Preliminary Results

Alkane Energy PLC 19 March 2008 For Immediate Release 19 March 2008 Alkane Energy plc ('Alkane', 'the Group' or 'the Company') Unaudited preliminary results for the year ended 31 December 2007 Alkane Energy plc (AIM: ALK) is a profitable green energy company specialising in the use of coal mine methane as a fuel for electricity generation. Headlines • Adjusted PBT up to £1,343,000 from £841,000 • Profit attributable to equity holders £1,034,000 - in line with market expectations • Basic earnings per share 1.13p (2006: 1.17p) • Continued growth in energy sales: •Electricity - up 35% to 79.7 million KWh (2006: 59.3 million KWh) •Gas - up 25% to 11.9 million cu. metres (2006: 9.5 million cu. metres) • Positive outlook for electricity prices • 2008 development programme under way with: •Successful gas well drilled at Mansfield •Additional 1.35MW generator connected at Warsop •Two new development projects approved by BERR Note: Adjusted PBT excludes non-recurring costs, impairment of goodwill, loss on deemed disposal and profit on licence sale Commenting on the preliminary results, Chief Executive, Dr Cameron Davies, said: 'I am pleased to report good results from Alkane Energy with contracted income secure until March 2009. Our adjusted year-end PBT was £1,343,000 an underlying increase of 60% once non-recurring items have been stripped out. 'Our power plants generated a record 79.7 million kilowatt hours of electricity during the year, up 35%, and our direct gas sales were 11.9 million cubic metres, up 25% on 2006. We continue to sell our electricity into a strong market with low input costs using our own gas reserves. 'The continued growth of Alkane is supported by our broad portfolio of licences and the future project development pipeline.' Alkane Energy plc Tel: 020 7466 5000 (Today) Dr. Cameron Davies, CEO Tel: 01623 827927 Buchanan Communications Tel: 020 7466 5000 Dr. Ben Willey, Partner Tel: 0845 270 8611 Miranda Higham, Associate Brewin Dolphin Andrew Emmott, Director Chairman's Statement Introduction Alkane's profit attributable to equity holders was £1,034,000 in 2007, a slight decrease on the previous year. Profit before tax was £1,032,000 (2006: £1,183,000), however, after adjustment for non-recurring items there was a 60% increase in the underlying profit before tax to £1,343,000 in 2007 up from £841,000 in 2006. As a result of our expanding gas production capacity electricity sales continued to rise and were 35% higher in 2007 than in the previous year but electricity prices were lower at the time when new sales contracts were signed and growth in power output only partially offset a lower price per MWh sold. The installation of new generation capacity, a cash repayment of €1,000,000 from Pro2, a non-core licence sale for £185,000, and the availability of lease financing have increased our cash resources to £1,750,000 at year end from £778,000 which has allowed us to push forward with our project development programme in the first quarter 2008. In March 2008, a successful gas well was completed at Mansfield on time and on budget which should increase gas flow rates sufficiently to enable us to install another 1.35MW generator in the second quarter of 2008. In addition, a second 1.35MW generator was installed at Warsop in the first quarter 2008. The output from this new generation capacity is contracted at £51/MWh until September 2009. This compares with an average price of £42/MWh achieved over the portfolio in 2007. In BERR's 2008 13th Onshore Licensing Round, we applied for five new petroleum exploration and development licences covering mines in the East Midlands and South Yorkshire. The outcome of our application is expected in the Autumn 2008. Financial Overview Alkane's annual results are presented for the first time in accordance with International Financial Reporting Standards (IFRS) and the comparative numbers for 2006 have been restated from UK Generally Accepted Accounting Practice (UK GAAP). The net effect has been to increase the profit attributable to equity holders for 2006 from £1,015,000 to £1,074,000. The results are also the first to be published following the investment of €1,400,000 by new shareholders in the equity of Pro2 announced on 12 July 2007. As a result of this transaction the Company's holding in Pro2 was reduced from 51% to 38%, effective on 1 January 2007. Accordingly, Pro2 is treated for reporting purposes as an associated company of Alkane Energy plc rather than as a subsidiary from that date. Alkane's turnover in 2007 was therefore reduced substantially from 2006 as the Company's share of Pro2's results is now reported as one line in the income statement, rather than by consolidating turnover and costs. In the second half of 2007, Pro2 completed repayment of the first €1,000,000 instalment of our working capital loan. Revenue in 2007 increased by 15% to £4,270,000, compared to £3,724,000 in 2006 when Pro2's revenue of £23,595,000 is excluded from the total of £27,319,000 in 2006. The return on Group operations including non-recurring costs in 2007 was £705,000, compared to £817,000 in 2006. The profit before tax for the year is £1,032,000, compared to £1,183,000 in 2006. However there were a number of non-recurring items which affect this comparison: • In 2007 there was the sale of a non-core licence for £185,000; in 2006 a licence was sold for £350,000; • There were costs of £221,000 in 2007 in respect of an abortive corporate transaction; • The external costs related to the transition to IFRS totalled £89,000 in 2007; • The UK subsidiary Pro2 Services Limited (PSL) was acquired in 2005 in order to provide in-house operating and maintenance services, and to assist in the promotion of the German Pro2 business in the UK. The former objective has been largely achieved but the market for gas engines has proved to be small and not worth investing in. PSL also had a small business servicing customers in the landfill industry but as this latter business has not met expectations it was decided to cease marketing to external customers. As a result, the outstanding amount of goodwill of £66,000 has been written off in 2007; and • The reduction in the Company's holding in Pro2 was classed as a deemed disposal, with an accounting loss of £120,000 in 2007. Taking account of the above items the underlying profit before tax is higher at £1,343,000 compared to £841,000 in 2006. The main reasons for this are an increase in volume of both electricity (35%) and gas sales (25%), and an increased contribution from Pro2. Revenue per MWh of electricity sold in 2007 was £41.73, compared to £48.64 in 2006. These average prices include revenue from the Climate Change Levy (CCL), which is classed by the EU as state aid and will not continue after 1 November 2008, the end of its five year exemption term. Forward electricity contracts, excluding CCL exemption, are currently trading at £58/MWh for 2009 and £56/MWh for 2010. It is expected that these higher prices will more than compensate for the loss of CCL related revenue. In Germany, continued growth at Pro2 allowed it to repay €1,000,000 of the €3,000,000 working capital loan to Alkane during the year. Sales increased slightly in 2007 to £23,993,000 (2006: £23,595,000) but its profit for the year increased substantially to £787,000 (2006: £55,000). Alkane's share of this profit was £299,000 (38%) compared to £28,000 (51%) in 2006. However, future growth in the German biogas market is uncertain as a result of higher commodity prices for agricultural feedstock and changes to the renewable energy law. Pro2 is compensating for this by growth in sales to the international renewable energy and rapidly expanding carbon emissions reduction markets. Net cash flows from operating activities were £1,258,000 (including loan repayment of £703,000 from Pro2). As a result we ended the year with net funds of £755,000 (2006: net debt £2,010,000). At the annual general meeting to be held on 7 May 2008 the Company will seek approval to apply to the Court to cancel the share premium account. This will enable the Company to consider the payment of dividends in future, provided that the Company remains profitable, and has sufficient resources to prudently meet these payments. Operations Review Mine Gas Plants The electricity exports from our portfolio of generation plants increased by 35% to 79,700 MWh compared with 59,300 MWh in 2006 and gas output rose to 11.9 million cubic metres compared with 9.5 million in 2006. Electricity prices fell substantially in summer 2007 to around £25/MWh and as a result, in September, we signed 18 month contracts on expiry of the previous contracts at an average of around £38/MWh until March 2009. In the light of increasing energy prices, the economics of new projects are kept under constant review and as a result more capacity has been installed on existing sites in order to maximise cash flows from exploitation of our proven gas reserves. Our technical team is therefore pushing ahead with gas reserve estimates, planning applications, land lease deals and grid connection investigations in order to expedite the development of more mine gas sites from our project portfolio. At the existing Warsop site in Nottinghamshire, planning consent was obtained from the local authority and an additional 1.35MW generator was installed in March 2008. The electricity output from the new plant, which commenced operations on 4 March 2008, is contracted for 18 months at a price of £51/MWh. This addition to the portfolio has increased our total generating and gas supply capacity to 18.5 MW. At the Mansfield site, directional well drilling operations were successfully completed in the first quarter 2008. This second well has now been flow tested and is currently being connected to the internal gas gathering network. An additional 1.35 MW generator ordered for this site will increase its capacity to 4.05MW and another of similar output has been ordered for Bevercotes. Both of these new containerised plants are scheduled for delivery in June 2008. Our seven UK mine gas plants continued to reduce carbon emissions from abandoned coal mines within our licence areas and, through our trade association ACMMO, we will continue to lobby for recognition of this by the Government. German CMM The Joarin power plant continued to generate steadily at around 1MW output and made a small profit. In response to the lower than expected flows a gas reserve report was commissioned from independent mining engineering consultants at the Fraunhofer Institute in Oberhausen. The conclusion of the report was that substantial gas reserves remain but that a second well will be required to access this gas and circumvent the air leakage problem which has reduced the current operating capacity. Plans are in preparation to select a site for this second well. Pro2 Services UK Limited During the year the remaining external contracts were completed and the operations team was brought in house. The technicians attended power generation and electronic control system training courses at both Deutz and Pro2 in Germany and this has enhanced our operational capability and allowed Pro2 Services to replace expensive outsourced plant maintenance operations and routine servicing. Prospects The prospects for 2008 and for the medium term are encouraging, as electricity prices remain high and some of our new plants are already signed up on contracts at prices substantially above those for last year. We will continue to develop our existing pipeline of defined projects and hope to add to this existing portfolio with 13th Onshore Round licences later in the year. This should sustain the Company on a steady growth path. World interest in coal mine gas projects has increased substantially as governments recognise that methane is 23 times more potent than carbon dioxide as a greenhouse gas and that these projects make an important contribution to reducing the rate of climate change. In order to take advantage of this growing international market, we are actively seeking to grow the Company through an acquisition or a merger with a similar profitable business in the sector. In closing, I would like to thank my colleagues for their dedication in continuing to operate a profitable business with good growth prospects. John Lander Chairman GROUP INCOME STATEMENT (unaudited) for the year ended 31 December 2007 2007 2006 £000 £000 REVENUE 4,270 27,319 Cost of sales (1,682) (18,981) --------- -------- GROSS PROFIT 2,588 8,338 Administrative expenses (1,872) (7,521) Non-recurring corporate costs (note 4) (310) - Share of profit of associate 299 - --------- -------- RETURN ON GROUP OPERATIONS 705 817 Other operating income 83 343 Loss on sale of fixed assets - (3) Profit on sale of licence 185 350 Impairment of goodwill (note 8) (66) (8) Loss on deemed disposal (note 9) (120) - --------- -------- PROFIT ON ACTIVITIES BEFORE FINANCE INCOME/(COSTS) 787 1,499 Finance income 267 124 Exchange gain arising from financing 155 - Finance costs (177) (440) --------- -------- NET FINANCE INCOME/(COSTS) 245 (316) --------- -------- PROFIT BEFORE TAX 1,032 1,183 Tax credit / (expense) 2 (58) --------- -------- PROFIT FOR THE YEAR 1,034 1,125 ========= ======== PROFIT FOR THE PERIOD ATTRIBUTABLE TO: Equity holders of the parent 1,034 1,074 Minority interest - 51 --------- -------- 1,034 1,125 ========= ======== Earnings per share Basic, for profit for the year attributable to equity holders of the parent 1.13p 1.17p Diluted, for profit for the year attributable to equity holders of the parent 1.11p 1.15p The earnings per ordinary share calculation represents total and continuing results GROUP BALANCE SHEET (unaudited) at 31 December 2007 2007 2006 £000 £000 NON-CURRENT ASSETS Intangible assets - 774 Property, plant and equipment 3,888 6,443 Gas assets 3,315 3,374 Investments accounted for using the equity method 3,691 - Other investments - 3 -------- --------- 10,894 10,594 -------- --------- CURRENT ASSETS Inventories 101 6,631 Trade and other receivables 3,130 7,768 Other financial assets 350 512 Cash and short-term deposits 1,750 946 -------- --------- 5,331 15,857 -------- --------- TOTAL ASSETS 16,225 26,451 -------- --------- CURRENT LIABILITIES Trade and other payables (1,371) (9,381) Financial liabilities (315) (1,084) Income tax payable - (80) Provisions (3) (4) -------- --------- (1,689) (10,549) -------- --------- NON-CURRENT LIABILITIES Other payables - (43) Financial liabilities (1,473) (2,939) Provisions (1,519) (1,550) -------- --------- (2,992) (4,532) -------- --------- TOTAL LIABILITIES (4,681) (15,081) -------- --------- NET ASSETS 11,544 11,370 ======== ========= EQUITY Share capital 460 459 Share premium 33,259 33,234 Cumulative translation adjustment 113 - Other reserves 107 81 Retained losses (22,395) (23,572) -------- --------- GROUP SHAREHOLDERS' EQUITY 11,544 10,202 Minority interests - 1,168 -------- --------- TOTAL EQUITY 11,544 11,370 ======== ========= GROUP STATEMENT OF CHANGES IN EQUITY (unaudited) for the year ended 31 December 2007 Attributable to equity holders of the parent --------------------------------- ------- ------- ------- ------- ------- Issued Share Translation Other Retained Total capital premium of foreign reserves(1) earnings(2) Equity operations £000 £000 £000 £000 £000 £000 At 1 January 2007 459 33,234 - 81 (23,572) 10,202 Foreign currency translation - - 113 5 143 261 -------- ------- ------- ------- ------- ------- Total income and expense for the period recognised directly in equity - - 113 5 143 261 Profit for the period - - - - 1,034 1,034 -------- ------- ------- ------- ------- ------- Total income and expense for the period - - 113 5 1,177 1,295 Share-based payment - - - 21 - 21 Issue of share capital 1 25 - - - 26 -------- ------- ------- ------- ------- ------- At 31 December 2007 460 33,259 113 107 (22,395) 11,544 ======== ======= ======= ======= ======= ======= At 1 January 2006 456 33,189 - 56 (24,562) 9,139 Foreign currency translation - - - - (84) (84) -------- ------- ------- ------- ------- ------- Total income and expense for the period recognised directly in equity - - - - (84) (84) Profit for the period - - - - 1,074 1,074 -------- ------- ------- ------- ------- ------- Total income and expense for the period - - - - 990 990 Share-based payment - - - 25 - 25 Issue of share capital 3 45 - - - 48 -------- ------- ------- ------- ------- ------- At 31 December 2006 459 33,234 - 81 (23,572) 10,202 ======== ======= ======= ======= ======= ======= (1) Other reserves comprise share-based payments. (2) The balance of the foreign currency translation reserve at 31 December 2007 was £123,000 (31 December 2006: (£130,000)). GROUP CASH FLOW STATEMENT (unaudited) for the year ended 31 December 2007 2007 2006 £000 £000 OPERATING ACTIVITIES Profit before tax from continuing 1,032 1,183 operations Adjustments to reconcile operating profit to net cash flows: Depreciation and impairment of property, plant and equipment 507 1,373 and gas assets Amortisation and impairment of 66 23 intangible assets Share-based payments expense 20 28 Pension accrual expense - 27 Loss on sale of fixed assets - 3 Profit on sale of licence (185) (350) Finance income (267) (124) Finance expense 177 440 Loss on deemed disposal 120 - Share of net profit of associate (299) - Movements in provisions (32) (38) Decrease/(increase) in trade and 817 (640) other receivables Increase in inventories (54) (3,270) (Decrease)/increase in trade and (586) 1,638 other payables Income tax paid (58) (151) -------- ------------ NET CASH FLOWS FROM OPERATING 1,258 142 ACTIVITIES CASH FLOWS FROM INVESTING ACIVITIES Proceeds from sale of property, - 2,388 plant and equipment Proceeds from sale of licence 185 350 Interest received 189 122 Purchase of subsidiary undertaking - (20) Purchase of intangible assets - (5) Purchase of property, plant and (629) (601) equipment Purchase of gas assets (246) (1,251) ------- ------------- NET CASH FLOWS (USED IN)/FROM (501) 983 INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Issue of share capital 26 48 Proceeds from sale and finance 606 550 leaseback Sale and finance leaseback rentals (350) (243) Repayment of capital element of - (699) finance leases Repayment of long-term loans - (60) Payments in respect of securities - (555) Interest paid (180) (409) ---------------- ------ NET CASH FLOWS FROM/(USED IN) 102 (1,368) FINANCING ACTIVITIES Net increase/(decrease) in cash and cash 859 (243) equivalents Net foreign exchange difference - 8 Cash and cash equivalents at 1 January 1,241 1,525 --------- ------ CASH AND CASH EQUIVALENTS AT 31 DECEMBER 2,100 1,290 ====== ========= NOTES TO THE ACCOUNTS 1. CORPORATE INFORMATION The preliminary unaudited financial statements of the Group for the year ended 31 December 2007 were authorised for issue in accordance with a resolution of the directors on 18 March 2008. Alkane Energy plc is a public limited company incorporated and domiciled in England whose shares are publicly traded. The principal activities of the Group are described in note 3. 2. BASIS OF PREPARATION AND ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared for the first time in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. As these are the Group's first IFRS annual financial statements IFRS 1, First-time Adoption of International Financial Reporting Standards, has been applied. The financial statements should be read in conjunction with the Group's Statement of Adoption of International Financial Reporting Standards, which was published on 17 September 2007 and shows an explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Group. This Statement includes reconciliations of equity and profit or loss for comparative periods reported under UK GAAP to those reported for those periods under IFRS. The difference between the profit attributable to equity owners of the parent under UK GAAP and under IFRS for the year ended 31 December 2006 is reconciled in note 14. The Group has adopted all of the standards and interpretations that were mandatory for accounting periods beginning on or after 1 January 2007 that are relevant to the operations of the Group. The Group has early adopted the following standard: IFRS 8 Operating segments The Group has elected to adopt IFRS 8 as of 1 January 2007. This standard requires disclosure of information about the Group's operating segments. Adoption of this standard did not have any effect on the financial position or performance of the Group. The Group determined that the operating segments were the same as the business segments previously identified under IAS 14. Additional disclosures about each of these segments are shown in Note 3, including revised comparative information. 3. SEGMENT INFORMATION Business segments The Group is comprised of the following business segments: • Extraction of gas from coal measures for power generation and burner tip use; and • The manufacture, supply, operation and maintenance of equipment. Seasonality of operations There is no significant seasonal nature to the Group's business of the extraction and use of gas. However manufacture and supply of equipment by the associated company Pro2 Anlagentechnik GmbH's is biased towards the second half, principally due to the effect of the German renewable energy law under which electricity prices available for equipment commissioned by customers fall on 1 January each year. The following tables present revenue and profit information regarding the Group's business segments for the year ended 31 December 2007 and 2006 respectively. Year ended 31 December 2007 (unaudited) Continuing operations Extraction of Manufacture Total gas from coal supply, operate measures and maintain equipment £000 £000 £000 Revenue Revenue from external customers 4,201 69 4,270 Inter-segment sales - 200 200 ---------- ---------- ------- Total revenue 4,201 269 4,470 ---------- ---------- ------- ---------- ---------- ------- Depreciation (514) - (514) ---------- ---------- ------- Impairment of goodwill - (66) (66) ---------- ---------- ------- Results Segment profit 1,130 213 1,343 ---------- ---------- ------- Corporate centre costs (658) Corporate centre finance income 467 Loss on deemed disposal (120) ------- Profit before tax from continuing operations 1,032 ======= Year ended 31 December 2006 Continuing operations Extraction of Manufacture Total gas from coal supply, operate measures and maintain equipment £000 £000 £000 Revenue Revenue from external customers 3,418 23,901 27,319 Inter-segment sales - 736 736 --------- ---------- ------- Total revenue 3,418 24,637 28,055 --------- ---------- ------- Depreciation (436) - (436) --------- ---------- ------- Impairment of goodwill - (8) (8) --------- ---------- ------- Results Segment profit 832 377 1,209 --------- ---------- ------- Corporate centre costs (465) Corporate centre finance income 439 ------- Profit before tax from continuing operations 1,183 ======= The following table compares total segment assets, total segment liabilities and segmental capital expenditure as at 31 December 2007 and 2006. 2007 2006 unaudited £000 £000 Extraction of gas from coal measures 10,322 8,486 Manufacture, supply, operate and maintain equipment 125 17,229 --------- --------- Total segment assets 10,447 25,715 Goodwill - 756 Corporate centre 778 695 Investment in associate 3,691 - Loan to associate 1,612 - Inter-segment adjustment (303) (715) --------- --------- Total consolidated assets 16,225 26,451 ========= ========= Extraction of gas from coal measures (4,551) (4,184) Manufacture, supply, operate and maintain equipment (9) (11,145) --------- --------- Total segment liabilities (4,560) (15,329) Corporate centre (186) (254) Inter-segment adjustment 65 502 --------- --------- Total consolidated liabilities (4,681) (15,081) ========= ========= Extraction of gas from coal measures 1,457 1,647 Manufacture, supply, operate and maintain equipment - 1,341 --------- --------- Total capital expenditure 1,457 2,988 ========= ========= Geographical Segments Year ended 31 December 2007 (unaudited) Continuing operations United Kingdom Continental Total Europe £000 £000 £000 Revenue Revenue from external customers 3,985 285 4,270 Inter-segment sales 200 - 200 --------- --------- -------- Total revenue 4,185 285 4,470 --------- --------- -------- Depreciation (446) (68) (514) --------- --------- -------- Impairment of goodwill (66) - (66) --------- --------- -------- Results Segment profit 1,038 305 1,343 --------- --------- -------- Corporate centre costs (658) Corporate centre finance income 467 Loss on deemed disposal (120) -------- Profit before tax from continuing operations 1,032 ======== Year ended 31 December 2006 Continuing operations United Kingdom Continental Total Europe £000 £000 £000 Revenue Revenue from external customers 3,323 23,996 27,319 Inter-segment sales 152 584 736 --------- -------- --------- Total revenue 3,475 24,580 28,055 --------- -------- --------- Depreciation (391) (45) (436) --------- -------- --------- Impairment of goodwill (8) - (8) --------- -------- --------- Results Segment profit 871 338 1,209 --------- -------- --------- Corporate centre costs (465) Corporate centre finance income 439 --------- Profit before tax from continuing operations 1,183 ========= The following table compares total segment assets, total segment liabilities and segmental capital expenditure as at 31 December 2007 and 2006. 2007 2006 unaudited £000 £000 United Kingdom 9,652 7,869 Continental Europe 795 17,846 --------- --------- Total segment assets 10,447 25,715 Goodwill - 756 Corporate centre 778 695 Investment in associate 3,691 - Loan to associate 1,612 - Inter-segment adjustment (303) (715) --------- --------- Total consolidated assets 16,225 26,451 ========= ========= United Kingdom (4,514) (4,186) Continental Europe (46) (11,143) --------- --------- Total segment liabilities (4,560) (15,329) Corporate centre (186) (254) Inter-segment adjustment 65 502 --------- --------- Total consolidated liabilities (4,681) (15,081) ========= ========= United Kingdom 1,457 1,647 Continental Europe - 1,341 --------- --------- Total capital expenditure 1,457 2,988 ========= ========= 4. NON-RECURRING ITEMS The following table is an analysis of non-recurring costs: 2007 2006 unaudited £000 £000 Corporate costs 221 - IFRS implementation costs 89 - -------- --------- 310 - ======== ========= The corporate costs were incurred in respect of an aborted corporate transaction, and the IFRS implementation costs refer to the external costs incurred in the transition from UK GAAP to IFRS. 5. EARNINGS PER ORDINARY SHARE Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holder of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic and diluted earnings per share computations: 2007 2006 unaudited £000 £000 Net profit attributable to equity holders of the parent 1,034 1,074 ========= ========= 2007 2006 unaudited Basic weighted average number of ordinary shares 91,865,828 91,540,638 Dilutive effect of share options 1,267,876 1,674,321 --------- --------- Diluted weighted average number of ordinary shares 93,133,704 93,214,959 ========= ========= 6. CASH AND CASH EQUIVALENTS For the purpose of the Group cash flow statement, cash and cash equivalents are comprised of the following: 31 December 31 December 2007 2006 unaudited £ 000 £ 000 Cash at bank and in hand 1,750 946 Liquid resources 350 512 Bank overdraft - (168) ----------- ---------- 2,100 1,290 =========== ========== 7. TAXATION The major components of the tax credit/(expense) in the Group income statement are: 31 December 31 December 2007 2006 unaudited £000 £000 Foreign tax - 191 Tax over-provided in previous years (2) (133) ----------- ---------- (2) 58 =========== ========== 8. Impairment of goodwill Pro2 Services Limited, a 100% owned subsidiary, provides maintenance support services to external customers and to other Group companies. A review has been undertaken of the future profitability of Pro2 Services Limited in respect of external business, taking into account the market for that business and the priority to provide services to other Group companies. This review has concluded that the company should cease marketing to external customers. The goodwill capitalised when the company was acquired in 2005 was related to external business and therefore it has been concluded that it has been fully impaired. As a result the outstanding amount of £66,000 has been written off in the year. 9. Business COMBINATIONS On 1 January 2007 Pro2 Anlagentechnik GmbH issued new equity shares to third party investors for an amount of €1,400,528. As a result Alkane Energy plc's interest was reduced from 51% to 38.01%. There is therefore a deemed disposal which gives rise to a loss. The book values of the net assets at the date of disposal were as follows: £000 £000 Non-current assets 3,585 Inventories 6,584 Trade and other receivables 6,657 Other financial assets 162 Cash and short-term deposits 55 Current liabilities (11,644) Non-current liabilities (3,023) -------- Net assets at 1 January 2007 2,376 Cash inflow following transaction (€1,400,528) 942 -------- 3,318 Effective interest in Pro2 before issue of new equity: -------------------------------------------------------- 51% of £2,376,000 1,212 Plus goodwill on acquisition 665 -------- 1,877 Effective interest in Pro2 after issue of new equity: ------------------------------------------------------- 38.01% of £3,318,000 1,261 Plus goodwill on acquisition x 38.01/51 496 -------- 1,757 -------- Loss on Disposal (120) ======== The reduction in the Company's holding means that from the transaction date of 1 January 2007 Pro2 Anlagentechnik GmbH has been treated for reporting purposes as an associated company of Alkane Energy plc, using the equity method of accounting. In previous periods the results of Pro2 Anlagentechnik GmbH were fully consolidated as a subsidiary undertaking. Under the equity method of accounting the Company's share of Pro2 Anlagentechnik GmbH's results are shown as one line in the income statement, rather than consolidating turnover and costs by individual category. There is therefore a significant reduction in revenue, cost of sales and administrative expenses in the year to 31 December 2007 when compared to the year ended 31 December 2006. In the Balance Sheet for 2007, the Group's investment in Pro2 Anlagentechnik GmbH is reported as one line, Investments accounted for using the equity method, leading to significant reductions in property, plant and equipment, inventories, trade and other receivables, and other payables and financial liabilities when compared to 2006 10. PROPERTY, Plant and equipment Acquisitions and disposals During the year ended 31 December 2007 the Group acquired assets with a cost of £1,248,000 (2006: £1,821,000). There were no disposals during the year ended 31 December 2007 (2006: £2,391,000). The carrying value of the assets held at 31 December 2006 by Pro2 Anlagentechnik GmbH totalled £3,564,000. On 1 January 2007 Pro2 issued new equity shares to third party investors and Alkane Energy plc's interest was reduced from 51% to 38.01%. As a result Pro2 has from that date been treated for reporting purposes as an associate company rather than as a subsidiary, and the assets are no longer shown within Property, Plant and Equipment. They have therefore been classed as disposals in the year ended 31 December 2007. Arising from the transition to IFRS and the implementation of IAS 16 (Property, plant and equipment) assets with a carrying value of £2,867,000 have been reclassified from Gas Properties to Property, Plant and Equipment as at 1 January 2006. The balance of the assets within Gas Properties has been renamed as Gas Assets. Sale and finance leaseback During the year ended 31 December 2007 the Group entered into two new sale and finance leaseback agreements for items of plant with a total cost of £606,000. 11. gas assets Acquisitions and disposals During the year ended 31 December 2007 the Group acquired assets with a cost of £209,000 (2006: £1,167,000). There were no disposals during the year ended 31 December 2007 (2006: nil). 12. Capital commitments At 31 December 2007 the Group had capital commitments contracted for but not provided in the accounts for the acquisition of property, plant and equipment of £22,000 (2006: £95,000). 13. Share capital During the year ended 31 December 2007, options over 200,000 ordinary shares were exercised in respect of the Post Admission Share Option Plan. 14. TRANSITION TO IFRS The Group adopted IFRS with effect from 1 January 2006, and the results for the year ended 31 December 2006 have been restated from UK GAAP. The following table reconciles the profit reported under UK GAAP with that restated to IFRS: 2006 £000 Profit for the year attributable to equity holders of the parent as reported under UKGAAP 1,015 Adjustment in respect of IAS 19 (Employee Benefits) (30) Adjustment in respect of IFRS 3 (Business Combinations) 89 --------- Profit for the year attributable to equity holders of the parent as restated to IFRS 1,074 ========= 15. 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 2006 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 2007 will be sent to shareholders during April 2008 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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