RNS Number:8623W
Alkane Energy PLC
24 March 2004
Immediate Release 24 March 2004
Alkane Energy plc ("Alkane" or "the company" or "the group")
Unaudited Preliminary Results to 31 December 2003
Alkane Energy plc is an international green energy company, which designs,
manufactures and operates specialist methane capture and utilisation technology
for the safe, efficient and environmentally beneficial use of this gas.
Financial Highlights
*Turnover increased to #7,270,000 (2002: #995,000)
*Gross profit increased to #2,349,000 (2002: #105,000)
*Exceptional item of #19,670,000, principally due to write down of assets
*Loss before taxation of #20,703,000 (2002: #567,000)
*Cash reserves of #8,757,000 (2002: #14,125,000)
Operational Highlights
*Acquisition of Pro2 Anlagentechnik GmbH ("Pro2") completed
*Excellent initial contribution from Pro2
*First order for sale of a transportable containerised mine gas extraction
system, contract value US$1.2 million
*EU state aid clearance for exemption from the Climate Change Levy for
electricity generated from Coal Mine Methane (CMM)
Commenting on the results, Executive Chairman, Dr. Cameron Davies said:
"I am very pleased by the progress Alkane has made during 2003 towards achieving
the goals set out in the company's revised strategy announced in our preliminary
results for 2002. The acquisition of Pro2 and thus entry into the European green
energy market is proving to be a prudent decision and we now anticipate an
earlier move into profit."
For further information:
Alkane Energy plc
Dr. Cameron Davies, Executive Chairman Tel: 020 7466 5000 (today)
David Cross, Chief Executive Tel: 01623 827927 (thereafter)
Buchanan Communications
Sophie Morton Tel: 020 7466 5000 (today)
Tel: 01943 883990 (thereafter)
Ben Willey Tel: 020 7466 5000
Chairman's Statement
Alkane's third year as a public company has been an eventful period, which has
seen the company go a long way to fulfilling its revised strategy of
diversification away from the UK business and the development of other methane
markets and technologies, as set out in the company's preliminary results
announcement for 2002. As part of this diversification on 19 September 2003
Alkane completed the acquisition of a majority interest in Pro2, a methane
utilisation technology company based near Dusseldorf, Germany. Alkane is
delighted by the contribution Pro2 made to the company's activities in the three
months it has been part of the group.
During the year the company achieved another of the goals outlined in the
strategy review by signing its first contract for the sale in 2004 of a
transportable containerised mine gas extraction system, with an order value of
US$1.2 million.
Positive developments have also occurred as Alkane, through the Association of
Coal Mine Methane Operators (ACMMO), has worked to gain environmental and
political recognition for CMM capture. In October 2003, the company received the
long awaited EU state aid clearance for exemption from the Climate Change Levy
for electricity generated from CMM. This became effective on 1 November 2003 and
is expected to make a small but useful contribution in 2004.
Alkane also carried out a number of cost cutting measures. As a consequence of
suspending UK CMM developments the decision was taken to write down the carrying
value of the UK assets and reduce the head count from 24 to 10, as announced in
our interimresults. The company's UK expenditure base has therefore been
reduced by #750,000.
In September trading of the company's shares was transferred from the Official
List to the Alternative Investment Market (AIM) which provides a more flexible
andappropriate regulatory environment for a company of Alkane's size.
Alkane's entry into the European green energy market through Pro2 has proved to
be a prudent decision and the company now anticipates an earlier move into
profit. I am confident that the combination of Alkane's expertise and experience
coupled with the complementary skills and market position of Pro2 will help the
group develop in other specialist green energy markets both in the UK and
internationally.
Whilst 2003 was challenging, it was also a year of progress. I thank all our
shareholders and our team for their continued support of our revised strategy,
and I welcome Pro2 into the Alkane group.
Financial Overview
Sales for the year were #7,270,000 (2002: #995,000) of which #6,615,000 was
attributable to Pro2 since it joined the Alkane group on 19 September 2003, and
#655,000 was attributable to the original Alkane business. The operating loss
before exceptional items was #1,415,000 (2002: #1,253,000). Losses narrowed to
#335,000 (2002: #765,000) in the second half.
Pro2 contributed an operating profit of #597,000 in the period from 19
September, a very encouraging initial contribution. Both sales and profits from
Pro2 in this period reflect the nature of the business which is significantly
weighted to the second half of the year. Pro2's business continued to grow with
year on year sales increasing by 22%.
Sales in the UK were #655,000 (2002: #995,000), the reduction largely relating
to the effect of the decline in wholesale electricity prices.
An exceptional charge of #19,670,000 has been made. As reported in the interim
results announcement, this arises from the suspension of UK CMM development,
which required a write down of the carrying value of the fixed asset portfolio
of #16,926,000. #2,000,000 has been provided for the costs of restoration of the
fully and partially developed site portfolio. The remaining #744,000 relates to
the costs of the redundancy programme and other restructuring costs.
A tax charge of #117,000 (2002: nil) was incurred despite recording a group loss
as the UK losses cannot be offset against profits in Pro2.
The cash position remains strong at #8,757,000 (2002: #14,125,000). The
consolidation of Pro2 brings into our balance sheet a bank loan of #368,000 and
asset finance debt of #2,525,000. Asset finance will increase as both the UK
business and Pro2 continue to develop the contracting side of the group's
business.
Operational Reviews
Since the incorporation of Pro2 into the group, both the UK and European
businesses have begun to develop in line with our revised strategy.
Pro2
Pro2 designs and manufactures gas utilisation/power generation equipment for
sale to a range of specialist green energy markets, as well as providing after
sales support services.
Pro2 employs 69 people and operates principally across Europe with its main
market in Germany. The company operates in markets which are regulated by
stringent environmental legislation aimed at reducing greenhouse gas emissions
and thus driving the methane capture and utilisation industry forward. The EU
market for electricity generated from landfill gas, sewage gas and biogas is
growing rapidly with capacity forecast to increase from 1,500MW in 2001 to
4,000MW in 2010 (source: Frost & Sullivan 2003).
These sources of methane together with CMM are mitigated by Pro2's climate
change reduction technology, which can be divided into four main product areas;
methane capture, utilisation as a fuel, disposal and treatment. From these
activities, Pro2 derives three income streams:
*Plant sales
In 2003, plant sales incorporating the design, construction, planning and
installation of various methane capture, utilisation, disposal and treatment
plants, accounted for approximately 70% of Pro2's turnover. Typically these
plant sales have the potential for a follow on service contract in the region of
5-10% p.a. of the original sales value.
*Service, maintenance and monitoring
The after-sales customer service package represented 12% of Pro2's turnover in
2003 and covers:
- individual maintenance and servicing agreements from monthly
maintenance contracts through to complete operational management of installed
plant on behalf of customers
- online plant control which allows Pro2 to operate remote diagnosis
and maintenance of every plant, 24 hours a day
* Contracting
The contracting side of the Pro2 business contributed around 18% to its turnover
in 2003. This enables Pro2 to participate in the profits from individual
projects. Pro2 currently has 26 contracting projects operating under this scheme
with a total generation capacity of 14.5MW.
The intention is to improve Pro2's sales mix by increasing the proportion of
sales derived from the higher margin contracting and service aspects of the
business.
CMM projects in Germany
Alkane's first German CMM project at Joarin, which was announced last March, is
progressing well and is estimated to become operational in the third quarter of
2004. The generation facility will be of 2.7MW capacity and will be the first
project where Alkane will generate and sell the electricity. Pro2 will supply
the extraction and generation equipment to Alkane, and A-TEC Anlagentechnik GmbH
(A-TEC) has supplied the licences and will be paid a fee from the project's
profits. The total cost of the project to Alkane is expected to be approximately
Euro1.9 million (#1.3m). Under the German Renewable Energy law the electricity
generated at the site will have a guaranteed premium price of approximately #47/
MWh and the local network operator has an obligation to connect the plant to its
grid and to purchase the electricity.
Alongside the investment in Pro2, Alkane has entered into an option agreement
with A-TEC to potentially develop A-TEC's remaining seven licences for CMM
projects in the Nordrhein Westfalen region of Germany. Two of these projects are
in the planning and investigation phase and if found to be viable, are expected
to be brought into operation in 2005.
CMM projects in the UK
The four operational CMM sites produced gas in 2003 and are overall cash
generative and profitable. Alkane has a portfolio of sites in various stages of
development which can be reactivated if and when the economics, driven by
legislation, change in the company's favour.
As previously announced, the company is reviewing its licences and has so far
relinquished 571 km2 of peripheral area. This will save underlying costs to the
group of #60,000 per annum, partly offsetting increasing rental rates.
Further to the announcement in the preliminary results for 2002, the economic
situation for electricity generation in the UK remains unfavourable. The
Government while continuing to issue statements of support for the industry has
not yet introduced any viable financial support. Consequently the company's UK
site development programme remains on hold.
Alkane still awaits the findings of the Government's study assessing the options
and support mechanisms for the UK CMM industry. ACMMO continues to lobby the
Government to recognise the obvious safety and environmental benefits of
including CMM in a green energy support system similar to that in place for
landfill and sewage methane.
Other UK activities
In the medium term Alkane continues to look for opportunities to enter the UK
landfill gas, sewage gas and biogas markets and is in early stage discussions
with several potential partners. Through synergies with Pro2, Alkane has the
expertise, experience and technology to successfully compete in these markets,
coupled with the capital needed to fund projects. Methane from landfill sites,
sewage digesters and biogas plants has the benefit of already being included in
the Renewables Obligation that allows the trading of Renewable Obligation
Certificates (ROCs), which currently sell at about #47/MWh.
Emissions Trading
The EU Emissions Trading Scheme (ETS) starts with the pilot phase from 2005-2008
and the full Kyoto Commitment phase from 2008-2012. This opens up the
possibility of selling carbon emissions reduction certificates from CMM capture
at abandoned coal mines. Methane is due to be included in the EU ETS in 2008. As
an example, a 1MW CMM generation plant can typically mitigate methane emissions
by the equivalent of 29,000 tonnes p.a. of carbon dioxide. Carbon dioxide
emissions allowances are currently trading at around Euro12/tonne. The German
Government has indicated a willingness to support the trading of carbon
emissions reduction certificates from German CMM projects.
Prospects
Alkane was pleased to announce in its trading statement on 15 January 2004 that
Pro2 has started 2004 with its strongest ever order book, which together with
sales made to date is currently at 68% of its full year sales target. Given the
significant impact that the Pro2 contribution will have on the group, the
Directors are now confident that Alkane's breakeven point can be brought
forward. Alkane intends to further exploit Pro2's technical expertise by
pursuing new business activities across Europe within the expanding market for
the reduction of greenhouse gas emissions.
GROUP PROFIT AND LOSS ACCOUNT
for the twelve months ended 31 December 2003
2003 2002
(unaudited)
--------------------- --------
Continuing Acquisition of Total
operations Pro2
# '000 # '000 # '000 # '000
TURNOVER 655 6,615 7,270 995
Cost of sales (583) (4,338) (4,921) (890)
-------- -------- --------- --------
GROSS PROFIT 72 2,277 2,349 105
Administrative (2,165) (1,675) (3,840) (1,365)
expenses
Other operating income 81 (5) 76 7
-------- -------- --------- --------
OPERATING (LOSS)/ (2,012) 597 (1,415) (1,253)
PROFIT
EXCEPTIONAL ITEM (19,670) - (19,670) -
-------- -------- --------- --------
LOSS ON ORDINARY (21,682) 597 (21,085) (1,253)
ACTIVITIES BEFORE
INTEREST
Interest receivable and 429 - 429 686
similar income
Interest payable and - (47) (47) -
similar charges -------- -------- --------- --------
LOSS ON ORDINARY (21,253) 550 (20,703) (567)
ACTIVITIES BEFORE
TAXATION
Taxation (117) -
--------- --------
LOSS ON ORDINARY
ACTIVITIES AFTER
TAXATION (20,820) (567)
--------- --------
Minority Interests (207) -
--------- --------
LOSS FOR THE FINANCIAL (21,027) (567)
YEAR
ACCUMULATED LOSSES
BROUGHT FORWARD (2,385) (1,818)
--------- --------
ACCUMULATED LOSSES
CARRIED FORWARD (23,412) (2,385)
========= ========
Loss per ordinary share (23.45p) (0.63p)
- basic and diluted
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2003 2002
(unaudited)
# '000 # '000
Loss for the financial year (21,027) (567)
Exchange rate differences 9 -
-------------------
Total recognised gains and losses relating to the (21,018) (567)
year ========= ==========
GROUP BALANCE SHEET
as at 31 December 2003
2003 2002
(unaudited)
#'000 #'000
FIXED ASSETS
Intangible assets 729 -
Tangible fixed assets - gas properties 487 17,179
Tangible fixed assets - other 3,514 250
Investments 157 -
---------- ----------
4,887 17,429
---------- ----------
CURRENT ASSETS
Stocks 2,486 15
Debtors: amounts falling due within one year 4,589 605
Debtors: amounts falling due after more than one 517 -
year
Investments 29 -
Cash at bank and in hand 8,757 14,125
---------- ----------
16,378 14,745
CREDITORS: amounts falling due within one year (6,088) (888)
---------- ----------
NET CURRENT ASSETS 10,290 13,857
---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 15,177 31,286
CREDITORS: amounts falling due after one year (2,105) (277)
PROVISIONS FOR LIABILITIES AND CHARGES (2,000) -
MINORITY INTERESTS (1,079) -
---------- ----------
NET ASSETS 9,993 31,009
========== ==========
CAPITAL AND RESERVES
Called up share capital 448 448
Share premium account 32,948 32,946
Profit and loss account (23,403) (2,385)
---------- ----------
TOTAL EQUITY SHAREHOLDERS FUNDS 9,993 31,009
========== ==========
GROUP STATEMENT OF CASHFLOWS
for the twelve months ended 31 December 2003
2003 2002
(unaudited)
# '000 # '000
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (3,736) (1,143)
RETURNS ON INVESTMENT AND SERVICING OF
FINANCE
Interest received 434 713
Interest paid (13) -
Interest element of finance lease rental payments (33) -
-------- --------
388 713
TAXATION
Corporation tax (116) -
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT
Payment to acquire intangible assets (108) -
Payments to acquire tangible fixed assets - gas (866) (6,515)
properties
Payments to acquire tangible fixed assets - other (756) (52)
Receipts from the sale of tangible fixed assets - 48 -
other
Payments to acquire investments 4 -
Receipt of grant - 192
-------- --------
(1,678) (6,375)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertaking (1,644) -
Net debt acquired with subsidiary undertaking (728) -
-------- --------
(2,372) -
EXCEPTIONAL ITEM
Head office reorganisation costs (744) -
-------- --------
NET CASH OUTFLOW BEFORE FINANCING (8,258) (6,805)
FINANCING
Repayment of overdraft (222) -
Repayment of long term loans (24)
Increase in capital element of finance lease rental 421 -
contracts
Issue of ordinary share capital 2 -
-------- --------
DECREASE IN CASH (8,081) (6,805)
======== ========
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2003 2002
(unaudited)
# '000 # '000
Decrease in cash (8,081) (6,805)
Repayment of overdraft 222 -
Repayment oflong term loans 24
Increase in capital element of finance lease (421) -
contracts --------- ---------
CHANGE IN NET funds ARISING FROM CASH FLOWS (8256) (6,805)
Exchange differences (5) -
--------- ---------
MOVEMENT IN NET FUNDS (8,261) (6,805)
NET funds AT 1 JANUARY 14,125 20,930
--------- ---------
NET funds AT 31 DECEMBER 5,864 14,125
========= =========
NOTES TO THE STATEMENT OF CASH FLOWS
A RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM
OPERATING ACTIVITIES
2003 2002
(unaudited)
# '000 # '000
Operating loss (1,415) (1,253)
Depreciation 382 208
Amortisation 18 31
Decrease/(increase) in stock 2,861 4
Decrease/(increase in debtors (2,850) 19
(Decrease)/increase in creditors (2,732) (152)
--------- ---------
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (3,736) (1,143)
========= =========
B ANALYSIS OF NET FUNDS
At 1st Foreign
January Cash flow exchange At 31 December
2003 difference 2003
(unaudited) (unaudited) (unaudited)
# '000 # '000 # '000 # '000
Cash at bankand in 14,125 (5,388) 20 8,757
hand
Overdraft - 2 (2) -
-------- --------- -------- ---------
14,125 (5,386) 18 8,757
Long term loans - (365) (3) (368)
Finance leases - (2,505) (20) (2,525)
-------- --------- -------- ---------
14,125 (8,256) (5) 5,864
======== ========= ======== =========
GENERAL NOTES
1 The preliminary unaudited financial statements for the year ended 31
December 2003 were approved by the board of directors on 23 March 2004.
2 EXCEPTIONAL ITEM - FUNDAMENTAL RESTRUCTURING
2003 2002
(Unaudited)
#'000 #'000
a. Impairment of tangible fixed assets - gas (17,045) -
properties
b. Deferred grant income written back 278 -
c. Provision for the restoration of sites (2,000) -
d. Impairment of tangible fixed assets - other (159) -
e. Other head office reorganisation costs (744) -
--------- ----------
(19,670) -
========= ==========
During the year a fundamental restructuring of the business has been implemented
following the decision taken by the Group to suspend the development of new coal
mine methane projects in the UK and to pursue a new strategy. The net costs
incurred as a result of this fundamental reorganisation are:
a. UK development sites have been written down to nil. Operating sites have been
written down to reflect their value in use. This has been determined using a
discounted cash flow model applying a discount rate of 10% which reflects the
expected return on capital of such projects;
Deferred grant income received in relation to a development site has been
released in line with the write off;
Provision has been made for the restoration of all sites as required under the
terms of planning permissions or under lease conditions;
Other tangible assets which are no longer used have been written off; and
Other head office costs including redundancy payments and professional fees
relating to the restructuring have been written off.
3. GOODWILL
The goodwill arising on the acquisition of Pro2 Anlagentechnik GmbH on 19
September 2003 was #729,000, which after amortisation has a net book value of
#711,000 at 31 December 2003. This figure is included in the Balance Sheet
within intangible fixed assets.
4 a) The preliminary unaudited financial information set out above
does not constitute full accounts within the meaning of Section 254 of the
Companies Act 1985.
b) Audited statutory accounts in respect of the
year ended 31 December 2002 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 & accounts for the year ended
31 December 2003 will be sent to shareholders during April 2004 and will be
available from the company's registered office - Edwinstowe House, High Street,
Edwinstowe, Nottinghamshire NG21 9PR.
This information is provided by RNS
The company news service from the London Stock Exchange
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