TIDMWIND
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 +44 (0)1483 901
David Crockford, Finance Director 790
Smith & Williamson Corporate Finance Limited
(Nominated Adviser) +44 (0)117 376
Martyn Fraser 2213
Cenkos (Corporate Broker) +44 (0)20 7397
Bobbie Hilliam/Max Hartley 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 GBP53.8
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 GBP12.8
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 GBP0.4 million;
-- the Board cancelled the GBP30 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 GBP1.3 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 GBP64.5
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 GBP12.0m (2014: GBP11.6m), with gross
profits increasing to GBP4.4m (2014: GBP4.1m). Profits on the sale
of subsidiaries, representing the sale of 3 wind farms totalled
GBP15.4m (2014: GBP9.5m).
Our central administration costs were GBP1.8m (2014: GBP1.9m).
Exceptional administrative costs of GBP0.3m (2014 - GBPnil)
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
GBP4.1m (2014: GBP3.4m). Bio-Power administration fell slightly to
GBP0.6m (2014: GBP0.8m).
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 GBP12.8m (2014: GBP1.9m).
(MORE TO FOLLOW) Dow Jones Newswires
December 02, 2015 02:00 ET (07:00 GMT)
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 GBP1.9m (2014: GBPnil).
The sale of various assets resulted in an overall increase in
cash resources to the Group with unrestricted cash at the year end
of GBP19.2m (2014: GBP11.0m) with restricted cash held as security
against project finance debt and construction letters of credit of
GBP2.7m (2014: GBP2.7m).
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.
o 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.
o 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.
o Continued reductions to the small scale wind feed in tariff,
again impacting the options open to the Group for alternative
routes to market.
o 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.
o 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.
o 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
GBP000 GBP000
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 (303) -
expenses
------------------------------------ --------- --------
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:
Equity holders of the parent (5,257) 3,879
Non-controlling interests - -
(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
GBP000 GBP000
(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 GBP000 GBP000
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
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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 Share-based Non-
Share premium Own payment Retained Hedging controlling Total
capital account shares reserve earnings reserve interest Equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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
GBP000 GBP000
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 (GBP) 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.
(MORE TO FOLLOW) Dow Jones Newswires
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