Interim Results

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 £52/MWh

·     Awarded 101MW of Capacity Market contracts starting October 2018

Financial Highlights

·     Revenue increased by 23% to £8.7m (H1 2014: £7.1m)

·     Core generation revenue has grown 45% to £8.6m ( H1 2014: £5.9m)

·     Adjusted PBT increased by 166% to £1.4m (H1 2014: £0.5m)

·     Adjusted EBITDA increased by 50% to £3.8m (H1 2014: £2.5m)

·     Net assets increased to £47.7m (H1 2014: £40.7m) 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 £8.7m (H1 2014: £7.1m) and adjusted EBITDA has increased to £3.8m (H1 2014: £2.5m).  Group adjusted PBT and EPS have improved by 166% and 119% respectively to £1.4m (H1 2014: £0.5m) 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 (MW)	2009	2010	2011	2012	2013	2014	H1 2015
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 £52/MWh (2014: £53/MWh) and 56% of its 2016 expected output at £50/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 £195/MWh in the winter 2014/15 to an estimated £227/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")

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 £8.7m (H1 2014: £7.1m).  Revenue in the core generation business was £8.6m (H1 2014: £5.9m).  

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 Unaudited	H2 2014 Unaudited
	£'000	£'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 £3.7m (H1 2014: £2.2m), 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 £1.0m to £1.9m (H1 2014: £0.9m), whilst PBT has increased by 166% to £1.4m (H1 2014: £0.5m).

The Company's cost base remains tightly controlled. Administrative expenses before exceptional items were £1.8m (H1 2014: £1.5m). 

EBITDA was £3.8m (H1 2014: £2.5m), 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 £4.7m (H1 2014: £1.3m) with capital expenditure of £5.1m compared to £3.0m in H1 2014.  Included within H1 2015 capital expenditure is £2.0m 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 £47.7m (H1 2014: £40.7m) 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 £19.3m (H1 2014: £12.4m) with gearing at 41% (H1 2014: 31%).  Alkane has met all the bank covenant tests and in the period a total of £1.9m in loan and lease repayments has been made.  A £2.0m 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 six	For the six	For the year
		months ended	months ended	ended
		30 June	30 June	31 December
		2015	2014	2014
		Unaudited	Unaudited	Audited
	Notes	£'000	£'000	£'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)
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	£'000	£'000	£'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
	£'000	£'000	£'000	£'000	£'000	£'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)	-	-
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 £364,000 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: £221,000 and 31 December 2014: £220,000), a share-based payments reserve of £377,000 (30 June 2014: £413,000 and 31 December 2014: £315,000), a merger relief reserve of £244,000 (30 June and 31 December 2014: £244,000) and a distributable reserve of £8,419,000 (30 June and 31 December 2014: £8,419,000) that was created following a capital reduction.

Consolidated Statement of Cash Flows

for the six months ended 30 June 2015

		For the six	For the six	For the year
		months ended	months ended	ended
		30 June	30 June	31 December
		2015	2014	2014
		Unaudited	Unaudited	Audited
	Notes	£'000	£'000	£'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

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 ended 30 June 2015	Six months ended 30 June 2014	Year ended 31 December 2014
	Unaudited	Unaudited	Audited
	£'000	£'000	£'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 2015	30 June 2014	31 December 2014
	Unaudited	Unaudited	Audited
	£'000	£'000	£'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 £34,000 has been recognised in the period (six months ended 30 June 2014: nil, year ended 31 December 2014: £228,000).

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.

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 June		ended 30 June		31 December
	2015		2014		2014
	Unaudited		Unaudited		Audited
	£'000		£'000		£'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 £66,000 (six months ended 30 June 2014: £103,000 and year ended 31 December 2014: £234,000) 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 £1,508,000 (six months ended 30 June 2014: £7,360,000 and year ended 31 December 2014: £3,672,000).

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 £2,000,000 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 £486,000 (six months ended 30 June 2014 and year ended 31 December 2014: a dividend of 0.2 pence per share totalling £249,000).

7.   Property, Plant and Equipment

Acquisitions and disposals

During the six months ended 30 June 2015, the Group acquired assets with a cost of £874,000 (six months ended 30 June 2014: £1,295,000; year ended 31 December 2014: £13,216,000).  Included within additions for the period ended June 2014 and the year ended 31 December 2014 is £900,000 relating to the acquisition of Wheldale power response assets (see note 11).  The figures for the year ended 31 December 2014 also included £8,090,000 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 £1,723,000 (six months ended 30 June 2014: £1,565,000; year ended 31 December 2014: £8,413,000).  Included within additions for the period ended June 2014 and the year ended 31 December 2014 is £600,000 relating to the acquisition of Wheldale power response assets (see note 11).  The figures for the year ended 31 December 2014 also included £4,207,000 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 £787,000 (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 £652,000 was recognised.  The total impairment charge recognised in the year ended 31 December 2014 was £1,439,000.  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 £2,393,000 (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 Amount	Fair Value		Carrying Amount	Fair 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 June 2015	Level 1	Level 2	Level 3
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 December 2014	Level 1	Level 2	Level 3
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 June 2014	Level 1	Level 2	Level 3
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

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 £242,000 (30 June 2014: £107,000; 31 December 2014: £41,000);

·      Acquisition of gas assets £174,000 (30 June 2014: £890,000; 31 December 2014: £759,000);

·      Acquisition of Maltby coal mine methane assets nil (30 June 2014: £2,000,000, 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 £1,500,000. The initial consideration for the acquisition was £1,100,000 paid in cash on completion, with a £400,000 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 £1,000,000.

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 £12,064,000; cash consideration comprised £10,991,000 and in addition the Group took on a £1,073,000 term loan facility with Lombard North Central plc.  The acquisition was partly funded by a term loan of £5,500,000 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 £8,000,000 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 £6,162,000 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 £10,991,000.  The following table shows the identifiable material assets and liabilities acquired, the fair value adjustments, and the fair value.

	Acquired on 21 July 2014	Fair value adjustments	Fair value
	£'000	£'000	£'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
			£'000
Fair value as above			10,991
less Consideration			10,991
			-

In the year ended 31 December 2014, costs of £600,000 were incurred in advisory, professional and other fees in order to effect the acquisition.  The net amount of £600,000 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 £10,500,000. 

A profit of £9,990,000 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 ended 30 June 2014	Year ended 31 December 2014
	Unaudited	Audited
	£'000	£'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 £5,036,000 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 ended 30 June 2015	Six months ended 30 June 2014	Year ended 31 December 2014
	Unaudited	Unaudited	Audited
	£'000	£'000	£'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 £2,000,000 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.

16.  Authorised and Issued Share Capital

	30 June	30 June	31 December
	2015	2014	2014
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Authorised
1,000,000,000 ordinary shares of 0.5p each	5,000	5,000	5,000

Allotted, called up and fully paid	thousands	£'000
Ordinary Shares of 0.5p each
At 1 January 2015	147,709	739
Issued on exercise of share options	609	3
Issued on conversion of loan stock	13,898	69
At 30 June 2015 (Unaudited)	162,216	811
At 1 January 2014	123,592	618
Issued on conversion of loan stock	645	3
At 30 June 2014 (Unaudited)	124,237	621
At 1 January 2014	123,592	618
Issued on exercise of share options	1,250	7
Issued as part of consideration for acquisition	645	3
Issued as a result of a share placing	22,222	111
At 31 December 2014 (Audited)	147,709	739

17.  Additional Cash Flow Information

Analysis of net debt

	1 January  2015	Cash flow	Other non-cash movements	30 June 2015
	Audited			Unaudited
	£'000	£'000	£'000	£'000
Cash at bank and in hand	1,084	(66)	-	1,018
Sale and finance leaseback	(1,823)	256	-	(1,567)
Long-term loan	(17,312)	(1,474)	-	(18,786)
Net debt	(18,051)	(1,284)	-	(19,335)
Securities	257	2	-	259
Adjusted net debt(1)	(17,794)	(1,282)	-	(19,076)

	1 January  2014	Cash flow	Other non-cash movements	30 June 2014
	Audited			Unaudited
	£'000	£'000	£'000	£'000
Cash at bank and in hand	838	(319)	-	519
Sale and finance leaseback	(412)	(1,741)	-	(2,153)
Long-term loan	(10,661)	(120)	-	(10,781)
Net debt	(10,235)	(2,180)	-	(12,415)
Securities	257	1	-	258
Adjusted net debt(1)	(9,978)	(2,179)	-	(12,157)

	1 January 2014	Cash flow	Other non-cash movements	31 December 2014
	Audited			Audited
	£'000	£'000	£'000	£'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(1)	(9,978)	(6,743)	(1,073)	(17,794)

⁽¹⁾This includes the effect of securities paid on finance lease transactions that are closely related to those items.

18.  General Note

Copies of this interim report will be sent to registered shareholders and further copies will be available from the Company's registered office. It will also be available on the Company's website, www.alkane.co.uk.

 

END

 

 

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