Renewable Energy Generation Ltd
13 September 2007
13 September 2007
Renewable Energy Generation Ltd
("REG", "the Company" or "the Group")
Preliminary Results for the year ended 30 June 2007
Renewable Energy Generation (AIM: RWE), the developer owner & operator of
renewable energy projects, announces its preliminary results for the twelve
months to 30 June 2007.
Financial Summary
Balance sheet strong with £20.7m in cash (2006: £28.6m)
Sales and other operating income over period of £2.3m (2006: £1.1m)
Capital expenditure of £28.5m (2006: £18.9m)
Loss per share of 1.60p (2006: profit per share of 1.26p)
Final dividend of 3 pence per share proposed payable in October 2007
making dividends payable in respect of the year 4 pence per share (2006: 4p)
Operational Highlights
Project pipeline now more than 3,000MW developable capacity in Canada
and the UK
Value crystallised by self-building, owning and operating projects
from within a diversified pipeline. Construction completed or underway on over
80MW in the UK and Poland during the year.
Significant expansion of Canadian Standard Offer Programme ("SOP")
construction programme into 2008
Management team of experienced renewables professionals reinforced,
and company restructuring well under way
REG Chief Executive Officer Andrew Whalley said:
"I am delighted with the progress we have made in the last year. Raising a
further £45m in late 2006 has enabled REG to execute further our strategy of
developing, building and owning our own wind projects rather than purchasing
from others and paying a premium. With built projects now emerging from our
substantial wind power pipeline and a much strengthened team accelerating
development in the UK and Canada, next year will bear the fruit of our
investments to date.
The next twelve months will see accelerated project delivery, with commissioning
of the first four SOP projects in Canada pushing the Group into operational free
cash flow after dividend payments, and providing a stable base of income for
many years to come. I look forward to the year 2007-2008 with confidence.
Continued high energy prices and strengthening policy support provide increased
confidence in sustained value from the pipeline assets we are now building."
Enquiries
Renewable Energy Generation Ltd
Andrew Whalley +44 (0) 1483 400 425
Bell Pottinger Corporate & Financial
Nick Lambert / Amy Rajendran / Antonia Coad +44 (0) 20 7861 3232
Chairman's Statement
In this our second year, we have made substantial progress in the execution of
our stated strategy. Global trends in sustainable energy development continue
to demonstrate further that renewables are shifting rapidly into mainstream
energy infrastructure. Investments globally in this sector rose by nearly 50%
to $100 billion in 2006 and the growth trajectory so far in 2007 is similar1.
Investor appetite, facilitated by strong policy support mechanisms, illustrates
that existing renewable energy technology is ready for scale-up without further
technology development, with on-shore wind now a commodity industry. Critical
mass has been reached to the extent that even if oil prices drop to $40 from
their established levels above $70, analysts expect investment would suffer
little other than a slowing pace of growth. The sector's rapid progress to
maturity is evidenced further by high levels of asset financing. This is most
particularly pronounced in the wind sector, in which REG has most of its assets.
By contrast to the conventional energy industry, a significant proportion of
total sector investment was dedicated to increasing manufacturing capacity This
reflects confidence by manufacturers that the lower capital equipment prices
associated with the evident commoditisation of the on-shore wind sector in
particular, are acceptable in such a high growth environment.
1 United Nations Environment Programme report "Global Trends in Sustainable
Energy Investment 2007
Our Strategy
We remain clear in our view that we can extract most value from the booming
renewable energy sector by focusing on smaller projects, employing mature
technologies, in countries which offer strong opportunities for growth. The
segment of the market concerned with small wind power projects is typically
fragmented and our competitive advantage has been demonstrated as being the
ability to acquire projects early, at low cost and get them consented, built and
operated, using our own resources. Now fully resourced as a "whole-chain"
developer and operator of renewable energy assets, we are able to extract value
from parts of the investment chain which would otherwise be lost to
intermediaries. This strategy inevitably incurs lead-time lags associated with
complex planning processes but avoids the premiums involved in acquiring
projects already consented.
We have achieved significant progress in the past 12 months since acquiring our
early-stage wind project pipelines, now totalling more than 3000MW in Canada, UK
and Poland. In addition to the three projects constructed this year, more than
a dozen others were progressed towards planning determination We now have 16MW
of operating wind projects in the UK with a further three projects in
procurement or under construction.
Although providing lower margins than in the UK, Canada's renewable energy
sector enjoys easier planning conditions - a crucial advantage. Having
completed our acquisition of Canada's AIM Powergen (APG) in August 2006 we moved
quickly to secure turbines and other plant, despite a relatively tight supply
market and this has enabled us to commence development of the first seven, of
12 of the 10MW projects we expect to develop under the Federal "Standard Offer
Programme" (SOP) within the next two years. We anticipated Ontario as a
principal player in Canada's emergence as a leading jurisdiction for wind power
and in August 2007 its importance was further demonstrated by the Province's
announcement of a doubling of its requirement for renewable energy, through a
new directive to the Ontario Power Authority which increases required capacity
to 4000MW.
REG has the bulk of its nearly 3000MW pipeline of Canadian projects in Ontario
and in addition to the SOP projects now under construction, it submitted in
Summer 2007 two of its 99MW projects in response to Manitoba's Request For
Proposals (RFP) programme. This bid has been made in partnership with a large
financial institution .
As part of our aim to maximise efficiency in deploying shareholders funds, we
have recently secured flexible debt facilities to help us orchestrate the
funding mechanisms most suited to each stage of project development and we seek
partnerships where our portfolio of projects and development expertise is
attractive to providers of low cost capital and/or plant manufacturers seeking
vertical integration. We are in the final stages of a review of the merits of
recycling some of our earlier investments such as in the 50MW Tymien project in
Poland, where opportunities exist to release both added value and cash.
Having established a strong pipeline of developable projects in the wind sector,
we aim to diversify our technology base where appropriate. In Summer 2007 we
acquired a majority shareholding in an operating business in the UK, using waste
cooking oil as fuel. It offers growth opportunities and relatively fast cash
flow. At year-end, we were evaluating other UK biomass investment opportunities
using waste wood as fuel.
Our strategy to embrace the whole value chain available in the renewables sector
is better served by an operating company structure, than by a fund. During the
past year we have continued to recruit seasoned professionals to join already
well-established teams within our subsidiaries in the UK and Canada. At UK
Group level we have recently appointed Andrew Whalley as Chief Executive, who
had previously led the fund management team at Premier Asset Management, under
which the Company was initially established. More recently, we have appointed
David Crockford as Group Finance Director. He comes with wide international
experience of financial management, control, investment appraisal and capital
structures.
Now that we have in-house the expertise required to manage the full range of our
activities as an operating company, we are moving to streamline the legacy
management arrangements attached to the original structure. We also propose to
re-domicile the Company in Jersey to better reflect the locus of governance and
control by the Directors.
In summary, we consider ourselves now well endowed not only with investors who
have demonstrated confidence during the inevitable dwell-time associated with
developing early projects in our pipeline, but also with the professionals
capable of rewarding that confidence.
Mike Liston, OBE
Chief Executive's Statement
In the last year the Group has achieved a number of important successes against
the key strands of our strategy:
Maintaining a sizeable portfolio of early stage, low cost
projects employing mature technologies in countries which offer strong
opportunities for growth
- The Group acquired Canada's largest wind developer AIM PowerGen
Inc ("APG") in August 2006 for a total of £14.2m paid in cash and new REG
shares. APG has almost 3000MW of wind projects at various stages of development
across six provinces of Canada
- Several Canadian Provincial Governments have introduced
initiatives to increase the uptake of wind power. At National level, a new
scheme has been introduced to provide further support to augment Provincial
initiatives
- During the year our UK development portfolio increased substantially to
nearly 200MW and our strategy opportunistically to increase the average project
size began to materialise, with three of our largest seven projects potentially
offering more than 20MW each.
- We are actively engaged in the preparation of more than a dozen
projects for planning determination. Several of these have arisen because of
good publicity surrounding the successful completion of REG construction
projects, such as at High Sharpley. In this regard we believe that our
wholly-owned subsidiary Cornwall Light & Power Co. Ltd. (CLP) has established
itself as one of the most respected developers of small wind projects in the UK
- Our UK team has also acquired development rights to Biomass
projects which provide an opening into a newly emerging industry that enjoys
simplified planning procedures.
- The UK Energy White Paper, published in March 2007, provides
significant new encouragement for renewable energy, particularly Biomass, which
is to be further supported by the doubling of its entitlement to Renewable
Energy Certificates ("ROCs") through which substantial power price premiums are
provided.
Crystallising value by self-building, owning and operating
projects from within a diversified pipeline which now exceeds 3,000MW
developable capacity in Canada, the UK and Poland
Canada
In December 2006, the Group's Canadian subsidiary, APG, reached agreement with
Vestas, the world's largest wind turbine manufacturer, to procure 24 Vestas V82
machines for the first four projects that APG is constructing under the Ontario
Standard Offer Programme ("SOP") which is designed to promote the build of
sub-10MW wind projects across the province. Under this programme the Ontario
Power Authority will enter into 20 year power purchase agreements with APG.
These projects have started construction and will be completed during the next
year. Once commissioned, REG will refinance the projects with long term debt.
The equity will then be recycled into new projects in Canada. REG currently has
over 2,000MW of potential projects in Ontario. APG has ordered a further 18
turbines for three more SOP projects which are anticipated to commence operation
in late 2008. In total, APG currently has 70MW in construction.
APG announced recently a collaboration with GE Energy of the USA in bidding for
two large wind projects under a Request for Proposals ("RFP") in Manitoba. The
Dominion City and Oakland wind projects are each of 99MW capacity and if
selected for construction will make an important contribution to Manitoba's
renewable energy programme. A decision by the authorities on the RFP is likely
early in 2008
APG has surpassed our best expectations since acquisition. The Canadian wind
market appears on the verge of substantial growth and APG should be at the
forefront of this process. The Canadian government is a Kyoto signatory and
several of the provinces have put in place aggressive renewables targets. Thus
APG is well placed to demonstrate substantial growth over the next few years.
UK
In March 2007 the REG Group, through its UK subsidiary, CLP, completed the
installation of three new wind farms in the UK totalling 10.4MW.
These wind farms are:
High Sharpley County Durham 2.6MW
High Pow Cumbria 3.9MW
Braich Ddu Gwynedd 3.9MW
CLP's new projects, together with the well established operation at Goonhilly,
sell their power to Smartest Energy, part of Marubeni Corporation of Japan, with
whom REG has established a good commercial relationship. ROCs associated with
the production of the wind farms are accumulated by CLP on balance sheet and
then sold. Anticipated prices for ROCs are higher than last year.
CLP's 1.7MW project at Roskrow Barton in Cornwall discharged all of its planning
conditions earlier this year and turbines were ordered from Vestas. It is
anticipated that this project will be generating power in early 2008.
In addition two more consented wind projects, Whittlesey and Ramsay in
Cambridgeshire were prepared for construction. Both wind farms are single
turbine sites of around 2MW and are expected to be completed next year.
Due diligence is being finalised on two small Biomass projects in the UK. These
are expected to enter construction during 2007. They utilise wood fuel to
generate electricity and heat. The sale of the heat may provide an additional
revenue stream. This type of project is generally not contentious within the
planning process, and is being encouraged under the Energy White Paper.
Significant opportunities exist across the UK to roll out further installations.
Equipment supply is within 12 months from order, so implementation can be swift.
Since the end of the period, REG announced an investment in a new business
utilising used cooking oil to fuel diesel generators. Local authorities and
industrial and commercial businesses present ready demand for this method of
power generation, which benefits from a diversified fuel supply chain, supported
by demanding waste disposal policies, and a benign planning environment..
Equipment supply is swift, in this case approximately six months and our first
such project owned by CLP is now generating power. We anticipate significant
expansion of our activities in this sector.
Poland
The 50MW Tymien project in Poland was commissioned last March and REG received
its first dividend from the project in May totalling £700,000. The project is
performing slightly ahead of our expectations and although we are very pleased
with its performance we are examining the merits of Tymien in the context of
opportunities to redeploy the capital into the next phase of development of our
UK and Canadian pipelines.
Building on our early foundations of sound finances and
experiences renewables professionals to exploit every link of the value chain
The transition of the Group from an investment to an operating Company structure
continues. At UK Group level David Crockford has been appointed as Group Finance
Director. He is a seasoned chartered accountant with extensive experience gained
in Audit with a global accountancy firm, and in commercial organisations
internationally.
Both the UK and Canada now have traditional organisational structures, with full
time staff. Whilst these structures are still augmented by an established
network of advisers, we now have a significant core group of employees able to
continue the delivery of profitable operating renewable energy projects.
Neil Harris has joined as full time Chief Executive Officer of CLP. Neil has
over 15 years of experience in the wind industry. He has built projects in many
countries, and brings a wealth of engineering and development experience. John
Mills joined us as Head of UK Construction, with a remit also to support the
Canadian activities. Again, John has built a large number of wind projects in
several countries. He joins us from the Falck Group where he headed up their
construction team, based in Italy. Previously he had responsibility for
construction within GE Wind Europe. Steve Allen has also joined CLP as Project
Developer. He has chosen to come to CLP from Gamesa, one of the world's largest
wind turbine manufacturers. This new structure is helping to accelerate the
preparation of projects for planning submission and to generate new
opportunities.
Deyong Cha has joined APG as VP for construction. He has extensive experience
across many construction projects in North America and bolsters the Canadian
team further.
These industry professionals add still more weight to the founding teams of REG
based in the UK and Canada. It is worth noting that turbine supply in less than
12 months has been achieved in both countries, despite tight market conditions.
Furthermore, the Biomass and cooking-oil-to-power projects have been brought
into REG through our extensive industry network. REG has demonstrated again this
year its ability to spot investments, qualify them and turn them into generating
facilities quickly and efficiently.
A new executive options scheme has been put in place. This will incentivise both
existing and new members of staff. The scheme is capped at 10% of REG's issued
share capital and will result initially in a further 1% of REG's issued share
capital being placed under option. The Board, in consultation with REG's
advisors, will regularly review the option scheme to ensure it meets market best
practice.
This process of change will continue with the aim of ensuring that the Group
structure delivers returns through aligning further the interests of
shareholders and staff. To this extent the continuing involvement of REG Power
Management in the activities of the Group is under review.
Outlook
The strategy of REG is to develop, build, own and operate its own wind projects.
In this way, shareholder funds are used to add value rather than purchase from
others whilst paying a premium. In respect of the Group's small wind projects,
the strategy is to build a number of these projects using our own equity
resources. Once built and operating satisfactorily, projects can be bundled
together and refinanced using long term, fixed rate debt. In this way
construction risk is removed for the banks before long term loans are put in
place. This will result in lower rate and arrangement costs thus increasing
returns to REG's shareholders.
In late 2006, REG raised £45m through a placing of new Ordinary shares to
finance the build of its wind farms in the UK and Canada. This takes the total
raised by REG to over £100m and provides the group with a strong balance sheet
enabling it to execute its business plan for the next few years.
The Group is in advanced stages of negotiation on a substantial, revolving
credit facility with a leading lender. This facility will provide REG with
ample liquidity whilst it builds out its UK and Canadian portfolios. In
particular it will allow the first 40MW of SOP projects to be constructed and
then refinanced early next year. It is a general corporate facility and affords
the Group significant flexibility, particularly entering a period when market
conditions may make access to low cost credit more difficult.
When the first four SOP projects are commissioned the Group should be generating
operational free cash flow after dividend payments. The SOP projects in this
regard are very important as they provide the Group with a stable base of income
for many years to come. This will allow us to develop new and exciting projects
both in the UK and Canada and build the Group's profitability and return on
capital employed.
People
The REG Group is proud to have working for it a team of talented and highly
motivated individuals. REG's recent recruitments reflect the Board's commitment
to a new structure, and should provide the Company with the resource it needs to
develop the opportunities it has created in its first two years. I would like to
thank all of REG's employees for their commitment to the Company over the last
twelve months.
I believe strongly that the organisational changes we have made, allied to the
reinforcement of experienced management at operational level will support a
prolonged period of project delivery. There is no doubt that we have secured
exceptional pipelines of projects in both Canada and the UK; two of the prime
markets for renewable energy worldwide. Our crystallisation of these low cost
development assets into valuable operating plant has started and will gather
pace.
Andrew Whalley
Consolidated Income Statement
for the year ended 30 June 2007
Continuing Year to 25 April 2005 to
operations Acquisitions 30 June 2007 30 June 2006
£ £ £ £
Revenue 1,443,003 - 1,443,003 743,830
Cost of sales (1,669,967) - (1,669,967) (880,280)
Gross loss (226,964) - (226,964) (136,450)
Administrative expenses (1,422,487) (743,004) (2,165,491) (1,047,589)
Development costs (850,005) (988,255) (1,838,260) -
Group trading loss (2,499,456) (1,731,259) (4,230,715) (1,184,039)
Other income 836,059 45,451 881,510 390,626
Group operating loss (1,663,397) (1,685,808) (3,349,205) (793,413)
Finance revenue 1,329,549 299,680 1,629,229 1,377,405
(Loss) / profit before tax (333,848) (1,386,128) (1,719,976) 583,992
Tax (85,148) 479,376 394,228 (60,755)
(Loss) / profit for the period (418,996) (906,752) (1,325,748) 523,237
Attributable to:
Equity holders of the Company (418,996) (906,752) (1,325,748) 523,237
Earnings per share for the (loss) / profit attributable to the
equity holders of the Company during the period
- basic (1.60p) 1.26p
- diluted (1.58p) 1.25p
Consolidated Balance Sheet as at 30 June 2007
30 June 2007 30 June 2006
£ £
ASSETS
Non-current assets
Property, plant and equipment 31,752,469 3,607,118
Goodwill 3,009,914 3,009,914
Intangibles 20,703,800 -
Development costs 3,963,434 4,156,424
Investments at fair value through profit or loss 8,555,681 8,358,253
67,985,298 19,131,709
Current assets
Inventories - 16,831
Trade and other receivables 17,660,293 445,617
Intangibles 760,053 454,457
Available-for-sale investments - 4,913,062
Cash and cash equivalents 20,751,234 28,611,764
39,171,580 34,441,731
Total assets 107,156,878 53,573,440
EQUITY
Capital and reserves attributable to the Company's
equity holders
Share capital 10,310,101 5,500,000
Share premium 79,645,688 36,850,250
Special reserve 10,000,000 10,000,000
Fair value and other reserves 1,479,662 (66,308)
Share-based payment reserve 546,648 191,368
Retained earnings (4,142,914) (26,763)
Total equity 97,839,185 52,448,547
LIABILITIES
Non-current liabilities
Deferred tax liabilities 6,774,483 617,922
6,774,483 617,922
Current liabilities
Trade and other payables 2,543,210 409,812
Tax payable - 97,159
2,543,210 506,971
Total liabilities 9,317,693 1,124,893
Total equity and liabilities 107,156,878 53,573,440
Net asset value (NAV) per share
- basic 94.90p 95.36p
- diluted 95.14p 95.58p
Consolidated Cash Flow Statement
for the year ended 30 June 2007
Year to 25 April 2005 to
30 June 2007 30 June 2006
£ £
Cash flows from operating activities
Cash used in operations (17,835,565) (794,458)
Net cash used in operating activities (17,835,565) (794,458)
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (9,557,237) (5,155,221)
Purchases of property, plant and equipment (PPE) (28,547,782) (1,562,583)
Development costs - (4,156,424)
Purchases of investments at fair value through profit or - (8,060,492)
loss
Purchases of available-for-sale investments - (16,830,767)
Proceeds from sale of available-for-sale investments 4,794,858 11,994,054
Interest received 1,629,229 1,377,405
Net cash used in investing activities (31,680,932) (22,394,028)
Cash flows from financing activities
Proceeds from issue of shares 45,788,952 55,000,000
Transaction costs from issue of shares (2,740,564) (2,649,750)
Dividends paid to Company's shareholders (2,790,403) (550,000)
Net cash generated from financing activities 40,257,985 51,800,250
Net (decrease)/increase in cash and cash equivalents (9,258,512) 28,611,764
Cash at beginning of period 28,611,764 -
Exchange gains 1,397,982 -
Cash at end of period 20,751,234 28,611,764
Consolidated statement of changes in equity
for the year ended 30 June 2007
Attributable to equity holders of the Company
Share Share Special Fair value and Share-based Retained Total
capital premium reserve other reserves payment earnings equity
account reserve
£ £ £ £ £ £ £
Balance at 1 July 2006 5,500,000 36,850,250 10,000,000 (66,308) 191,368 (26,763) 52,448,547
Issue of share capital 4,810,101 45,536,002 - - - - 50,346,103
Transaction costs from issue
of shares - (2,740,564) - - - - (2,740,564)
Fair value losses on
available-for-sale - - - (4,384) - - (4,384)
investments
Transfer to profit and loss on - - - 70,692 - - 70,692
saleof available for sale
investments
Share-based payments - - - - 355,280 - 355,280
Foreign currency translation - - - 1,479,662 - - 1,479,662
Net income/(expenses) recognised
directly in equity 10,310,101 79,645,688 10,000,000 1,479,662 546,648 (26,763) 101,955,336
Loss for the period - - - - - (1,325,748) (1,325,748)
Dividend - - - - - (2,790,403) (2,790,403)
Balance at 30 June 2007 10,310,101 79,645,688 10,000,000 1,479,662 546,648 (4,142,914) 97,839,185
Basis of preparation
This preliminary statement which is prepared on the same basis as set out in the
previous years accounts was approved by the Board on 13 September 2007. It is
not the Company's statutory accounts. The statutory accounts for the year ended
30 June 2007 will be delivered to the Registrar of Companies.
Dividends
2007 2006
£ £
Declared and paid during the period
Equity dividends on ordinary shares:
Second interim dividend declared and paid - 3 p 1,759,372 -
First interim dividend declared and paid - 1 p 1,031,031 550,000
2,790,403 550,000
Proposed (not recognised as a liability at 30 June 2007)
Equity dividends on ordinary shares:
Second interim dividend declared - 3 p - 1,759,372
A dividend of 3p per share, amounting to a total dividend of £3,093,030 was
proposed by the directors at their meeting on 11 September 2007. The proposed
dividend has not been recognised as a liability as at 30 June 2007.
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