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Renewable Energy Gen (WIND)

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Wednesday 02 December, 2015

Renewable Energy Gen

Final Results

RNS Number : 6553H
Renewable Energy Generation Ltd
02 December 2015
 

 

Renewable Energy Generation Limited

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

Final Results for the year ended 30 June 2015

 

 

Renewable Energy Generation Limited (AIM: WIND), the renewable energy group, today announces its final results for the year ended 30 June 2015.

The Company has separately announced today the recommended disposal of the entire business of the Company for cash in a transaction with a fund managed by BlackRock.  This announcement relates to the Company's financial results for the year ended 30 June 2015.

The Annual Report and Accounts for the year ended 30 June 2015 have been posted to shareholders today and will shortly be available to download from the Company's website, www.reg-power.com.

Enquiries:

Renewable Energy Generation Limited

Andrew Whalley, Chief Executive Officer

David Crockford, Finance Director

+44 (0)1483 901 790

Smith & Williamson Corporate Finance Limited

(Nominated Adviser)

Martyn Fraser

+44 (0)117 376 2213

Cenkos (Corporate Broker)

Bobbie Hilliam/Max Hartley

+44 (0)20 7397 8900





 



 

Chairman's Statement

At the time of writing, the UK renewable energy industry is reeling from a slew of damaging energy policy changes announced since the Conservative Party was elected in May 2015. Prematurely and retrospectively withdrawing support across a wide range of low carbon and energy efficiency technologies, the sudden reversals of policy have most severely affected onshore wind and ground-mounted solar energy investments.

Widely condemned as irrational by business and environmental groups, the sudden announcement of subsidy withdrawals led to the public abandonment of more than 3,000MW of renewable energy projects and the closure of many businesses in the sector. By contrast, renewable energy investment worldwide has grown almost 20% in the past year with 100,000MW of capacity added. Mostly wind and solar power, this renewable energy capacity made up half of all new power generation added worldwide, as governments prepare for new measures to enhance energy security, economy and environmental impact in light of worsening socio-political instability in oil-producing regions and accelerating global warming.

On 18 June 2015, the newly elected UK Government announced the start of a process of dismantling green incentives.    The proposed policy changes include the early closure of the Renewables Obligation (RO) to onshore wind and ground-mounted solar projects, continued reductions to the small scale wind feed in tariff (FIT), elimination of onshore wind from feed-in tariff contracts for difference (CFS FIT), and elimination of the climate change levy (CCL) exemption for renewable generators.  Any one of these factors would have a significant adverse impact on the Group but taken together, the impact has been profound.

These financial measures have effectively shut off the renewable energy sector's access to the capital markets and this together with simultaneous changes to the UK Planning regime has halted the rapid acceleration of wind and solar energy technologies towards grid price parity in the UK and with it the parallel trajectories towards economic sustainability of many of the companies which deploy those technologies to harvest clean, free energy. 

The Group's stated strategy has been to transition from a windpower development business to a windpower generator.  As at 18 June 2015 the Group had 34.7MW of operating wind plant, 0.8MW of projects under construction and 42MW of consented projects awaiting funding to construction.  Funding was to be provided by a mix of project finance, a ZDP share issue and the sale of a final tranche of selected assets to BlackRock, to whom the Group has previously sold some 60.5MW of assets, generating net proceeds of £53.8 million as part of its strategy to "develop and sell to develop and hold".

The Government policy announcements had an immediate impact on delivery of this strategy:

·      the Group has made provision for approximately £12.8 million of impairments to investment in certain of its projects which risked being incapable of completion before the premature closure of the RO. This covered approximately 200MW of wind projects and 80MW of solar projects which, based on the historic consenting levels, would have been expected to create considerable value to Shareholders;

·      the Group reported an immediate reduction in EBITDA from its operating plant of £0.4 million;   

·      the Board cancelled the £30 million ZDP share issuance when investors, reacting to policy chaos, demanded terms which the Board considered detrimental to ordinary shareholders.  and

·      a redundancy programme was implemented to reduce the Group overhead by approximately £1.3 million per annum.

Your company has benefited from an enduring relationship with leading fund managers Blackrock and we find them to be well-capitalised and competitive in our transactions. During discussions on a joint venture with them to salvage our preliminary investment in the some of our 42MW of consented projects awaiting construction, Blackrock made an approach to acquire all of REG's business and assets. Although not subject to the City Code the approach has been treated by your Board as if it was and following consultation with key shareholders the Board engaged Smith & Williamson Corporate Finance Ltd to advise the Independent Directors as to its merits.

At the date of this report, your Board has issued a shareholder circular recommending disposal of the entire business of REG in a transaction valuing the Group, before exit costs, at £64.5 million.  This circular provides you with the background to and reasons for the disposal and convenes the Extraordinary General Meeting for the purpose of seeking Shareholder approval of the Proposals.

 

Business & Financial Review

Strategy and objectives

On 1 December 2015, the board announced it had reached agreement on the terms of a recommended offer for the entire business and assets of the Company by a fund controlled by BlackRock. The offer is subject to shareholder approval as set out in a circular convening a General Meeting of the Company on 18 December 2015, a copy of which has been sent to shareholders and other persons entitled to receive it. Consequently, this strategic report principally covers matters concerning the year end 30 June 2015.

The Company provides its investors with an exposure to renewable energy projects within the overall energy market. This is achieved through in-house development of new renewable projects covering three principal areas; smaller onshore wind energy projects, generation plant powered by fuel recovered from waste cooking oil and ground-mounted solar projects. Within the Wind business, the Company operates an asset management department which manages REG's own renewable energy projects as well as projects for external third parties.

REG maintains a prudent overall capital structure for its businesses, with sound liquidity at all times. The Group uses a mixture of equity and long term finance, both recourse and non-recourse, whilst supplementing its equity base by recycling capital from selected projects to release cash and value gains.

In general terms REG has tended to develop its own business opportunities with acquisitions only undertaken on an opportunistic basis where the Company's existing skills can be leveraged. These acquisitions have generally been small in the context of REG's overall capital structure and have been funded from the Company's internal resources.

REG places Health and Safety at the forefront of its activities and we are pleased to report that no notifiable incidents occurred over the year. 

Group financial performance

REG's earnings for the year benefited from continued good performance from our operational wind fleet and from the sale of 28MW of wind farms to a fund run by BlackRock, our long term strategic partner.

Revenues for the year were £12.0m (2014: £11.6m), with gross profits increasing to £4.4m (2014: £4.1m).  Profits on the sale of subsidiaries, representing the sale of 3 wind farms totalled £15.4m (2014: £9.5m).

Our central administration costs were £1.8m (2014: £1.9m). Exceptional administrative costs of £0.3m (2014 - £nil) represent the professional fees and other costs incurred arranging the aborted issue of a Zero Dividend Preference share. Wind administrative expenses were up slightly against prior years at £4.1m (2014: £3.4m). Bio-Power administration fell slightly to £0.6m (2014: £0.8m).

The Government's intention, announced in June, to close the Renewables Obligation (RO) one year early for onshore wind created considerable uncertainty for the UK renewables industry. Whilst Government has provided some clarity regarding grace periods for projects meeting certain criteria, the legislation will not be binding until reaching Royal Assent, expected next year.

The changes to the RO, together with the retroactive removal of Levy Exemption Certificates for renewable energy generators and removal of support for large scale solar schemes, is impacting the industry's cost of capital and is additionally creating some difficulty in securing long term finance for certain projects, at least until the legislation has reached Royal Assent.

In addition to early removal of the RO, the Government announced substantial changes to both the planning system for onshore wind projects and early closure of the small scale solar feed in tariff. As a result of these changes the Group has undertaken a detailed assessment of the carrying value of capitalised development costs and booked an impairment charge against the carrying value of intangible development assets of £12.8m (2014: £1.9m).

Furthermore, in light of said Government changes to renewable incentives, the increased uncertainty around the wider environment for renewables projects and continued low power prices, the group considers that the cost of capital for its Bio-Power business has increased over prior years and as such has booked an impairment charge against the intangible goodwill asset relating to its Bio-Power assets totalling £1.9m (2014: £nil).

The sale of various assets resulted in an overall increase in cash resources to the Group with unrestricted cash at the year end of £19.2m (2014: £11.0m) with restricted cash held as security against project finance debt and construction letters of credit of £2.7m (2014: £2.7m).

Wind

REG's wind fleet delivered a strong performance over the year with excellent turbine availability complementing good wind speeds.

Political factors currently constraining consent rates for renewable energy schemes in England have led us to rationalise our development activities and focus, as far as possible, on projects elsewhere in the United Kingdom.

Following the year end REG has further curtailed investment in new onshore wind and solar development whilst initiating a redundancy programme within those divisions.

REG Asset Management

Our asset management business grew in the year due to our team securing management contracts for the projects we sold to third parties. Once again, turbine availability was excellent and our in-house operations and maintenance systems proved extremely reliable.

REG Bio-Power

Construction of our 18MW Bio-Power plant at Whitemoor in Yorkshire was completed in the year and is now fully operational under a long term contract with The National Grid Company to provide services under their STOR programme. The plant will utilise significant quantities of waste cooking oil, which is all derived from REG's oil collection business.

Our employees

We have built up a team of highly skilled employees that have risen to the challenge of helping the UK meet its onerous long-term energy goals. We are extremely grateful to them for their dedication and endurance, often under very challenging operational and political conditions.

Health and Safety

The Board believes that REG's health and safety performance has to be our top priority. Making sure that our employees work in a safe environment is absolutely critical to the credibility and success of our Company. We also operate in an environment where members of the public may come into close proximity to our projects, both during construction and also operation.  We believe that the current health and safety practices that we are employing will continue to maintain a safe environment both for our own employees and also the wider public.

Equality and diversity

The Group is committed to promoting diversity and ensuring equality of opportunity for all within the workplace, regardless of race, sex, age, sexual orientation, marital or civil partnership status, pregnancy, religion, belief or disability. The Group is also committed to ensuring that its procedures and selection processes in respect of recruitment, terms and conditions of employment, access to training and promotion and the terms upon which it offers access to facilities and services are free from discrimination.

Regulatory and political outlook

The regulatory and political outlook for renewables in the UK has deteriorated markedly since the last Annual Report and the recent General Election.

In summary, the following are the most significant changes made to renewables since the election.

Proposed early closure of the Renewables Obligation ("RO") being the main support mechanism for onshore wind.  The proposals withdrew support for new on-shore wind projects from the end of March 2016 with the exception of projects that meet certain grace periods, currently still under discussion by Government.

Proposed closure of the RO to ground mounted solar projects.  The main impact on REG being the removal of the option to convert redundant wind sites to solar sites, which could have preserved value for shareholders.

Continued reductions to the small scale wind feed in tariff, again impacting the options open to the Group for alternative routes to market.

The expected elimination of onshore wind from Feed in tariff - Contracts for Difference ("CfD") removing the expected replacement subsidy scheme for the closing RO system.

As noted above, the Government have also implemented various changes to the planning regulations, applicable to England reducing the likelihood of achieving successful planning permissions for onshore wind farms.

Retrospective elimination of Climate Change Levy (CCL) exemption for renewable generators from 1 August 2015.  The CCL had been a key component of the renewable support regime in the UK since 2001 and all parties in the renewable industry had understood that phase-out would not commence until after 2020.

The predominant results of these regime changes has been, as noted above, the considerable reduction of the Group's development activities and related portfolio.  The early removal of the RO, and proposed changes to the CfD have resulted in a reduction in the number and value of consented sites the group will be able to build out, however we expect to generate some value from the proposed sale discussed elsewhere in this report.  The impact on the Group's operational wind farms has been less profound, but of course the removal of the CCL has reduced the future income generation of the portfolio.

 



 

Consolidated Statement of Profit and Loss

For the year ended 30 June 2015

 




2015

2014





£000

£000







Revenue




12,041

11,556

Cost of sales




(7,645)

(7,411)





 

 

Gross profit




4,396

4,145







Central administrative expenses




(1,788)

(1,858)

Exceptional administrative expenses




(303)

-

Total central administrative expenses




(2,091)

(1,858)

Bio-Power administrative expenses




(648)

(760)

Wind administrative expenses




(4,096)

(3,367)

Development costs




(749)

(823)

Impairment of development assets




(12,803)

(1,874)

Impairment of goodwill




(1,880)

-





 

 

Trading loss




(17,871)

(4,537)







Other operating income




-

84





 

 

Operating loss




(17,871)

(4,453)







Profit on disposal of subsidiaries




15,388

9,483







Finance revenue




63

53

Finance costs




(1,938)

(2,219)





 

 

(Loss) / profit before taxation




(4,358)

2,864







Tax (charge) / credit




(899)

1,015





 

 

(Loss) / profit for the year




(5,257)

3,879





 

 

Attributable to:









(5,257)

3,879




-

-





 

 




(5,257)

3,879





 

 

(Loss) / earnings per share






Basic




(5.08p)

3.74p

Diluted




(5.08p)

3.66p

 



 

Consolidated Statement of Total Comprehensive Income

For the year ended 30 June 2015




2015

2014





£000

£000







(Loss) / profit for the year




(5,257)

3,879







Items that may be reclassified subsequently to profit or loss:






Cash flow hedges:






(Loss) / gain on foreign currency




(653)

579

Loss on interest rate swaps




(154)

(504)





 

 





(807)

75

Income tax relating to items that may be reclassified subsequently to profit or loss




160

29





 

 

Other comprehensive expense net of tax




(647)

(104)





 

 

Total comprehensive (expense) / income for the year




(5,904)

3,775





 

 

Attributable to:






Equity holders of the parent




(5,904)

3,775

Non-controlling interests




-

-





 

 





(5,904)

3,775





 

 

 



 

Consolidated Balance Sheet

For the year ended 30 June 2015



2015

2014

ASSETS



£000

£000

Non-current assets





Goodwill



3,010

4,890

Development costs



1,095

19,096

Property, plant and equipment



61,699

50,093

Deferred tax asset



1,752

2,347




 

 




67,556

76,426




 

 

Current assets





Inventories



1,798

782

Trade and other receivables



8,889

4,326

Intangibles



1,339

1,848

Restricted cash



2,644

2,737

Cash and cash equivalents



19,248

10,987

Assets classified as held for sale



279

11,652




 

 




34,197

32,332




 

 

TOTAL ASSETS



101,753

108,758




 

 

LIABILITIES





Current liabilities





Trade and other payables



4,727

6,034

Borrowings



1,796

1,108

Liabilities directly associated with assets classified as held for sale



26

2,389




 

 




6,549

9,531

Non-current liabilities





Borrowings



24,589

21,495

Provisions



3,256

3,321

Derivative financial instruments



2,263

753

Deferred tax liabilities



-

5




 

 




30,108

25,574




 

 

TOTAL LIABILITIES



36,657

35,105




 

 

EQUITY





Share capital



10,374

10,374

Share premium



79,952

79,952

Own shares



(200)

(200)

Share-based payment reserve



702

528

Hedging reserve



(1,881)

(1,234)

Retained earnings



(23,851)

(16,320)




 

 

Equity attributable to the equity holders of the parent



65,096

73,100

Non-controlling interests



-

553




 

 

Total equity



65,096

73,653




 

 

TOTAL EQUITY AND LIABILITIES



101,753

108,758




 

 

 



 

Consolidated Statement of Changes in Equity

For the year ended 30 June 2015

Share
 capital

Share
premium
account

Own shares

Share-based
payment
 reserve

Retained
 earnings

Hedging
reserve

Non-
controlling
interest

Total
Equity


£000

£000

£000

£000

£000

£000

£000

£000










At 1 July 2013

10,345

79,792

(60)

338

(18,062)

(1,130)

550

71,773










Profit for the year

-

-

-

-

3,879

-

-

3,879

Other comprehensive expense

-

-

-

-

-

(104)

-

(104)


─────

─────

─────

─────

─────

─────

─────

─────

Total comprehensive income / (expense)

-

-

-

-

3,879

(104)

-

3,775


─────

─────

─────

─────

─────

─────

─────

─────

Issue of new equity

29

160

-

-

-

-

-

189

Purchase of own shares

-

-

(140)

-

-

-

-

(140)

Share-based payments

-

-

-

174

-

-

-

174

Changes in fair value

-

-

-

-

-

-

3

3

Reserves transfer

-

-

-

16

(16)

-

-

-

Dividends

-

-

-

-

(2,121)

-

-

(2,121)


─────

─────

─────

─────

─────

─────

─────

─────

At 30 June 2014

10,374

79,952

(200)

528

(16,320)

(1,234)

553

73,653










Loss for the year

-

-

-

-

(5,257)

-

-

(5,257)

Other comprehensive expense

-

-

-

-

-

(647)

-

(647)


─────

─────

─────

─────

─────

─────

─────

─────

Total comprehensive expense

-

-

-

-

(5,257)

(647)

-

(5,904)


─────

─────

─────

─────

─────

─────

─────

─────

Share-based payments

-

-

-

176

-

-

-

176

Reserves transfer

-

-

-

(2)

2

-

-

-

Dividends

-

-

-

-

(2,276)

-

-

(2,276)

Acquisition of non-controlling interest

-

-

-

-

-

-

(553)

(553)


─────

─────

─────

─────

─────

─────

─────

─────

At 30 June 2015

10,374

79,952

(200)

702

(23,851)

(1,881)

-

65,096


═════

═════

═════

═════

═════

═════

═════

═════

 



 

Consolidated Cash Flow statement

For the year ended 30 June 2015



2015

2014




£000

£000






Net cash from operating activities



(3,778)

(801)






Investing activities





Purchase of property, plant and equipment



(12,051)

(19,366)

Capitalised development costs



(3,585)

(6,974)

Acquisition of non-controlling interest / subsidiary



(628)

(30)

Net proceeds from sale of subsidiary



25,744

14,187

Interest received



63

53

Movement in restricted cash accounts



(111)

5,316




────────

────────

Net cash used in investing activities



9,432

(6,814)






Financing activities





New bank loans raised



7,389

6,495

Repayment of borrowings



(1,398)

(989)

Interest paid (including interest rate swap)



(1,547)

(1,775)

Purchase of own shares



-

(140)

Proceeds of own shares



-

38

Dividends paid



(2,276)

(2,121)




────────

────────

Net cash from financing activities



2,168

1,508






Net (decrease) / increase in cash and cash equivalents



7,822

(6,107)

Cash and cash equivalents at the beginning of the year



11,426

17,533




────────

────────

Cash and cash equivalents at end of year



19,248

11,426




════════

════════






Split as follows:





Cash included in disposal group classified as held for sale



-

439

Cash included in continuing operations



19,248

10,987




────────

────────




19,248

11,426




════════

════════

 



 

Notes

1.      Report & Accounts

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the IASB as they apply to the financial statements of the Group for the year ended 30 June 2015.  The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 30 June 2015 and are consistent with those applied for the year ended 30 June 2014.

The Group financial statements are presented in Sterling because that is the currency of the primary economic environment in which the group operates. All values are rounded to the nearest thousand pounds (£) except when otherwise indicated.

The financial information in this announcement which was approved by the Board of Directors does not constitute the Group's financial statements for the years ended 30 June 2014 or 2015 but is derived from those accounts.

The auditors have reported on the 2015 financial statements and their report was unqualified.  The report contained the following paragraph:

Emphasis of matter - Going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 3 to the financial statements concerning the Company's ability to continue as a going concern.  The Group has received a non-binding offer for its trading subsidiaries, representing the business, assets and undertakings of the Group.  If this transaction is voted for by the Shareholders, the Group will cease trading and the Company will be placed into members' voluntary liquidation.  These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern.  The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.    

This preliminary announcement is based on the Report & Accounts which are prepared in accordance with IFRS. However, this announcement does not, in itself, contain enough information to comply with IFRS.

This statement is not being posted to shareholders. The Report & Accounts for the year ended 30 June 2015, together with notice the Notice of Meeting have been posted to shareholders today. Further copies will be available on request from, The Company Secretary, Renewable Energy Generation Limited, Elizabeth House, 9 Castle Street, St Helier, Jersey, JE4 2QP, and will be uploaded today to the Company's website www.reg-power.com

This document contains forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Group during the preparation and up to the publication of this document. By their very nature, these statements depend on circumstances and relate to events that may occur in the future thereby giving a degree of uncertainty. Therefore nothing in this document should be construed as a profit forecast by the Group.

2.      Going Concern

The strategy of the Group to manage its capital structure with a balance of cash, debt and the recycling of equity through strategic asset sales allows the Group sufficient funds to meet its liabilities as they fall due.  Debt is secured against operating sites, with a known history of operating costs, the key assumption in satisfying covenants is wind volumes.

In considering the going concern basis of preparation, longer term forecasts are also reviewed by the Board, with the 'base case' financial forecasts revealing no inability to meet financial covenants or repay liabilities. Sensitivity analysis under less favourable scenarios designed to test the point at which the Group will either have insufficient headroom or breach financial covenants have also been prepared and reviewed. The Board considers the selected scenarios as remote, and is comfortable that mitigating strategies are available to the Group to offset liquidity constraints.

As noted in the Chairman's statement and the Post Balance Sheet Event disclosure in the notes to these accounts, the approach made by BlackRock for the Group's business and assets, to be put forward to our Shareholders at our forthcoming General Meeting, if successful, will create a fundamental change in the business of the Company.

However, based on the premise that Shareholders have yet to vote on the above considerations and after reviewing in detail the financial position and forecasts, the directors have formed the view that the Group has adequate resources to continue as a going concern for the foreseeable future and has prepared the financial statements on this basis.



 

3.      Dividends per share




2015

2014

Declared and paid during the year



£000

£000

Equity dividends on ordinary shares



Final paid for 2014 of 1.65p (2013: 1.5p) per ordinary share

1,707

1,552

Interim Dividend for 2015 paid of 0.55p (2014: 0.55p) per ordinary share

569

569


───────

───────


2,276

2,121




═══════

═══════

The final dividend for 2015 has been suspended pending the outcome of the General meeting.

4.      Events subsequent to the balance sheet date

On 9 October 2015, the Group announced it had received a non-binding approach for its trading subsidiaries, representing the business, assets and undertakings of the Group.

The Offer, which is subject to due diligence, would generate an estimated net cash distribution of around 60p per share. The Board view the potential buyer as a highly credible, fully funded, counterparty able to implement the Offer through a streamlined and timely acquisition process.  As such the Board will be putting the proposed transaction to Shareholders at a General meeting to be held on 18 December 2015. The Group's net assets at 30 June 2015 are higher than the total value of the offer. However, the offer is a non-adjusting post balance sheet event (meaning that the accounts are not altered to reflect this event, since it had not happened by the year end date of 30 June 2015), and the directors undertook an impairment review at 30 June 2015, making adjustments to asset carrying values where necessary based on their value in use.

In the event that shareholders vote for the transaction to proceed, it would be the intention of the Independent Directors to also cancel REG's admission to trading on AIM, to place the Company into members' voluntary liquidation and thereafter to return available cash to shareholders.  If this is the case, the transaction would constitute a fundamental change of business for REG.

The going concern basis remains applicable as the sale is a non-adjusting post balance sheet event, and as such does not alter the preparation of these financial statements.

5.      Annual General Meeting

The Annual General Meeting will be held at Elizabeth House, 9 Castle Street, St Helier, Jersey, Channel Islands on 18 December 2014 at 9.30 a.m.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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