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Montauk Holdings Limited - Reviewed Condensed Consolidated Results For The Year Ended 31 March 2017

Release Date: 05/05/2017 14:00:00      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")


REVIEWED CONDENSED CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 MARCH 2017


Revenue              US$89.1 million
EBITDA               US$37.5 million
Profit before tax    US$15.7 million


CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION        
                                                               Reviewed       Audited
                                                               31 March      31 March
                                                                   2017          2016
                                                                  $'000         $'000
ASSETS            
Non-current assets                                              156 960       134 965 
Property, plant and equipment                                   101 330        98 438 
Other non-current financial assets                                4 185         2 235 
Intangibles                                                      23 398        32 378 
Deferred taxation                                                26 825             - 
Long-term receivables                                             1 222         1 914 
            
Current assets                                                   33 042        21 583 
Inventories                                                       1 053         1 109 
Other current financial assets                                    3 582         7 159 
Trade and other receivables                                       8 785         3 305 
Bank balances and deposits                                       19 622        10 010 
            
Disposal group assets held for sale                                 770             - 
Total assets                                                    190 772       156 548 

EQUITY AND LIABILITIES            
Equity                                                          122 729        79 253 
Equity attributable to equity holders of the parent             122 729        79 253 
            
Non-current liabilities                                          42 052        59 219 
Borrowings                                                       35 837        52 332 
Long-term provisions                                              6 215         6 871 
Other non-current financial liabilities                               -            16 
            
Current liabilities                                              25 592        18 076 
Trade and other payables                                         11 869        12 869 
Other current financial liabilities                                   8            38 
Current portion of borrowings                                    11 433         3 691 
Taxation                                                            450             1 
Provisions                                                        1 832         1 477 
            
Non-current liabilities held for sale                               399             - 
Total equity and liabilities                                    190 772       156 548 

Net asset carrying value per share (cents)                           90            59 


CONDENSED CONSOLIDATED INCOME STATEMENT                                   
                                                               Reviewed       Audited
                                                               31 March      31 March
                                                        %          2017          2016
                                                   change         $'000         $'000
Revenue                                             75.6%        89 133        50 751 
Expenses                                                        (51 667)      (41 424)
EBITDA                                             301.7%        37 466         9 327 
Other income                                                        811         9 573 
Depreciation and amortisation                                   (16 151)      (12 890)
Operating profit                                                 22 126         6 010 
Investment income                                                    37            39 
Finance costs                                                    (4 177)         (449)
Gain on bargain purchase                                              -           265 
Asset impairments                                                (2 237)       (3 545)
Profit before taxation                             578.8%        15 749         2 320 
Taxation                                                         26 376             - 
Profit for the year                                              42 125         2 320 
                
Attributable to:                
Equity holders of the parent                                     42 125         2 320 


CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME        
                                                               Reviewed       Audited
                                                               31 March      31 March
                                                                   2017          2016
                                                                  $'000         $'000
Profit for the year                                              42 125         2 320 
Other comprehensive income:            
Items that may be reclassified subsequently to profit or loss             
Foreign currency translation differences                             52          (160)
Total comprehensive income                                       42 177         2 160 
            
Attributable to:            
Equity holders of the company                                    42 177         2 160 


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                               Reviewed       Audited
                                                               31 March      31 March
                                                                   2017          2016
                                                                  $'000         $'000
Balance at the beginning of the year                             79 253        77 101 
Current operations            
Total comprehensive profit                                       42 177         2 160 
Equity-settled share-based payments                               1 299             5 
Effects of changes in holding                                         -           (13)
Balance at the end of the year                                  122 729        79 253 


RECONCILIATION OF HEADLINE EARNINGS
                                                         Reviewed year ended     Audited year ended
                                                            31 March 2017           31 March 2016
                                                        %        $'000                  $'000
                                                   change    Gross      Net        Gross      Net
Earnings attributable to equity holders                         
  of the parent                                  1 715.7%            42 125                 2 320 
Losses on disposal of plant and equipment                      103      103          189      189 
Impairment of plant and equipment                            2 237    2 237        3 545    3 545 
Third-party compensation received in respect 
  of impaired plant and equipment                             (834)    (834)      (1 140)  (1 140)
Gain on bargain purchase                                         -        -         (265)    (265)
Gain on disposal of intangible assets                         (150)    (150)      (9 573)  (9 573)
Headline profit/(loss)                             983.0%            43 481                (4 924)
                        
Basic earnings per share (cents)                        
Earnings                                         1 712.0%             31.08                  1.72 
Headline earnings                                  981.2%             32.08                 (3.64) 
                        
Weighted average number of shares in issue ('000)                   135 531               135 256 
Actual number of shares in issue at end of 
  of the year (net of treasury shares and shares 
  issued in respect of restricted stock plan) ('000)                135 940               135 256 
                        
Diluted earnings per share (cents)                        
Earnings                                         1 699.6%             30.87                  1.72 
Headline earnings                                  975.2%             31.86                 (3.64) 
                        
Weighted average number of shares in issue ('000)                   136 469               135 256 


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS                              
                                                               Reviewed       Audited
                                                               31 March      31 March
                                                                   2017          2016
                                                                  $'000         $'000
Cash flows from operating activities                             25 374        12 280 
Cash generated by operations                                     40 063         9 801 
Net finance costs                                                (3 925)         (316)
Changes in working capital                                      (10 764)        2 795 
            
Cash flows from investing activities                             (6 788)      (56 562)
Business combinations and disposals                                   -        (4 482)
Investments disposed/(acquired)                                   1 602        (8 766)
Decrease in long-term receivables                                   727           754 
Proceeds from insurance recovery                                      -         1 140 
Intangible assets             
- Additions                                                           -        (1 635)
- Disposals and refunds                                           5 693         9 869 
Property, plant and equipment            
- Additions                                                     (15 236)      (53 442)
- Disposals                                                         426             - 
            
Cash flows from financing activities                             (9 024)       38 588 
Class B shares repurchased                                            -           (13)
Debt issuance costs                                                 (32)          (40)
Net funding (repaid)/raised                                      (8 992)       38 641 
            
Increase/(decrease) in cash and cash equivalents                  9 562        (5 694)
Cash and cash equivalents             
At the beginning of the year                                     10 010        15 891 
Foreign exchange differences                                         50          (187)
At the end of the year                                           19 622        10 010 
            
Bank balances and deposits                                       19 622        10 010 


NOTES

BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the year ended 31 March 2017 have been prepared in accordance with 
International Financial Reporting Standards ("IFRS"), the disclosure requirements of 
IAS 34, the 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 condensed 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 2016. As required by the JSE Limited Listings Requirements, 
the Company reports headline earnings in accordance with Circular 2/2015: Headline 
Earnings as issued by the South African Institute of Chartered Accountants.

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

DISPOSAL GROUPS HELD FOR SALE
During the year ended 31 March 2017 the Company identified specific operating assets in 
its renewable electric generation operating portfolio to be held for sale. Those assets 
and corresponding liabilities are included in disposal groups held for sale in the 
statement of financial position.

RESULTS

CONSOLIDATED INCOME STATEMENT
Revenue from the Company's renewable natural gas facilities increased by $28.4 million 
or 64.7% for the year ended 31 March 2017 from the prior year. The Company produced 
3.9 million MMBtus in renewable natural gas volumes, an increase of 10.3% over the 
prior year. During the year ended 31 March 2017 the Company monetised 24.0 million RINs, 
a 10.0 million decrease in the number of RINs sold during the year ended 31 March 2016. 
The decrease in RINs sold were attributable to an increase in gas volumes monetised 
under fixed-price contracts. At 31 March 2017 the Company had 0.9 million RINs generated 
and unsold in inventory. Average commodity pricing for natural gas during the year ended 
31 March 2017 was 13.4% higher than the prior year. Average pricing realised on RIN 
sales during the year ended 31 March 2017 was 90.1% higher than average pricing realised 
in the prior year. For the year ended 31 March 2017 the Company monetised 44.5% of 
renewable natural gas production under fixed-price contracts. 

Revenue from the Company's electric generation facilities increased by $10.0 million 
or 138.0% for the year ended 31 March 2017 from the prior year. The Company produced 
0.3 million MWh in renewable electric volumes, an increase of 33.4% over the prior year. 
The favourable volume variance is attributable to the Q1 commencement of commercial 
operations of Bowerman Power LFG, LLC ("Bowerman"), a 20 MW electric generation facility 
in Southern California. Average commodity pricing for electricity during the year ended 
31 March 2017 was 7.3% higher than the prior year. For the year ended 31 March 2017 
the Company monetised 60.9% of renewable electric production under fixed-price contracts, 
a substantial increase over the 19.2% fixed in the previous year. The increase is 
attributable to Bowerman, which is a party to a long-term fixed-price power sales 
agreement with the City of Anaheim.

Operating expenses for the year ended 31 March 2017 increased by $10.2 million or 24.7%. 
The unfavourable variance was primarily due to royalties on increased commodity and 
attribute revenue and the Q1 commencement of commercial operations of Bowerman. The change 
in gains recognised from the Company's hedging programmes for the year ended 31 March 2017, 
as compared to the prior year, was immaterial.

The Company realised $9.9 million in the prior year on the sale of retired emission 
reduction credits ("ERCs") for its Texas-based renewable natural gas facility, which was 
included in profit on disposal of intangible assets in the comparative results and did 
not recur in the current year.

In January 2017 the Company realised $0.9 million on the sale of nitrogen oxide ("NOx") 
emission allowances for its Texas-based renewable electric generation facilities.

The Company recorded deferred tax income in the amount of $26.8 million, recorded as 
a result of the recognition of a deferred tax asset of the same amount. The Company 
has recognised this deferred tax asset as it has become probable its accumulated net 
operating losses will be utilised for set-off against future taxable income. 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND CASH FLOW
Fixed and intangible assets at 31 March 2017 include $53.9 million and $3.4 million in 
costs related to the construction of the Bowerman facility. Deferred tax assets of 
$26.8 million at 31 March 2017 relate to the Company's net operating losses that may 
be utilised for set-off against future taxable income. The Company's borrowings at 
31 March 2017 were $47.3 million, net of debt issuance costs. $9.7 million was 
outstanding on the Company's commercial bank facilities, and $38.1 million was 
outstanding on the facility to construct Bowerman. At 31 March 2016 $5.5 million 
remained outstanding on borrowings acquired in conjunction with the Leaf acquisition 
completed in June 2015. As of 31 March 2017, those borrowings acquired with the 
Leaf acquisition have been fully satisfied. Of the total Company borrowings outstanding 
at 31 March 2017 $11.5 million is currently due within the next 12 months.

Cash flow from operating activities of $25.4 million for the year ended 31 March 2017 
was $13.1 million higher from the prior year, driven by a corresponding increase in 
EBITDA. Included in cash flow from investing activities was a $4.8 million refund 
received for amounts not utilised under an agreement to construct an interconnection 
for the Bowerman facility. Included in cash flow from financing activities was the 
satisfaction of $5.5 million outstanding borrowings acquired in conjunction with the 
Leaf acquisition. As of 31 March 2017 the Company had cash on hand of $19.6 million. 
$2.4 million capacity remains under the Company's revolving credit facility. 

CHIEF EXECUTIVE OFFICER'S REPORT
At Montauk we are very proud to be a leader in the renewable energy industry - 
an industry that is at the forefront of the sustainability movement through the 
capture and beneficial use of landfill methane. Methane, with a global warming potential 
25 times greater than carbon dioxide, is a potent greenhouse gas that is a key contributor 
to global climate change.

Business overview
The business, with all its social and environmental qualities, can be difficult at 
times due to the inherent higher production costs as compared to fossil fuel-based 
energy producers. This is due primarily to the variability in the production of 
landfill methane due to factors such as climate, waste intake and waste composition 
as well as the capital-intensive process to recover and process landfill methane from 
raw landfill gas to enable it to be used as a fuel. 

The pricing of the various types of renewable energy produced by the Group is an 
ever-changing balance between the underlying energy commodity price and any associated 
environmental attribute premiums that can be realised. With electricity and natural 
gas commodity pricing in the US having been depressed for several years while still 
maintaining a relatively high degree of short-term volatility, the premiums associated 
with the various environmental attributes produced have become, and will continue to be, 
a major factor in the profitability of the business. 

In this market our focus will continue to be to position the Company and its facilities 
to capitalise on and leverage the opportunities that develop in the renewable energy
markets. The evolving regulatory environment mandating the use of renewable fuels 
can lead to opportunities that allow existing projects to capture additional premiums 
as they become available. To that end the Company has made the decision to remain 
flexible in its offtake contract strategy with the goal of capturing and maximising 
value from these programmes.

Environmental attribute programmes
Renewable natural gas ("RNG") derived from landfill methane used as a vehicle fuel 
qualify as a cellulosic Renewable Identification Number ("RIN") under the United States 
Environmental Protection Agency's ("EPA") Renewable Fuel Standard ("RFS II") programme. 
As a result, the Company participates in the programme and looks for opportunities to 
increase its participation in the RFS II programme as production from RNG facilities 
becomes available. While the programme allows for RNG produced anywhere in the US to 
qualify and potentially offer premiums significantly in excess of commodity prices for 
natural gas, uncertainty as to how the RFS II programme will be administered and 
supported by the Trump Administration has impacted the stabilisation of the RIN market, 
resulting in price volatility and limited ability to sell RINs on a forward basis. 
Although the market remains relatively illiquid, the Company has been able to 
successfully monetise blocks of cellulosic RINs at pricing levels commensurate with 
general market conditions.

On 23 November 2016 the EPA released the final volume obligations for 2017 of 
311 million gallons for cellulosic D3 RINs, representing a 35% increase over the 
2016 volume obligations for cellulosic D3 RINs. The 2017 mandate represents another 
step in the right direction towards developing a more mature market for RINs. 
The proposed volume obligations for 2018 are expected to be issued by the EPA in 
May/June of 2017. Once issued, the EPA will solicit comments from industry participants 
(including Montauk) on the volumes which it intends to use in finalising the 2018 volume 
obligations by 30 November 2017 to accurately reflect actual production while promoting 
the growth of cellulosic biofuels. Montauk has taken an active role in the process by 
providing comments both individually and collectively through various renewable energy 
organisations to assist the EPA in setting obligations that meet the projected 
production for the industry. We anticipate that the EPA will continue to set timely 
annual volume obligations that are sufficient to accommodate market participants.

The environmental premiums associated with renewable energy produced by Montauk's 
electric facilities are centred on various state renewable portfolio standards requiring 
that a stated percentage of the electricity produced in that state comes from a renewable 
resource. The value and requirements for each state programme vary widely, which can 
limit the ability of similar facilities located in different states from having a 
similar pricing structure. 

Development activities
In October 2016 the Company entered into an agreement with one of its existing landfill 
counterparties that provides the option to build, own and operate a renewable natural 
gas facility for a term of 20 years from commercial operation. Revenues from this 
facility are subject to a royalty owing to the landfill owner as well as certain EPA 
pathway compliance costs. Upon commercial operation this new facility will have the 
capacity to produce approximately 1.5 million MMBtus of renewable natural gas per year. 
Commercial operations of the RNG project is targeted to commence early in the 
2019 financial year and will replace the existing electric facility that utilises a 
portion of these gas volumes to produce power sold at market-rate commodity prices.

Summary
In an industry that continues to experience depressed energy commodity pricing, 
management believes that Montauk is well positioned to capture both existing and 
emerging value from developing renewable energy markets in order to drive long-term 
entity value for its shareholders. 

AUDITOR'S REVIEW
These condensed consolidated financial statements for the year ended 31 March 2017 have 
been reviewed by Grant Thornton Johannesburg, who expressed an unmodified review conclusion. 
A copy of the auditor's review report is available for inspection at the Company's 
registered office together with the financial statements identified in the auditor's report.

The auditor's report does not necessarily report on all of the information contained in 
this announcement/financial results. Shareholders are therefore advised that in order 
to obtain a full understanding of the nature of the auditor's engagement they should 
obtain a copy of the auditor's report together with the accompanying financial information 
from the issuer's registered office.

CHANGES IN DIRECTORATE
Mr ML Ryan was appointed as executive director and chief executive officer on 27 May 2016. 
Mr DR Herrman resigned as executive director and chief executive officer with effect 
from 10 June 2016. 

DIVIDEND TO SHAREHOLDERS
The directors of Montauk have resolved to declare a final ordinary dividend number 1 of 
39.5 South African cents (gross) per Montauk share for the year ended 31 March 2017 
from income reserves. The salient dates for the payment of the dividend are as follows:

Last day to trade cum dividend                                   Tuesday, 23 May 2017
Commence trading ex dividend                                   Wednesday, 24 May 2017
Record date                                                       Friday, 26 May 2017
Payment date                                                      Monday, 29 May 2017

No share certificates may be dematerialised or rematerialised between Wednesday, 
24 May 2017 and Friday, 26 May 2017, both dates inclusive.

In terms of legislation applicable to dividends tax ("DT") the following additional 
information is disclosed:

- The local DT rate is 20%.
- The number of ordinary shares in issue at the date of this declaration is 137 879 234.
- The DT amounts to 7.9 South African cents per share.
- The net local dividend amount is 31.6 South African cents per share for all 
  shareholders who are not exempt from the DT.
- Montauk Holdings Limited's income tax reference number is 9176/170/18/2.

In terms of the DT legislation any DT amount due will be withheld and paid over to the 
South African Revenue Service by a nominee company, stockbroker or Central Securities 
Depository Participant (collectively "regulated intermediary") on behalf of shareholders. 
All shareholders should declare their status to their regulated intermediary as they 
may qualify for a reduced DT rate or exemption.


For and on behalf of the board of directors

JA Copelyn           ML Ryan                         SF McClain
Chairman             Chief executive officer         Chief financial officer

5 May 2017
Cape Town



Directors: JA Copelyn (Chairman)*, ML Ryan (Chief Executive Officer)#, 
SF McClain (Chief Financial Officer)#, MH Ahmed**, MA Jacobson*##, NB Jappie**, 
BS Raynor**#, A van der Veen* 
* Non-executive;  ** Independent;  # United States of America;  ## Australia

Company secretary: HCI Managerial Services Proprietary Limited

Registered office: 5th Floor, 4 Stirling Street, Zonnebloem, Cape Town, 7925 
Postal address: PO Box 5251, Cape Town, 8000

Transfer secretaries: Computershare Investor Services Proprietary Limited 
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196. PO Box 61051, Marshalltown, 2107

Sponsor: Investec Bank Limited
www.montauk.co.za




Date: 05/05/2017 02:00:00 Supplied by www.sharenet.co.za                     
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