Montauk Holdings Limited - Reviewed Condensed Consolidated Results For The Year Ended 31 March 2017Release 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
("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
31 March 31 March
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
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
Equity holders of the parent 42 125 2 320
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
31 March 31 March
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
Equity holders of the company 42 177 2 160
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
31 March 31 March
Balance at the beginning of the year 79 253 77 101
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
31 March 31 March
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
- 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
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.
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.
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.
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.
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.
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
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
Date: 05/05/2017 02:00:00 Supplied by www.sharenet.co.za
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