Preliminary Results

RNS Number : 5758C

Alkane Energy PLC

09 March 2011

 



9 March 2011

Alkane Energy plc

("Alkane", "the Group" or "the Company")

Unaudited preliminary results for the year ended 31 December 2010

Alkane Energy plc (AIM: ALK) the profitable alternative energy company that owns and operates power generation plants using coal mine methane as fuel, today announces its unaudited preliminary results for the year ended 31 December 2010.

Operational Highlights

·     Sixth successive year of growth in electricity output

·     26% increase in electricity output to 120GWh in 2010 (2009: 95GWh)

·     Three new sites opened on time, on budget and in line with stated strategy, bringing total to 12 (2009: 9)

·     Good progress on 2011 project pipeline

·     First full year of running surplus capacity on conventional gas with our partner, GDF SUEZ Energy UK

·     First contract in renewable biogas sector to supply power plant to anaerobic digestion facility due for delivery in 2011

Financial Highlights

·     Revenue increased by 5% to £6.6m (2009: £6.3m), despite a 21% fall in average electricity 
selling price

·     Operating cash inflow increased by 25% to £3.5m (2009: £2.8m)  

·     Depreciation increased by 50% to £1.8m (2009: £1.2m) due to continued investment in new 
sites and planned major services

·     Adjusted profit before tax of £1.4m (2009: £2.4m)

·     Organic funding in place for CMM programme

Commenting on the preliminary results, Chief Executive Officer, Neil O'Brien, said:

"The Group produced a strong performance in 2010, increasing electricity output by 26% to 120GWh and opening three new sites.

We continue to invest in increasing both our coal mine methane capacity and electricity output.  In addition, we see opportunities to grow in related market sectors including stranded on-shore gas, biogas and shale gas.  With tight cost controls and pricing expected to rise over the coming years, Alkane is well placed to make further progress in 2011."

For more information please contact:

Alkane Energy plc Neil O'Brien, Chief Executive Officer Steve Goalby, Finance Director	020 7796 4133 (today), then 01623 827927 020 7796 4133 (today), then 01623 827927
Altium Capital Limited Adrian Reed - Financial Advisory Chloe Ponsonby - Corporate Broking	0845 505 4343 020 7484 4040
Hudson Sandler Nick Lyon Alex Brennan	020 7796 4133

Background Information

Alkane Energy has the UK's leading portfolio of coal mine methane ("CMM") licences, enabling the Company to extract gas from abandoned coal mines.  Alkane started extracting CMM for direct sales of gas in 1999 with sites at Shirebrook, Steetley and Markham.  Shirebrook and Markham are still operational today, a decade after they were opened.  Shirebrook is still producing CMM and surplus capacity has been deployed to conventional peak load along with capacity at Markham.  

The Group now operates from 12 mid size (up to 10MW) power plants across the UK, 11 CMM and one conventional gas, and sells this power through the electricity network, using standard modular reciprocating engines to generate the electricity.  The engine units and other plant are designed to be flexible and transportable and this allows additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency. 

Alkane's skills and ambitions are not limited to CMM.  The operating model has already been transferred to running peak load plant (generating power at the times of highest demand, normally on weekday mornings and evenings) using conventional gas.  Alkane currently operates 8MW across two sites on conventional gas with our trading partners GDF SUEZ Energy UK. 

The Biogas market also provides a potential new business stream.  Running on gas generated from the processing of organic waste will require exactly the same power assets and core gas and electricity skills as CMM.

Coal Bed Methane is a longer term opportunity where Alkane has 500km² under licence and contingent resource estimates of circa 350 billion cubic feet.  The potential shale gas resources within our licences are also under investigation.

More information is available on our website www.alkane.co.uk.

Overview

Alkane Energy has had a very successful year in production terms, expanding our plant capacity with three new sites and increasing our electricity output by 26%.  The Group's production reached 120GWh (2009: 95GWh), our highest ever output and this has led to a 5% increase in revenue to £6.6m (2009: £6.3m) despite a drop of 21% in average electricity sales price due to the high relative prices achieved in 2009.  This expansion is in line with the Group's stated strategy of expanding our core coal mine methane (CMM) portfolio. The Board is pleased with progress on the delivery of further new production capacity and looks forward to this additional capacity coming on-stream during the coming years as forward selling prices continue to strengthen.

The key successes during the last 12 months are:

·     a 26% increase in output to 120GWh

·     three new sites opened bringing the total number of Alkane sites to 12

·     good progress on the project pipeline for new sites in 2011

·     our first contract in the renewable biogas sector with the supply of the power plant to an 
anaerobic digestion facility due for delivery in 2011

Revenue has increased by 5% to £6.6m (2009: £6.3m), with increased output offset by significantly lower selling prices.  Organic cash generation has risen by 25% to £3.5m (2009: £2.8m).  EBITDA has fallen by 11% to £3.3m (2009: £3.7m).  Adjusted profit before tax reduced by 43% to £1.4m (2009: £2.4m), impacted by an increase in depreciation.  The year saw continued investment in new sites and major services of existing capacity in order to increase output and maintain efficiency.  Consequently depreciation, on a consistent basis, increased by 50% to £1.8m (2009: £1.2m).

The 2010 adjusted profit before tax figure incorporates a 21% drop in average selling prices for electricity to £44/MWh during the year (2009: £56/MWh), but encouragingly Alkane has been able to contract the majority of our expected 2011 output at an average price of £48/MWh. 

Adjusted earnings per share are 1.48 pence (2009: 2.59 pence).  Net assets have increased by 13% to £17.9m (2009: £15.8m) with gearing a modest 23% (2009: 11%).

Strategy

Alkane is establishing itself as one the UK's leading independent electricity generators.  Our core gas to power skills encompass the ability to plan, develop, build and run mid-sized electricity power plant with sites ranging from 0.5MW to 10MW.  Our in-house skills allow us to manage the entire development cycle covering site selection, planning, environmental impact mitigation, grid connections and permitting.  The build phase of projects is complex and requires the co-ordination of a wide range of key contractors.  The following table shows our progress in respect of site development:

	2009   installed capacity	Projects   commissioned in 2010	Total at 31 December 2010	Annual percentage increase	Projects  under development in 2011	Total
	MW	MW	MW		MW	MW
CMM generation	17	6.5	23.5	38%	4 - 6	27.5 - 29.5
Conventional gas generation	7	1	8	14%	-	8
Gas supply (equivalent MW)	6	-	6	-	-	6
Total	30	7.5	37.5	25%	4 - 6	41.5 - 43.5

The Company currently operates from a total of 12 sites with the majority of our output coming from CMM extracted from abandoned coal mines in the UK.  We started generating electricity from CMM in 2005 and have successfully increased our output every single year since then.  We have the UK's largest portfolio of licensed CMM sites and we have a stated strategy to increase CMM output over the coming years.  The record output and increase in the number of sites we manage is a testament to the success of this strategy. 

As part of the Company's growth strategy we are continuing to develop self-funded organic growth of our CMM business.  However, we are aware of the need to increase the overall scale of the Group and reach critical mass from a financial and operating perspective.  Recent developments in renewable generation, particularly wind and solar, increase the need for flexible baseload capacity as operated by Alkane.  Accordingly over the last year we have looked at a number of potential consolidation and expansion opportunities in CMM, stranded on-shore gas and biogas.  We will continue to look for appropriate opportunities in these sectors, and others including CBM and shale gas, where we have the in-house expertise to increase scale and add value for our shareholders.

Alkane's Medium Term Targets

Whilst we are proud of recent progress we are keen to continue moving ahead on a number of established and new business fronts.

In respect of CMM, we expect 2011 to be another year of growth in the number of sites, output and installed capacity.  As market prices have stabilised and improved from their 2010 lows we would also expect to see an increase in our electricity average selling price.

The Department of Energy and Climate Change ("DECC") 14^th On-Shore Licensing Round is expected to take place in 2011 and we will be applying for a number of new licences.  Our eventual allocation will not be known until later in 2011.

Our conventional gas programme has successfully completed its first full year of operation in 2010.  This has given us greater confidence and knowledge and we are targeting to double conventional gas revenues.  Our fledgling biogas division is targeted to deliver its first power plant in 2011 and we will continue the search for other investment opportunities along with partners in this sector.

We believe that with our skilled team, cash generating assets and a strong balance sheet, Alkane can deliver a further year of progress in 2011. 

Financial

Results

Alkane's revenue increased by 5% to reach £6.6m (2009: £6.3m).  There was a 26% increase in output offset by a 21% drop in the average selling price we achieved for electricity. 

Costs have been well controlled during the year with variable production costs, those over which we have most control, falling from £7.13/MWh to £7.05/MWh.  This improvement is due to economies of scale as we grow and the ability to expand the range of in-house skills as our output has increased.  Supply chain cost savings have also been achieved.  Administration costs have increased by 3% to £1.99m (2009: £1.93m) as we continue to strive to hold central overheads flat whilst expanding production and developing potential new business streams.

The 21% reduction in average selling price, offset by the increased output, has resulted in EBITDA, a reflection of the Group's cash generating capacity, falling by 11% to £3.3m (2009: £3.7m).  This represents a 50% EBITDA margin (2009: 59%).  Operating cash generated was £3.5m (2009: £2.8m) representing over 100% EBITDA to cash conversion.

During the year profit before tax was impacted by £0.1m of non-recurring costs incurred in appraising potential corporate transactions, whilst in 2009 profit before tax was affected by an exchange loss of £0.3m arising from the disposal of Pro2. 

Allowing for these items, adjusted profit before tax is £1.4m (2009: £2.4m).  Adjusted profit before tax is impacted byan increase in depreciation of 50% to £1.8m (2009: £1.2m), reflecting the continued investment in new sites and major overhauls.  Depreciation for the year is calculated on a consistent basis with 2009.  This results in adjusted earnings per share from continuing operations of 1.48 pence (2009: 2.59 pence).  The full published profit before tax, which includes the impact of the non-recurring costs, is £1.3m (2009: £2.1m).  A deferred tax asset of £0.5m has been recognised in accordance with a prudent estimate of the extent to which future taxable profits will be available to be utilised against unused tax losses.  This has been credited to the statement of consolidated income, so that profit for the year from continuing operations is £1.8m (2009: £2.1m) with earnings per share of 1.93 pence (2009: 2.24 pence).

The Board is not recommending the declaration of a dividend (2009: nil), but continues to review this on an annual basis.

Balance Sheet and Cash Flow

Net assets have increased to £17.9m (2009: £15.8m) as the investment in CMM sites continues.  Our balance sheet is dominated by the investment in power plant.  There is a total of £22.3m covering power plant and site assets such as planning, boreholes, grid connections and site civil costs.  Capital expenditure during the year was £6.0m (2009: £10.7m).  Of this figure £3.3m was invested in completing the three new sites opened during 2010 and £1.4m was spent in preparing further CMM sites for 2011.  The balance of the investment was incurred on the existing sites and on biogas.  We are prudent in not including on the balance sheet the considerable value that we have in licences and gas reserves. 

Our working capital demand is limited.  We hold inventories of basic spare parts and consumables, and our debtors and creditors are paid monthly.

The year-end gearing for the Group was 23% (2009:11%).  The Board considers this to be a very prudent ratio given the solid asset backing on the balance sheet and the strong cash generative nature of the sites as shown by the 50% revenue to EBITDA ratio, with an EBITDA to cash conversion of over 100%.

Operating cash flow during the year was £3.5m (2009: £2.8m).  This cash, together with utilisations of the new revolving credit facility with Lloyds TSB Bank Plc signed in July 2010, was used in growing the business.  Operating cash flow and the new facility are expected to be sufficient to cover the full development of our CMM roll-out programme.

Power Pricing

Alkane sells the majority of its output in the UK electricity market.  The sites are designed to run 24/7 production and the output is sold into base load contracts.

Electricity prices have experienced a three year decline since the start of the credit crisis in 2008.  At their highest level, base load prices for 12 month forward contracts briefly touched £90/MWh but had fallen significantly to reach a low point of £38/MWh in the spring of 2010.  Since then UK electricity base load prices have improved to around £52/MWh for 2012 delivery (as at 7 March 2011).  Peak prices on weekday evenings can be in excess of £90/MWh and it is during these periods that operating our plant on conventional gas is economic.

As a consequence of the market decline in pricing, Alkane has seen a 21% drop in average selling price from £56/MWh in 2009 to £44/MWh in 2010.  We currently have 67% of our 2011 expected output contracted at a blended average price of £48/MWh.

Operations

2010 has been a very encouraging year for our operations and project teams.  Output has reached a record 120GWh (2009: 95GWh) which represents a 26% increase.  This increase has been driven by an expansion in the number of sites and our installed capacity.

Coal Mine Methane

Alkane's primary fuel source is methane extracted from abandoned coal mines.  We have licences from the UK Government giving CMM extraction rights over 644km².  We currently operate 30MW of installed capacity over 11 sites on CMM with a medium range target to increase this to 50MW of installed capacity across 20 plus sites.

As planned, during 2010 we opened three new sites: Florence in Staffordshire, Newmarket near Leeds, and at Kings Mill Hospital in Mansfield where there is an opportunity to extend operations to full CHP through the sale of heat.  In total these three sites have added 7MW at a combined capital cost of £8.3m.  We are progressing the roll out programme for 2011 with a target to open a further three sites in the coming 12 months, with expected capacity of 4MW to 6MW depending on gas reserves.  These additional sites are being funded from our existing cash flows and bank facilities.

We have excellent data in respect of expected gas volumes at potential sites, but there are risks associated with drilling new boreholes, as unexpected geological factors such as flooding might influence our ability to extract gas in the volumes anticipated. 

We try to establish a CMM site to be operational for up to a decade.  This gives us predictable income and earnings stream over the life cycle of a project and is an attempt to manage our reserves.  No two sites are the same, but we now have a number of sites, such as Wheldale and Shirebrook, that are moving into their second decade of operations having been opened in 1999/2000.  We tend to see a site running at full output for two to three years before gas flows decline at around 15% p.a.  This is consistent with on-shore conventional gas experience.

We are now developing plans to extend the life spans of our sites.  Markham has been switched to running fully on conventional gas and Shirebrook is part fuelled by CMM and part by conventional gas.  We are also analysing alternative fuel sources such as biogas, biomass and biodiesel as ways of continuing to run sites cost-effectively.

DECC have announced their intention to commence a new licensing round for on-shore gas and oil during 2011.  Alkane is well advanced in its research for licence applications.

Conventional Gas: Peak Load Production

2010 has been the Group's first full year of running our surplus capacity on conventional gas.  We have been operating 8MW as a "standby facility" with the national grid via our partner, GDF SUEZ Energy UK, and over the winter months have been using the flexibility of our operations to run as a peak load generator.  This leaves us well placed to benefit from greater volatility in the generation side of the grid as more intermittent renewable sources such as wind power are added to the infrastructure, and we expect to see a significant increase in revenue in 2011.

The key element is that conventional gas at these sites uses existing engine units and is supported by the same operations and maintenance teams that we already have in place for CMM.  This helps to spread costs and ensure capital is run economically.

Biogas

Biogas is a general term covering methane extracted from waste and energy crops.  It covers such items as landfill gas and Alkane is evaluating a number of opportunities with biogas generated from anaerobic digestion ("AD") which processes waste/crop material into methane and fertiliser.   AD sites use a back-end electricity generating power plant that is identical to our standard operating equipment and the challenges of planning, permitting, selling electricity and power plant maintenance are already well within Alkane's proven skill set.

We are reviewing a number of municipal waste and agricultural projects where we would be either investor, developer or engine supplier.  In 2010 we received our first contract for the supply of power equipment to the TEG Group PLC waste handling site at Glenfarg, Perth.  Our equipment will be delivered in 2011.

Other Opportunities

We are reviewing several other potential business streams where we can utilise our core gas to power skills.  Where there is a potential user nearby we are looking to sell the heat produced from our engines; we have 500km² of coal bed methane under licence with contingent resource estimates of circa 350 billion cubic feet that we are seeking ways to develop.  We are investigating the shale gas potential within these licence areas and are appraising a number of on-shore conventional gas opportunities. Our team is also researching the installation of ground source heat pumps to extract energy from areas of rising mine water.

Alkane Team

The knowledge and experience of our people is unrivalled in the industry and we have further added to our team this year attracting expertise in power generation and the potential for expanding associated technologies such as combined heat and power.

The Board would like to take this opportunity to thank the entire Alkane team for their passion, commitment and contribution in 2010.

Outlook

Alkane has shown itself capable of growing its production even during this recessionary period.  The market is recovering and pricing is expected to rise over the coming years. 

The Company has a strong foundation of a new engine fleet with an installed capacity of 38MW. Our CMM operations have been profitable and cash generative even at the selling prices we have experienced in 2010.  We are re-investing these funds with the aim of delivering both increased production and improved selling prices in 2011.  Our current CMM expansion plans are being funded by our own cash generation and committed debt facilities.  We intend to open a further three sites in 2011, with an increase in capacity of 4MW to 6MW.

Alkane is also moving into new market sectors.  2010 saw us complete our first year's production using surplus capacity powered on conventional gas and we are aiming to significantly increase revenues from this source in 2011.  In addition, we are due to deliver our first power plant to a biogas project in 2011.  Other new opportunities are being carefully assessed but we will ensure that we only proceed if they have the potential to add value to the business.

The Board looks forward with confidence to another year of progress in 2011.

John Lander

Chairman

 

Neil O'Brien

Chief Executive Officer

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

for the year ended 31 December 2010

 

		2010	2009
	Notes	£'000	£'000
Revenue		6,616	6,292
Cost of sales		(3,132)	(2,026)
Gross profit		3,484	4,266
Administrative expenses		(1,994)	(1,933)
Non-recurring costs	3	(70)	-
Return on Group operations		1,420	2,333
Other operating income		62	152
Impairment of gas assets		-	(18)
Profit on activities before finance income/(costs)		1,482	2,467
Finance income		71	109
Exchange loss arising from financing		(5)	(307)
Finance costs		(247)	(185)
Net finance costs		(181)	(383)
Profit before tax		1,301	2,084
Taxation	5	500	(1)
Profit for the period from continuing operations		1,801	2,083
Discontinued operations:
Net profit on disposal of associate	6	-	767
Impairment reversal/(charge)	6	151	(1,448)
Profit for the year attributable to equity holders of the parent		1,952	1,402
Other comprehensive income
Exchange difference transferred to profit or loss on disposal of foreign operation		-	(927)
Total comprehensive income for the year attributable to equity
holders of the parent		1,952	475
Earnings per ordinary share
From continuing operations:
Basic, for profit for the year attributable to equity holders of the parent	7	1.93p	2.24p
Diluted, for profit for the year attributable to equity holders of the parent	7	1.92p	2.22p
From continuing and discontinued operations:
Basic, for profit for the year attributable to equity holders of the parent	7	2.09p	1.51p
Diluted, for profit for the year attributable to equity holders of the parent	7	2.08p	1.49p

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (unaudited)

at 31 December 2010

		2010	2009
	Notes	£'000	£'000
NON-CURRENT ASSETS
Property, plant and equipment	8	10,576	9,355
Gas assets	9	11,687	8,937
Deferred tax asset	5	500	-
		22,763	18,292
CURRENT ASSETS
Inventories		424	223
Trade and other receivables		1,692	1,450
Cash and cash equivalents		427	904
		2,543	2,577
TOTAL ASSETS		25,306	20,869
CURRENT LIABILITIES
Trade and other payables		(1,127)	(1,019)
Finance lease obligations		(892)	(665)
Provisions		(19)	(13)
		(2,038)	(1,697)
NON-CURRENT LIABILITIES
Finance lease obligations		(1,965)	(2,045)
Long-term borrowings		(1,751)	-
Provisions		(1,649)	(1,348)
		(5,365)	(3,393)
TOTAL LIABILITIES		(7,403)	(5,090)
NET ASSETS		17,903	15,779
EQUITY
Share capital		470	464
Share premium		208	72
Other reserves		8,587	8,557
Retained earnings		8,638	6,686
TOTAL EQUITY		17,903	15,779

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

for the year ended 31 December 2010

		Attributable to equity holders of the parent
	Issued		Share	Translation	Other	Retained	Total
	capital		premium	of foreign operations	reserves(1)	earnings	equity
	£'000		£'000	£'000	£'000	£'000	£'000
At 1 January 2010	464		72	-	8,557	6,686	15,779
Total comprehensive income and expense for the period	-		-	-	-	1,952	1,952
Share based payment	-		-	-	30	-	30
Issue of share capital	6		136	-	-	-	142
At 31 December 2010	470		208	-	8,587	8,638	17,903
At 1 January 2009	464		72	927	8,531	5,284	15,278
Total comprehensive income and expense for the period	-		-	(927)	-	1,402	475
Share based payment	-		-	-	26	-	26
At 31 December 2009	464		72	-	8,557	6,686	15,779

(1)      Other reserves comprise share-based payments of £168,000 (2009: £138,000), and a distributable reserve of £8,419,000 (2009: £8,419,000) created following cancellation of the share premium.

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

for the year ended 31 December 2010

		2010	2009
	Notes	£'000	£'000
Operating activities
Profit before tax from continuing operations		1,301	2,084
Adjustments to reconcile operating profit to net cash flows:
Depreciation and impairment of property, plant and equipment and gas assets
gas assets		1,798	1,225
Share-based payments expense		30	26
Finance income		(71)	(109)
Finance expense		247	185
Movements in provisions		307	(38)
(Increase)/decrease in trade and other receivables		(243)	2,235
Increase in inventories		(201)	(79)
Increase/(decrease) in trade and other payables		297	(214)
Income tax (paid)/refunded		(1)	132
Net cash flows from operating activities		3,464	5,447
Cash flows from investing activities
Proceeds from sale of investment in associate		130	3,162
Deferred payments received		21	-
Interest received		72	176
Purchase of property, plant and equipment		(2,678)	(5,709)
Purchase of gas assets		(3,299)	(4,964)
Net cash flows used in investing activities		(5,754)	(7,335)
Cash flows from financing activities
Issue of share capital		142	-
Proceeds from sale and finance leaseback		1,074	1,417
Sale and finance leaseback rentals		(927)	(616)
Proceeds from long-term borrowings		1,751	-
Interest paid		(227)	(185)
Net cash flows from financing activities		1,813	616
Net decrease in cash and cash equivalents		(477)	(1,272)
Cash and cash equivalents at 1 January		904	2,176
Cash and cash equivalents at 31 December	11	427	904

 

NOTES TO THE ACCOUNTS

1.     CORPORATE INFORMATION

The interim condensed consolidated financial statements of the Group for the year ended 31 December 2010 were authorised for issue in accordance with a resolution of the directors on 8 March 2011.

Alkane Energy plc is a public limited company incorporated and domiciled in England whose shares are publicly traded.  The Company's registered number is 2966946.

The principal activity of the Group is described in Note 4.

2.     BASIS OF PREPARATION AND ACCOUNTING POLICIES

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC Interpretations as adopted by the European Union issued and effective at 1 January 2010 and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.  The accounting policies set out those policies which apply in preparing financial statements for the Group and the Company.  The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual statement of comprehensive income and related notes. The result for the year of that Company is a loss of £344,000 (2009: £301,000).

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies.

The policies set out in the most recently published full accounts have been followed.  The Group has adopted all of the standards and interpretations that were mandatory for accounting periods beginning on or after 1 January 2010 that are relevant to the operations of the Group.

3.     NON-RECURRING COSTS

		2010 unaudited	2009
		£'000	£'000
Costs of aborted corporate transactions		70	-

4.     SEGMENT INFORMATION

Operating segments

The directors consider that there are two operating segments:

The extraction of gas from coal measures for power generation and burner tip use;

The development and operation of biogas projects.

There is currently no revenue from the biogas activity, which is in the early stages of development, and the segment assets are less than ten per cent of the Group total.  The business segment is therefore not separately disclosed, as permitted under IFRS8 'Operating Segments'.

Seasonality of operations

There is no significant seasonal nature to the Group's business of the extraction and use of gas.

Revenue analysed by product and service

		2010 unaudited	2009
		£'000	£'000
Extraction of gas for power generation and burner tip use		6,616	6,292

Revenue and non-current assets analysed by geographical information

Revenue		2010 unaudited	2009
		£'000	£'000
UK		6,616	6,280
Europe		-	12
Total		6,616	6,292

Non-current assets		2010	2009
		£'000	£'000
UK		22,763	18,136
Europe		-	156
Total		22,763	18,292

Majorcustomers

In the periods set out below, certain customers, all within the CMM production operating segment, accounted for greater than 10% of the Group's total revenues:

	2010 unaudited	2010 unaudited	2009	2009
	£'000	% of revenue	£'000	% of revenue
Customer A	5,101	77%	5,121	81%
Customer B	699	11%	702	11%

5.     TAXATION

There is no tax charge in 2010.  The tax charge of £1,000 for the year ended 31 December 2009 relates to our former site in Germany and comprises advance payments to the German tax authorities net of a refund received that relates to prior years.

A deferred tax asset of £500,000 (2009: nil) has been recognised in accordance with a prudent estimate of the extent to which future taxable profits will be available to be utilised against unused tax losses and other temporary differences. This amount has been credited to the Consolidated Statement of Comprehensive Income.  The balance of £3,628,000 of the deferred tax asset (2009: £4,403,000) has not been recognised due to uncertainty over the availability of future taxable income against which these can be utilised.

6.     SALE OF ASSOCIATE

On 2 March 2009 the Group completed the sale of its 38% equity interest in Pro2 Anlagentechnik GmbH for a consideration of €3,600,000. The net profit on disposal was £767,000.

The economic effective date for the sale is 1 January 2009. Calculation of the net profit on disposal is therefore based on the net assets of Pro2 Anlagentechnik GmbH at 31 December 2008.

	Equity	Loans	Total
	£'000	£'000	£'000
Book value of net assets at 31 December 2008	2,617	-	2,617
Goodwill	705	-	705
Assets held for sale at 31 December 2008	3,322	-	3,322
Shareholder loans	-	1,873	1,873
	3,322	1,873	5,195
Sale proceeds received	2,570	956	3,526
Exchange rate movement	2	64	66
Deferred amounts	640	853	1,493
Loss on disposal before costs	(110)	-	(110)
Cost of disposal	(50)	-	(50)
	(160)	-	(160)
Release of translation reserves from equity	927	-	927
Net profit on disposal	767	-	767

Alkane placed €720,000 (£640,000) from the consideration into an escrow account to act as collateral against any warranties or other claims. Of the shareholder loan of €1,960,000 (£1,873,000) made to Pro2 Anlagentechnik GmbH, €1,000,000 (£956,000) was sold at face value on 2 March 2009. The balance was due to be repaid in instalments.

The €2,000,000 outstanding balance of the €3,000,000 working capital loan made to Pro2 in 2005 was repaid in full on 10 February 2009.

Events since 31 December 2009

·        In January 2010 the Company received €50,000 (£45,000) in respect of the outstanding loan.

·        In April 2010 a commercial agreement was reached with Deutsche KWK GmbH, the parent company of Pro2, 
under which €388,000 (£346,000) of the funds held in escrow were returned to them as a reduction in the selling price of the equity, €145,000 (£125,000) was converted to a loan to Deutsche KWK GmbH, and €187,000 (£161,000) was repaid to the Company.  After legal and other directly related costs of €37,000 (£31,000) the net amount received and credited to the Statement of Comprehensive Income is €150,000 (£130,000).

·        A payment of €25,000 (£21,000) was received in December 2010 and credited to the Statement of 
Comprehensive Income.

After exchange rate differences of £33,000, the balance outstanding at 31 December 2010 is €1,030,000 (£883,000) with an agreed repayment schedule running to 2013. This balance represents loans made to Deutsche KWK GmbH which are fully impaired.

Impairment Charge

Pro2's trading has been impacted by the economic recession as a result of which there was a fundamental uncertainty at 31 December 2009 as to the recovery of the balance of the deferred amounts of £1,493,000 shown in the table above. An impairment charge was therefore taken in the year ended 31 December 2009 against that amount, less £45,000 that had been received on 5 January 2010.  Having reviewed the position at 31 December 2010, there remains a fundamental uncertainty in respect of the recovery of the outstanding balance in respect of the transaction and consequently there has been no reversal of the balance of the impairment charge. 

 

7.     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 year.

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 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:

	2010	2009
	unaudited
	£'000	£'000
Profit for the year from continuing operations	1,801	2,083
Profit/(loss) for the year from discontinued operations	151	(681)
Profit attributable to equity holders of the parent	1,952	1,402
	No.	No.
Basic weighted average number of ordinary shares	93,267,179	92,883,878
Dilutive effect of share options	752,526	1,134,040
Diluted weighted average number of ordinary shares	94,019,705	94,017,918

Earnings per share from discontinued operations for the year ended 31 December 2010 is 0.16p (2009: loss per share of 0.73p). 

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements that would have changed significantly the number of ordinary shares or potential ordinary shares outstanding at the end of the year if those transactions had occurred before the end of the year (2009: nil).

8.     PROPERTY, PLANT AND EQUIPMENT

Acquisitions and disposals

During the year ended 31 December 2010, the Group acquired assets with a cost of £2,524,000 (2009: £4,386,000). There were no disposals during the period (2009: nil).

            Sale and finance leaseback

During the year 31 December 2010, the Group entered into two new lease agreements for two items of plant with a total cost of £932,000 (2009: two agreements for two items of plant with a total cost of £1,310,000).

9.     GAS ASSETS

Acquisitions and disposals

During the year ended 31 December 2010, the Group acquired assets with a cost of £3,245,000 (2009: £4,722,000). There were no disposals during the year (2009: nil).

10.  CAPITAL COMMITMENTS

At 31 December 2010, the Group had capital commitments contracted for but not provided in the financial statements of £657,000 for the acquisition of property, plant and equipment (2009 £71,000) and of £51,000 for the acquisition of gas assets (2009: £443,000). 

11.  ADDITIONAL CASH FLOW INFORMATION

Analysis of net debt

	1 January 2010	Cash flow	Exchange rate differences	31 December 2010
				unaudited
	£'000	£'000	£'000	£'000
Cash at bank and in hand	904	(477)	-	427
Sale and finance leaseback	(2,710)	(159)	12	(2,857)
Long-term loan	-	(1,751)	-	(1,751)
Net debt	(1,806)	(2,387)	12	(4,181)
Securities	188	68	-	256
Adjusted net debt*	(1,618)	(2,319)	12	(3,925)

		1 January 2009	Cash flow	Other non-cash movements	Exchange rate differences	31 December 2009
		£'000	£'000	£'000	£'000	£'000
Cash at bank and in hand		1,826	(922)	-	-	904
Liquid resources		350	(350)	-	-	-
Cash and cash equivalents		2,176	(1,272)	-	-	904
Sale and finance leaseback		(1,909)	(831)	-	30	(2,710)
Net funds/(debt)		267	(2,103)	-	30	(1,806)
Securities		305	503	(620)	-	188
Adjusted net funds/(debt)*		572	(1,600)	(620)	30	(1,618)

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

12.  RELATED PARTY TRANSACTIONS

Transactions entered into and trading balances outstanding at 31 December with related parties are as follows:

	2010	2009
	unaudited
	£'000	£'000
(a) Key management compensation
Salaries and other short term employee benefits	542	695
Long term benefits	37	55
Share-based payments	27	26
	606	776
(b) Loans to related parties
Loans to associate1:
-  beginning of year	-	3,847
-  opening adjustment - equity interest in associate sold	-	(3,847)
-  end of year	-	-

The loans to associate relate to former associate company Pro2 Anlagentechnik GmbH.

13.  GENERAL NOTE

a.   The preliminary unaudited financial information set out above does not constitute full accounts within the 
meaning of Section 435 of the Companies Act 2006.

b.   Audited statutory accounts in respect of the year ended 31 December 2009 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 2010 will be sent to 
shareholders during April 2011 and will be available from the Company's registered office - Edwinstowe House, High Street, Edwinstowe, Nottinghamshire NG21 9PR.

 

END

 

 

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