Final Results
Alkane Energy PLC
23 March 2005
For immediate release 23 March 2005
Alkane Energy plc ('Alkane', 'the Group' or 'the Company')
Unaudited preliminary results for the twelve months ended 31 December 2004
Alkane Energy is an international renewable energy company specialising in the
design, build, operation and servicing of methane treatment plants and
electricity generation facilities that use biogas, landfill gas, coal mine
methane and sewage gas.
Financial Highlights
• Turnover, including full-year contribution from Pro2, increased by 172% to
£19,785,000 (2003: £7,270,000)
• Substantial reduction in operating loss to £753,000 (2003: £1,415,000)
• Operating profit of £199,000 achieved during second half of 2004 (2003:
loss £335,000)
Operational Highlights
Germany
• Pro2
Strong growth in sales of plant and service contracts maintained throughout
2004
Further growth expected in 2005 supported by introduction of the new
renewable energy law (EEG) in August 2004
Entered new markets of Hungary and Russia
• CMM (Coal Mine Methane)
Joarin on-stream in March 2005
Three sites in pre-development phase
United Kingdom
• CMM
Markham and Bevercotes projects to come on-stream shortly
Market supported by sustained high UK energy prices
• Pro2 Services
Acquisition today of Farley (Energy) Engineering Limited for £70,000
establishes Pro2 service operation in UK
• Biogas
Project in Northern Ireland in pre-development phase
Commenting on the preliminary results, Chief Executive, Dr Cameron Davies, said:
'We continue to make excellent progress towards achieving our goal of
profitability during 2005. The second half of 2004 saw a move into profit at an
operating level and we are confident of further progress during 2005.
'This strong performance has been underpinned by another excellent outcome at
Pro2 which augurs well for an exciting 2005. The revised renewable energy
legislation in Germany is expected to support the already strong 2005 order
book. We have also expanded into some exciting new international markets. Our
first German renewable energy plant using CMM as fuel is generating income and
we hope to have at least one additional project complete by the end of the year.
'In the UK, we have made rapid progress towards the completion of four new CMM
plants ,comprising a total of 8 MW of generating capacity. The first two,
Markham and Bevercotes, are expected to commence electricity generation in the
near future. Energy prices in the UK remain favourable, significantly improving
the commercial viability of our CMM business'.
Enquiries:
Alkane Energy plc
Dr Cameron Davies (Chief Executive) Tel: 020 7466 5000 (Today)
Steve Goalby (Finance Director) Tel: 01623 827927 (Thereafter)
Buchanan Communications Tel: 020 7466 5000 (Today)
Eric Burns Tel: 01943 883990 (Thereafter)
Ben Willey Tel: 020 7466 5000
Chairman's Statement
Introduction
During the past twelve months, Alkane has made substantial progress in
transforming itself into a profitable, international renewable energy company.
Sales of our high tech methane utilisation systems have been made to specialist
markets as far apart as Iran and Iceland. In addition, the economic climate for
developing new CMM projects has changed for the better in the UK with the
significant recovery in wholesale electricity prices.
As climate change is now near the top of the political agenda, our global
warming reduction technology has moved into the mainstream of industry and
Government thinking. The plants and systems we have sold to customers in the
biogas, landfill gas, CMM and sewage gas sectors prevent millions of tonnes of
carbon dioxide per year from contributing to climate change. Our decentralised
renewable energy plants generate electricity for the local consumer,
significantly reducing grid losses from transporting it long distances from
large remote fossil fuelled power stations.
Financial Overview
Alkane continues to move confidently towards its stated target to achieve
profitability in 2005.
A strong sales push in all markets, and the inclusion of a full year's
contribution from Pro2, have resulted in Group turnover increasing from £7.3m to
£19.8m and our operating loss being reduced from £1.4m to £753,000. At a pre-tax
level, adjusted to remove the effect of the exceptional item in 2003, losses
reduced substantially from £1,033,000 in 2003 to £284,000. On the same basis,
the loss per share (basic and diluted) was reduced from 1.51p to 0.8p.
A further cut in senior executive level management contributed to a reduction in
UK salary costs of £236,000. On a full-year basis, overall Group overheads have
been reduced by 20% since 2003, to an estimated run rate of £900,000 per annum.
Net funds as at 31 December 2004 were £2.6m compared with £6.1m at the end of
2003. This reflects the investment of £2.9m in new projects, both in the UK and
in Germany.
Operating Review
Germany
Pro2
The first sale to Russia and a rapid start-up in the newly developing Portuguese
biogas market have pushed turnover, including inter-company sales, forward from
€24.0m in 2003 (full-year including period prior to acquisition) to €28.5m in
2004 with profit before tax on the same basis rising from €563,000 to €865,000.
A large number of plants were built in 2004 to generate electricity from biogas,
coal mine methane, sewage gas and landfill gas and the company now has plants
operating in 14 countries.
During the period, Pro2 participated in important international trade
exhibitions for renewable energy and pollution control technologies in Germany,
Spain, France, Poland, the Netherlands, Hungary and the UK. These have led to
increased market penetration and the winning of new customers for our greenhouse
gas reduction systems.
The wait, by customers, for the revised EEG to be implemented from 1 August
2004, led to greater demand for power generation systems using biogas produced
from fast growing biomass such as maize and willow in the second half of the
year. Orders for 2005 are running well ahead of 2004 in all sectors.
In the UK, Pro2 Services Limited has been established following today's
acquisition of Farley (Energy) Engineering Limited for £70,000. The company is a
long established engineering specialist servicing the important landfill and
wastewater markets. The acquisition will provide the means to introduce Pro2's
leading edge expertise to the specialist methane market in the UK.
CMM
We are now producing the company's first renewable electricity at Joarin using
Pro2's modular containerised gas extraction and power generation modules. Our
plant is built on part of an abandoned mine site owned by A-Tec Anlagentechnik
and leased to Alkane under a long-term contract. The Joarin mine gas project
started with the successful drilling of the coal mine methane borehole. Our
long-term gas test using a modular Pro2 system, confirmed that the gas flow was
sufficient for a 2.7MW modular containerised electricity generation system. This
plant should ultimately supply electricity sufficient for more than 5,500 homes
and save the equivalent of about 100,000 tonnnes per year of carbon dioxide
emissions.
In order to meet local noise regulations, a basic sound-deadening frame building
was constructed around the containers. The plant is now complete and fully
tested with renewable electricity being generated 24 hours a day. The
electricity is sold under the EEG feed-in tariff on a fixed 20 year contract at
€65 per megawatt hour. In addition to this, the Federal Environment Ministry has
authorised the sale of emissions credits gained by capturing and using methane
in the international emissions trading markets.
Three other similar coal mine methane generation projects are being planned with
A-Tec, our CMM development partner, at disused mine sites in North Rhine
Westphalia. Borehole drilling operations are expected to start in the near
future at the next site.
United Kingdom
In the UK, the benefits of the Climate Change Levy exemption in the Finance Act
2002, valued at £4.30 per megawatt hour, finally began to feed through as energy
contracts were renewed, and will contribute to us directly as we generate
electricity from more of our own plants.
Our engineers are supervising the construction of four new CMM power generation
plants in the UK using containerised systems and our own gas extraction
technology.
At Bevercotes, construction is on schedule and three containerised generating
sets and transformers are now installed awaiting connection by Central Networks
to the 11,000 volt grid. Full-scale commissioning will commence when the
connection is made.
At Markham, the engine has been tested and is ready for commissioning and
electricity generation when the connection to the grid is completed.
We are seeking early delivery of containerised generation systems and
connections to the grid at Whitwell and Old Mill Lane, Mansfield where civil
engineering works are well under way.
Mine Methane Safety Systems
Human tragedies caused by recent methane explosions in several coal mining areas
worldwide have reinforced the message that mine atmosphere management is
critical to the safety of working coal mines. Our first containerised mine
methane extraction system was sold and shipped to Iran during the year. In the
first quarter of 2005, we have had a number of encouraging visits to Markham to
see our containerised gas extraction and generation systems. The potential
customers were mine managers and energy ministers from several countries where
coal mining is undergoing a very rapid expansion to keep up with the huge
international demand. We are currently targeting Russia, India and China along
with Iran as markets for our mine safety systems that will in future be
manufactured by Pro2.
Biogas
In April 2004, we acquired, for £150,000, Farmatic Biotech Energy UK Ltd, now
renamed Alkane Biogas Limited. This forms the basis for our anaerobic digestion
business which plans to build its first biogas plant at Fivemiletown in Northern
Ireland. This environmentally friendly plant will derive income from the
generation of renewable electricity and from 'gate fees' for disposal of
bio-waste supplied by farms and food processors.
This biogas project has moved on to the detailed planning stage with the search
for a suitable site being pursued with strong support from the Department of
Agriculture and Rural Development. Other biogas projects are under discussion in
England, Scotland and Wales in association with waste companies, landowners and
local authorities.
Prospects
2004 has been a year in which we have transformed Alkane into a truly
international renewable energy company with sales of our leading edge technology
and services in an increasing number of premium markets. We look forward to
continuing this growth and moving into profit in 2005 as we benefit from
sustained high energy prices and the expansion of our sales and servicing
activities worldwide.
Finally, I would like to pay tribute to our teams in the UK and Germany who are
overseeing this continuing transformation and thank them for all their hard work
and dedication in moving Alkane towards a strongly growth orientated and
profitable future.
John Lander
Chairman
GROUP PROFIT AND LOSS ACCOUNT
for the twelve months ended 31 December 2004
2004 2003
(unaudited)
£ '000 £ '000
TURNOVER 19,785 7,270
Cost of sales (14,910) (4,921)
GROSS PROFIT 4,875 2,349
Administrative expenses (6,041) (3,840)
Other operating income 413 76
OPERATING LOSS (753) (1,415)
Profit on sale of fixed assets 371 -
Fundamental restructuring (Note 2) - (19,670)
LOSS ON ORDINARY ACTIVITIES
BEFORE INTEREST (382) (21,085)
Interest receivable and similar income 430 429
Interest payable and similar charges (332) (47)
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION (284) (20,703)
Taxation (267) (117)
LOSS ON ORDINARY ACTIVITIES
AFTER TAXATION (551) (20,820)
Minority interests (163) (207)
LOSS FOR THE FINANCIAL YEAR (714) (21,027)
Loss per ordinary share - basic and diluted (0.80p) (23.45p)
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2004 2003
(unaudited)
£ '000 £ '000
Loss for the period (714) (21,027)
Exchange rate differences (2) 9
TOTAL RECOGNISED GAINS AND
LOSSES (716) (21,018)
GROUP BALANCE SHEET
at 31 December 2004
2004 2003
(unaudited)
£'000 £'000
FIXED ASSETS
Intangible assets 873 729
Tangible fixed assets - gas properties 431 487
Tangible fixed assets - generation 2,243 -
Tangible fixed assets - other 4,293 3,514
Investments - 157
7,840 4,887
CURRENT ASSETS
Stock 1,505 2,486
Debtors: amounts falling due within one year 6,349 4,589
Debtors: amounts falling due after more than
one year 258 517
Investments 30 29
Cash at bank and in hand 5,716 8,757
13,858 16,378
CREDITORS:
amounts falling due within one year (6,645) (6,088)
NET CURRENT ASSETS 7,213 10,290
TOTAL ASSETS LESS CURRENT
LIABILITIES 15,053 15,177
CREDITORS:
amounts falling due after more than one year (2,665) (2,105)
PROVISIONS FOR LIABILITIES AND
CHARGES (1,998) (2,000)
MINORITY INTERESTS (1,104) (1,079)
NET ASSETS 9,286 9,993
CAPITAL AND RESERVES
Called up share capital 449 448
Share premium account 32,956 32,948
Profit and loss account (24,119) (23,403)
TOTAL EQUITY SHAREHOLDERS' FUNDS 9,286 9,993
GROUP STATEMENT OF CASH FLOWS
For the twelve months ended 31 December 2004
2004 2003
(unaudited)
£ '000 £ '000
NET CASH OUTFLOW FROM
OPERATING ACTIVITIES (261) (3,736)
Cash flows from the fundamental restructuring - (744)
TOTAL OPERATING CASH FLOWS (261) (4,480)
RETURNS ON INVESTMENT AND
SERVICING OF FINANCE
Interest received 405 434
Interest paid (121) (13)
Interest element of finance lease payments (93) (33)
191 388
TAXATION
Overseas tax paid (84) (116)
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT
Payments to acquire intangible fixed assets (8) (108)
Payments to acquire tangible fixed assets (2,946) (1,046)
Receipts from the sale of tangible fixed assets 695 48
(2,259) (1,106)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertaking (162) (1,645)
Net cash acquired with subsidiary undertaking 149 1,744
(13) 99
NET CASH OUTFLOW BEFORE (2,426) (5,215)
FINANCING
FINANCING
Repayment of long term loans (48) (18)
Capital element of finance lease rental payments (573) (137)
Issue of ordinary share capital 8 2
DECREASE IN CASH (3,039) (5,368)
NOTES TO THE ACCOUNTS
1. The preliminary unaudited financial statements for the year ended 31 December
2004 were approved by the board of directors on 22 March 2005.
2. FUNDAMENTAL RESTRUCTURING
2004 2003
(unaudited)
£ '000 £ '000
a. Impairment of tangible fixed assets - gas
properties - (17,045)
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 ended 31 December 2003 a fundamental restructuring of the
business was 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
were:
a. UK development sites were written down to nil. Operating sites were written
down to reflect their value in use. This was determined using a discounted
cash flow model applying a discount rate of 10% which reflects the expected
return on capital of such projects;
b. Deferred grant income received in relation to a development site was released
in line with the write off;
c. Provision was made for the restoration of all sites as required under the
terms of planning permissions or under lease conditions;
d. Other tangible assets which were no longer used were written off; and
e. Other head office costs including redundancy payments and professional fees
relating to the restructuring were written off.
3. ACQUISITION OF ALKANE BIOGAS LIMITED
On 8 April 2004 the Company acquired 83% of the issued share capital of
Farmatic Biotech Energy UK Limited (FBE) for a consideration of £150,000 and
professional fees incurred of £12,000. This amount was paid to FBE as
consideration for the allocation of shares, and not to its shareholder. A
loan of £100,000 was made to FBE on the same date. FBE had net liabilities
of £56,000 at the date of acquisition. No fair value adjustments have been
made to the net assets acquired therefore goodwill arising on the
acquisition is £84,000, which after amortisation has a net book value of
£78,000 at 31 December 2004. This figure has been included within the
Balance Sheet within intangible fixed assets. FBE has been renamed Alkane
Biogas Limited.
4. LOSS PER SHARE
The basic and diluted loss per ordinary share is based on a loss of £714,000
(2003: loss of £21,027,000) on a weighted average of 89,732,717 ordinary
shares (2003: 89,663,151).
5. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2004 2003
(unaudited)
£ '000 £ '000
Decrease in cash (3,039) (5,368)
Repayment of long term loans 48 18
Capital element of finance lease rental payments 573 137
CHANGE IN NET FUNDS ARISING FROM
CASH FLOWS (2,418) (5,213)
Acquisition of long term loan - (383)
Acquisition of finance leases - (2,084)
Finance leases entered into (1,046) (401)
Exchange rate differences (7) 18
CHANGE IN NET FUNDS (3,471) (8,063)
NET FUNDS AT START OF YEAR 6,062 14,125
NET FUNDS AT END OF YEAR 2,591 6,062
6. RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATING ACTIVITIES
2004 2003
(unaudited)
£ '000 £ '000
Operating loss (752) (1,415)
Depreciation 920 380
Amortisation 109 20
Decrease in stock 987 2,861
Increase in debtors (1,628) (2,850)
Increase/(decrease) in creditors 105 (2,732)
Decrease in provisions (2) -
NET CASH OUTFLOW FROM
OPERATING ACTIVITIES (261) (3,736)
7. ANALYSIS OF NET FUNDS
As at Other non- Exchange As at
1st January Cash cash rate 31 December
2004 flow movements differences 2004
(unaudited)
£ '000 £ '000 £ '000 £ '000 £ '000
Cash at bank and in hand 8,757 (3,039) - (2) 5,716
Long term loans (369) 48 - (1) (322)
Finance leases (2,326) 573 (1,046) (4) (2,803)
6,062 (2,418) (1,046) (7) 2,591
8. GENERAL NOTE
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 2003 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 2004 will be sent to shareholders during April 2005 and will be
available from the Company's registered office - Edwinstowe House, High
Street, Edwinstowe, Nottinghamshire NG21 9PR.
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