25 Aug 2009
• Revenues up 21% to $247.5 million
• EBITDA (before specific items) up 21% to $118.5 million
• Final dividend up 1 cps to 7 cps
• RET legislation passed by Senate on 20 August provides partial transitional assistance for proposed CPRS legislation
• 45 MW Moranbah North WCMG project commissioned
International clean energy company Energy Developments Limited (ASX: ENE or the “Company”) today announced earnings before interest, tax, depreciation and amortisation and specific items (Underlying EBITDA) of $118.5 million for financial year ended 30 June 2009, up 21% on FY08.
This strong improvement in underlying EBITDA was achieved on revenues of $247.5 million (2008: $204.2 million) reflecting the continued profitable growth of the Company’s businesses.
The Board has declared an unfranked final dividend of 7 cents per share (2008: 6 cps), taking the full year dividend up 20% to 12 cps (2008: 10 cps). The dividend will be paid on 2 October 2009 to shareholders on the register at 11 September 2009. The dividend will be wholly sourced from Conduit Foreign Income. The Company’s dividend reinvestment plan will apply to the final dividend, with a 2.5% discount factor.
The net profit after tax (before specific items) was $18.8 million, up 4% on the prior year reflecting contributions from the West Kimberley Power Project (WKPP) completed in June 2008, the 45MW Moranbah North Waste Coal Mines Gas (WCMG) project commissioned in October 2008 and Landfill Gas (LFG) expansions in Europe.
Specific items of $15.1 million (loss) after tax (2008: $3.3 million profit after tax) comprised Strategic Review costs ($10.4 million) which commenced in July 2008, NGAC inventory impairment provisions ($5.2 million), and additional WKPP gas costs associated with the June 2008 Apache Varanus Island incident ($1.0 million). These losses were partially offset by the recognition of the remaining $1.5 million profit on the sale of the King County landfill gas rights sold in 2007.
Managing Director, Greg Pritchard, said: “It is pleasing to report a strong underlying operating performance in line with expectations, despite the uncertainties created by the Global Financial Crisis as well as the management time and costs devoted to the Strategic Review and ongoing corporate activities.
“Cost reduction initiatives adopted in early 2008 largely shielded operating results from the material decline in NGAC prices/revenue which occurred during the year and our new projects such as Moranbah North are delivering well,” Mr Pritchard said.
Further analysis of the Company’s 2009 financial results by region is set out in the attachment to this release.
Strategic Review/Corporate Activities
In July 2008, ENE embarked upon a strategic review to evaluate options to maximise value for all of the Company’s shareholders. The review considered various options including the sale of the Company as a whole and the separate sale of the Company’s UK/Europe and/or United States LFG power generation assets.
In December 2008, ENE announced that despite positive expressions of interest received in September for the purchase of the Company and/or its various businesses in the UK/Europe and the US, the Global Financial Crisis prevented interested parties from making binding offers for ENE as a whole.
In June 2009, the Company received a non-binding, incomplete and conditional proposal from the private equity firm Archer Capital (“Archer”), to acquire 100% of ENE at an indicative price range of $2.40 to $2.80 per share.
In July 2009, following discussions with ENE, Archer revised its indicative price to $2.80 per share. After consultation with ENE’s major shareholders, the Company agreed to invite Archer and other interested parties into the first phase of due diligence.
As advised to the ASX on 21 August the Company ceased discussions with Archer. The Company also advised that it is in ongoing discussions with another party in relation to a potential transaction for 100% of ENE. However, there is no assurance that these discussions will result in an offer that is capable of being put to shareholders for consideration.
ENE continues to advance discussions with an international infrastructure specialist fund manager in relation to the potential divestment of the UK and French landfill gas power generation assets. There can be no assurances the Company will reach agreement on terms acceptable to the Board.
Mr Pritchard noted the ongoing level of corporate activity made earnings guidance for FY10 difficult to predict. However, on a ‘business as usual basis’, the Company expects underlying FY10 EBITDA to be in the range of $135 - $145 million.
This guidance reflects:
• A full year contribution from the 45MW Moranbah North WCMG project completed during the year;
• Revenue/profit uplift from the Company’s UK LFG business following the replacement of PPAs at certain LFG sites; and
• A forecast spot NGAC price of $5.00 and a spot REC price of $40.00.
The Company’s installed operating capacity at 30 June 2009 was 600MW.
Following the positive regulatory developments with the Renewable Energy Target (RET) legislation in Australia last week, ENE is well placed to fast track a number of significant incremental growth opportunities across its international portfolio either from the expansion of existing projects or utilisation of existing infrastructure. These opportunities include:
• Enhancing the value of WKPP through incremental projects leveraging existing core infrastructure and contracts;
• Enhancing the value of existing projects through contract extensions;
• Exploiting the embedded value of existing projects for network support and peaking generation; and
• Expansion of existing sites and gas reserves especially in the United States following confirmation of the success of the Lorain gas conditioning system and the potentially improved regulatory environment in the US as well as Australia.
“As the largest and most experienced abater of waste methane in Australia, ENE will work to identify and implement further initiatives to apply waste methane abatement and other technologies to reduce customers’ potential emissions liabilities,” Mr Pritchard said.
“ENE has also been a pioneer in developing LNG and CNG energy solutions for generation and on road transport, to deliver lower energy costs and carbon emissions. This experience means ENE is now well positioned to benefit from the continued trend to replacing imported diesel with domestic natural gas for both stationary power generation and transport applications” Mr Pritchard said.
Cash and Financing
Cash on hand at 30 June 2009 was $64.8 million (30 June 2008 $90.2 million) while undrawn lines totalled $75.1 million with the reduction in cash largely reflecting the repayment of debt.
Net debt was $431.1 million in line with 30 June 2008 reflecting debt funding of the Moranbah North CMM project during the period less the repayment of debt from operating revenues. Gearing (net debt/net debt plus equity) increased to 60% (30 June 2008: 58%), while cash interest cover declined slightly to 3.2 times (2008: 3.7 times).
Mr Pritchard noted that, on a business as usual basis, ENE does not have a material debt facility rollover due until June 2013.
Proposed CPRS Scheme/ International Developments in Green Credits/Emission Trading
Over the past year, ENE captured and utilised greenhouse gases estimated at 9.7 million tonnes of carbon dioxide equivalent from its LFG and CMM projects around the world, equivalent to removing 2.8 million cars from the road.
Mr Pritchard said the Company remains involved in extensive discussions with the Federal Government, the Coalition, minor parties and Independents as well as State Governments in relation to the potential impact of both the RET and the proposed Carbon Pollution Reduction Scheme (CPRS) legislation.
The Company welcomed passage of the RET legislation (the RET Bill) by the Senate on 20 August 2009, subject to Royal Assent. The RET Bill provides important transitional assistance for the WCMG power sector through the inclusion of certain eligible WCMG projects in the RET.
Promulgation of the RET Bill will largely restore the financial fundamentals of the Company’s 32MW German Creek and 45MW Moranbah North WCMG projects to the position prior to the former Federal Government’s commitment in June 2007, to introduce a national emissions trading regime.
Subject to the passing of related regulations, eligible WCMG projects will be able to create and sell renewable energy certificates (“RECs”) for each megawatt hour of power generation from 1 July 2011, up to a specified GWh per annum cap until 2020. ENE’s qualifying projects are expected to generate in excess of 500,000 MWh in the first full year of coverage under the RET, being the year ending 30 June 2012.
Further details of the Bill are contained in the Company’s ASX release dated 21 August 2009.
“Passage of the RET Bill was a positive and valuable first step in securing the commercial viability of our carbon abatement operations as carbon emissions legislation is developed. We will continue to actively participate in the development of mechanisms and policies to address the critical issue of global climate change and the expansion of renewable energy around the world,” Mr Pritchard said.
“In addition to further discussions with all parties in Australia regarding the RET Bill and the CPRS legislation, ENE is closely monitoring the passage of the Waxman Markey Bill in the United States which when passed, should provide substantial impetus to the Company’s existing growth options in its US LFG business,” he said.
Australian operating EDITDA increased by 21% to $84.6 million largely reflecting the full year contribution from WKPP ($16.8 million: 2008 $0.8 million) and the Moranbah North Power CMM Project ($4.9 million). This was partially offset by a fall in realised NGAC prices of $5.9 million. EBIT increased 21% to $42.5 million and included higher depreciation charges associated with the WKPP.
On a like for like basis (excluding the contribution from WKPP and Moranbah North), EBITDA decreased 8% to $63.0 million primarily as a result of lower realised NGAC prices. Cost initiatives implemented across all aspects of the business partially offset this negative impact.
The Moranbah North WCMG project reached full production in May 2009 on the back of increasing gas flows from the mine.
Mr Pritchard noted: “The Moranbah North WCMG project was an excellent test of the Company’s revised project delivery strategy with the project commissioned ahead of budget and schedule”.
“With the first year of operation from WKPP completed, the project is bringing high quality, reliable power to the West Kimberley region utilising local gas supplies and thereby replacing expensive imported diesel fuel.
“We are now focused on implementing efficiency improvements and development strategies to grow the returns from this business,” Mr Pritchard said.
UK / Europe
The Company’s United Kingdom (UK) business continued its strong trend of profit growth with EDITDA up 18% to $28.4 million and EBIT up 24% to $22.2 million. The result was achieved despite an adverse movement in the exchange rate that reduced EBITDA by $0.9 million.
The Company’s 50% share of pro forma EBITDA from associates (joint ventures in France and Greece) was up 35% to $11.6 million. The improved result was driven by improved operating performance in Greece and by the expansions in France.
Mr Pritchard said: “The increased UK profit growth reflects the quality of our underlying business which is expected to continue in the current year. We expect increased dividends/distributions from our European Joint Ventures in the coming year with the benefit of recently completed projects following through.”
The Company’s US LFG business achieved an EBITDA of $1.7 million during the period (2008: $1.1 million) with the operating results again impacted by Deutz engine reliability and ongoing support issues and the predominance of low priced PPAs, some of which expire in 2011.
The new gas conditioning system at the Company’s 10MW Lorain LFG project in Ohio was completed on time in late 2008 and has exceeded all performance criteria, resulting in improved engine performance, generation and lower operating costs.
The Company is examining the rollout of the gas conditioning systems to other sites.
The Company has significant contracted LFG reserves which offer considerable current expansion potential of up to 40MW subject to higher power pricing, implementation of gas conditioning and planning and permitting,” Mr Pritchard said.
“The capital subsidies and revenue support for eligible renewable energy projects available under the American Recovery and Reinvestments Tax Act of 2009 (Stimulus Bill) are expected to be available to assist development of these opportunities,” Mr Pritchard said.
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