on one year agreements and 46MW new sites on 15 year
agreements over the period to September 2033. The Company is
intending to take part in the December 2015 auction in order to
secure Capacity Agreements for new and existing sites for the
period from October 2019.
As previously announced, in May 2015 Ofgem opened an
investigation into whether Alkane had complied with the
requirements of Rule 5.13.1(b) of the Capacity Market Rules. Alkane
does not believe it is in breach of the Capacity Market Rules and
is fully cooperating with Ofgem's investigation which has yet to
reach a conclusion.
Alkane earns regular predictable income from its CMM production
combined with contracted capacity revenue from National Grid. Its
power response assets have committed contracts for the winter peak
evening period and also receive STOR and demand side income when
called by the grid.
Alkane retains an 18% share of Egdon Resources plc who took on
Alkane's shale gas acreage accumulated through the CMM licence
round applications started in 1996. The transfer of assets to Egdon
Resources undertaken in June 2014 has resulted in Alkane retaining
an economic interest in shale and not having to devote cash or
management resources to this arena. Shale is potentially a large
scale contributor to the UK energy mix and the Board believed that
it could best exploit this asset by working with Egdon to create a
larger well-funded entity which has scale and focus on this longer
term acreage potential.
Financial
Revenue in the period was GBP8.7m (H1 2014: GBP7.1m). Revenue in
the core generation business was GBP8.6m (H1 2014: GBP5.9m).
As highlighted in the table below the H1 2014 results included a
number of exceptional items which have been adjusted for when
comparing to H1 2015. H1 2015 results do not include any
exceptional items.
Exceptional items H1 2015 H2 2014
Unaudited Unaudited
----------------------------------- ----------- -----------
GBP'000 GBP'000
-----------------------------------
Profit on transfer of licences to
Egdon Resources - 9,990
----------------------------------- ----------- -----------
Impairment of assets - (3,180)
----------------------------------- ----------- -----------
Exceptional expenses - (82)
----------------------------------- ----------- -----------
Net exceptional items - 6,728
----------------------------------- ----------- -----------
Reported Operating profit 1,903 7,636
----------------------------------- ----------- -----------
Net exceptional items - (6,728)
----------------------------------- ----------- -----------
Adjusted Operating profit 1,903 908
----------------------------------- ----------- -----------
Reported PBT 1,408 7,257
----------------------------------- ----------- -----------
Net exceptional items - (6,728)
----------------------------------- ----------- -----------
Adjusted PBT 1,408 529
----------------------------------- ----------- -----------
Reported EBITDA 3,799 9,263
----------------------------------- ----------- -----------
Net exceptional items - (6,728)
----------------------------------- ----------- -----------
Adjusted EBITDA 3,799 2,535
----------------------------------- ----------- -----------
Gross profit was GBP3.7m (H1 2014: GBP2.2m), with the gross
margin at 42% (H1 2014: 32%) reflecting the fact that
proportionately more revenue was generated from the higher margin
generation business unit rather than the DBO business unit.
Operating profit has increased by GBP1.0m to GBP1.9m (H1 2014:
GBP0.9m), whilst PBT has increased by 166% to GBP1.4m (H1 2014:
GBP0.5m).
The Company's cost base remains tightly controlled.
Administrative expenses before exceptional items were GBP1.8m (H1
2014: GBP1.5m).
EBITDA was GBP3.8m (H1 2014: GBP2.5m), representing a 44% margin
(H1 2014: 36%). Earnings per share was 0.94 pence (H1 2014: 0.43
pence).
Group cash flow generated an operating inflow of GBP4.7m (H1
2014: GBP1.3m) with capital expenditure of GBP5.1m compared to
GBP3.0m in H1 2014. Included within H1 2015 capital expenditure is
GBP2.0m relating to the second tranche of consideration payable in
respect of the Maltby acquisition. Capital expenditure was also
incurred in respect of a new CMM site near Doncaster to be
commissioned before the end of the year.
Net assets at 30 June 2015 stood at GBP47.7m (H1 2014: GBP40.7m)
with a strong asset base in engine capacity, site infrastructure,
grid capacity, capitalised gas extraction costs (planning and
drilling costs) and the significant investment in Egdon. In line
with expectations Group net debt at 30 June 2015 was GBP19.3m (H1
2014: GBP12.4m) with gearing at 41% (H1 2014: 31%). Alkane has met
all the bank covenant tests and in the period a total of GBP1.9m in
loan and lease repayments has been made. A GBP2.0m increase in the
bank debt facility was made available in June 2015 to pursue value
enhancing projects.
A dividend of 0.3 pence per share was paid in June 2015 (H1
2014: 0.2 pence per share).
Outlook
Alkane is well placed to benefit from a number of key
initiatives in the UK energy market.
The UK Onshore oil and gas industry is seeing support from the
UK government which is keen to see the industry develop
domestically sourced production as part of a varied energy mix.
DECC are due to award further onshore licences by the end of this
year and are fast-tracking planning processes. Alkane has applied
for a number of CMM prospects in the 14(th) Licensing Round and we
look forward to the completion of the round awards.
The shale sector is benefiting from UK government policy
initiatives around issuing new licences, and simplifying the
planning process. Whilst there are still risks around resource
appraisal, environmental regulation and commerciality, Alkane can
benefit from any upside without a cash drain on its core
business.
Our power response business is seeing improved profitability as
spark spread margins widen and is benefitting from National Grid's
additional measures to boost supply margins during the coming
winter.
Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2015
For the For the For the
six six year
months ended months ended
ended
30 June 30 June 31 December
2015 2014 2014
----------------------------------------------- ------ ------------- ---------- ------------
Unaudited Unaudited Audited
----------------------------------------------- ------ ------------- ---------- ------------
Notes GBP'000 GBP'000 GBP'000
Revenue 8,723 7,064 15,961
Cost of sales (5,052) (4,818) (9,445)
----------------------------------------------- ------ ------------- ---------- ------------
Gross profit 3,671 2,246 6,516
Impairment of assets - (3,180) (4,069)
Administrative expenses (1,768) (1,465) (2,873)
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Exceptional expenses - (82) (922)
Total administrative expenses (1,768) (1,547) (3,795)
Return on Group operations 1,903 (2,481) (1,348)
Profit on transfer of licences 13 - 9,990 9,953
Impairment of available for sale financial
asset - - (5,036)
Other operating income 10 127 663
Profit on activities before net finance
costs 1,913 7,636 4,232
Finance income 3 3 7
Finance costs (508) (382) (1,029)
----------------------------------------------- ------ ------------- ---------- ------------
Net finance costs (505) (379) (1,022)
Profit before tax 1,408 7,257 3,210
Taxation 4 34 - 228
----------------------------------------------- ------ ------------- ---------- ------------
Profit for the period attributable
to equity holders of the parent 1,442 7,257 3,438
----------------------------------------------- ------ ------------- ---------- ------------
Other comprehensive income (items
that may be reclassified to profit
or loss)
Available for sale financial assets 13 86 500 -
Total comprehensive income for the
period attributable to equity holders
of the parent 1,528 7,757 3,438
------------- ---------- ------------
Earnings per ordinary share
Basic, for profit for the period attributable
to equity holders of the parent 5 0.94p 5.85p 2.56p
Diluted, for profit for the period
attributable to equity holders of
the parent 5 0.91p 5.14p 2.39p
Consolidated Statement of Financial Position
at 30 June 2015
30 June 30 June 31 December
2015 2014 2014
--------------------------------- ------ ---------- ------------- ---------------
Unaudited Unaudited Audited
--------------------------------- ------ ---------- ------------- ---------------
Notes GBP'000 GBP'000 GBP'000
Non-current assets
Property, plant and equipment 7 33,268 23,291 33,833
Gas assets 8 27,390 21,215 26,054
Intangible assets 1,386 1,618 1,446
Derivative financial instrument - 22 -
Deferred tax asset - 900 -
Available for sale financial
asset 13 5,550 11,000 5,464
67,594 58,046 66,797
--------------------------------- ------
Current assets
Inventories 848 439 872
Trade and other receivables 4,302 5,740 6,310
Cash and cash equivalents 1,018 519 1,084
--------------------------------- ------ ---------- ------------- ---------------
6,168 6,698 8,266
Total assets 73,762 64,744 75,063
--------------------------------- ------ ---------- ------------- ---------------
Current liabilities
Trade and other payables (3,469) (5,253) (7,192)
Finance lease obligations (443) (586) (446)
Borrowings due within one year (2,799) (1,500) (2,815)
7.5% Convertible loan stock - - (2,337)
Provisions (36) (180) (81)
--------------------------------- ------ ---------- ------------- ---------------
(6,747) (7,519) (12,871)
--------------------------------- ------ ---------- ------------- ---------------
Non-current liabilities
Finance lease obligations (1,124) (1,567) (1,377)
Long-term borrowings (15,987) (9,281) (14,497)
7.5% Convertible loan stock - (2,210) -
Deferred payments (480) (900) (480)
Derivative financial instrument (7) - (10)
Deferred tax liability (57) - (91)
Provisions (1,666) (2,585) (1,666)
--------------------------------- ------ ---------- ------------- ---------------
(19,321) (16,543) (18,121)
--------------------------------- ------ ---------- ------------- ---------------
Total liabilities (26,068) (24,062) (30,992)
--------------------------------- ------ ---------- ------------- ---------------
Net assets 47,694 40,682 44,071
--------------------------------- ------ ---------- ------------- ---------------
Equity attributable to owners
of the parent
Share capital 16 811 621 739
Share premium 17,222 7,016 14,557
Hedging reserve (7) 22 (10)
Other reserves 9,040 9,297 9,198
Retained earnings 20,628 23,726 19,587
Total equity 47,694 40,682 44,071
--------------------------------- ------ ---------- ------------- ---------------
Consolidated Statement of Changes in Equity
for the six months ended 30 June 2015
Attributable to 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 2015 739 14,557 (10) 9,198 19,587 44,071
Profit for the period - - - - 1,442 1,442
Other comprehensive income
for the period - - - - 86 86
-------- ---------------- -------- ------------ --------- --------
Total comprehensive income
for the period - - - - 1,528 1,528
Dividend (note 6) - - - - (487) (487)
Fair value of derivative
instrument - - 3 - - 3
Share-based payment - - - 62 - 62
Equity component of convertible
loan notes - 220 - (220) - -
Issue of share capital 72 2,445 - - - 2,517
-------- ---------------- -------- ------------ --------- --------
At 30 June 2015 (Unaudited) 811 17,222 (7) 9,040 20,628 47,694
-------- ---------------- -------- ------------ --------- --------
At 1 January 2014 618 6,906 22 9,230 16,217 32,993
Profit for the period - - - - 7,257 7,257
Other comprehensive income
for the period - - - - 500 500
-------- ---------------- -------- ------------ --------- --------
Total comprehensive income
for the period - - - - 7,757 7,757
Dividend (note 6) - - - - (248) (248)
Share-based payment - - - 78 - 78
Equity component of convertible
loan notes - 11 - (11) - -
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Issue of share capital 3 99 - - - 102
At 30 June 2014 (Unaudited) 621 7,016 22 9,297 23,726 40,682
-------- ---------------- -------- ------------ --------- --------
At 1 January 2014 618 6,906 22 9,230 16,217 32,993
Profit for the year - - - - 3,438 3,438
Other comprehensive income
for the year - - - - - -
-------- ---------------- -------- ------------ --------- --------
Total comprehensive income
for the year - - - - 3,438 3,438
Dividend (note 6) - - - - (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 (Audited) 739 14,557 (10) 9,198 19,587 44,071
-------- ---------------- -------- ------------ --------- --------
(1) During the year ended 31 December 2014 GBP364,000 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 nil (30 June 2014: GBP221,000 and 31 December 2014:
GBP220,000), a share-based payments reserve of GBP377,000 (30 June
2014: GBP413,000 and 31 December 2014: GBP315,000), a merger relief
reserve of GBP244,000 (30 June and 31 December 2014: GBP244,000)
and a distributable reserve of GBP8,419,000 (30 June and 31
December 2014: GBP8,419,000) that was created following a capital
reduction.
Consolidated Statement of Cash Flows
for the six months ended 30 June 2015
For the For the For the
six six year
months ended months ended ended
30 June 30 June 31 December
2015 2014 2014
---------------------------------------- ------ ------------- ------------- ------------
Unaudited Unaudited Audited
---------------------------------------- ------ ------------- ------------- ------------
Notes GBP'000 GBP'000 GBP'000
Operating activities
Profit before tax from continuing
operations 1,408 7,257 3,210
Adjustments to reconcile operating
profit to net cash flows:
Transfer of licences 13 - (10,500) (9,953)
Impairment of available for sale
financial asset - - 5,036
Depreciation of property, plant
and equipment 1,439 1,320 2,462
Gas asset depletion 387 292 756
Gas asset impairment - 3,180 3,832
Gas asset write off - 213 -
Property, plant and equipment
impairment - - 237
Intangible asset amortisation 60 15 65
Share-based payments expense 62 78 160
Finance income (3) (3) (7)
Finance expense 508 382 1,029
Movements in provisions (45) (118) (615)
Decrease/(increase) in trade and
other receivables 2,008 (1,583) (1,666)
Decrease/(increase) in inventories 24 25 (15)
(Decrease)/increase in trade and
other payables (1,184) 755 112
---------------------------------------- ------ ------------- ------------- ------------
Net cash flows from operating
activities 4,664 1,313 4,643
---------------------------------------- ------ ------------- ------------- ------------
Cash flows from investing activities
Finance income received 3 3 7
Purchase of property, plant and
equipment (3,358) (1,341) (5,358)
Purchase of gas assets (1,777) (1,639) (2,036)
Purchase of subsidiaries - - (10,991)
Cash acquired on acquisition of
subsidiaries - - 323
---------------------------------------- ------ ------------- ------------- ------------
Net cash flows used in investing
activities (5,132) (2,977) (18,055)
---------------------------------------- ------ ------------- ------------- ------------
Cash flows from financing activities
Issue of share capital 96 13 7,659
Proceeds from sale and finance
leaseback - 2,000 1,995
Sale and finance leaseback rentals (256) (259) (584)
Proceeds from long-term borrowings 3,090 3,220 9,170
Repayment of long-term borrowings (1,650) (3,100) (3,657)
Dividend paid to equity holders
of the parent (486) (249) (249)
Finance expense paid (392) (280) (676)
---------------------------------------- ------ ------------- ------------- ------------
Net cash flows from financing
activities 402 1,345 13,658
---------------------------------------- ------ ------------- ------------- ------------
Net (decrease)/increase in cash
and cash equivalents (66) (319) 246
Cash and cash equivalents at beginning
of period 1,084 838 838
---------------------------------------- ------ ------------- ------------- ------------
Cash and cash equivalents at close
of period 17 1,018 519 1,084
---------------------------------------- ------ ------------- ------------- ------------
Notes to the Accounts
1. Corporate Information
The interim condensed consolidated financial statements of the
Group for the six months ended 30 June 2015 were authorised for
issue in accordance with a resolution of the directors on 8
September 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 02966946.
The principal activities of the Group are described in Note
3.
2. Basis of Preparation and Accounting Policies
Basis of preparation
The interim condensed financial statements are unaudited and do
not constitute statutory financial statements within the meaning of
section 435 of the Companies Act 2006.
The comparative figures for the year ended 31 December 2014 were
derived from the statutory accounts for that year which have been
delivered to the Registrar of Companies. Those accounts received an
unqualified audit report which did not contain statements under
section 498(2) or (3) (accounting records or returns inadequate,
accounts not agreeing with records and returns or failure to obtain
necessary information and explanations) of the Companies Act
2006.
The interim condensed financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by
the European Union and the AIM Rules of the London Stock Exchange.
This report should be read in conjunction with the Group's Annual
Report and Accounts 2014, which have been prepared in accordance
with IFRSs as adopted by the European Union.
Going concern
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The Board is required to assess whether the Group has adequate
resources to continue operations for the foreseeable future. After
making enquiries, the directors have a reasonable expectation that
the Company and the Group will continue in operational existence
for the foreseeable future (being a period of at least 12 months
from the date of this report). For this reason they continue to
adopt the going concern basis for preparing the financial
statements.
Accounting policies
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those presented in the Group's Annual Report and Accounts for
the year ended 31 December 2014.
The preparation of interim financial statements requires
management to make judgments, estimates and assumptions that affect
the application of policies and reported amounts of assets and
liabilities, income and expenses.
There have been no significant changes in the bases upon which
estimates have been determined compared to those applied at 31
December 2014 and no change in estimate has had a material effect
on the current period. All significant estimates and judgments have
been disclosed in the Group's Annual Report and Accounts for the
year ended 31 December 2014. Actual results may differ from these
estimates.
In March 2013 Pro2 Anlagentechnik GmbH invested in Alkane
Services Limited, a Group company, and held a non-controlling
interest of 25% of the share capital. Alkane Services was renamed
Alkane Pro2 Services Limited. Pro2 Anlagentechnik GmbH entered into
administration in December 2014, following which the 25%
shareholding was bought in April 2015 for a nominal sum. Alkane
Pro2 Services Limited has been renamed back to Alkane Services
Limited.
These condensed consolidated interim financial statements have
been prepared on the basis of IFRSs in issue that are effective at
the Group's annual reporting date as at 31 December 2015. None of
the new standards adopted have had a material impact on the
financial statements.
3. 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 variation to either of the
Group's business segments. Whilst electricity selling prices are
higher during the winter, this has an equal effect on the first and
second halves of the financial year.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2014
2015 2014
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Extraction and utilisation of
gas
Total segment revenue 8,590 5,936 14,811
----------- ----------- -------------
Depreciation and impairment (1,802) (4,802) (7,340)
----------- ----------- -------------
Interest expense (485) (281) (793)
----------- ----------- -------------
Segment profit/(loss) before
tax 1,983 (2,025) 287
----------- ----------- -------------
Design, build and operate projects
for external customers
Total segment revenue 133 1,130 1,158
----------- ----------- -------------
Impairment - - -
----------- ----------- -------------
Segment loss before tax (168) (61) (516)
----------- ----------- -------------
Total
Total revenue 8,723 7,066 15,969
----------- ----------- -------------
Total depreciation and impairment (1,802) (4,802) (7,340)
----------- ----------- -------------
Total interest expense (485) (281) (793)
----------- ----------- -------------
Profit/(loss) before tax from
operating segments 1,815 (2,086) (229)
----------- ----------- -------------
Corporate centre (417) (657) (1,499)
Profit on sale of licences - 9,990 9,953
Impairment of available for sale
financial asset - - (5,036)
Consolidation adjustment 10 10 21
----------- ----------- -------------
Profit before tax 1,408 7,257 3,210
----------- ----------- -------------
The following table reconciles total segment assets, total
segment liabilities and segment additions to non-current
assets.
30 June 30 June 31 December
2015 2014 2014
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Extraction and utilisation of
gas 60,644 58,105 68,060
Design, build and operate projects
for external customers 1,446 1,815 1,616
---------------------------------------- ---------- ---------- ------------
Total segment assets 62,090 59,920 69,676
Corporate centre 6,163 11,251 5,695
Intangible assets arising on
consolidation 6,489 1,209 789
Consolidation adjustments (980) (7,636) (1,097)
---------------------------------------- ---------- ---------- ------------
Total consolidated assets 73,762 64,744 75,063
---------------------------------------- ---------- ---------- ------------
Extraction and utilisation of
gas (39,005) (23,517) (31,918)
Design, build and operate projects
for external customers (910) (1,823) (2,063)
---------------------------------------- ---------- ---------- ------------
Total segment liabilities (39,915) (25,340) (33,981)
Corporate centre (2,549) (13,280) (5,362)
Consolidation adjustments 16,396 14,558 8,351
---------------------------------------- ---------- ---------- ------------
Total consolidated liabilities (26,068) (24,062) (30,992)
---------------------------------------- ---------- ---------- ------------
Extraction and utilisation of
gas 2,597 2,860 21,629
Design, build and operate projects - - -
for external customers
---------- ---------- ------------
Total segment additions to non-current
assets 2,597 2,860 21,629
Available for sale financial
asset 86 11,000 5,464
Deferred tax asset 34 - 228
Corporate centre - - -
Total consolidated additions
to non-current assets 2,717 13,860 27,321
---------------------------------------- ---------- ---------- ------------
4. Taxation
There is no tax charge for the current period (six months ended
30 June 2014: nil, year ended 31 December 2014: nil). A deferred
tax credit of GBP34,000 has been recognised in the period (six
months ended 30 June 2014: nil, year ended 31 December 2014:
GBP228,000).
5. 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 period.
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 period 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.
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The following reflects the income and share data used in the
basic and diluted earnings per share computations:
Six months Six months Year ended
ended 30 ended 30 31 December
June June
2015 2014 2014
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Profit attributable to equity
holders of the parent 1,442 7,257 3,438
------------ ------------ ------------
No. No. No.
Basic weighted average number
of Ordinary Shares 153,541,068 124,137,446 134,375,182
Dilutive effect of share options 4,204,844 6,124,309 5,918,707
Dilutive effect of convertible
loan notes(1) 8,755,545 13,045,714 13,520,000
---------------------------------- ------------ ------------ ------------
Diluted weighted average number
of Ordinary Shares 166,501,457 143,307,469 153,813,889
---------------------------------- ------------ ------------ ------------
(1) For the purposes of calculating the dilutive earnings per
share, the profit for the period attributable to equity holders of
the parent has been adjusted by the transaction costs and interest
charges of GBP66,000 (six months ended 30 June 2014: GBP103,000 and
year ended 31 December 2014: GBP234,000) that would have been
avoided if conversion was to have occurred. The revised profit for
the period attributable to equity holders of the parent on this
basis is GBP1,508,000 (six months ended 30 June 2014: GBP7,360,000
and year ended 31 December 2014: GBP3,672,000).
A total of 22,222,222 Ordinary Shares were issued and admitted
to trading on AIM on 21 July 2014 in respect of a share placing
carried out in conjunction with the acquisition of three power
response companies from Carron Energy Limited and Dragon Generation
Limited (see note 12).
6,411,732 shares were issued and admitted to trading on AIM on
22 April 2015 and a further 7,486,728 shares were issued and
admitted to trading on AIM on 1 May 2015 pursuant to the conversion
of the GBP2,000,000 Convertible No. 1 Loan Notes 2012 issued on the
26 April 2012 in order to finance the acquisition of Greenpark
Energy Limited.
6. Dividend
During the six months ended 30 June 2015 the Company paid a
dividend of 0.3 pence per share totalling GBP486,000 (six months
ended 30 June 2014 and year ended 31 December 2014: a dividend of
0.2 pence per share totalling GBP249,000).
7. Property, Plant and Equipment
Acquisitions and disposals
During the six months ended 30 June 2015, the Group acquired
assets with a cost of GBP874,000 (six months ended 30 June 2014:
GBP1,295,000; year ended 31 December 2014: GBP13,216,000). Included
within additions for the period ended June 2014 and the year ended
31 December 2014 is GBP900,000 relating to the acquisition of
Wheldale power response assets (see note 11). The figures for the
year ended 31 December 2014 also included GBP8,090,000 relating to
the acquisition of the three power response companies form Carron
Energy Limited and Dragon Energy Limited (see note 12). There were
no disposals during the period (30 June and 31 December 2014:
nil).
8. Gas Assets
Acquisitions and disposals
During the six months ended 30 June 2015, the Group acquired
assets with a cost of GBP1,723,000 (six months ended 30 June 2014:
GBP1,565,000; year ended 31 December 2014: GBP8,413,000). Included
within additions for the period ended June 2014 and the year ended
31 December 2014 is GBP600,000 relating to the acquisition of
Wheldale power response assets (see note 11). The figures for the
year ended 31 December 2014 also included GBP4,207,000 relating to
the acquisition of the three power response companies form Carron
Energy Limited and Dragon Energy Limited (see note 12). There were
no disposals during the period (30 June and 31 December 2014:
nil).
During the six months ended 30 June 2014 and the year ended 31
December 2014 impairment tests of gas assets relating to producing
licence areas was carried out. The test took into account the
expected future price of energy and the expected production life.
The test conducted during the six months ended 30 June 2014
identified one producing licence area with a carrying value that
would not be recovered and an impairment charge of GBP787,000 (30
June 2015: nil) was made. A further two licence areas were
identified in the second half of 2014 with carrying values that
would not be recovered and a further impairment charge of
GBP652,000 was recognised. The total impairment charge recognised
in the year ended 31 December 2014 was GBP1,439,000. No such
impairment has been deemed required by the directors in the current
period.
During the six months ended 30 June 2014 and the year ended 31
December 2014 an impairment review of exploration and evaluation
costs relating to non-producing licence areas was carried out in
the period. Following the review an impairment charge of
GBP2,393,000 (30 June 2015: nil) was made in respect of costs that
would not lead to commercial operations. No such impairment has
been deemed required by the directors in the current period.
9. Fair Value
(a) Carrying Amount versus Fair Value
The following table compares the carrying amounts and fair
values of the group's financial assets and financial liabilities as
at 30 June 2015.
The group considers that the carrying amount of the following
financial assets and financial liabilities are a reasonable
approximation of their fair value:
- Trade receivables
- Trade payables
- Cash and cash equivalents
As at 30 June 2015 As at 31 December
2014
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets
Available-for-sale
investments 5,550 5,550 5,464 5,464
Total 5,550 5,550 5,464 5,464
Financial Liabilities
Loans and borrowings 20,353 20,353 19,135 19,135
Derivative financial
liabilities 7 7 10 10
Total 20,360 20,360 19,145 19,145
----------------------- ----------- -------- --------- ---------
(b) Fair value Hierarchy
The level within the fair value hierarchy within which the
financial asset or financial liability is categorised is determined
on the basis of the lowest level input that is significant to the
fair value measurement.
Financial assets and financial liabilities are classified in
their entirety into only one of the three levels.
The fair value hierarchy has the following levels:
- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities
- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices)
- Level 3 - inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
As at 30 Level Level 2 Level 3
June 2015 1
Financial Assets
Available-for-sale
investments 5,550 5,550 - -
Total 5,550 5,550 - -
Financial Liabilities
Derivative financial
liabilities 7 - 7 -
Total 7 - 7 -
----------------------- ----------- ------ -------- --------
As at 31 Level Level 2 Level 3
December 1
2014
Financial Assets
Available-for-sale
investments 5,464 5,464 - -
Total 5,464 5,464 - -
Financial Liabilities
Derivative financial
liabilities 10 - 10 -
Convertible loan stock 2,337 - 2,337 -
Total 2,347 - 2,347 -
------------------------ ---------- ------ -------- --------
As at 30 Level Level 2 Level 3
June 2014 1
Financial Assets
Available-for-sale
investments 11,000 11,000 - -
Derivative financial
instrument 22 - 22 -
Total 11,022 11,000 22 -
Financial Liabilities
Convertible loan stock 2,210 - 2,210 -
Total 2,210 - 2,210 -
------------------------ ----------- ------- -------- --------
(c) Transfers during the period
During the six month period to 30 June 2015:
- There were no transfers between Level 1 and Level 2 fair value measurements
- There were no transfers into or out of Level 3 fair value measurements
(d) Valuation techniques
(i) Available-for-sale investments
For Level 1 available-for-sale investments the group uses the
closing market price as at the reporting date per share multiplied
by the number of shares held.
(ii) Derivative financial liabilities
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Derivative financial liabilities comprise an interest swap rate.
The determination of fair value includes reference to the market
value as at the reporting date.
(iii) Loans and borrowings
Loans and borrowings include amounts advanced to the group at
both fixed and variable rates of interest.
Fair value for disclosure purposes as at the reporting date is
determined by reference to the present value of the future
contracted cash flows discounted at the observable market interest
rates for instruments with similar characteristics to those held by
the group (Level 2).
10. Capital Commitments
At 30 June 2015, the Group had the following capital commitments
contracted for but not provided in the financial statements:
-- Acquisition of property, plant and equipment GBP242,000 (30
June 2014: GBP107,000; 31 December 2014: GBP41,000);
-- Acquisition of gas assets GBP174,000 (30 June 2014:
GBP890,000; 31 December 2014: GBP759,000);
-- Acquisition of Maltby coal mine methane assets nil (30 June
2014: GBP2,000,000, 31 December 2014: nil).
11. 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 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.
12. 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 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)
Deferred tax liability (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
-----------
-
-----------
In the year ended 31 December 2014, costs of GBP600,000 were
incurred in advisory, professional and other fees in order to
effect the acquisition. The net amount of GBP600,000 was expensed
in the Consolidated Statement of Comprehensive Income under the
heading of exceptional administrative expenses.
13. 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 GBP9,990,000 on the transfer was recognised in the
period six months ended 30 June 2014 (six months ended 30 June
2015: nil). Associated costs of sale attributable to the transfer
of shale gas interests are detailed below:
Six months Year ended
ended 30 31 December
June 2014 2014
Unaudited Audited
GBP'000 GBP'000
Gross consideration 10,500 10,500
Non-capital costs relating to the transfer
of licences (297) (334)
Capital costs relating to the transfer
of licences (213) (213)
Profit on transfer of licences 9,990 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 fair value
disclosed is the mid price 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 was a 12 month lock-in period from the date of issue of
the consideration shares during which time the Company was
precluded from disposal of the shares. The lock-in period has now
lapsed but the Group does not intend to dispose of this investment
in the foreseeable future.
An impairment of GBP5,036,000 was recognised in the year ended
31 December 2014 (30 June 2015: nil, 30 June 2014: nil) in light of
a reduction in the share price indicating there was a permanent
diminution in the investment value.
14. Exceptional Items
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2014
2015 2014
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Bad debt written off - - (310)
Costs relating to acquisitions and
other corporate transactions - (82) (612)
- (82) (922)
Impairment of assets - (3,180) (4,069)
------------ ----------- -------------
- (3,262) (4,991)
------------------------------------------------- ----------- -------------
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. The convertible loan notes
were convertible at a fixed conversion price of 17.5 pence.
Interest was at a fixed rate of 7.5% per annum, which was rolled up
quarterly and included as principal to be repaid.
As at 30 June 2015 the Convertible Loan Notes have all
converted. 6,411,732 shares were issued and admitted to trading on
AIM on 22 April 2015 and a further 7,486,728 shares were issued and
admitted to trading on AIM on 1 May 2015.
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