News
Unaudited interim results for the half year to 30 June 2010
Alkane Energy plc (“Alkane”, “the Group” or “the Company”) (AIM: ALK) the profitable alternative energy company, today announces its unaudited interim results for the six months to 30 June 2010.
Financial Highlights
- Revenue increased by 7.5% to £3.1m (H1 2009: £2.8m)
Operational Highlights
- First biogas planning application filed - 3 sites under appraisal
Commenting on the interim results, Chief Executive Officer, Neil O’Brien, said:
“We have continued to see strong organic growth in our core coal mine methane business and will add further generation capacity in the second half. In addition, we are seeing the benefits from our activities in related conventional gas and are making our first initiatives in the biogas sector. Alkane is well placed in an environment where the pricing outlook appears to be strengthening and there are considerable consolidation opportunities.”
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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 |
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Altium Capital Limited Adrian Reed, Financial Advisory Chloe Ponsonby, Corporate Broking |
0161 831 9133 020 7484 4040 |
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Hudson Sandler Nick Lyon |
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 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 generates power from 10 small scale (less than 10MW) power plants across the UK 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.
Introduction
Alkane has established itself as the UK’s largest CMM operator trading from 10 sites during H1 2010. Output has grown sharply by 32% as the recent record investment in new sites has increased overall installed capacity up to 33MW. In respect of CMM we are well on our way to our stated target of 50MW.
The following table shows our progress:
|
|
2007 installed capacity |
2008 installed capacity |
2009 installed capacity |
2010 |
Total |
|
|
|
Projects completed in H1 |
Projects under construction |
||||
|
|
MW |
MW |
MW |
MW |
MW |
MW |
|
CMM Electricity Generation sites |
9.5 |
11 |
17 |
3 |
4.5 |
24.5 |
|
Gas supply sites (equivalent MW) |
6 |
6 |
6 |
- |
- |
6 |
|
Conventional gas generation |
- |
- |
7 |
- |
- |
7 |
|
Total |
15.5 |
17 |
30 |
3 |
4.5 |
37.5 |
Financial performance
During the period the Group has generated £1.5m of EBITDA (H1 2009: £1.4m) which represents 48% of revenue (H1 2009: 49%). This is a very healthy EBITDA ratio in this period of low selling prices and is a key source of funds for our organic investment plans to continue expanding the Group’s installed production capacity.
Revenue has increased by 7.5% to £3.1m (H1 2009: £2.8m) reflecting a 32% increase in electricity output, which represents around 85% of revenue, to 52GWh (H1 2009: 39GWh). Gas output, representing around 15% of turnover, was stable at 1.8m therms (H1 2009: 1.7m therms).
The significant increase in electricity output offset the expected drop in selling prices being experienced during 2010. Average selling prices have fallen from £54/MWh in 2009 to £44/MWh so far this year. At these selling prices, Alkane has remained profitable and cash generative and we have used this cash flow to invest in new sites.
The current forward price curve is showing year on year price increases for the next three years. We have forward contracted 33% of our 2011 expected output at c. £48/MWh. This increase in selling price is a very encouraging trend for the Group as we bring on our new capacity. Alkane has retained its prudent forward selling policy. We have a regular rolling programme to forward sell on base load contracts. This policy is designed to give us visibility on cash flow and income over the next 12 months.
The underlying PBT has fallen marginally to £0.7m (H1 2009: £0.8m). This results principally from the increased depreciation charges arising from the additional capacity; the investment in new capacity has sharply increased output which has broadly compensated for the lower prices experienced this year. We have protected profits and cash flow in the period by reducing production costs per MWh to £8.64/MWh (H1 2009 £9.51/MWh). In addition the 32% increase in output has been achieved with no increase in administrative expenses.
The published PBT figure, which last year included the negative impact of the foreign exchange movements related to the Pro2 disposal, has increased to £0.7m (H1 2009: £0.4m).
Earnings per share from continuing operations in the first half amounted to 0.70p (H1 2009: 0.45p). Excluding the impact of the exchange movements described above, underlying earnings per share were 0.70p (H1 2009: 0.85p).
Balance sheet and cash flow
Net assets have increased to £16.6m (H1 2009: £15.6m) as we have reinvested the cash generated from operations and the sale of Pro2 Anlagentechnik GmbH. Our balance sheet is dominated by the fixed asset figure of £20.0m invested in sites, grid connections and engines. Fixed assets have increased by £6.5m since June 2009 as new sites have been commissioned. Our modular engines are on average only 3 years old and have the potential for many more years of on-going operation.
Cash flow from operating activities in the period was £1.5m (H1 2009: £2.2m). We have continued the expansion plans started last year and invested a further £2.2m (H1 2009: £4.8m) so far this year in new capacity. In addition we have received a net payment of £130k as deferred consideration on last year’s disposal of Pro2. We are still owed £864k in respect of this transaction, with an agreed repayment schedule running to 2013. As previously announced we have fully provided against this debt.
Operational performance
The Alkane model has delivered strong organic growth in H1 2010. Electricity output has risen by 32% to 52GWh, and so far in 2010 we have opened one new site, our first site in the West Midlands, at the former Florence colliery site near Stoke-on-Trent.
We are on track to add a further two sites to our network during H2 of this year, with building work well advanced at Newmarket, Yorkshire and at a new site in Mansfield, Nottinghamshire. By the end of 2010 we will have 12 operating sites, a step up in critical mass which will mean we are well placed to increase output in 2011.
We are progressing well with our drill programme for next year’s new capacity. We intend to have three new sites opened during 2011, subject to the drill results, planning and grant of permits.
Strategy
The Alkane strategy starts with our core CMM business. We have a strong licence position from which we aim to expand to generate 300GWh p.a. We are embarked on a roll out programme to open new sites and we expect that we will have over 20 sites, with a capacity of approximately 50MW, to reach our output target. If we achieve this target we will have trebled output from 2009.
Alkane started extracting CMM 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. We seek to install production capacity on a site to run for 10 years or more.
There is the potential to consolidate the UK CMM sector and Alkane has looked at a number of acquisition opportunities. With an extensive and attractive portfolio of sites in our own licence area Alkane will only buy assets at a fair price. We are already preparing our research for the next Licensing Round, which we hope will allow us to extend our portfolio.
Alkane’s skills and ambitions are not limited to CMM. Our operating model has already been transferred to running peak load plant run on conventional gas. We currently operate 7MW across two sites on conventional gas with our trading partners GDF SUEZ Energy UK. We are using surplus second hand engine capacity and grid connections at existing sites which allows us to extend asset life. As previously announced, following the success of the initial year, we have extended the contract for a further 18 months with GDF SUEZ, in respect of a capacity of 10MW and incorporating peak operations. We expect an approximate doubling of revenues from this source during 2011.
We continue to look for areas where we can extend the use of our core skills in methane gas handling and running small scale power sites. The biogas market has strong growth potential in which we are starting to make our first initiatives. We have filed our first planning application for a biogas plant at Whitwell, Derbyshire. In addition we have been working with our collaboration partner in the municipal waste market, the TEG Group PLC, on bids for three of the regions in the Welsh Assembly waste round. We also continue to appraise projects in the agricultural biogas sector to work on projects as either an equity partner or energy equipment provider.
Coal Bed Methane is a longer term opportunity where Alkane has 500km2 under licence and contingent resource estimates of circa 350 billion cubic feet. We are monitoring activity in this sector and are preparing a programme to confirm these resource estimates.
The Alkane team
The Board would like to highlight the contribution of David Oldham, who retired as Technical Director and stepped down from the Board on 14 July 2010. David has been instrumental in creating and delivering the Alkane business model. As a founder of the company David has steered the Group through its early development phase into generation and leaves us at a time when Alkane is producing record output and with a healthy portfolio of new sites to bring on stream.
Outlook
We have a clear strategy in place to continue to build the UK’s largest and most profitable coal mine methane company. The second half will see further generation capacity added to the Group’s portfolio within an environment where the pricing outlook appears to be strengthening and we have the funding in place to develop these organic growth opportunities.
Combined with the other opportunities that the Group is pursuing within both the CMM sector and more widely in conventional gas, biogas, heat and CBM, we look forward to reporting a further six months of strong progress at our preliminary results for the year ended 31 December 2010.
John Lander
Chairman
Neil O’Brien
Chief Executive Officer
Page last updated: 8 September 2010
