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Unaudited condensed consolidated interim results for the six months ended 30 September 2015
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 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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