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Montauk Holdings Limited - Unaudited Condensed Consolidated Interim Results For The Six Months Ended 30 September 2015

Release Date: 03/11/2015 10:20:00      Code(s): MNK     
MONTAUK HOLDINGS LIMITED
Incorporated in the Republic of South Africa
Registration number: 2010/017811/06
Share code: MNK
ISIN: ZAE000197455
("Montauk" or "the Company" or "the Group")


UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS 
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2015


CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                Unaudited     Unaudited       Audited
                                             30 September  30 September      31 March
                                                     2015          2014          2015
                                                    $'000         $'000         $'000
ASSETS
Non-current assets                                122 390        75 940        81 360
Property, plant and equipment                      86 296        46 129        45 332
Intangibles                                        33 336        27 144        32 427 
Long-term receivables                               2 758         2 667         3 601 

Current assets                                     13 854        16 762        20 044 
Other                                               7 430         6 701         4 153 
Bank balances and deposits                          6 424        10 061        15 891 
Non-current assets held for sale                        -       125 677             - 
Total assets                                      136 244       218 379       101 404 

EQUITY AND LIABILITIES
Equity                                             82 417       151 243        77 101 
Equity attributable to equity 
  holders of the parent                            82 417       124 347        77 101 
Non-controlling interest                                -        26 896             - 

Non-current liabilities                            44 766         6 374        17 235 
Long-term borrowings                               36 549             -        10 603 
Other                                               8 217         6 374         6 632 

Current liabilities                                 9 061        55 197         7 068 
Non-current liabilities held for sale                   -         5 565             - 
Total equity and liabilities                      136 244       218 379       101 404
 
Net asset carrying value per share (cents)             61            92            57


CONDENSED CONSOLIDATED INCOME STATEMENT
                                                              Unaudited     Unaudited         
                                                           30 September  30 September
                                                        %          2015          2014
                                                   change         $'000         $'000
Revenue                                             11.8%        17 310        15 478 
Expenses                                                        (14 890)      (13 643)
EBITDA                                              31.9%         2 420         1 835 
Other income                                                      9 573             - 
Depreciation and amortisation                                    (6 363)       (5 602)
Operating profit/(loss)                                           5 630        (3 767)
Investment income                                                    24             -
Finance costs                                                      (232)          (22)
Profit/(loss) before taxation                      243.1%         5 422        (3 789)
Taxation                                                              -             -
Profit/(loss) for the period from 
  continuing operations                                           5 422        (3 789)
Discontinued operations                                               -         6 662
Profit for the period                                             5 422         2 873

Attributable to:
Equity holders of the parent                                      5 422         3 376
Non-controlling interest                                              -          (503)
                                                                  5 422         2 873


CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
                                                              Unaudited     Unaudited
                                                           30 September  30 September
                                                                   2015          2014
                                                                  $'000         $'000
Profit for the period                                             5 422         2 873
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences                           (106)       (1 685)
Total comprehensive income                                        5 316         1 188

Attributable to:
Equity holders of the parent                                      5 316         1 785
Non-controlling interest                                              -          (597)
                                                                  5 316         1 188


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                              Unaudited     Unaudited
                                                           30 September  30 September
                                                                   2015          2014
                                                                  $'000         $'000
Balance at the beginning of the period                           77 101       145 522
Current operations
Total comprehensive income                                        5 316         1 188
Disposal of subsidiaries                                              -         4 533
Balance at the end of the period                                 82 417       151 243


RECONCILIATION OF HEADLINE EARNINGS
                                                  Unaudited              Unaudited
                                               six months ended       six months ended
                                              30 September 2015      30 September 2014
                                       %             $'000                  $'000
                                  change        Gross      Net         Gross      Net
Earnings attributable to 
  equity holders of the parent      60.6                 5 422                  3 376

IAS 16 losses on disposal 
  of plant and equipment                          296      296             -        -
IAS 38 gains on disposal 
  of intangible assets                         (9 869)  (9 869)                      
IAS 27 profit from disposal/ 
  part disposal of subsidiary                       -        -        (7 434)  (7 434)
Headline loss                       (2.3)               (4 151)                (4 058)

Basic earnings per share (cents)
Earnings                            60.6                  4.01                   2.50
Continuing operations                                     4.01                  (2.43)
Discontinued operations                                      -                   4.93

Headline earnings per 
  share (cents)                     (2.3)                (3.07)                 (3.00)
Continuing operations                                    (3.07)                 (2.43)
Discontinued operations                                      -                  (0.57)

Weighted average number of shares in issue ('000)      135 256                135 256
Actual number of share in issue at the end of the 
period (net of treasury shares) ('000)                 135 256                135 256


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 
                                                              Unaudited     Unaudited
                                                           30 September  30 September
                                                                   2015          2014
                                                                  $'000         $'000
Cash flows from operating activities                              1 466        (2 524)
Cash flows from investing activities                            (31 965)      (11 288)
Cash flows from financing activities                             21 145        18 647
(Decrease)/increase in cash and cash equivalents                 (9 354)        4 835
Cash and cash equivalents
At the beginning of the period                                   15 891        48 845
Foreign exchange differences                                       (113)       (1 443)
At the end of the period                                          6 424        52 237

Cash in disposal groups held for sale                                 -        42 175
Bank balances and deposits                                        6 424        10 062
Cash and cash equivalents                                         6 424        52 237


SEGMENTAL ANALYSIS
                                                              Unaudited     Unaudited
                                                           30 September  30 September
                                                                   2015          2014
                                                                  $'000         $'000
Revenue
  Natural gas                                                    17 310        15 478
  Total                                                          17 310        15 478

EBITDA
  Natural gas                                                     2 420         1 835
  Total loss                                                      2 420         1 835

Profit before tax
  Natural gas                                                     5 422        (3 789)
  Total                                                           5 422        (3 789)

Headline earnings
  Media and broadcasting                                              -            30
  Natural gas                                                    (4 151)       (3 789)
  Other                                                               -          (299)
  Total                                                          (4 151)       (4 058)


NOTES

BASIS OF PREPARATION AND ACCOUNTING POLICIES

The results for the six months ended 30 September 2015 have been prepared in accordance 
with International Financial Reporting Standards ("IFRS"), the disclosure requirements 
of IAS 34, the South African Institute of Chartered Accountants ("SAICA") Financial 
Reporting Guides as issued by the Accounting Practices Committee, the requirements of 
the South African Companies Act, 2008, and the Listings Requirements of the JSE Limited. 
The accounting policies applied by the Company in the preparation of these consolidated 
financial statements are consistent with those applied by the Company in its consolidated 
financial statements as at and for the year ended 31 March 2015. As required by the JSE 
Limited Listings Requirements, the Company reports headline earnings in accordance with 
Circular 2/2013: Headline Earnings as issued by the SAICA.

These financial statements were prepared under the supervision of the chief financial 
officer, Mr SF McClain (CPA).

DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE IN THE PRIOR COMPARATIVE PERIODS

During the year ended 31 March 2015 the Company disposed of its 80% interest in 
Longkloof Limited and its 100% interest in Deepkloof Limited prior to the Company being 
unbundled to shareholders by its previous holding company, Hosken Consolidated 
Investments Limited. The results of these operations were included in discontinued 
operations in the income statement and their assets and liabilities included in disposal 
groups held for sale in the statement of financial position in the prior comparative 
periods where applicable.

BUSINESS COMBINATIONS

Acquisition of Leaf LFG US Investments, Inc. 
On 25 June 2015 the Company completed the acquisition of 100% of Leaf LFG US 
Investments, Inc. ("Leaf"), which comprises three additional renewable natural gas 
facilities located in Southwestern Pennsylvania, for $4.5 million in cash. 
The acquisition increases the Company's annual renewable natural gas production by 
approximately 700 000 MMBtus. 

The assets and liabilities acquired are as follows:
                                                                  $'000
Non-current assets                                               13 376
Current assets                                                      142
Non-current liabilities                                          (6 246)
Current liabilities                                              (2 790)
Net assets acquired                                               4 482
Net cash outflow on acquisition                                   4 482

As of 30 September 2015 the accounting for this acquisition is provisional and is 
subject to fair value adjustments once finalised. 

The results of operations of the acquired facilities are included in the Company's 
consolidated results from the date of acquisition. Revenues of $1.7 million and 
operating losses of $0.1 million related to the acquisition are included in the 
consolidated income statement for the six months ended 30 September 2015. Had the 
acquisition occurred on the first day of the financial reporting period, $3.4 million 
in revenues and $0.3 million in operating losses would have been included in the 
consolidated income statement.

RESULTS

GROUP INCOME STATEMENT
Revenue from the Company's renewable natural gas facilities increased by $3.4 million 
or 34% for the six months ended 30 September 2015 from the prior period. Excluding 
revenue from the Leaf acquisition, revenues from gas facilities increased by 
$1.7 million, or 17% over the prior period. The increase is primarily the result of the 
monetisation of a portion of the cellulosic renewable identification numbers ("RINs") 
generated in fiscal 2015 and 2016 from the Company's renewable natural gas facilities 
participating in the US Environmental Protection Agency's ("EPA") Renewable Fuel 
Standard II programme. The Company continues to selectively monetise the RINs generated 
in fiscal 2016 while awaiting the EPA's pending finalisation of the volume obligations 
for 2014, 2015 and 2016. At 30 September 2015 the Company had 13.3 million RINs 
generated and unsold in inventory. Excluding the Leaf acquisition, renewable natural 
gas production increased by 5% while the average commodity index price received for the 
energy component of the renewable natural gas produced decreased by 38% for the six 
months ended 30 September 2015 from the prior period. 

Revenue from the Company's electric generation facilities decreased by $1.7 million, or 
30%, for the six months ended 30 September 2015 from the prior period. The primary 
driver of the revenue decrease is a 37% decrease in the average price realised on the 
Company's electric production. The majority of the electric generation facilities 
continue to be subject to index-based commodity pricing until market conditions provide 
a longer-term, fixed-price alternative. Renewable electric generation also decreased by 
6% for the six months ended 30 September 2015 from the prior period, due to wellfield 
conditions at the Company's New Jersey facility.

Operating expenses for the six months ended 30 September 2015, excluding the impacts 
of the Leaf acquisition, decreased by $1.3 million, or 12%, due to timing of scheduled 
maintenance events. Gains recognised from the Company's hedging programmes decreased 
by $0.6 million for the six months ended 30 September 2015, as compared to the prior 
period, due to the timing of changes experienced in natural gas and electric pricing 
in the US.

In May 2015 the Company realised $9.9 million on the sale of retired emission reduction 
credits ("ERCs") for its Texas-based renewable natural gas facility, as a result of the 
installation of pollution control equipment that permanently reduced the emissions 
profile of the facility.

GROUP STATEMENT OF FINANCIAL POSITION AND CASH FLOW
Fixed and intangible assets at 30 September 2015 include $32 million and $1 million in 
costs related to the construction of the 20 Megawatt electric generation facility in 
Southern California, respectively.

The Company's borrowings at 30 September 2015 were approximately $39 million. Of this 
amount, $11.2 million was outstanding on the Company's commercial bank facilities, and 
$22 million was drawn against the $41 million facility available for the construction 
of the 20 Megawatt electric generation facility in Southern California. Leaf had 
borrowings of $6 million at the time of acquisition. This balance remained outstanding 
as at 30 September 2015. Of the $39 million borrowings outstanding at 30 September 2015, 
approximately $2.7 million is currently due within the next 12 months.

Cash flow from operating activities of $1.5 million for the six months ended 
30 September 2015 was approximately $1 million higher from the prior period, excluding 
discontinued operations. This was driven by a corresponding increase in EBITDA. 
Included in cash flow from investing activities was $34.4 million in expenditure 
related to the Bowerman project and $4.5 million for the Leaf acquisition. Also 
included in cash flow from investing activities was the receipt of $9.9 million 
related to the one-time sale of ERCs. Cash flow from financing activities included 
$22 million in draws related to the Bowerman construction.

As of 30 September 2015 the Company had cash on hand of $6.4 million. Approximately 
$0.9 million capacity remains under the Company's revolving credit facility. 


COMMENTARY

ENERGY COMMODITY PRICING
The Company's performance is heavily influenced by natural gas pricing for both its 
renewable natural gas facilities and its electric generation facilities that rely on 
index-based pricing for the energy commodity. As previously noted, natural gas pricing 
has experienced a 38% decline over the same period in the prior year with similar 
pricing declines having been experienced at our electric generation facilities utilising 
index-based pricing. Energy commodity prices continue to be pressured by current near 
record storage levels of natural gas as we approach the end of the storage injection 
season which generally lasts from early April through early November. The record high 
levels have been driven by increased production from shale gas regions being brought 
to market. These have outpaced increases in demand for electric generation as a result 
of coal to gas switching that has occurred due to the low natural gas pricing. 
The pricing declines have had a significant impact on the Company's results and any 
short-term price recovery that may occur would depend on the supply balance as we go 
through the upcoming winter storage withdrawal season through higher demand for natural 
gas and natural gas-fuelled electric generation. Longer-term price recovery would depend 
on increased demand from sources such as continued coal to gas switching for electric 
generation and the possibility of exporting of liquefied natural gas to off-set shale 
gas production. We continue to evaluate the impact of current and future natural gas 
pricing as well as available environmental attributes on our portfolio in determining 
our strategy for the overall Company and individual locations.

RENEWABLE FUEL STANDARD (RFS II)
The overall market for cellulosic RINs remains generally illiquid as the final volume 
obligations for 2014, 2015 and 2016 are not expected to be released by the EPA until 
the end of November 2015. The Company has been able to selectively monetise blocks of 
cellulosic RINs on a periodic basis at pricing levels commensurate with general market 
conditions and will continue to do so until there is sufficient liquidity in the market 
that would lead to more ratable sales transactions occurring and the ultimate 
establishment of a market index price for cellulosic RINs. Current pricing for the 
cellulosic RINs is referenced as the price for the advanced RIN plus up to 100% of the 
published cellulosic waiver credit price for that vintage of RIN as the cellulosic RIN 
satisfies the compliance obligations for both categories. The ultimate percentage of the 
cellulosic waiver credit price realised and the overall market liquidity will be 
dependent on the volume obligations set by EPA being both timely and sufficient to 
accommodate the actual production levels on an annual basis. 

DEVELOPMENT ACTIVITIES
The Company is progressing on the construction of its 20 Megawatt electric generation 
facility in Southern California. The project is on schedule to be completed and begin 
commercial operations in the fourth quarter of fiscal 2016. The Company has contracted 
with a large municipality in Southern California for the electricity and associated 
environmental attributes produced under a 20-year fixed price power purchase agreement. 

CHANGES IN DIRECTORATE

There were no changes in directorate during the period under review.

DIVIDEND TO SHAREHOLDERS

The directors have resolved not to declare a final dividend. 

For and on behalf of the board of directors 
JA Copelyn                   DR Herrman                   SF McClain
Chairman                     Chief Executive Officer      Chief Financial Officer

Cape Town 
3 November 2015


Directors: JA Copelyn (Chairman)*, DR Herrman (Chief Executive Officer)#; 
           SF McClain (Chief Financial Officer)#, MH Ahmed*; MA Jacobson*##; 
           NB Jappie*; BS Raynor*#; A van der Veen* 
           * Non-Executive;   # United States of America;   ## Australia
Company secretary: HCI Managerial Services Proprietary Limited
Registered office: Suite 801, 76 Regent Road, Sea Point, Cape Town, 8005
                   PO Box 5251, Cape Town, 8000
Transfer secretaries: Computershare Investor Services Proprietary Limited
                      70 Marshall Street, Johannesburg, 2001 
                      PO Box 61051, Marshalltown, 2107
Sponsor: Investec Bank Limited
www.montauk.co.za

Date: 03/11/2015 10:20:00 Supplied by www.sharenet.co.za                     
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