News

Unaudited interim results for the half year to 30 June 2009

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 interim results for the six months to 30 June 2009.

Financial Highlights

  • Revenue up 9% to £2.85m (2008: 2.60m)
  • EBITDA up 26% to £1.40m (2008: £1.10m)
  • Strong operating cash flow
  • Receipts from sale of Pro2 currently £5.16m
  • PBT before exceptional non cash accounting movements relating to the sale of Pro2 was £0.79 million (H1 2008: £0.87 million)

Operational Highlights

  • Good progress towards achieving target of 50MW capacity
  • Proceeds from sale of Pro2 funding expansion programme
  • Development of new natural gas for standby facilities
  • New project pipeline progressing well

Commenting on the interim results, Chief Executive Officer, Neil O’Brien, said:

“It has been a very encouraging six months as we remain on track to reach our medium term target of 50MW of installed coal mine methane capacity. Our strong balance sheet, high cash generation and proceeds from the disposal of Pro2 provide a sound base to progress further.”

For more information please contact:
 
Alkane Energy plc

Neil O’Brien, Chief Executive Officer | 020 7796 4133 (today), then 01623 827927

Steve Goalby, Finance Director | 020 7796 4133 (today), then 01623 827927

Altium Capital Limited

Adrian Reed – Financial Advisory | 0161 831 9133

Chloe Ponsonby – Corporate Broking | 020 7484 4040

 
Hudson Sandler

Nick Lyon | 020 7796 4133

Hugo Jenkins | 020 7796 4133


OPERATING AND FINANCIAL REVIEW  

Introduction
 
Alkane is pleased to announce its unaudited interim results for the six months ended 30 June 2009. The first half of 2009 has been a busy and constructive period for the Group. The disposal of our German subsidiary, Pro2, has provided Alkane with the financial resources to accelerate the Group’s investment programme in our core Coal Mine Methane (‘CMM’) business. Alkane’s flexible low cost operating model gives us significant competitive advantage over other energy generators and we continue to invest in profitable projects even in these difficult economic times.

The Group’s entire minority interest in Pro2 was sold on 1 March 2009. The total receipts are expected to be £6.63 million of which £5.16 million was received in this half year; the balance is due within 18 months on loan repayment schedules and the clearance of an escrow account.   The capital receipts from the disposal and continued strong operating cash flow have allowed us to accelerate the expansion of the Group’s operations and £4.76 million has been invested in new projects during the six months to June 2009. This investment programme is a key feature of our strategy as we strive to reach our medium term target of 50MW of installed CMM capacity.

The following table shows our progress towards the 50MW target:

 

 

 

CATEGORY

 

 

 

Current installed capacity

Projects being

commissioned

Pipeline projects under construction

Total

 

MW

MW

MW

MW

Electricity Generation sites

 

11

6

7.5

24.5

Gas supply sites (equivalent MW)

 

6

-

0.5

6.5

Total

17

6

8

31

 

During the first half the output from the Group’s UK sites was 39.3GWh (H1 2008: 40.8GWh). Output levels were slightly down due to a drop in production at our Bevercotes site where, as previously announced, lower gas volumes have resulted in the move of some capacity to other operating sites. Also during the period we withdrew from the Group’s only overseas site at Joarin in Germany. Following a reduction in gas flows at the site and due to a lack of scale in Germany the decision was made to redeploy the power generation plant back to the UK where higher rates of return are available.

Financial

The first half saw revenue increase from £2.60 million (H1: 2008) to £2.85 million this year representing a 9% increase. The Company benefitted from forward electricity contracts entered into in 2008 and achieved a 21% increase in average selling price to £59.5/MWh (H1 2008: £49.3/MWh). Over the past 18 months market electricity prices have been volatile, and have fallen considerably from the peaks reached in 2008. Unless there is a significant upturn in market prices, our average selling price in 2010 will be lower than this year.  Output in the UK in the period was 39.3GWh (2008: 40.8GWh). The decision to exit Joarin resulted in a revenue loss of £0.13 million compared to the same period last year. Gas sales in the period were 1.7 million therms (H1 2008: 1.8 million).  The average gas selling price moved up by 16% to 29.4p/therm (H1 2008: 25.3p/therm).

The Group adopts a flexible but prudent policy on forward contracting for electricity sales, ensuring that there is an even spread of rolling renewals over any twelve month period to limit Group exposure to individual low price periods. The Group has contracts in place for the next twelve months covering 58% of our current installed capacity at an average price of £48/MWh. Our development and capital expenditure programmes are carefully managed to reflect these external factors.

An important characteristic of the Group is the strong cash flow generated by the Alkane business model, demonstrated by EBITDA from continuing operations for the first half of £1.40 million (H1 2008:£1.10 million). The 2009 figure shows EBITDA from continuing operations running at 49% of revenue (H1 2008: 42%).  This cash flow is one of the major sources of finance for our investment programme in new plant in the UK.

Following the disposal of Pro2, there are a number of exceptional, non-cash, accounting movements related to the Group’s holding in Pro2 and certain loans made to Pro2 which were sold or rescheduled as part of the disposal process. The profit before tax for the six months to June 2009 before these exceptional items was £0.79 million (H1 2008: £0.87 million). The fall in profit before tax is due to a rescheduling of depreciation charges so that costs relating to major overhauls are now depreciated over a shorter period than the plant itself. Total depreciation in H1 2009 was £0.59 million compared to £0.28 million in H1 2008.

Earnings per share from continuing operations in the first half amounted to 0.45p (H1 2008: 1.08p).  Excluding the impact of the Pro2 exceptional items described above, earnings per share were 0.85p (H1 2008: 0.92p)

As at 30 June 2009, the Group had no net debt and cash balances of £3.51 million, the majority of which has been committed to funding future growth in the Group’s CMM portfolio.

Operations
 
The UK operations have performed creditably after a difficult start to the year. Output levels in the UK were slightly down due to a drop in gas production at our Bevercotes site where we have reduced capacity to 2.7MW.

The other UK sites have performed well. As previously indicated, the Group withdrew from its one German site, from where the 1.35MW engine has been redeployed for use in the UK. Current installed capacity, as set out above, totals 17MW.

The cash receipts from the Pro2 disposal plus the Group’s strong operating cash flow has allowed the Group to push ahead with the rollout programme with £4.76 million invested in projects during the six months to June 2009. The projects currently being commissioned, set out above, refers to the Group’s new Bilsthorpe and Shirebrook sites. The new site at Bilsthorpe is currently operating at 3.1MW; maximum capacity at this site is 4.65MW dependent upon future operating performance. It was first drilled in January of this year and started exporting to the electricity network from June. This project was delivered ahead of schedule and on budget and is one of our fastest ever construction phases. Shirebrook has been a further project success.  Until recently it had been a ‘gas only’ site for the Group. After drilling a new access pipe, output has been restored to the site and we have upgraded facilities to operate our own electricity generators.

The new project pipeline, with sites under construction set out above, is progressing extremely well. The Group has drilled and is gas testing at three sites in Yorkshire, Nottinghamshire and Staffordshire. Whilst there is still a large amount of administration and construction work to complete, we are hopeful that all three sites will be exporting electricity within 9 to 18 months.

The Group’s recent excellent performance on new projects shows the strength of our project portfolio. Nonetheless, there are unavoidable uncertainties within the business in respect of land acquisition and planning and also in respect of the level and life span of gas reserves. One example of this is that the Group has yet to find economically viable gas reserves within our South Wales licence area, however work continues to identify commercially viable reserves.

The Group continues to work on a number of additional projects which will provide us with a portfolio of potential new sites for 2010 and beyond.

Strategy

At the start of 2009, we set ourselves a target of reaching, within the medium term, 50MW of installed CMM capacity. The table above shows that we are already making excellent progress towards this strategic target, with capacity set to rise to 31MW as the projects currently under construction are commissioned. The Group remains committed to delivering on this target from within our current CMM licence portfolio and from the existing resources available to the Group. The Board firmly believe that the first half of 2009 has been a major step forward in delivering on the potential of the Alkane Group.

Alkane also continues to look at other opportunities to improve the quality of earnings of the Group.  Work has started on creating an 8MW portfolio of natural gas fired standby facilities using surplus capacity at Shirebrook and Markham. When available, Alkane will be able to provide these facilities to utilise our valuable grid and generating capacity to provide electricity, generated from mains natural gas, at times of peak demand and associated electricity pricing. The Group has a highly flexible engine fleet and expertise in remote management facilities which enable us to support this new operating model and allow us to extend the life of a site beyond the CMM reserve period.

The Group continues to research other areas of activity for Alkane to deploy our expertise and asset management skills. As stated with our full year results, we are committed to maximising the value of our current CMM operations whilst looking at additional complementary and proven technology areas to expand the Group.

People

As previously announced, Cameron Davies is retiring as an executive director on 31 October 2009.  I am pleased to confirm that Cameron has agreed that upon his retirement he will take on the role of non-executive director, thus ensuring that the Group continues to benefit from his knowledge and experience. Also as previously announced, David Oldham is to retire as Technical Director on 31 July 2010.  We are pleased to have appointed Neil Shailer to the non-Board role of managing director of the CMM business, and he is taking over the day-to-day operations in an orderly handover from David.

Outlook

2009 is benefiting from stable capacity and strong pricing from forward contracts entered into in 2008, alongside the shift change in the speed of development of the new project pipeline. With new capacity already on line we expect to see a rise in output in the second half. While pricing volatility is likely to lead to lower power prices in 2010, an increase in output would provide an offsetting factor.

Our balance sheet is robust with no net debt and a business model which generates strong operating cash flows. Together with the funds from the disposal of Pro2 this has allowed us to undertake the largest ever investment programme for the Group, the benefit of which we will start to see during the rest of this year and in the years to come.

Subject to any unforeseen operating changes, we remain confident of meeting City expectations for the full year.

John Lander
Chairman

Page last updated: 16 September 2009